G.R. No. 182128, February 19, 2014 - PHILIPPINE NATIONAL BANK, Petitioner, v.

TERESITA TAN DEE, ANTIPOLO

PROPERTIES, INC., (NOW PRIME EAST PROPERTIES, INC.) AND AFPRSBS, INC., Respondents.

FIRST DIVISION

G.R. No. 182128, February 19, 2014

PHILIPPINE NATIONAL BANK, Petitioner, v. TERESITA TAN DEE, ANTIPOLO PROPERTIES, INC., (NOW PRIME
EAST PROPERTIES, INC.) AND AFPRSBS, INC., Respondents.

DECISION

REYES, J.:

This is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the Decision2 dated August 13, 2007 and
Resolution3 dated March 13, 2008 rendered by the Court of Appeals (CA) in CAG.R. SP No. 86033, which affirmed the
Decision4 dated August 4, 2004 of the Office of the President (OP) in O.P. Case No. 04D182 (HLURB Case No. REMA
0307240186).

Facts of the Case

Some time in July 1994, respondent Teresita Tan Dee (Dee) bought from respondent Prime East Properties Inc.5 (PEPI) on an
installment basis a residential lot located in Binangonan, Rizal, with an area of 204 square meters6 and covered by Transfer
Certificate of Title (TCT) No. 619608. Subsequently, PEPI assigned its rights over a 213,093sq m property on August 1996
to respondent Armed Forces of the PhilippinesRetirement and Separation Benefits System, Inc. (AFPRSBS), which included
the property purchased by Dee.

Thereafter, or on September 10, 1996, PEPI obtained a P205,000,000.00 loan from petitioner Philippine National Bank
(petitioner), secured by a mortgage over several properties, including Dees property. The mortgage was cleared by the
Housing and Land Use Regulatory Board (HLURB) on September 18, 1996.7 cralaw red

After Dees full payment of the purchase price, a deed of sale was executed by respondents PEPI and AFPRSBS on July 1998
in Dees favor. Consequently, Dee sought from the petitioner the delivery of the owners duplicate title over the property, to
no avail. Thus, she filed with the HLURB a complaint for specific performance to compel delivery of TCT No. 619608 by the
petitioner, PEPI and AFPRSBS, among others. In its Decision8 dated May 21, 2003, the HLURB ruled in favor of Dee and
disposed as follows:c hanRoblesv irtual Lawlib rary

WHEREFORE, premises considered, judgment is hereby rendered as follows: chan roble svirtual lawlib rary

1. Directing [the petitioner] to cancel/release the mortgage on Lot 12, Block 21A, Village East Executive Homes
covered by Transfer Certificate of Title No. 619608 (TCT No. 619608), and accordingly, surrender/release the
title thereof to [Dee];

2. Immediately upon receipt by [Dee] of the owners duplicate of Transfer Certificate of Title No. 619608 (TCT No.
619608), respondents PEPI and AFPRSBS are hereby ordered to deliver the title of the subject lot in the name of
[Dee] free from all liens and encumbrances;

3. Directing respondents PEPI and AFPRSBS to pay [the petitioner] the redemption value of Lot 12, Block 21A,
Village East Executive Homes covered by Transfer Certificate of Title No. 619608 (TCT No. 619608) as agreed
upon by them in their Real Estate Mortgage within six (6) months from the time the owners duplicate of Transfer
Certificate of Title No. 619608 (TCT No. 619608) is actually surrendered and released by [the petitioner] to
[Dee];

4. In the alternative, in case of legal and physical impossibility on the part of [PEPI, AFPRSBS, and the petitioner] to
comply and perform their respective obligation/s, as abovementioned, respondents PEPI and AFPRSBS are hereby
ordered to jointly and severally pay to [Dee] the amount of FIVE HUNDRED TWENTY THOUSAND PESOS
 ([P]520,000.00) plus twelve percent (12%) interest to be computed from the filing of complaint on April 24, 2002
until fully paid; and

5. Ordering [PEPI, AFPRSBS, and the petitioner] to pay jointly and severally [Dee] the following sums:

a) The amount of TWENTY FIVE THOUSAND PESOS ([P]25,000.00) as attorneys

fees;
b) The cost of litigation[;] and
c) An administrative fine of TEN THOUSAND PESOS ([P]10,000.00) payable to this
Office fifteen (15) days upon receipt of this decision, for violation of Section 18 in
relation to Section 38 of PD 957.
SO ORDERED.9 ChanRoblesVirtualawl ibra ry

The HLURB decision was affirmed by its Board of Commissioners per Decision dated March 15, 2004, with modification as to
the rate of interest.10

On appeal, the Board of Commissioners decision was affirmed by the OP in its Decision dated August 4, 2004, with
modification as to the monetary award.11 cralawred

Hence, the petitioner filed a petition for review with the CA, which, in turn, issued the assailed Decision dated August 13,
2007, affirming the OP decision. The dispositive portion of the decision reads: chanRo blesvi rtua lLawl ib rary

WHEREFORE, in view of the foregoing, the petition is DENIED. The Decision dated August 4, 2004 rendered by the Office of
the President in O. P. Case No. 04D182 (HLURB Case No. REMA0307240186) is hereby AFFIRMED. chanroblesv irt ualawli bra ry

SO ORDERED. 12 ChanRoblesVi rtualawl ib rary

Its motion for reconsideration having been denied by the CA in the Resolution dated March 13, 2008, the petitioner filed the
present petition for review on the following grounds: cha nRoblesv irt ual Lawlib rary

I. THE HONORABLE COURT OF APPEALS ERRED IN ORDERING OUTRIGHT RELEASE OF TCT NO. 619608 DESPITE
PNBS DULY REGISTERED AND HLURB[] APPROVED MORTGAGE ON TCT NO. 619608.

II. THE HONORABLE COURT OF APPEALS ERRED IN ORDERING CANCELLATION OF MORTGAGE/RELEASE OF TITLE IN
FAVOR OF RESPONDENT DEE DESPITE THE LACK OF PAYMENT OR SETTLEMENT BY THE MORTGAGOR (API/PEPI and
AFPRSBS) OF ITS EXISTING LOAN OBLIGATION TO PNB, OR THE PRIOR EXERCISE OF RIGHT OF REDEMPTION BY
THE MORTGAGOR AS MANDATED BY SECTION 25 OF PD 957 OR DIRECT PAYMENT MADE BY RESPONDENT DEE TO
PNB PURSUANT TO THE DEED OF UNDERTAKING WHICH WOULD WARRANT RELEASE OF THE SAME. 13

The petitioner claims that it has a valid mortgage over Dees property, which was part of the property mortgaged by PEPI to
it to secure its loan obligation, and that Dee and PEPI are bound by such mortgage. The petitioner also argues that it is not
privy to the transactions between the subdivision project buyers and PEPI, and has no obligation to perform any of their
respective undertakings under their contract.14

The petitioner also maintains that Presidential Decree (P.D.) No. 95715 cannot nullify the subsisting agreement between it
and PEPI, and that the petitioners rights over the mortgaged properties are protected by Act 313516 . If at all, the petitioner
can be compelled to release or cancel the mortgage only after the provisions of P.D. No. 957 on redemption of the mortgage
by the owner/developer (Section 25) are complied with. The petitioner also objects to the denomination by the CA of the
provisions in the Affidavit of Undertaking as stipulations pour autrui,17 arguing that the release of the title was conditioned on
Dees direct payment to it.18

Respondent AFPRSBS, meanwhile, contends that it cannot be compelled to pay or settle the obligation under the mortgage
contract between PEPI and the petitioner as it is merely an investor in the subdivision project and is not privy to the
mortgage.19

Respondent PEPI, on the other hand, claims that the title over the subject property is one of the properties due for release by
the petitioner as it has already been the subject of a Memorandum of Agreement and dacion en pago entered into between
them.20 The agreement was reached after PEPI filed a petition for rehabilitation, and contained the stipulation that the
petitioner agreed to release the mortgage lien on fully paid mortgaged properties upon the issuance of the certificates of title
over the dacioned properties.21

For her part, respondent Dee adopts the arguments of the CA in support of her prayer for the denial of the petition for
review.22

Ruling of the Court

The petition must be DENIED.

The petitioner is correct in arguing that it is not obliged to perform any of the undertaking of respondent PEPI and AFPRSBS
in its transactions with Dee because it is not a privy thereto. The basic principle of relativity of contracts is that contracts can
only bind the parties who entered into it,23 and cannot favor or prejudice a third person, even if he is aware of such contract
and has acted with knowledge thereof.24 Where there is no privity of contract, there is likewise no obligation or liability to
speak about.25 cralawred

The petitioner, however, is not being tasked to undertake the obligations of PEPI and AFPRSBS. In this case, there are two
phases involved in the transactions between respondents PEPI and Dee the first phase is the contract to sell, which
eventually became the second phase, the absolute sale, after Dees full payment of the purchase price. In a contract of sale,
the parties obligations are plain and simple. The law obliges the vendor to transfer the ownership of and to deliver the thing
that is the object of sale.26 On the other hand, the principal obligation of a vendee is to pay the full purchase price at the
agreed time.27 Based on the final contract of sale between them, the obligation of PEPI, as owners and vendors of Lot 12,
Block 21A, Village East Executive Homes, is to transfer the ownership of and to deliver Lot 12, Block 21A to Dee, who, in
turn, shall pay, and has in fact paid, the full purchase price of the property. There is nothing in the decision of the HLURB, as
affirmed by the OP and the CA, which shows that the petitioner is being ordered to assume the obligation of any of the
respondents. There is also nothing in the HLURB decision, which validates the petitioners claim that the mortgage has been
nullified. The order of cancellation/release of the mortgage is simply a consequence of Dees full payment of the purchase
price, as mandated by Section 25 of P.D. No. 957, to wit: chanRoble svirtual Lawlib ra ry

Sec. 25. Issuance of Title. The owner or developer shall deliver the title of the lot or unit to the buyer upon full payment of
the lot or unit. No fee, except those required for the registration of the deed of sale in the Registry of Deeds, shall be
collected for the issuance of such title. In the event a mortgage over the lot or unit is outstanding at the time of the issuance
of the title to the buyer, the owner or developer shall redeem the mortgage or the corresponding portion thereof within six
months from such issuance in order that the title over any fully paid lot or unit may be secured and delivered to the buyer in
accordance herewith.
It must be stressed that the mortgage contract between PEPI and the petitioner is merely an accessory contract to the
principal threeyear loan takeout from the petitioner by PEPI for its expansion project. It need not be belaboured that [a]
mortgage is an accessory undertaking to secure the fulfillment of a principal obligation,28 and it does not affect the
ownership of the property as it is nothing more than a lien thereon serving as security for a debt.29

Note that at the time PEPI mortgaged the property to the petitioner, the prevailing contract between respondents PEPI and
Dee was still the Contract to Sell, as Dee was yet to fully pay the purchase price of the property. On this point, PEPI was
acting fully well within its right when it mortgaged the property to the petitioner, for in a contract to sell, ownership is
retained by the seller and is not to pass until full payment of the purchase price.30 In other words, at the time of the
mortgage, PEPI was still the owner of the property. Thus, in China Banking Corporation v. Spouses Lozada,31 the Court
affirmed the right of the owner/developer to mortgage the property subject of development, to wit: [P.D.] No. 957 cannot
totally prevent the owner or developer from mortgaging the subdivision lot or condominium unit when the title thereto still
resides in the owner or developer awaiting the full payment of the purchase price by the installment buyer.32 Moreover, the
mortgage bore the clearance of the HLURB, in compliance with Section 18 of P.D. No. 957, which provides that [n]o
mortgage on any unit or lot shall be made by the owner or developer without prior written approval of the [HLURB].

Nevertheless, despite the apparent validity of the mortgage between the petitioner and PEPI, the former is still bound to
respect the transactions between respondents PEPI and Dee. The petitioner was well aware that the properties mortgaged by
PEPI were also the subject of existing contracts to sell with other buyers. While it may be that the petitioner is protected by
Act No. 3135, as amended, it cannot claim any superior right as against the installment buyers. This is because the contract
between the respondents is protected by P.D. No. 957, a social justice measure enacted primarily to protect innocent lot
buyers.33 Thus, in Luzon Development Bank v. Enriquez,34 the Court reiterated the rule that a bank dealing with a property
that is already subject of a contract to sell and is protected by the provisions of P.D. No. 957, is bound by the contract to
sell.35
However, the transferee BANK is bound by the Contract to Sell and has to respect Enriquezs rights thereunder. This is
because the Contract to Sell, involving a subdivision lot, is covered and protected by PD 957. x x x.

xxx

x x x Under these circumstances, the BANK knew or should have known of the possibility and risk that the assigned
properties were already covered by existing contracts to sell in favor of subdivision lot buyers. As observed by the Court in
another case involving a bank regarding a subdivision lot that was already subject of a contract to sell with a third party: chanRob lesvi rtua lLawl ibra ry

[The Bank] should have considered that it was dealing with a property subject of a real estate development project. A
reasonable person, particularly a financial institution x x x, should have been aware that, to finance the project, funds other
than those obtained from the loan could have been used to serve the purpose, albeit partially. Hence, there was a need to
verify whether any part of the property was already intended to be the subject of any other contract involving buyers or
potential buyers. In granting the loan, [the Bank] should not have been content merely with a clean title, considering the
presence of circumstances indicating the need for a thorough investigation of the existence of buyers x x x. Wanting in care
and prudence, the [Bank] cannot be deemed to be an innocent mortgagee. x x x36 (Citation omitted) chan roble svirtualawl ibra ry

More so in this case where the contract to sell has already ripened into a contract of absolute sale.

Moreover, PEPI brought to the attention of the Court the subsequent execution of a Memorandum of Agreement dated
November 22, 2006 by PEPI and the petitioner. Said agreement was executed pursuant to an Order dated February 23, 2004
by the Regional Trial Court (RTC) of Makati City, Branch 142, in SP No. 021219, a petition for Rehabilitation under the
Interim Rules of Procedure on Corporate Rehabilitation filed by PEPI. The RTC order approved PEPIs modified Rehabilitation
Plan, which included the settlement of the latters unpaid obligations to its creditors by way of dacion of real properties. In
said order, the RTC also incorporated certain measures that were not included in PEPIs plan, one of which is that [t]itles to
the lots which have been fully paid shall be released to the purchasers within 90 days after the dacion to the secured
creditors has been completed.37Consequently, the agreement stipulated that as partial settlement of PEPIs obligation with
the petitioner, the former absolutely and irrevocably conveys by way of dacion en pago the properties listed
therein,38 which included the lot purchased by Dee. The petitioner also committed to
[R]elease its mortgage lien on fully paid Mortgaged Properties upon issuance of the certificates of title over the Dacioned
Properties in the name of the [petitioner]. The request for release of a Mortgaged Property shall be accompanied with: (i)
proof of full payment by the buyer, together with a certificate of full payment issued by the Borrower x x x. The [petitioner]
hereby undertakes to cause the transfer of the certificates of title over the Dacioned Properties and the release of the
Mortgaged Properties with reasonable dispatch.39 ChanRoblesVirt ualawli bra ry

Dacion en pago or dation in payment is the delivery and transmission of ownership of a thing by the debtor to the creditor as
an accepted equivalent of the performance of the obligation.40 It is a mode of extinguishing an existing obligation41 and
partakes the nature of sale as the creditor is really buying the thing or property of the debtor, the payment for which is to be
charged against the debtors debt.42 Dation in payment extinguishes the obligation to the extent of the value of the thing
delivered, either as agreed upon by the parties or as may be proved, unless the parties by agreement express or implied,
or by their silence consider the thing as equivalent to the obligation, in which case the obligation is totally extinguished.43

There is nothing on record showing that the Memorandum of Agreement has been nullified or is the subject of pending
litigation; hence, it carries with it the presumption of validity.44 Consequently, the execution of the dation in payment
effectively extinguished respondent PEPIs loan obligation to the petitioner insofar as it covers the value of the property
purchased by Dee. This negates the petitioners claim that PEPI must first redeem the property before it can cancel or
release the mortgage. As it now stands, the petitioner already stepped into the shoes of PEPI and there is no more reason for
the petitioner to refuse the cancellation or release of the mortgage, for, as stated by the Court in Luzon Development Bank,
in accepting the assigned properties as payment of the obligation, [the bank] has assumed the risk that some of the
assigned properties are covered by contracts to sell which must be honored under PD 957.45 Whatever claims the petitioner
has against PEPI and AFPRSBS, monetary or otherwise, should not prejudice the rights and interests of Dee over the
property, which she has already fully paid for.
As between these small lot buyers and the gigantic financial institutions which the developers deal with, it is obvious that the
lawas an instrument of social justicemust favor the weak.46 (Emphasis omitted) chanro blesvi rtualaw lib rary

Finally, the Court will not dwell on the arguments of AFPRSBS given the finding of the OP that [b]y its nonpayment of the
appeal fee, AFPRSBS is deemed to have abandoned its appeal and accepts the decision of the HLURB.47 As such, the
HLURB decision had long been final and executory as regards AFPRSBS and can no longer be altered or modified.48

WHEREFORE, the petition for review is DENIED for lack of merit. Consequently, the Decision dated August 13, 2007 and
Resolution dated March 13, 2008 of the Court of Appeals in CAG.R. SP No. 86033 are AFFIRMED.

Petitioner Philippine National Bank and respondents Prime East Properties Inc. and Armed Forces of the Philippines
Retirement and Separation Benefits System, Inc. are hereby ENJOINED to strictly comply with the Housing and Land Use
Regulatory Board Decision dated May 21, 2003, as modified by its Board of Commissioners Decision dated March 15, 2004
and Office of the President Decision dated August 4, 2004. ChanRobles Virtualawl ibra ry

SO ORDERED.

PHILIPPINE NATIONAL BANK, Petitioner,

vs.

TERESITA TAN DEE, ANTIPOLO PROPERTIES, INC., (NOW PRIME EAST

PROPERTIES, INC.) AND AFPRSBS, INC., Respondents.

G.R. No. 182128 February 19, 2014

PONENTE: Reyes, J.

TOPIC: PD 957, Mortgage over subdivision land or condominium lot subject to contract to sell
FACTS:

Some time in July 1994, respondent Dee Dee bought from respondent Prime East Properties
Inc.5 (PEPI) on an installment basis a residential lot located in Binangonan, Rizal, with an area of 204
square meters and covered by TCT No. 619608. Subsequently, PEPI assigned its rights over a
213,093sq m property on August 1996 to respondent Armed Forces of the PhilippinesRetirement
and Separation Benefits System, Inc. (AFPRSBS), which included the property purchased by Dee.

Thereafter, or on September 10, 1996, PEPI obtained a P205,000,000.00 loan from

petitioner Philippine National Bank, secured by a mortgage over several properties, including Dees
property. The mortgage was cleared by the Housing and Land UseRegulatory Board (HLURB) on
September 18, 1996.

After Dees full payment of the purchase price, a deed of sale was executed by respondents
PEPI and AFPRSBS on July 1998 in Dees favor. Consequently, Dee sought from the petitioner the
delivery of the owners duplicate title over the property, to no avail. Thus, she filed with the HLURB a
complaint for specific performance to compel delivery of TCT No. 619608 by the petitioner, PEPI and
AFPRSBS, among others.

ISSUE:

Whether or not PNB, as mortgagee, was bound by the contract to sell previously executed
over the subdivision lot mortgaged.

HELD:

YES. In this case, there are two phases involved in the transactions between respondents
PEPI and Dee the first phase is the contract to sell, which eventually became the second phase, the
absolute sale, after Dees full payment of the purchase price. In a contract of sale, the parties
obligations are plain and simple. The law obliges the vendor to transfer the ownership of and to
deliver the thing that is the object of sale. On the other hand, the principal obligation of a vendee is to
pay the full purchase price at the agreed time. Based on the final contract of sale between them, the
obligation of PEPI, as owners and vendors of Lot 12, Block 21A, Village East Executive Homes, is to
transfer the ownership of and to deliver Lot 12, Block 21A to Dee, who, in turn, shall pay, and has in
fact paid, the full purchase price of the property.

It must be stressed that the mortgage contract between PEPI and the petitioner is merely
an accessory contract to the principal threeyear loan takeout from the petitioner by PEPI for its
expansion project. It need not be belabored that a mortgage is an accessory undertaking to secure the
fulfillment of a principal obligation, and it does not affect the ownership of the property as it is
nothing more than a lien thereon serving as security for a debt.

Owner or developer of subdivision lot or condominium unit may mortgagethe same

despite contract to sell

Note that at the time PEPI mortgaged the property to the petitioner, the prevailing contract
between respondents PEPI and Dee was still the Contract to Sell, as Dee was yet to fully pay the
purchase price of the property. On this point, PEPI was acting fully well within its right when it
mortgaged the property to the petitioner, for in a contract to sell, ownership is retained by the seller
 and is not to pass until full payment of the purchase price. In other words, at the time of
the mortgage, PEPI was still the owner of the property.

Thus, in China Banking Corporation v. Spouses Lozada, the Court affirmed the right of
the owner/developer to mortgage the property subject of development, to wit: P.D. No.
957 cannot totally prevent the owner or developer from mortgaging the subdivision
lot or condominium unit when the title thereto still resides in the owner or developer
awaiting the full payment of the purchase price by the installment buyer. Moreover,
themortgage bore the clearance of the HLURB, in compliance with Section 18 of P.D. No. 957, which
provides that no mortgage on any unit or lot shall be made by the owner or developer without prior
written approval of the HLURB.

Bank-mortgagee bound by the contract to sell over the property mortgaged

Nevertheless, despite the apparent validity of the mortgage between the petitioner and PEPI,
the former is still bound to respect the transactions between respondents PEPI and Dee. The
petitioner was well aware that the properties mortgaged by PEPI were also the subject of existing
contracts to sell with other buyers. While it may be that the petitioner is protected by Act No. 3135,
as amended, it cannot claim any superior right as against the installment buyers. This is because the
contract between the respondents is protected by P.D. No. 957, a social justice measure enacted
primarily to protect innocent lot buyers. Thus, in Luzon Development Bank v. Enriquez, the Court
reiterated the rule that a bank dealing with a property that is already subject of a
contract to sell and is protected by the provisions of P.D. No. 957, is bound by the
contract to sell.

The transferee BANK is bound by the Contract to Sell and has to respect Enriquezs rights
thereunder. This is because the Contract to Sell, involving a subdivision lot, is covered and protected
by PD 957. x x x More so in this case where the contract to sell has already ripened into a contract of
absolute sale.

The Court affirmed HLURBs orders:

Clearances
Duplicate
Deed of sale
National science teachers association

1. PNB to cancel the mortgage and surrender/release the title to Dee.

2. PEPI and AFP-RSBS to pay PNB the redemption value of the subject property as agreed upon by them
in the REM within 6 months from the time the ownersduplicate of TCT is actually surrendered and
released by PNB to Dee.
3. In the alternative, in case of legal and physical impossibility on the part of PEPI, AFPRSBS, and PNB
to comply and perform their respective obligation/s, as abovementioned, respondents PEPI and
AFPRSBS are hereby ordered to jointly and severally pay to Dee the amount of P520,000.00) plus
interest to be computed from the filing of complaint on April 24, 2002 until fully paid.
4. PEPI, AFP-RSBS and PNB to pay solidarily Dee attorneys fees, cost of litigation, and administrative
fine.
G.R. No. 158143 September 21, 2011

PHILIPPINE COMMERCIAL INTERNATIONAL BANK,

Petitioner,vs.
ANTONIO B. BALMACEDA and ROLANDO N. RAMOS,
Respondents.
FACTS:
PCIB filed an action for recovery of sum of money with damages before the RTC against AntonioBalmaceda, the
Branch Manager of its Sta. Cruz, Manila branch. In its complaint, PCIB alleged thatbetween 1991 and 1993,
Balmaceda, by taking advantage of his position as branch manager,
fraudulently obtained and encashed 31 Managers checks. PCIB then moved to be allowed to file an
amended complaint to implead Rolando Ramos as one of the recipients of a portion of the proceeds
from Balmacedas alleged fraud. PCIB
also increased the number of fraudulently obtained and
encashed Managers checks to 34 in which the RTC granted.
Since Balmaceda did not file an Answer, he was declared in default. On the other hand, Ramos filed an Answer
denying any knowledge of Balmace
das scheme. The RTC then issued a decision in favor of
PCIB, where the RTC found that Balmaceda, took undue advantage of his position and authority asbranch manager
and Ramos acted in collusion with Balmaceda. On appeal, the CA dismissed thecomplaint against Ramos, holding
that no sufficient evidence existed to prove that Ramos colluded with
Balmaceda in the latters fraudulent manipulations and thus CA SET ASIDE the Decision of the trial
court insofar as Ramos is concerned. Hence this petition for review on certiorari, filed by the PhilippineCommercial
International Bank.
ISSUE:
Whether or not Ramos who received a portion of the money that Balmaceda took from PCIB, shouldalso be held
liable for the return of this money to the Bank.
RULING:
No, Ramos is not liable.The Supreme Court
PARTIALLY GRANTED
the petition and
AFFIRMED
the decision of the Court of Appeals dated with the
MODIFICATION
that the award of moral and exemplary damages in favor of Rolando N. Ramos is
DELETED.
PCIB, as plaintiff, had to prove, by preponderance of evidence, its positive assertion that Ramos
conspired with Balmaceda in perpetrating the latters scheme to defraud the Bank. All that PCIBsevidence proves is
that Balmaceda used Ramos name as a payee when he filled up the ap
plication
forms for the Managers checks. But, as the CA correctly observed, the mere fact that Balmaceda madeRamos the
payee on some of the Managers checks is not enough basis to conclude that Ramos wascomplicit in Balmacedas
fraud; a number of other people were made payees on the other Managers
checks yet PCIB never alleged them to be liable, nor did the Bank adduce any other evidence pointing
to Ramos participation that would justify his separate treatment from the others. Also, while Ramos is
Balm
acedas brother
-in-law, their relationship is not sufficient, by itself, to render Ramos liable, absentconcrete proof of his actual
participation in the fraudulent scheme.The party carrying the burden of proof must establish his case by a
preponderance of evidence
, or evidence which, to the court, is more worthy of belief than the evidence offered in opposition. In
E n c i n a s v . N a t i o n a l B o o k s t o r e , I n c .
,
defined "preponderance of evidence" in the following manner:"Preponderance of evidence" is the weight, credit, and
value of the aggregate evidence on either sideand is usually considered to be synonymous with the term "greater
weight of the evidence" or "greater weight of the credible evidence." Preponderance of evidence is a phrase which, in
the last analysis,means probability of the truth. It is evidence which is more convincing to the court as worthy of
belief than that which is offered in opposition thereto.
Ramos participation in Balmacedas
scheme was not proven by PCIB by preponderance of evidence.
Given that PCIB failed to establish Ramos participation in Balmacedas scheme, it was not even
necessary for Ramos to provide an explanation for the money he received from Balmaceda. Even if theevidence
adduced by the plaintiff appears stronger than that presented by the defendant, a judgment
cannot be entered in the plaintiffs favor if his evidence still does not suffice to sustain his cause of
action;
25
to reiterate, a preponderance of evidence as defined must be established to achieve thisresult

Republic of the Philippines

Supreme Court
Manila

SECOND DIVISION

PHILIPPINE COMMERCIAL G.R. No. 158143

INTERNATIONAL BANK,
Petitioner, Present:

VELASCO, JR.,* J.,

BRION,**
- versus - Acting Chairperson,
PEREZ,
SERENO, and
REYES, JJ.
ANTONIO B. BALMACEDA and ROLANDO
N. RAMOS, Promulgated:
Respondents.
September 21, 2011

x------------------------------------------------------------------------------------x

DECISION

BRION, J.:
 Before us is a petition for review on certiorari,[1] filed by the Philippine Commercial International
Bank[2] (Bank or PCIB), to reverse and set aside the decision[3] dated April 29, 2003 of the Court of Appeals
(CA) in CA-G.R. CV No. 69955. The CA overturned the September 22, 2000 decision of the Regional Trial
Court (RTC) of Makati City, Branch 148, in Civil Case No. 93-3181, which held respondent Rolando Ramos
liable to PCIB for the amount of P895,000.00.

FACTUAL ANTECEDENTS
On September 10, 1993, PCIB filed an action for recovery of sum of money with damages before the
RTC against Antonio Balmaceda, the Branch Manager of its Sta. Cruz, Manila branch. In its complaint, PCIB
alleged that between 1991 and 1993, Balmaceda, by taking advantage of his position as branch manager,
fraudulently obtained and encashed 31 Managers checks in the total amount of Ten Million Seven Hundred
Eighty Two Thousand One Hundred Fifty Pesos (P10,782,150.00).

On February 28, 1994, PCIB moved to be allowed to file an amended complaint to implead Rolando Ramos as
one of the recipients of a portion of the proceeds from Balmacedas alleged fraud. PCIB also increased the
number of fraudulently obtained and encashed Managers checks to 34, in the total amount of Eleven Million
Nine Hundred Thirty Seven Thousand One Hundred Fifty Pesos (P11,937,150.00). The RTC granted this
motion.

Since Balmaceda did not file an Answer, he was declared in default. On the other hand, Ramos filed an Answer
denying any knowledge of Balmacedas scheme. According to Ramos, he is a reputable businessman engaged in
the business of buying and selling fighting cocks, and Balmaceda was one of his clients. Ramos admitted
receiving money from Balmaceda as payment for the fighting cocks that he sold to Balmaceda, but maintained
that he had no knowledge of the source of Balmacedas money.

THE RTC DECISION

On September 22, 2000, the RTC issued a decision in favor of PCIB, with the following dispositive portion:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the

plaintiff and against the defendants as follows:

1. Ordering defendant Antonio Balmaceda to pay the amount of P11,042,150.00 with

interest thereon at the legal rate from [the] date of his misappropriation of the said amount until
full restitution shall have been made[.]

2. Ordering defendant Rolando Ramos to pay the amount of P895,000.00 with interest at
the legal rate from the date of misappropriation of the said amount until full restitution shall have
been made[.]
 3. Ordering the defendants to pay plaintiff moral damages in the sum of P500,000.00 and
attorneys fees in the amount of ten (10%) percent of the total misappropriated amounts sought to
be recovered.

4. Plus costs of suit.

SO ORDERED.[4]

From the evidence presented, the RTC found that Balmaceda, by taking undue advantage of his position
and authority as branch manager of the Sta. Cruz, Manila branch of PCIB, successfully obtained and
misappropriated the banks funds by falsifying several commercial documents. He accomplished this by
claiming that he had been instructed by one of the Banks corporate clients to purchase Managers checks on its
behalf, with the value of the checks to be debited from the clients corporate bank account. First, he would
instruct the Bank staff to prepare the application forms for the purchase of Managers checks, payable to several
persons. Then, he would forge the signature of the clients authorized representative on these forms and sign the
forms as PCIBs approving officer. Finally, he would have an authorized officer of PCIB issue the Managers
checks. Balmaceda would subsequently ask his subordinates to release the Managers checks to him, claiming
that the client had requested that he deliver the checks.[5] After receiving the Managers checks, he encashed
them by forging the signatures of the payees on the checks.

In ruling that Ramos acted in collusion with Balmaceda, the RTC noted that although the Managers
checks payable to Ramos were crossed checks, Balmaceda was still able to encash the checks.[6] After
Balmaceda encashed three of these Managers checks, he deposited most of the money into Ramos
account.[7] The RTC concluded that from the P11,937,150.00 that Balmaceda misappropriated from
PCIB, P895,000.00 actually went to Ramos. Since the RTC disbelieved Ramos allegation that the sum of
money deposited into his Savings Account (PCIB, Pasig branch) were proceeds from the sale of fighting cocks,
it held Ramos liable to pay PCIB the amount of P895,000.00.

THE COURT OF APPEALS DECISION

On appeal, the CA dismissed the complaint against Ramos, holding that no sufficient evidence existed to prove
that Ramos colluded with Balmaceda in the latters fraudulent manipulations.[8]

According to the CA, the mere fact that Balmaceda made Ramos the payee in some of the Managers checks
does not suffice to prove that Ramos was complicit in Balmacedas fraudulent scheme. It observed that other
persons were also named as payees in the checks that Balmaceda acquired and encashed, and PCIB only chose
to go after Ramos. With PCIBs failure to prove Ramos actual participation in Balmacedas fraud, no legal and
factual basis exists to hold him liable.
 The CA also found that PCIB acted illegally in freezing and debiting P251,910.96 from Ramos bank
account. The CA thus decreed:

WHEREFORE, the appeal is granted. The Decision of the trial court rendered on September 22,
2000[,] insofar as appellant Ramos is concerned, is SET ASIDE, and the complaint below
against him is DISMISSED.

Appellee is hereby ordered to release the amount of P251,910.96 to appellant Ramos plus
interest at [the] legal rate computed from September 30, 1993 until appellee shall have fully
complied therewith.

Appellee is likewise ordered to pay appellant Ramos the following:

a) P50,000.00 as moral damages

b) P50,000.00 as exemplary damages, and
c) P20,000.00 as attorneys fees.

No costs.

SO ORDERED.[9]

THE PETITION

In the present petition, PCIB avers that:

I
THE APPELLATE COURT ERRED IN HOLDING THAT THERE IS NO EVIDENCE TO
HOLD THAT RESPONDENT RAMOS ACTED IN COMPLICITY WITH RESPONDENT
BALMACEDA

II

THE APPELLATE COURT ERRED IN ORDERING THE PETITIONER TO RELEASE THE

AMOUNT OF P251,910.96 TO RESPONDENT RAMOS AND TO PAY THE LATTER
MORAL AND EXEMPLARY DAMAGES AND ATTORNEYS FEES[10]

PCIB contends that the circumstantial evidence shows that Ramos had knowledge of, and acted in
complicity with Balmaceda in, the perpetuation of the fraud. Ramos explanation that he is a businessman and
that he received the Managers checks as payment for the fighting cocks he sold to Balmaceda is unconvincing,
given the large sum of money involved. While Ramos presented evidence that he is a reputable businessman,
this evidence does not explain why the Managers checks were made payable to him in the first place.
 PCIB maintains that it had the right to freeze and debit the amount of P251,910.96 from Ramos bank
account, even without his consent, since legal compensation had taken place between them by operation of law.
PCIB debited Ramos bank account, believing in good faith that Ramos was not entitled to the proceeds of the
Managers checks and was actually privy to the fraud perpetrated by Balmaceda. PCIB cannot thus be held liable
for moral and exemplary damages.

OUR RULING

We partly grant the petition.

At the outset, we observe that the petition raises mainly questions of fact whose resolution requires the
re-examination of the evidence on record. As a general rule, petitions for review on certiorari only involve
questions of law.[11] By way of exception, however, we can delve into evidence and the factual circumstance of
the case when the findings of fact in the tribunals below (in this case between those of the CA and of the RTC)
are conflicting. When the exception applies, we are given latitude to review the evidence on record to decide
the case with finality.[12]

Ramos participation in Balmacedas scheme not proven

From the testimonial and documentary evidence presented, we find it beyond question that Balmaceda, by
taking advantage of his position as branch manager of PCIBs Sta. Cruz, Manila branch, was able to apply for
and obtain Managers checks drawn against the bank account of one of PCIBs clients. The unsettled question is
whether Ramos, who received a portion of the money that Balmaceda took from PCIB, should also be held
liable for the return of this money to the Bank.

PCIB insists that it presented sufficient evidence to establish that Ramos colluded with Balmaceda in the
scheme to fraudulently secure Managers checks and to misappropriate their proceeds. Since Ramos defense
anchored on mere denial of any participation in Balmacedas wrongdoing is an intrinsically weak defense, it was
error for the CA to exonerate Ramos from any liability.

In civil cases, the party carrying the burden of proof must establish his case by a preponderance of
evidence, or evidence which, to the court, is more worthy of belief than the evidence offered in
opposition.[13] This Court, in Encinas v. National Bookstore, Inc.,[14] defined preponderance of evidence in the
following manner:

"Preponderance of evidence" is the weight, credit, and value of the aggregate evidence on either
side and is usually considered to be synonymous with the term "greater weight of the evidence"
or "greater weight of the credible evidence." Preponderance of evidence is a phrase which, in the
last analysis, means probability of the truth. It is evidence which is more convincing to the court
as worthy of belief than that which is offered in opposition thereto.
 The party, whether the plaintiff or the defendant, who asserts the affirmative of an issue has the onus to
prove his assertion in order to obtain a favorable judgment, subject to the overriding rule that the burden to
prove his cause of action never leaves the plaintiff. For the defendant, an affirmative defense is one that is not
merely a denial of an essential ingredient in the plaintiff's cause of action, but one which, if established, will
constitute an "avoidance" of the claim.[15]

Thus, PCIB, as plaintiff, had to prove, by preponderance of evidence, its positive assertion that Ramos
conspired with Balmaceda in perpetrating the latters scheme to defraud the Bank. In PCIBs estimation, it
successfully accomplished this through the submission of the following evidence:

[1] Exhibits A, D, PPPP, QQQQ, and RRRR and their submarkings, the application forms for
MCs, show that [these MCs were applied for in favor of Ramos;]

[2] Exhibits K, N, SSSS, TTTT, and UUUU and their submarkings prove that the MCs were
issued in favor of x x x Ramos[; and]

[3] [T]estimonies of the witness for [PCIB].[16]

We cannot accept these submitted pieces of evidence as sufficient to satisfy the burden of proof that
PCIB carries as plaintiff.

On its face, all that PCIBs evidence proves is that Balmaceda used Ramos name as a payee when he
filled up the application forms for the Managers checks. But, as the CA correctly observed, the mere fact that
Balmaceda made Ramos the payee on some of the Managers checks is not enough basis to conclude that Ramos
was complicit in Balmacedas fraud; a number of other people were made payees on the other Managers checks
yet PCIB never alleged them to be liable, nor did the Bank adduce any other evidence pointing to Ramos
participation that would justify his separate treatment from the others. Also, while Ramos is Balmacedas
brother-in-law, their relationship is not sufficient, by itself, to render Ramos liable, absent concrete proof of his
actual participation in the fraudulent scheme.

Moreover, the evidence on record clearly shows that Balmaceda acted on his own when he applied for
the Managers checks against the bank account of one of PCIBs clients, as well as when he encashed the
fraudulently acquired Managers checks.

Mrs. Elizabeth Costes, the Area Manager of PCIB at the time of the relevant events, testified that
Balmaceda committed all the acts necessary to obtain the unauthorized Managers checks from filling up the
application form by forging the signature of the clients representative, to forging the signatures of the payees in
order to encash the checks. As Mrs. Costes stated in her testimony:
 Q: I am going into [these] particular instances where you said that Mr. Balmaceda [has]
been making unauthorized withdrawals from particular account of a client or a client of yours at
Sta. Cruz branch. Would you tell us how he effected his unauthorized withdrawals?
A: He prevailed upon the domestic remittance clerk to prepare the application of a
Managers check which [has] been debited to a clients account. This particular Managers check
will be payable to a certain individual thru his account as the instruction of the client.

Q: What was your findings in so far as the particular alleged instruction of a client is
concerned?
A: We found out that he forged the signature of the client.

Q: On that particular application?

A: Yes sir.

Q: Showing to you several applications for Managers Check previously attached as

Annexes A, B, C, D and E[] of the complaint. Could you please tell us where is that particular
alleged signature of a client applying for the Managers check which you claimed to have been
forged by Mr. Balmaceda?
A: Here sir.

xxxx

Q: After the accomplishment of this application form as you stated Mrs. witness, do you
know what happened to the application form?
A: Before that application form is processed it goes to several stages. Here for example
this was signed supposed to be by the client and his signature representing that, he certified the
signature based on their records to be authentic.

Q: When you said he to whom are you referring to?

A: Mr. Balmaceda. And at the same time he approved the transaction.

xxxx

Q: Do you know if the corresponding checks applied for in the application forms were
issued?
A: Yes sir.

Q: Could you please show us where these checks are now, the one applied for in Exhibit
A which is in the amount of P150,000.00, where is the corresponding check?

A: Rolando Ramos dated December 26, 1991 and one of the signatories with higher
authority, this is Mr. Balmacedas signature.

Q: In other words he is likewise approving signatory to the Managers check?

A: Yes sir. This is an authority that the check [has] been encashed.

Q: In other words this check issued to Rolando Ramos dated December 26, 1991 is a
cross check but nonetheless he allowed to encash by granting it.

Could you please show us?

 ATTY. PACES: Witness pointing to an initial of the defendant Antonio Balmaceda, the
notation cross check.

A: And this is his signature.

xxxx

Q: How about the check corresponding to Exhibit E-2 which is an application

for P125,000.00 for a certain Rolando Ramos. Do you have the check?
A: Yes sir.

ATTY. PACES: Witness producing a check dated December 19, 1991 the amount
of P125,000.00 payable to certain Rolando Ramos.

Q: Can you tell us whether the same modus operandi was ad[o]pted by Mr. Balmaceda in
so far as he is concerned?
A: Yes sir he is also the right signer and he authorized the cancellation of the cross
[17]
check. (emphasis ours)

xxxx

Q: These particular checks [Mrs.] witness in your findings, do you know if Mr.
Balmaceda [has] again any participation in these checks?
A: He is also the right signer and approved officer and he was authorized to debit on file.

xxxx

Q: And do you know if these particular checks marked as Exhibit G-2 to triple FFF were
subsequently encashed?
A: Yes sir.

Q: Were you able to find out who encashed?

A: Mr. Balmaceda himself and besides he approved the encashment because of the
signature that he allowed the encashment of the check.

xxxx

Q: Do you know if this particular person having in fact withdraw of received the
proceeds of [these] particular checks, the payee?
A: No sir.

Q: It was all Mr. Balmaceda dealing with you?

A: Yes sir.

Q: In other words it would be possible that Mr. Balmaceda himself gotten the
proceeds of the checks by forging the payees signature?
A: Yes sir.[18] (emphases ours)
 Mrs. Nilda Laforteza, the Commercial Account Officer of PCIBs Sta. Cruz, Manila branch at the time
the events of this case occurred, confirmed Mrs. Costes testimony by stating that it was Balmaceda who
forged Ramos signature on the Managers checks where Ramos was the payee, so as to encash the
amounts indicated on the checks.[19] Mrs. Laforteza also testified that Ramos never went to the PCIB, Sta.
Cruz, Manila branch to encash the checks since Balmaceda was the one who deposited the checks into
Ramos bank account. As revealed during Mrs. Lafortezas cross-examination:

Q: Mrs. Laforteza, these checks that were applied for by Mr. Balmaceda, did you
ever see my client go to the bank to encash these checks?
A: No it is Balmaceda who is depositing in his behalf.

Q: Did my client ever call up the bank concerning this amount?

A: Yes he is not going to call PCIBank Sta. Cruz branch because his account is
maintained at Pasig.

Q: So Mr. Balmaceda was the one who just remitted or transmitted the amount that
you claimed [was sent] to the account of my client?
A: Yes.[20] (emphases ours)

Even Mrs. Rodelia Nario, presented by PCIB as its rebuttal witness to prove that Ramos encashed a
Managers check for P480,000.00, could only testify that the money was deposited into Ramos PCIB bank
account. She could not attest that Ramos himself presented the Managers check for deposit in his bank
account.[21]These testimonies clearly dispute PCIBs theory that Ramos was instrumental in the encashment of
the Managers checks.

We also find no reason to doubt Ramos claim that Balmaceda deposited these large sums of money into
his bank account as payment for the fighting cocks that Balmaceda purchased from him. Ramos presented two
witnesses Vicente Cosculluela and Crispin Gadapan who testified that Ramos previously engaged in the
business of buying and selling fighting cocks, and that Balmaceda was one of Ramos biggest clients.

Quoting from the RTC decision, PCIB stresses that Ramos own witness and business partner, Cosculluela,
testified that the biggest net profit he and Ramos earned from a single transaction with Balmaceda amounted to
no more than P100,000.00, for the sale of approximately 45 fighting cocks.[22] In PCIBs view, this testimony
directly contradicts Ramos assertion that he received approximately P400,000.00 from his biggest transaction
with Balmaceda. To PCIB, the testimony also renders questionable Ramos assertion that Balmaceda deposited
large amounts of money into his bank account as payment for the fighting cocks.

On this point, we find that PCIB misunderstood Cosculluelas testimony. A review of the testimony
shows that Cosculluela specifically referred to the net profitthat they earned from the sale of the fighting
cocks;[23] PCIB apparently did not take into account the capital, transportation and other expenses that are
components of these transactions. Obviously, in sales transactions, the buyer has to pay not only for the value of
the thing sold, but also for the shipping costs and other incidental costs that accompany the acquisition of the
thing sold. Thus, while the biggest net profit that Ramos and Cosculluela earned in a single transaction
amounted to no more than P100,000.00,[24] the inclusion of the actual acquisition costs of the fighting cocks, the
transportation expenses (i.e., airplane tickets from Bacolod or Zamboanga to Manila) and other attendant
expenses could account for the P400,000.00 that Balmaceda deposited into Ramos bank account.

Given that PCIB failed to establish Ramos participation in Balmacedas scheme, it was not even
necessary for Ramos to provide an explanation for the money he received from Balmaceda. Even if the
evidence adduced by the plaintiff appears stronger than that presented by the defendant, a judgment cannot be
entered in the plaintiffs favor if his evidence still does not suffice to sustain his cause of action;[25] to reiterate, a
preponderance of evidence as defined must be established to achieve this result.

PCIB itself at fault as employer

In considering this case, one point that cannot be disregarded is the significant role that PCIB played
which contributed to the perpetration of the fraud. We cannot ignore that Balmaceda managed to carry out his
fraudulent scheme primarily because other PCIB employees failed to carry out their assigned tasks flaws
imputable to PCIB itself as the employer.

Ms. Analiza Vega, an accounting clerk, teller and domestic remittance clerk working at the PCIB, Sta.
Cruz, Manila branch at the time of the incident, testified that Balmaceda broke the Banks protocol when he
ordered the Banks employees to fill up the application forms for the Managers checks, to be debited from the
bank account of one of the banks clients, without providing the necessary Authority to Debit from the
client.[26] PCIB also admitted that these Managers checks were subsequently released to Balmaceda, and not to
the clients representative, based solely on Balmacedas word that the client had tasked him to deliver these
checks.[27]

Despite Balmacedas gross violations of bank procedures mainly in the processing of the applications for
Managers checks and in the releasing of the Managers checks Balmacedas co-employees not only turned a blind
eye to his actions, but actually complied with his instructions. In this way, PCIBs own employees
were unwitting accomplices in Balmacedas fraud.

Another telling indicator of PCIBs negligence is the fact that it allowed Balmaceda to encash the
Managers checks that were plainly crossed checks. A crossed check is one where two parallel lines are
drawn across its face or across its corner.[28] Based on jurisprudence, the crossing of a check has the following
effects: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated
only once to the one who has an account with the bank; and (c) the act of crossing the check serves as a warning
to the holder that the check has been issued for a definite purpose and he must inquire if he received the check
pursuant to this purpose; otherwise, he is not a holder in due course.[29] In other words, the crossing of a check is
a warning that the check should be deposited only in the account of the payee. When a check is crossed, it is
the duty of the collecting bank to ascertain that the check is only deposited to the payees account.[30]In
complete disregard of this duty, PCIBs systems allowed Balmaceda to encash 26 Managers checks which were
all crossed checks, or checks payable to the payees account only.

The General Banking Law of 2000[31] requires of banks the highest standards of integrity and
performance. The banking business is impressed with public interest. Of paramount importance is the trust and
confidence of the public in general in the banking industry. Consequently, the diligence required of banks is
more than that of a Roman pater familias or a good father of a family.[32] The highest degree of diligence is
expected.[33]

While we appreciate that Balmaceda took advantage of his authority and position as the branch manager
to commit these acts, this circumstance cannot be used to excuse the manner the Bank through its employees
handled its clients bank accounts and thereby ignored established bank procedures at the branch managers mere
order. This lapse is made all the more glaring by Balmacedas repetition of his modus operandi 33 more times in
a period of over one year by the Banks own estimation. With this kind of record, blame must be imputed on the
Bank itself and its systems, not solely on the weakness or lapses of individual employees.

Principle of unjust enrichment not applicable

PCIB maintains that even if Ramos did not collude with Balmaceda, it still has the right to recover the
amounts unjustly received by Ramos pursuant to the principle of unjust enrichment. This principle is embodied
in Article 22 of the Civil Code which provides:

Article 22. Every person who through an act of performance by another, or any other means,
acquires or comes into possession of something at the expense of the latter without just or legal
ground, shall return the same to him.

To have a cause of action based on unjust enrichment, we explained in University of the Philippines v.
Philab Industries, Inc.[34] that:

Unjust enrichment claims do not lie simply because one party benefits from the efforts or
obligations of others, but instead it must be shown that a party was unjustly enriched in the sense
that the term unjustly could mean illegally or unlawfully.

Moreover, to substantiate a claim for unjust enrichment, the claimant must unequivocally
prove that another party knowingly received something of value to which he was not
entitled and that the state of affairs are such that it would be unjust for the person to keep
the benefit. Unjust enrichment is a term used to depict result or effect of failure to make
remuneration of or for property or benefits received under circumstances that give rise to legal or
 equitable obligation to account for them; to be entitled to remuneration, one must confer benefit
by mistake, fraud, coercion, or request. Unjust enrichment is not itself a theory of reconvey.
Rather, it is a prerequisite for the enforcement of the doctrine of restitution.[35] (emphasis ours)

Ramos cannot be held liable to PCIB on account of unjust enrichment simply because he received payments out
of money secured by fraud from PCIB. To hold Ramos accountable, it is necessary to prove that he received the
money from Balmaceda, knowing that he (Ramos) was not entitled to it. PCIB must also prove that Ramos, at
the time that he received the money from Balmaceda, knew that the money was acquired through fraud.
Knowledge of the fraud is the link between Ramos and PCIB that would obligate Ramos to return the money
based on the principle of unjust enrichment.

However, as the evidence on record indicates, Ramos accepted the deposits that Balmaceda made
directly into his bank account, believing that these deposits were payments for the fighting cocks that
Balmaceda had purchased. Significantly, PCIB has not presented any evidence proving that Ramos participated
in, or that he even knew of, the fraudulent sources of Balmacedas funds.

PCIB illegally froze and debited Ramos assets

We also find that PCIB acted illegally in freezing and debiting Ramos bank account. In BPI Family
Bank v. Franco,[36] we cautioned against the unilateral freezing of bank accounts by banks, noting that:

More importantly, [BPI Family Bank] does not have a unilateral right to freeze the
accounts of Franco based on its mere suspicion that the funds therein were proceeds of the multi-
million peso scam Franco was allegedly involved in. To grant [BPI Family Bank], or any bank
for that matter, the right to take whatever action it pleases on deposits which it supposes are
derived from shady transactions, would open the floodgates of public distrust in the banking
industry.[37]

We see no legal merit in PCIBs claim that legal compensation took place between it and Ramos, thereby
warranting the automatic deduction from Ramos bank account. For legal compensation to take place,
two persons, in their own right, must first be creditors and debtors of each other.[38] While PCIB, as the
depositary bank, is Ramos debtor in the amount of his deposits, Ramos is not PCIBs debtor under the evidence
the PCIB adduced. PCIB thus had no basis, in fact or in law, to automatically debit from Ramos bank account.

On the award of damages

Although PCIBs act of freezing and debiting Ramos account is unlawful, we cannot hold PCIB liable for
moral and exemplary damages. Since a contractual relationship existed between Ramos and PCIB as the
depositor and the depositary bank, respectively, the award of moral damages depends on the applicability of
Article 2220 of the Civil Code, which provides:
 Article 2220. Willful injury to property may be a legal ground for awarding moral damages if the
court should find that, under the circumstances, such damages are justly due. The same rule
applies to breaches of contract where the defendant acted fraudulently or in bad faith. [emphasis
ours]

Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral
obliquity and conscious commission of a wrong; it partakes of the nature of fraud.[39]

As the facts of this case bear out, PCIB did not act out of malice or bad faith when it froze Ramos bank
account and subsequently debited the amount of P251,910.96 therefrom. While PCIB may have acted hastily
and without regard to its primary duty to treat the accounts of its depositors with meticulous care and utmost
fidelity,[40] we find that its actions were propelled more by the need to protect itself, and not out of malevolence
or ill will. One may err, but error alone is not a ground for granting moral damages.[41]

We also disallow the award of exemplary damages. Article 2234 of the Civil Code requires a party to first prove
that he is entitled to moral, temperate or compensatory damages before he can be awarded exemplary damages.
Since no reason exists to award moral damages, so too can there be no reason to award exemplary damages.
We deem it just and equitable, however, to uphold the award of attorneys fees in Ramos favor. Taking into
consideration the time and efforts involved that went into this case, we increase the award of attorneys fees
from P20,000.00 to P75,000.00.

WHEREFORE, the petition is PARTIALLY GRANTED. We AFFIRM the decision of the Court of
Appeals dated April 29, 2003 in CA-G.R. CV No. 69955 with the MODIFICATION that the award of moral
and exemplary damages in favor of Rolando N. Ramos is DELETED, while the award of attorneys fees
is INCREASED to P75,000.00. Costs against the Philippine Commercial International Bank.

SO ORDERED.

SECOND DIVISION

PHILIPPINE NATIONAL BANK, G.R. No. 165836

Petitioner,
Present:

QUISUMBING, J., Chairperson,

- versus - CARPIO MORALES,
TINGA,
CHICO-NAZARIO, and
VELASCO, JR., JJ.

ADELA SIA and ROBERT NGO, Promulgated:

Respondents.
February 18, 2009
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

QUISUMBING, J.:

This petition for review seeks to set aside the Decision[1] dated July 31, 2003 and the
Resolution[2] dated October 28, 2004 of the Court of Appeals in CA-G.R. CV No. 49806.

The antecedents of the case, as culled from the records, are:

Midcom Interline Development Corporation (MIDCOM) was the registered owner of a 349-square
meter lot with a ten-door apartment located at the corner of Alvarez and Oroquieta Streets in Sta. Cruz, Manila,
and covered by Transfer Certificate of Title (TCT) No. 156156.[3] On August 20, 1984, MIDCOM signed a
Contract to Sell[4] the property to the spouses Felicisimo and Myrna Galicia (Galicias) for the amount
of P480,000, with the agreement that P150,000 be given upon the execution of the contract and the
remaining P330,000 be paid in three monthly installments. Out of the purchase price of P480,000,
the Galicias left an unpaid balance of P70,000.

The subject property was again sold by MIDCOM to Apolonia Sia Ngo and respondent Adela Sia
for P630,000, as evidenced by a Deed of Absolute Sale[5]dated October 1, 1984. Thereafter, on October 9, 1984,
the Galicias received a letter[6] that MIDCOM had already rescinded their Contract to Sell.[7]

On October 22, 1984, the Galicias filed before the Regional Trial Court (RTC) of Manila, Branch 29, a
complaint[8] against MIDCOM and its president, Miguel G. Say, Jr., Apolonia Sia Ngo, and the Register of Deeds
of Manila for Specific Performance and Damages with Prayer for Injunction. The complaint, docketed as Civil
Case No. 84-27347, sought to compel MIDCOM to execute a Deed of Sale in the Galicias favor upon payment of
the balance of the purchase price. The Galicias also caused the annotation of a notice of lis pendens at the back of
TCT No. 156156 on February 12, 1985.[9]

On February 26, 1985, TCT No. 156156 registered to MIDCOM was cancelled, and TCT No.
164726[10] was issued in the names of Apolonia S. Ngo, married to Robert Ngo, and Adela Sia, despite a
temporary restraining order issued by the RTC of Manila, Branch 29, enjoining the registration of the Deed of
Sale and the issuance of a new title on the property.
 On October 7, 1986, the RTC of Manila, Branch 29 decided Civil Case No. 84-27347 in favor of
the Galicias, as follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the

plaintiffs against the defendants:
(1) Ordering defendant Midcom thru Miguel Say to execute the Deed of Absolute Sale
in favor of plaintiffs upon payment of the balance of the purchase price of the land in
the amount of P70,000.00, and to deliver the duplicate owners copy of the title over
the land in question to the plaintiffs as well as such other documents necessary for
the transfer or conveyance thereof to the plaintiffs;
(2) Ordering defendants Apolonia Ngo and all other persons claiming rights under
them to turn over and deliver the duplicate original of the title over the lot in dispute
to plaintiffs and to convey the property to them;
(3) Ordering defendant Register of Deeds of Manila to issue the title in the name of
plaintiffs over the premises in question and to cancel the title in the name of
Apolonia Ngo and other persons;
(4) Declaring the adverse claim of Apolonia Ngo as void and of no effect;
(5) Ordering the Register of [Deeds of] Manila or its deputy to cancel the adverse
claim of Apolonia Ngo as appearing in the title of the lot in question;
(6) Ordering the defendants Midcom thru Miguel Say and Apolonia Ngo to pay jointly
and severally the plaintiffs the sum of P100,000.00 as moral damages,
and P50,000.00 as exemplary damages;
(7) Ordering the defendants Midcom, Miguel Say and Apolonia Ngo to pay jointly
and severally the plaintiffs the sum of P30,000.00 attorneys fees;
(8) Respondents Miguel Say, Apolonia Ngo and the Register of Deeds of Manila are
hereby declared in contempt of court and are hereby fined P100.00 each with
subsidiary imprisonment in case of insolvency for violation of the restraining order;
(9) Ordering defendants to pay the costs.

SO ORDERED.[11]

Upon finality of the said decision, a writ of execution[12] was issued by the RTC of Manila, Branch 29
on August 16, 1990. TCT No. 164726 was cancelled and TCT No. 195378[13] in the name of the Galicias was
issued by the Register of Deeds of Manila on January 22, 1991.

On January 23, 1991, the Galicias and petitioner Philippine National Bank (PNB) signed a contract of
real estate mortgage[14] over the property to secure a loan for P5,000,000 which the Galicias had taken.

On February 29, 1991, Apolonia Ngo and respondents Adela Sia and Robert Ngo filed with the Court of
Appeals a petition[15] for certiorari and prohibition praying that the decision in Civil Case No. 84-27347 be
declared void on the ground of lack of jurisdiction, for failure to implead therein the respondents Adela Sia and
Robert Ngo as indispensable parties. The petition was docketed as CA-G.R. SP No. 22889. Being insufficient in
form and substance, however, the petition was denied due course on March 11, 1991.[16] Apolonia Ngo and
respondents first and second motions for reconsideration were likewise denied by the appellate court in its
Resolutions dated May 31, 1991 and June 14, 1991.[17]

Thereafter, on August 2, 1991, respondents Adela Sia and Robert Ngo, claiming that their title to the subject
property was beclouded by the decision and writ issued in Civil Case No. 84-27347, and joining an unwilling
Apolonia as compulsory plaintiff, instituted a complaint[18] for quieting of title and/or reconveyance, damages,
and annulment of judgment with prayer for restraining order and/or preliminary injunction before the RTC of
Manila, Branch 3 against the Galicias, the City Sheriff of Manila, the Sheriff of Branch 29 of the RTC of
Manila, the Register of Deeds, and MIDCOM. The complaint, docketed as Civil Case No. 91-58130, was later
amended by deleting therein the action for annulment of judgment.

On August 27, 1991, respondent Adela Sia, joining respondent Robert Ngo and his wife, Apolonia Ngo
as compulsory petitioners, also filed a petition[19] for annulment of judgment before the Court of Appeals. The
petition, docketed as CA-G.R. SP No. 25819, likewise sought the nullification of the same decision and writ of
execution issued in Civil Case No. 84-27347 allegedly for lack of jurisdiction for non-inclusion of Adela Sia
who was an indispensable party. However, the Court of Appeals dismissed the petition for failure to state a
cause of action.[20] The appellate court held that respondent Adela Sia had no right to the subject property at the
time the complaint in Civil Case No. 84-27347 was filed since her claim as registered co-owner of the property
arose only during the pendency of the case. Respondent Adela Sia moved for reconsideration, but it was denied
in the November 27, 1991 Resolution[21] of the Court of Appeals. Not dissuaded by the dismissal, she elevated
the case to this Court via petition for review, docketed as G.R. No. 103054.[22] This Court, however, also denied
the petition, as well as the motions for reconsideration, and ordered that an entry of judgment be made in due
course.[23]

The complaint lodged before Branch 3 of the RTC of Manila and docketed as Civil Case No. 91-58130 was
amended for the second time by impleading PNB as a party defendant for having accepted the subject property as
one of the collaterals in the loan it extended to the Galicias. Respondents claim that the mortgage of the land to
PNB was in bad faith since PNB accepted the subject property as collateral to the loan obtained by
the Galicias when the title of the property was still in the respondents names. They claim that they are entitled to
have TCT No. 164726 restored and reinstated and to have all the entries and annotations of adverse claim,
mortgage lien, and notice of lis pendens on their title removed so as to quiet their title thereto.

On August 29, 1994, the RTC of Manila, Branch 3, rendered judgment in Civil Case No. 91-58130, holding that
the action is barred by res judicata since the issues raised therein had already been answered with finality by the
decision in Civil Case No. 84-27347. However, the trial court held that respondents are entitled to recover from
MIDCOM the purchase price of P630,000 plus legal rate of interest from October 1, 1984, and attorneys fees in
the amount of P20,000.[24] The dispositive portion of the decision states:
WHEREFORE, judgment is rendered:
1. Ordering MIDCOM Corporation to pay plaintiff the sum of P630,000.00 plus legal rate of interest
from October 1, 1984 and attorneys fees in the amount of P20,000.00.
2. Dismissing plaintiffs complaint against defendants Felicisimo Galicia and Myrna Galicia.
3. Dismissing plaintiffs complaint against PNB.
As to counterclaim:
4. Plaintiffs are hereby ordered jointly and solidarily to pay defendants Felicisimo and
Myrna Galicia the sum of P20,000.00 as attorneys fees plus costs of litigation.
5. Plaintiffs are hereby ordered jointly and solidarily to pay defendant PNB the sum
of P20,000.00 as attorneys fees plus cost of litigation.
All other claims and counterclaims are hereby dismissed.
SO ORDERED.[25]

On March 8, 1995,[26] the trial court denied respondents motion for reconsideration. The respondents
elevated the case before the Court of Appeals, where it was docketed as CA-G.R. CV No. 49806.

On July 31, 2003, the Court of Appeals reversed the ruling of the court a quo as follows:
WHEREFORE, the appeal is GRANTED and the assailed Decision
is REVERSED and SET ASIDE. In its stead[,] judgment is rendered:
1. Declaring Apolonia S. Ngo, married to Robert Ngo, and Adela Sia as co-
owners of the litigated lot and its improvements;
2. Ordering the Register of Deeds of Manila to recall and cancel TCT No.
195378 in the names of the Galicias and to restore and reinstate TCT No.
164726 in the names of Apolonia S. Ngo, married to Robert Ngo, and Adela
Sia; and
3. Ordering the Register of Deeds of Manila to cancel and remove all
pertinent notices/annotations of adverse claim, lis pendens, mortgage and
liens on TCT No. 164726.
SO ORDERED.[27]

The appellate court held that what was entered into by MIDCOM and the Galicias was a mere contract to
sell. Accordingly, MIDCOM remained the owner of the disputed property and could unilaterally rescind the
contract to sell when the Galicias failed to pay the balance of the purchase price. The appellate court likewise held
that for failure to implead an indispensable party, the judgment in Civil Case No. 84-27347 cannot bind
respondent Adela Sia, who was a co-owner holding a one-half pro-indiviso share of the property.

Further, the Court of Appeals held that PNB was a mortgagee in bad faith. It noted that while the Real Estate
Mortgage and Credit Agreement was entered into only on January 23, 1991 or a day after TCT No. 195378 in the
name of the Galicias was issued on January 22, 1991, the loan application offering the subject property as
collateral was dated November 29, 1990 and the PNB Rizal Avenue branch recommended its approval on
December 14, 1990. It held that PNB committed lapses when it acted on the offer of the Galicias to secure their
loan with a mortgage on a property covered by TCT No. 195378, since said title was still inexistent at the time,
having been issued only on January 22, 1991. If PNB had indeed conducted an investigation as it claimed it did,
then PNB would have discovered this fact.

PNB[28] and the Galicias[29] separately moved for reconsideration of the Court of Appeals decision, but the
Court of Appeals denied their motions in its assailed Resolution dated October 28, 2004.[30]

Hence, the instant petition where PNB alleges that the Court of Appeals committed serious error in
I.
ORDERING THE [REGISTER OF DEEDS] OF MANILA TO RECALL AND CANCEL TCT
NO. 195378 IN THE NAMES OF THE GALICIAS AND TO RESTORE AND REINSTATE
TCT NO. 164726 IN THE NAMES OF APOLONIA S. NGO, MARRIED TO ROBERT NGO,
AND ADELA SIA.

II.
RULING THAT PETITIONER PNB IS A MORTGAGEE IN BAD FAITH.

III.
ORDERING THE CANCELLATION AND REMOVAL OF ALL PERTINENT
NOTICES/ANNOTATIONS OF ADVERSE CLAIM, LIS PENDENS, MORTGAGE AND
LIENS ON TCT NO. 164726.[31]

Essentially, the issues for our resolution are: (1) whether Civil Case No. 91-58130 is barred by res
judicata; and (2) whether PNB is a mortgagee in bad faith.

PNB argues that res judicata applies in the present case. It maintains that the facts in the action for
quieting of title (Civil Case No. 91-58130) are also the very same facts evaluated in the proceedings before the
Manila RTC, Branch 29 in Civil Case No. 84-27347, CA-G.R. SP No. 22889 and CA-G.R. SP No. 25819 which
involve the same parties, same issues, and which have already been resolved with finality by the courts.[32]

Respondents counter that the vital elements of res judicata are not present because Adela Sia, an indispensable
party, was not impleaded as party defendant in Civil Case No. 84-27347.[33]

After careful review, we find merit in PNBs petition.

The doctrine of res judicata as enunciated in Section 47, Rule 39 of the Rules of Court, reads:
SEC. 47. Effect of judgments or final orders.The effect of a judgment or final order
rendered by a court of the Philippines, having jurisdiction to pronounce the judgment or final
order, may be as follows:
 xxxx
(b) In other cases, the judgment or final order is, with respect to the matter directly
adjudged or as to any other matter that could have been raised in relation thereto, conclusive
between the parties and their successors in interest by title subsequent to the commencement of
the action or special proceeding, litigating for the same thing and under the same title and in the
same capacity; and
(c) In any other litigation between the same parties or their successors in interest, that
only is deemed to have been adjudged in a former judgment or final order which appears upon its
face to have been so adjudged, or which was actually and necessarily included therein or
necessary thereto.

Res judicata literally means a matter adjudged; a thing judicially acted upon or decided; a thing or matter
settled by judgment. Res judicata lays the rule that an existing final judgment or decree rendered on the merits,
and without fraud or collusion, by a court of competent jurisdiction, upon any matter within its jurisdiction, is
conclusive of the rights of the parties or their privies, in all other actions or suits in the same or any other judicial
tribunal of concurrent jurisdiction on the points and matters in issue in the first suit.[34]

For the preclusive effect of res judicata to be enforced, however, the following requisites must be
present: (1) the judgment or order sought to bar the new action must be final; (2) the decision must have been
rendered by a court having jurisdiction over the subject matter and the parties; (3) the disposition of the first
case must be a judgment on the merits; and (4) there must be between the first and second action, identity of
parties, subject matter and causes of action.[35]

In defending their title over the subject property, respondents insist that the decision in Civil Case No.
84-27347 is null and void for failure to implead them as indispensable parties. However, these arguments
adduced by respondents have already been raised, passed upon, and rejected with finality in CA-G.R. SP No.
22889 and CA-G.R. SP No. 25819.

In CA-G.R. SP No. 22889, the Court of Appeals ruled in this wise:

In that Civil Case No. 84-27347, defendant Apolonia S. Ngo filed her answer to the
complaint. She thereby submitted to the jurisdiction of the respondent court, she cannot now
alleged (sic) in the petition at bar that the court a quo did not acquire jurisdiction over her
person. If petitioner Apolonia S. Ngo is indeed married to Robert Ngo, she kept silent about her
marital status during the entire proceedings in Civil Case No. 84-27347. Petitioner Apolonia S.
Ngo could have assailed from the beginning the lower courts jurisdiction over her person on the
ground that her husband Robert Ngo was not impleaded and could have thus invoked what she
now claims that she cannot be sued for not being joined with her husband, Robert Ngo. This
Court frowns upon petitioners omission in not disclosing to the court below their status as
husband and wife. On the other hand, Robert Ngo, petitioner herein, as husband of Apolonia S.
Ngo, cannot disclaim knowledge about the fact that his wife is a defendant in Civil Case No. 84-
27347. It is, therefore, clear that petitioner Apolonia S. Ngo is now estopped from assailing the
jurisdiction of the Regional Trial Court of Manila in Civil Case No. 84-27347 after she had
voluntarily submitted herself to its jurisdiction (Tejones vs. Geronilla, 159 SCRA
100). Petitioners must be considered to have accepted the lower courts jurisdiction. Estoppel is a
bar against any claims of lack of jurisdiction. (Balais vs. Balais, 159 SCRA 37).
xxxx
In the case at bar, petitioner Apolonia S. Ngo lost her right to appeal by failing to avail of
it seasonably. To remedy that loss, the petitioners have now resorted to the extraordinary remedy
of certiorari as a mode of obtaining reversal of the judgment from which they failed to
appeal. But since the decision in Civil Case No. 84-27347 has become final, it has gone beyond
the reach of any court to modify in any substantive aspect. . . .[36]
xxxx

In CA-G.R. SP No. 25819, the Court of Appeals held that:

What is important to note is that after due trial, the trial court found the property in
question was the subject of a contract to sell on August 20, 1984entered into by [the Galicias]
and defendant Midcom through its President, Miguel Say, Jr. The [Galicias] made a down
payment of P410,000.00, with a balance of P70,000.00 payable on October 20, 1984.
Upon receipt of information that defendant Miguel Say, Jr. was selling the property in question
to another, the [Galicias] executed an Affidavit of Adverse Claim on October 2, 1984 and
annotated the same on the same date in TCT [No.] 156156. The trial court declared the unilateral
rescission of the contract to sell executed by defendant Midcom and Say dated October 3, 1984
in favor of the [Galicias] null and void. The trial court likewise declared Apolonia S. Ngo as a
purchaser in bad faith when she purchased the property in question, being aware of facts that
ought to induce her to inquire into the status of said property. . . .
Considering that the validity of the contract to sell executed by defendant Midcom
through Miguel Say, Jr. in favor of [the Galicias] was upheld and the deed of sale executed by
defendants Midcom thru Miguel Say, Jr. in favor of Apolonia Ngo, was in effect declared null
and void, TCT No. 164726 of the Registry of Deeds of Manila issued to Apolonia Ngo and her
alleged co-owner Adela Sia pursuant to the invalidated deed of sale and in violation of the
restraining order issued by the respondent court on October 31, 1984 did not produce any right or
title in favor of the apparent registered owners of the property in question, and for which reason
the respondent court correctly ordered Apolonia Ngo and all persons claiming right under said
TCT No. 164726 to turn over and deliver the duplicate owners copy thereof to plaintiffs and to
convey the subject property to them.
There is reason to believe that [the Galicias] could not at the time they filed the complaint have
included petitioner Adela Sia as one of the defendants in Civil Case No. 84-27347 before the
respondent Regional Trial Court of Manila on the ground that said case was principally to ask the
court to compel Midcom to execute a deed of sale in favor of respondents Galicia and to deliver
its owners copy of the title to the latter, and incidentally to cancel the adverse claim annotated by
Apolonia Ngo on the title of Midcom.
Upon the other hand, an adverse claim of plaintiff-spouses Galicia and notice of lis
pendens having been annotated on the TCT of defendant Midcom of which petitioner Adela Sia
had constructive, if not actual notice, said petitioner who claims an interest in the property under
litigation should have intervened in the action (Civil Case No. 84-27347) brought by the spouses
Galicia against Midcom, Say, Apolonia Ngo, and the Register of Deeds of Manila. Having failed
to intervene, the judgment rendered in said case is binding on her. . . .
 Having acquired no right or title to the property in dispute, petitioner [Adela] Sia has no cause of
action to ask for the annulment of the judgment of the respondent Regional Trial Court in Civil
Case No. 84-27347.[37]
xxxx

In denying Adela Sias motion for reconsideration in CA-G.R. SP No. 25819, the Court of Appeals in
its November 27, 1991 Resolution reiterated its earlier ruling that she is not an indispensable party in the
proceedings in Civil Case No. 84-27347 before Branch 29 of the Manila RTC. The appellate court held:
xxxx

In the third ground[, respondent Adela], claiming to be an indispensable party, argues that she
was deprived of her property without due process of law.

We cannot sustain [respondents] claim. Considering the manner how she and Apolonia Ngo
obtained TCT No. 164726 of the Registry of Deeds of Manila in violation of the restraining
order issued by the trial court, and the nature of the complaint filed by the
spouses Galicia against Midcom [Interline] Development Corporation, et al., petitioner could not
insist that she is an indispensable party therein.

Moreover, as we have said in the decision sought to be reconsidered that an adverse claim and
notice of lis pendens having been annotated in the TCT of defendant Midcom, of which she has
notice, she should have intervened in said action. Additionally, she and Apolonia Ngo having the
same interest in the land in litigation through the alleged sale to them by Midcom, the judgment
against Apolonia is binding on her.[38]

xxxx

As mentioned above, this Court denied the petition for review filed in CA-G.R. SP No. 25819 and ordered that
an entry of judgment be made in the case. There being no appeals made in CA-G.R. SP No. 22889, the latter has
also attained finality.

In the present case, the first three elements of res judicata are present. As to the fourth element, it is
important to note that the doctrine of res judicata has two aspects: first, bar by prior judgment which is provided
in Rule 39, Section 47 (b) of the Rules of Court and second, conclusiveness of judgment which is provided in
Section 47 (c) of the same Rule.

There is bar by prior judgment when, as between the first case where the judgment was rendered, and
the second case that is sought to be barred, there is identity of parties, subject matter, and causes of action. But
where there is identity of parties and subject matter in the first and second cases, but no identity of causes of
action, the first judgment is conclusive only as to those matters actually and directly controverted and
determined and not as to matters merely involved therein.This is conclusiveness of judgment. Under the
doctrine of conclusiveness of judgment, facts and issues actually and directly resolved in a former suit cannot
again be raised in any future case between the same parties, even if the latter suit may involve a different claim
or cause of action. The identity of causes of action is not required but merely identity of issues.[39]
 In this case, conclusiveness of judgment exists because respondents again seek to enforce their right and
title over the same subject matter, the litigated property, basing their claim on the nullity of the judgment in
Civil Case No. 84-27347, for failure to implead them therein as indispensable parties, which had been overruled
by final and executory judgments. The same question cannot be raised again even in a different proceeding
involving the same parties.

Anent the issue that PNB is a mortgagee in bad faith, PNB claims it was diligent in processing the loan
application of the Galicias and that respondents failed to dispute that prior to the signing of the Real Estate
Mortgage Agreement on January 23, 1991, it conducted a credit investigation on the Galicias as well as the
parcels of land being offered as collaterals. PNB also contends that the fact that it conducted its credit
investigation prior to the issuance of TCT No. 195378 in the name of the Galicias should not be taken against
it. It argues that what was material to the grant of the loan was that the Galicias were able to secure a copy of
the TCT issued to them on January 22, 1991. PNB contends that without a copy of TCT No. 195378, the loan
application would not have been granted.[40]

Respondents, on the other hand, argue that PNB is a mortgagee in bad faith as it closed its eyes to the
infirmity of the Galicias collateral just to accommodate them.[41]

We are of the opinion and so hold that PNB acted in good faith when it approved the loan application of
the Galicias. We note that at the time the Galicias applied for a loan with PNB on November 29, 1990,[42] the
decision in Civil Case No. 84-27347 was already final and executory. In fact, the trial court already issued a writ
of execution on August 16, 1990 to implement its decision. Moreover, the respondents themselves alleged in their
pleadings that the documents assessed by the bank in granting the loan application of the Galicias were the
Contract to Sell between MIDCOM and the Galicias dated August 20, 1984 and the September 26, 1990
Order[43]of the trial court in Civil Case No. 84-27347 categorically ordering the Register of Deeds of Manila to
cancel the title of Apolonia Sia and all persons claiming rights under her and to issue a new title in favor of the
Galicias.[44] Furnished with a copy of the September 26, 1990 Order, PNB can reasonably conclude that it has no
more reason to doubt that the Galicias are the recognized owners of the subject property because no less than the
court ordered the Register of Deeds of Manila to issue a title in their names. As a gesture of utmost precaution,
PNB even waited for the title in favor of the Galicias to be issued before it executed and signed the Contract of
Real Estate Mortgage. For this reason, PNB cannot be considered a mortgagee in bad faith.

WHEREFORE, the petition is hereby GRANTED. The assailed July 31, 2003 Decision and the
October 28, 2004 Resolution of the Court of Appeals in CA-G.R. CV No. 49806 are REVERSED and SET
ASIDE. The August 29, 1994 Decision[45] of the Regional Trial Court of Manila, Branch 3 in Civil Case No.
91-58130 is hereby REINSTATED.
Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 159794 December 19, 2006

MACLARING M. LUCMAN, in his capacity as the Manager of the LAND BANK OF THE
PHILIPPINES, Marawi City, petitioner,
vs.
ALIMATAR MALAWI, ABDUL-KHAYER PANGCOGA, SALIMATAR SARIP, LOMALA CADAR,
ALIRIBA S. MACARAMBON and ABDUL USMAN, respondents.

DECISION

TINGA, J.:

This is a petition for review challenging the decision of the trial court, affirmed by the Court of
Appeals, granting the petition for mandamus filed by herein respondents, Barangay Chairmen (or
Punong Barangay) of several barangays in the province of Lanao del Sur.

The petition for mandamus filed by respondents before the trial court is rooted in their claim that they
were deprived of their Internal Revenue Allotment (IRA) for the 2 nd and 3rd quarters of 1997.
Respondents further alleged that these same funds were released by petitioner as Manager of Land
Bank of the Philippines (LBP), the depositary bank, to third persons.

There were originally six (6) petitioners when the Petition for Mandamus with Prayer for Writ of
Preliminary Mandatory Injunction was filed by now respondents before the court of origin. They were
Alimatar Malawi, Abdulkhayr Pangcoga, Salimatar Sarip, Lomala Cadar, Aliriba S. Macarambon and
Abdul Usman who were the incumbent barangay chairmen of Bubong Ngingir (Kabasaran), Ilian,
Linindingan, Mapantao-Ingod, Paigoay and Rangiran, respectively, all from the Municipality of
Pagayawan, Lanao del Sur.1 All of them were the incumbent barangay chairmen of their respective
barangays prior to the 12 May 1997 barangay elections. The elections on 12 May 1997 in the
aforesaid barangays resulted in a failure of elections. Thereafter, the special elections held in these
barangays likewise resulted in a failure of elections.2 Consequently, respondents remained in office in
a holdover capacity pursuant to the provisions of Sec. 1 of

R.A. No. 66793 and Comelec Resolution No. 2888 dated February 5, 1997.4
Beginning with the second quarter of 1997, LBP was selected as the government depository bank for
the IRAs of the abovementioned barangays.5 Being a new government depositary bank for the IRA
funds, the authorized public officials had to open new accounts in behalf of their government units
with the proper LBP branch from which they could withdraw the IRAs. 6

After the failed 12 May 1997 elections, respondents attempted to open their respective barangays'
IRA bank accounts but were refused by petitioner because respondents needed to show their
individual certifications showing their right to continue serving as Barangay Chairmen and the
requisite Municipal Accountant's Advice giving respondents the authority to withdraw IRA
deposits.7 The requirement for the Accountant's Advice stemmed from Commission on Audit Circular
No. 94-004.8

Respondents were eventually allowed to open accounts for their barangays except for Lomala Cadar
and Abdul Usman of barangays Mapantao-Ingud and Rangiran, respectively, because the accounts
for these barangays were previously opened by two persons who presented themselves as the duly
proclaimed Barangay Chairmen for these same barangays.9

In any event, all respondents were not allowed to withdraw the IRA funds from the opened accounts,
owing to the absence of the requisite Accountant's Advice. 10

Then on 4 August 1997, five (5) other persons presented themselves before petitioner as the newly
proclaimed Punong Barangays of the five barangays concerned, 11 each of them presenting a
certification of his election as Punong Barangay issued by the provincial director of the DILG-ARMM
and another Certification issued by the Local Government Operations Officer attesting, among others,
to the revocation of the certification previously issued to respondents.12 Without verifying the
authenticity of the certifications presented by these third persons, petitioner proceeded to release the
IRA funds for the 2nd and 3rd quarters of 1997 to them.13

Respondents thus filed on 11 August 1997 a special civil action for Mandamus with Application for
Preliminary Mandatory Injunction docketed as Civil Case No. 11-106, to compel petitioner to allow
them to open and maintain deposit accounts covering the IRAs of their respective barangays and to
withdraw therefrom.14 The case was raffled to the Regional Trial Court (RTC) of Lanao del Sur,
Branch 11.15

At the trial respondents Sarip, Cadar, Pangcoga and Usman testified that they were duly elected
chairpersons of their respective barangays and continued as such in a holdover capacity until their re-
election on 30 August 1997. They testified further that despite presenting the corresponding
documents, petitioner refused to allow the withdrawal of the funds. 16

Respondent Macarambon testified that he was the incumbent chairperson of Barangay Paigoay prior
to the 12 May 1997 elections and that due to the failure of elections, he continued to occupy his
position in a holdover capacity until he was succeeded by his wife upon the latter's election to the
same post. He testified on petitioner's refusal to release the money to him despite his submission of
the Accountant's Advice.17

For failure to appear at the scheduled hearing on 20 April 1999, petitioner was held as in default and
respondents were allowed to present evidence ex parte. Petitioner's Motion for Reconsideration of the
Order declaring him as in default was granted.18

After failing again to appear on the given time for him to adduce evidence, another Order was issued
wherein petitioner was deemed to have waived his right to present evidence. The Order was lifted on
petitioner's Motion for Reconsideration. Instead of presenting evidence, petitioner filed on 10
November 1999 a Motion to Dispense or Waive Presentation of Evidence wherein he represented
that the prayers in the complaint had already been complied with.19 The RTC granted petitioner's
motion through an Order dated 24 September 1999.20

Thereafter, the RTC rendered a Decision21 dated 8 October 1999 commanding petitioner to pay
respondents, except respondent Alimatar Malawi who failed to testify, the IRAs of their respective
barangays "even without the Accountant's Advice."22 The dispositive portion of the Decision reads, to
wit:

WHEREFORE, premises all considered, the instant petition is hereby granted. Accordingly, Mr.
Maclaring M. Lucman, Manager of the Land Bank of the Philippines, Marawi City branch, is
hereby ordered to pay the following:23

1. Aliriba Macarambon, the 2nd Quarter IRA of Paigoay, Pagayawan in the sum
of P48,200.00;

2. Salimatar Sarip of Linindingan the

2nd Quarter IRA - - - P54,220.00

3rd Quarter IRA - - - P54,220.00

3. Lomala S. Cadar of Mapantao the

2nd Quarter IRA - - - P54,320.00

3rd Quarter IRA - - - P54,320.00

4. Abdulkhay Pangcoga of Ilian the

2nd Quarter IRA - - - P53, 361.00

3rd Quarter IRA - - - P53,361.00

5. Abdul Usman of Rangiran the

2nd Quarter IRA - - - P51,185.00

3rd Quarter IRA - - - P51,185.00

even without the Accountant's Advice and the subsequent IRAs until their term of office shall
have expired.

SO ORDERED.24

The RTC gave no credence to petitioner's assertion of payment to the rightful barangay officers, there
having been no testimonial or documentary evidence proferred in substantiation thereof.25 It
considered petitioner's refusal to present evidence as a "silence" that equates to an admission of
respondents' allegations.26Furthermore, the RTC relied on the testimonies and certifications adduced
by respondents in holding that they were occupying their positions in a holdover capacity27and that by
virtue thereof, they had "the perfect right to continue performing the duties and functions of their
positions including the withdrawal of funds of their respective barangays."28

The Court of Appeals29 affirmed the RTC's Decision in toto. Hence, this petition.

Petitioner argues that respondents have no cause of action against him since they failed to present
valid certifications showing their respective right to continue serving as Punong Barangay as well as
the requisite Municipal Accountant's Advice. Petitioner also asserts that the LBP Marawi Branch had
already released the contested IRAs to the Barangay Treasurers who were acting in conjunction with
the duly recognized Punong Barangays, thereby making the petition for mandamus moot and
academic.30 These are factual issues that are generally beyond the review of this Court.

Petitioner adds that respondents have no legal personality to institute the petition for mandamus in
their own names since the IRAs rightfully belong to the respective barangays and not to them and
that their respective barangays already received the claimed IRAs in this instant case. 31

For the proper adjudication of the present petition, two related core issues have to be resolved. First,
what is the cause of action alleged in the initiatory pleading filed by respondents before the trial
court? Second, are there indispensable parties which were not impleaded?

Although the pleading filed before the lower court was denominated as a Petition for Mandamus With
Prayer For Writ of Preliminary Injunction, the allegations thereof indicate that it is an action for specific
performance, particularly to compel petitioner to allow withdrawal of funds from the accounts of the
barangays headed by respondents with the LBP, Marawi Branch. Thus, the Petition alleged:

"12. Despite the opening of deposit accounts for the barangays mentioned in the preceding
paragraph, respondent, without any valid or lawful cause, failed and refused, and still fails and
refuses, to allow the withdrawal of the funds or IRA of the said barangays as evidenced by the
WITHDRAWAL CHECKS (attached as Annexes "D" to "D-3" hereof) of said barangays which
were refused payment when presented to the Land Bank on August 4, 1997." 32

From the records of the case, it appears that the shares of the barangays in the IRA had already
been remitted by the Department of Budget and Management (DBM) to the LBP Marawi Branch
where they were kept in the accounts opened in the names of the barangays.

By virtue of the deposits, there exists between the barangays as depositors and LBP a creditor-debtor
relationship. Fixed, savings, and current deposits of money in banks and similar institutions are
governed by the provisions concerning simple loan.33 In other words, the barangays are the lenders
while the bank is the borrower.

This Court elucidated on the matter in Guingona, Jr., et al. v. The City Fiscal of Manila, et
al.,34 citing Serrano v. Central Bank of the Philippines,35 thus:

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 v. Phil.
National Bank, 62 Phil. 519). Current and savings deposits are loans to a bank because it can
use the same. The petitioner here in making time deposits that earn interest with 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 depository's failure to return the subject matter of the deposit. (Emphasis
supplied.)36

The relationship being contractual in nature, mandamus is therefore not an available remedy since
mandamus does not lie to enforce the performance of contractual obligations. 37

This brings us to the second core issue.

The IRA funds for which the bank accounts were created belong to the barangays headed by
respondents. The barangays are the only lawful recipients of these funds. Consequently, any
transaction or claim involving these funds can be done only through the proper authorization from the
barangays as juridical entities.

The determination, therefore, of whether or not the IRA funds were unlawfully withheld or improperly
released to third persons can only be determined if the barangays participated as parties to this
action. These questions cannot be resolved with finality without the involvement of the barangays.
After all, these controversies involve funds rightfully belonging to the barangays. Hence, the
barangays are indispensable parties in this case.

An indispensable party is defined as parties-in-interest without whom there can be no final

determination of an action.38 The nature of an indispensable party was thoroughly discussed in
Arcelona v. Court of Appeals,39 to quote:

An indispensable party is a party who has such an interest in the controversy or subject matter
that a final adjudication cannot be made, in his absence, without injuring or affecting that
interest, a party who has not only an interest in the subject matter of the controversy, but also
has an interest of such nature that a final decree cannot be made without affecting his interest
or leaving the controversy in such a condition that its final determination may be wholly
inconsistent with equity and good conscience. It has also been considered that an
indispensable party is a person in whose absence there cannot be a determination between
the parties already before the court which is effective, complete, or equitable. Further, an
indispensable party is one who must be included in an action before it may properly go
forward.

A person is not an indispensable party, however, if his interest in the controversy or subject
matter is separable from the interest of the other parties, so that it will not necessarily be
directly or injuriously affected by a decree which does complete justice between them. Also, a
person is not an indispensable party if his presence would merely permit complete relief
between him and those already parties to the action, or if he has no interest in the subject
matter of the action. It is not a sufficient reason to declare a person to be an indispensable
party that his presence will avoid multiple litigation.40

In Arcelona, the Court also dwelt on the consequences of failure to include indispensable parties in a
case, categorically stating that the presence of indispensable parties is a condition for the exercise of
juridical power41and when an indispensable party is not before the court, the action should be
dismissed.42 The absence of an indispensable party renders all subsequent actions of the court null
and void for want of authority to act, not only as to the absent parties but even as to those present. 43

The joinder of indispensable parties is mandatory. Without the presence of indispensable parties to
the suit, the judgment of the court cannot attain real finality. Strangers to a case are not bound by the
judgment rendered by the court.44
Clearly, this case was not initiated by the barangays themselves. Neither did the barangay chairmen
file the suit in representation of their respective barangays. Nothing from the records shows
otherwise. On this score alone, the case in the lower court should have been dismissed.

Even if the barangays themselves had filed the case, still it would not prosper. The case involves
government funds and as such, any release therefrom can only be done in accordance with the
prevailing rules and procedures.

The Government Accounting and Auditing Manual (GAAM) provides that the local treasurers shall
maintain the depositary accounts in the name of their respective local government units with
banks.45 Under the Local Government Code, the treasurer is given the power, among others, to:
(1) keep custody of barangay funds and properties; and (2) disburse funds in accordance with the
financial procedures provided by the Local Government Code. 46 The same manual defines
disbursements as constituting all cash paid out during a given period either in currency or by check.47

Sec. 344 of the Local Government Code further provides for the following requirements in cases of
disbursements, to wit:

Sec. 344. No money shall be disbursed unless the local budget officer certifies to the existence
of appropriation that has been legally made for the purpose, the local accountant has obligated
said appropriation, and the local treasurer certifies to the availability of funds for the purpose.
Vouchers and payrolls shall be certified to and approved by the head of the department or
office who has administrative control of the fund concerned, as to the validity, propriety, and
legality of the claim involved. Except in cases of disbursements involving regularly recurring
administrative expenses xxx approval of the disbursement voucher by the local chief executive
himself shall be required whenever local funds are disbursed.

Thus, as a safeguard against unwarranted disbursements, certifications are required from: (a) the
local budget officer as to the existence and validity of the appropriation; (b) the local accountant as to
the legal obligation incurred by the appropriation; (c) the local treasurer as to the availability of funds;
and (d) the local department head as to the validity, propriety and legality of the claim against the
appropriation.48

Further, the GAAM provides for the basic requirements applicable to all classes of disbursements that
shall be complied with, to wit:

a) Certificate of Availability of Fund.Existence of lawful appropriation, the unexpended

balance of which, free from other obligations, is sufficient to cover the expenditure, certified as
available by an accounting officer or any other official required to accomplish the certificate.

Use of moneys appropriated solely for the specific purpose for which appropriated, and for no
other, except when authorized by law or by a corresponding appropriating body.

b) Approval of claim or expenditure by head of office or his duly authorized

representative.

c) Documents to establish validity of claim. Submission of documents and other

evidences to establish the validity and correctness of the claim for payment.

d) Conformity of the expenditure to existing laws and regulations.

e) Proper accounting treatment.49

This prescribed legal framework governing the release and disbursement of IRA funds to the
respective barangays disabuses from the notion that a barangay chairman, relying solely on his
authority as a local executive, has the right to demand physical possession of the IRA funds allocated
by the national government to the barangay. The right to demand for the funds belongs to the local
government itself through the authorization of their Sanggunian. 50

One final note. There is no conclusive proof from the records showing that the IRA funds for the
2nd and 3rdquarters of the barangays concerned remitted by the DBM had already been

withdrawn from the LBP Marawi Branch. Considering the implications of this action of possibly
depriving several local government units of their IRAs, the Court took the initiative to request the
COMELEC to issue certifications on who were the duly elected chairmen of the barangays
concerned. The COMELEC issued to this Court a list of the elected barangay chairmen which
confirmed the re-election of respondents as barangay chairmen of their respective barangays. 51 If
withdrawals were indeed made, whether by the respondents or by impostors, the matter deserves to
be investigated since public funds are involved. Accordingly, we refer the matter to the Department of
Interior and Local Government (DILG) for investigation and appropriate action.

WHEREFORE, premises considered, the petition is GRANTED. The assailed Decisions of the Court
of Appeals and the Regional Trial Court are REVERSED and SET ASIDE. The Petition for
Mandamus filed before the Regional Trial Court is ordered DISMISSED.

The alleged withdrawals of deposits representing the Internal Revenue Allotments for the 2 nd and
3rd Quarters of 1997 of the barangays concerned from the Land Bank of the Philippines, Marawi
Branch, are referred to the DILG for investigation and appropriate action. The DILG is hereby
DIRECTED to INFORM the Court of the result of its investigation within thirty (30) days from the
completion thereof.

No pronouncement as to costs.

SO ORDERED.

Ursal v. CA (G.R. No. 142411)

Oct16

Facts:
Spouses Moneset are registered owners of a parcel of land and they executed on it a Contract to Sell in favor of
petitioner Ursal. Petitioner paid the monthly installments but stopped due to the spouses failure to deliver the
TCT. The land was subject of an absolute deed of sale in favor of Dr. Canora, Jr. and was sold again with pacto
de retro. The land was mortgaged with respondent Rural Bank of Larena and corresponding annotations to the
title were made. For failure of the spouses to pay the loan, the bank served a notice of extra-judicial foreclosure.
Petitioner moved for the declaration of the non-effectivity of the mortgage and the payment of damages alleging
that there was fraud/bad faith in the part of the spouses and with the bank for granting the REM in spite
knowing that the property was in possession of petitioner. RTC ruled in favor of petitioner but maintained that
the property be foreclosed. CA affirmed in toto.

Issue:

Whether or not respondent bank acted in bad faith by failing to look beyond the TCT of the property before a
loan may be extended upon it.

Ruling: YES.

We agree. Banks cannot merely rely on certificates of title in ascertaining the status of mortgaged properties; as
their business is impressed with public interest, they are expected to exercise more care and prudence in their
dealings than private individuals. Indeed, the rule that persons dealing with registered lands can rely solely on
the certificate of title does not apply to banks.

As enunciated in Cruz vs. Bancom:

Respondent is not an ordinary mortgagee; it is a mortgagee-bank. As such, unlike private individuals, it is

expected to exercise greater care and prudence in its dealings, including those involving registered lands. A
banking institution is expected to exercise due diligence before entering into a mortgage contract. The
ascertainment of the status or condition of a property offered to it as security for a loan must be a standard and
indispensable part of its operations.

*The ruling in the case however is still unfavorable to petitioner. The court held:

Our agreement with petitioner on this point of law, notwithstanding, we are constrained to refrain from
granting the prayers of her petition. The reason is that, the contract between petitioner and the Monesets
being one of Contract to Sell Lot and House, petitioner, under the circumstances, never acquired
ownership over the property and her rights were limited to demand for specific performance from the
Monesets, which at this juncture however is no longer feasible as the property had already been sold to other
persons.
Share this:

AMLA CASE

FIRST DIVISION

G.R. No. 170281

January 18, 2008

REPUBLIC OF THE PHILIPPINES, represented by the ANTI-MONEYLAUNDERING COUNCIL VS.
GLASGOW CREDIT ANDCOLLECTION SERVICES, INC. and CITYSTATE SAVINGS BANK, INC.
FACTS:On July 18, 2003, petitioner filed a complaint for civil forfeiture of assets withthe RTC of Manila
against the bank deposits in account number CS 005-10-000121-5 maintained by GLASGOW in CSBI. The
case was filed pursuant to RA 9160 or theAnti-Money Laundering Act of 2001.On July 21, 2003, the RTC of
Manila issued a 72-hour TRO. And on
August8 , 2 0 0 3 a w r i t o f p r e l i m i n a r y i n j u n c t i o n w a s i s s u e d . M e a n w h i l e , s u m m o
n s t o GLASGOW was returned unserved as it could no longer be found at its last knownaddress.On October
8, 2003, petitioner filed a verified omnibus motion for a) issuanceof alias summons and b) leave of court to
serve summons by publication. On October 15, 2003, the trial court directed the issuance of alias
summons. No mention wasmade of the motion for leave of court to serve summons by
publication.O n J a n u a r y 3 0 , 2 0 0 4 , t h e t r i a l c o u r t a r c h i v e d t h e c a s e f o r f a i l u r e o f
t h e Republic to serve alias summons. The Republic filed an ex parte omnibus motion tor e i n s t a t e
t h e c a s e a n d r e s o l v e t h e m o t i o n f o r l e a v e o f c o u r t t o s e r v e s u m m o n s b y publication.

O n M a y 3 1 , 2 0 0 4 , t h e t r i a l c o u r t o r d e r e d t h e r e i n s t a t e m e n t o f t h e c a s e directin
g the Republic to serve the alias summons to Glasgow and CSBI within 15days.On July 12, 2004,
petitioner received a copy of the sheriffs return stating thatthe alias summons was returned unserved
as GLASGOW was no longer holdingoffice at the given address since July 2002.On August 11, 2005,
petitioner filed a manifestation and ex parte motion toresolve its motion for leave of court to serve
summons by publication.On August 12, 2005, the OSG received a copy of GLASGOWs motion
todismiss by way of special appearance alleging that 1) the court had no jurisdictiono v e r i t s
p e r s o n a s s u m m o n s h a d n o t ye t b e e n s e r v e d o n i t 2 ) t h e c o m p l a i n t w a s premature and
stated no cause of action and 3) there was failure to prosecute on the part of the Republic.On
October 17, 2005, the trial court dismissed the case on the grounds of 1)improper venue 2)
insufficiency of the complaint in form and substance and 3) failureto prosecute and lifted the writ of preliminary
injunction.Petitioner filed a petition for review.ISSUE:Whether or not the complaint for civil forfeiture was
properly instituted.

RULING:S e c . 1 2 ( a ) o f R A 9 1 6 0 p r o v i d e s t w o c o n d i t i o n s w h e n a p p l yi n g f o r
c i v i l forfeiture:1 . w h e n t h e r e i s s u s p i c i o u s t r a n s a c t i o n r e p o r t o r a c o v e r e d
t r a n s a c t i o n report deemed suspicious after investigation by the AMLC;2.the court has, in a petition
filed for the purpose; ordered the seizure of any monetary instrument or property, in whole or in
part, directly or indirectly, related to said
report.T h e w r i t o f p r e l i m i n a r y i n j u c t i o n i s s u e d o n A u g u s t
8, 2003 removeda c c o u n t n o . C A - 0 0 5 - 1 0 - 0 0 0 1 2 1 -
5 f r o m t h e e f f e c t i v e c o n t r o l o f e i t h e r GLASGOW or CSBI or their representatives or agents
and subjected it to the process of the court. Since this account was covered by several
suspiciousreports and placed under the control of the trial court upon the issuance of thewrit, the conditions
provided in Section 12 (a) of RA 9160 were satisfied. The petitioner properly instituted the complaint for civil
forfeiture

REPUBLIC OF THE G.R. No. 170281

PHILIPPINES, represented
by the ANTI-MONEY
LAUNDERING COUNCIL,
Petitioner, Present:

PUNO, C.J., Chairperson,

SANDOVAL-GUTIERREZ,
- v e r s u s - CORONA,
AZCUNA and
LEONARDO-DE CASTRO, JJ.

GLASGOW CREDIT AND

COLLECTION SERVICES, INC.
and CITYSTATE SAVINGS
BANK, INC.,
Respondents. Promulgated:
January 18, 2008

x---------------------------------------------------x

DECISION
CORONA, J.:

This is a petition for review[1] of the order[2] dated October 27, 2005 of the Regional Trial Court (RTC)

of Manila, Branch 47, dismissing the complaint for forfeiture[3] filed by the Republic of the Philippines,

represented by the Anti-Money Laundering Council (AMLC) against respondents Glasgow Credit and

Collection Services, Inc. (Glasgow) and Citystate Savings Bank, Inc. (CSBI).

On July 18, 2003, the Republic filed a complaint in the RTC Manila for civil forfeiture of assets (with

urgent plea for issuance of temporary restraining order [TRO] and/or writ of preliminary injunction) against the

bank deposits in account number CA-005-10-000121-5 maintained by Glasgow in CSBI. The case, filed

pursuant to RA 9160 (the Anti-Money Laundering Act of 2001), as amended, was docketed as Civil Case No.

03-107319.

Acting on the Republics urgent plea for the issuance of a TRO, the executive judge[4] of RTC Manila

issued a 72-hour TRO dated July 21, 2003. The case was thereafter raffled to Branch 47 and the hearing on the

application for issuance of a writ of preliminary injunction was set on August 4, 2003.
 After hearing, the trial court (through then Presiding Judge Marivic T. Balisi-Umali) issued an order

granting the issuance of a writ of preliminary injunction. The injunctive writ was issued on August 8, 2003.

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

address.

On October 8, 2003, the Republic filed a verified omnibus motion for (a) issuance of alias summons and

(b) leave of court to serve summons by publication. In an order dated October 15, 2003, the trial court directed

the issuance of alias summons. However, no mention was made of the motion for leave of court to serve

summons by publication.

In an order dated January 30, 2004, the trial court archived the case allegedly for failure of the Republic

to serve the alias summons. The Republic filed an ex parte omnibus motion to (a) reinstate the case and (b)

resolve its pending motion for leave of court to serve summons by publication.

In an order dated May 31, 2004, the trial court ordered the reinstatement of the case and directed the

Republic to serve the alias summons on Glasgow and CSBI within 15 days. However, it did not resolve the

Republics motion for leave of court to serve summons by publication declaring:

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

On July 12, 2004, the Republic (through the Office of the Solicitor General [OSG]) received a copy of

the sheriffs return dated June 30, 2004 stating that the alias summons was returned unserved as Glasgow was no

longer holding office at the given address since July 2002 and left no forwarding address.

Meanwhile, the Republics motion for leave of court to serve summons by publication remained

unresolved. Thus, on August 11, 2005, the Republic filed a manifestation and ex parte motion to resolve its

motion for leave of court to serve summons by publication.

On August 12, 2005, the OSG received a copy of Glasgows Motion to Dismiss (By Way of Special

Appearance) dated August 11, 2005. It alleged that (1) the court had no jurisdiction over its person as summons

had not yet been served on it; (2) the complaint was premature and stated no cause of action as there was still no
conviction for estafa or other criminal violations implicating Glasgow and (3) there was failure to prosecute on

the part of the Republic.

The Republic opposed Glasgows motion to dismiss. It contended that its suit was an action quasi in

rem where jurisdiction over the person of the defendant was not a prerequisite to confer jurisdiction on the

court. It asserted that prior conviction for unlawful activity was not a precondition to the filing of a civil

forfeiture case and that its complaint alleged ultimate facts sufficient to establish a cause of action. It denied that

it failed to prosecute the case.

On October 27, 2005, the trial court issued the assailed order. It dismissed the case on the following

grounds: (1) improper venue as it should have been filed in the RTC of Pasig where CSBI, the depository bank

of the account sought to be forfeited, was located; (2) insufficiency of the complaint in form and substance and

(3) failure to prosecute. It lifted the writ of preliminary injunction and directed CSBI to release to Glasgow or

its authorized representative the funds in CA-005-10-000121-5.

Raising questions of law, the Republic filed this petition.

On November 23, 2005, this Court issued a TRO restraining Glasgow and CSBI, their agents,

representatives and/or persons acting upon their orders from implementing the assailed October 27, 2005 order.

It restrained Glasgow from removing, dissipating or disposing of the funds in account no. CA-005-10-000121-5

and CSBI from allowing any transaction on the said account.

The petition essentially presents the following issue: whether the complaint for civil forfeiture was

correctly dismissed on grounds of improper venue, insufficiency in form and substance and failure to prosecute.

The Court agrees with the Republic.

THE COMPLAINT WAS FILED

IN THE PROPER VENUE

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

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

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

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

But inasmuch as Glasgow never questioned the venue of the Republics complaint for civil forfeiture

against it, how could the trial court have dismissed the complaint for improper venue? In Dacoycoy v.

Intermediate Appellate Court[6] (reiterated in Rudolf Lietz Holdings, Inc. v. Registry of Deeds of Paraaque

City),[7]this Court ruled:

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

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

On November 15, 2005, this Court issued A.M. No. 05-11-04-SC, the Rule of Procedure in Cases of

Civil Forfeiture, Asset Preservation, and Freezing of Monetary Instrument, Property, or Proceeds Representing,

Involving, or Relating to an Unlawful Activity or Money Laundering Offense under RA 9160, as amended

(Rule of Procedure in Cases of Civil Forfeiture). The order dismissing the Republics complaint

for civil forfeiture of Glasgows account in CSBI has not yet attained finality on account of the pendency of this

appeal. Thus, the Rule of Procedure in Cases of Civil Forfeiture applies to the Republics

complaint.[8] Moreover, Glasgow itself judicially admitted that the Rule of Procedure in Cases of Civil

Forfeiture is applicable to the instant case.[9]

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

Civil Forfeiture provides:

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

Under Section 3, Title II of the Rule of Procedure in Cases of Civil Forfeiture, therefore, the venue of

civil forfeiture cases is any RTC of the judicial region where the monetary instrument, property or proceeds

representing, involving, or relating to an unlawful activity or to a money laundering offense are located. Pasig

City, where the account sought to be forfeited in this case is situated, is within the National Capital Judicial

Region (NCJR). Clearly, the complaint for civil forfeiture of the account may be filed in any RTC of the NCJR.

Since the RTC Manila is one of the RTCs of the NCJR,[10] it was a proper venue of the Republics complaint for

civil forfeiture of Glasgows account.

THE COMPLAINT WAS SUFFICIENT IN FORM AND

SUBSTANCE

In the assailed order, the trial court evaluated the Republics complaint to determine its sufficiency in

form and substance:

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

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

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

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

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

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

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

(f) After appropriate investigation, the AMLC issued Resolutions No. 094 (dated July
10, 2002), 096 (dated July 12, 2002), 101 (dated July 23, 2002), and 108 (dated August 2,
2002), directing the issuance of freeze orders against the bank accounts of Glasgow;
 (g) Pursuant to said AMLC Resolutions, Freeze Orders Nos. 008-010, 011 and 013
were issued on different dates, addressed to the concerned banks;

(h) The facts and circumstances plainly showing that defendant Glasgows bank account
and deposit are related to the unlawful activities of Estafa and violation of Securities
Regulation Code, as well as to a money laundering offense [which] [has] been
summarized by the AMLC in its Resolution No. 094; and

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

In a motion to dismiss for failure to state a cause of action, the focus is on the sufficiency, not the

veracity, of the material allegations.[12] The determination is confined to the four corners of the complaint and

nowhere else.[13]

In a motion to dismiss a complaint based on lack of cause of action, the question

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

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

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

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

(a) The name and address of the respondent;

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

proceeds, and their location; and

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

[(d)] The reliefs prayed for.

Here, the verified complaint of the Republic contained the following allegations:
 (a) the name and address of the primary defendant therein, Glasgow;[15]

(b) a description of the proceeds of Glasgows unlawful activities with particularity, as well as

the location thereof, account no. CA-005-10-000121-5 in the amount

of P21,301,430.28 maintained with CSBI;

(c) the acts prohibited by and the specific provisions of RA 9160, as amended, constituting the

grounds for the forfeiture of the said proceeds. In particular, suspicious transaction reports

showed that Glasgow engaged in unlawful activities of estafa and violation of the Securities

Regulation Code (under Section 3(i)(9) and (13), RA 9160, as amended); the proceeds of the

unlawful activities were transacted and deposited with CSBI in account no. CA-005-10-000121-

5 thereby making them appear to have originated from legitimate sources; as such, Glasgow
engaged in money laundering (under Section 4, RA 9160, as amended); and the AMLC

subjected the account to freeze order and

(d) the reliefs prayed for, namely, the issuance of a TRO or writ of preliminary injunction and

the forfeiture of the account in favor of the government as well as other reliefs just and equitable

under the premises.

The form and substance of the Republics complaint substantially conformed with Section 4, Title II of

the Rule of Procedure in Cases of Civil Forfeiture.

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

SEC. 12. Forfeiture Provisions.

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

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

amended, states:

RULE 12
Forfeiture Provisions
xxx xxx xxx
Rule 12.2. When Civil Forfeiture May be Applied. When there is a SUSPICIOUS
TRANSACTION REPORT OR A COVERED TRANSACTION REPORT DEEMED
 SUSPICIOUS AFTER INVESTIGATION BY THE AMLC, and the court has, in a petition filed
for the purpose, ordered the seizure of any monetary instrument or property, in whole or in part,
directly or indirectly, related to said report, the Revised Rules of Court on civil forfeiture shall
apply.

RA 9160, as amended, and its implementing rules and regulations lay down two conditions when

applying for civil forfeiture:

(1) when there is a suspicious transaction report or a covered transaction report deemed

suspicious after investigation by the AMLC and

(2) the court has, in a petition filed for the purpose, ordered the seizure of any monetary

instrument or property, in whole or in part, directly or indirectly, related to said report.

It is the preliminary seizure of the property in question which brings it within the reach of the judicial

process.[16] It is actually within the courts possession when it is submitted to the process of the court.[17] The

injunctive writ issued on August 8, 2003 removed account no. CA-005-10-000121-5 from the effective control

of either Glasgow or CSBI or their representatives or agents and subjected it to the process of the court.

Since account no. CA-005-10-000121-5 of Glasgow in CSBI was (1) covered by several suspicious

transaction reports and (2) placed under the control of the trial court upon the issuance of the writ of preliminary

injunction, the conditions provided in Section 12(a) of RA 9160, as amended, were satisfied. Hence, the

Republic, represented by the AMLC, properly instituted the complaint for civil forfeiture.

Whether or not there is truth in the allegation that account no. CA-005-10-000121-5 contains the

proceeds of unlawful activities is an evidentiary matter that may be proven during trial. The complaint,

however, did not even have to show or allege that Glasgow had been implicated in a conviction for, or the

commission of, the unlawful activities of estafa and violation of the Securities Regulation Code.

A criminal conviction for an unlawful activity is not a prerequisite for the institution of a civil forfeiture

proceeding. Stated otherwise, a finding of guilt for an unlawful activity is not an essential element of civil

forfeiture.
Section 6 of RA 9160, as amended, provides:

SEC. 6. Prosecution of Money Laundering.

(a) Any person may be charged with and convicted of both the offense of money
laundering and the unlawful activity as herein defined.
 (b) Any proceeding relating to the unlawful activity shall be given precedence over the
prosecution of any offense or violation under this Act without prejudice to thefreezing
and other remedies provided. (emphasis supplied)

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

Rule 6.1. Prosecution of Money Laundering

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

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

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

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

Thus, regardless of the absence, pendency or outcome of a criminal prosecution for the unlawful activity

or for money laundering, an action for civil forfeiture may be separately and independently prosecuted and

resolved.

THERE WAS NO FAILURE

TO PROSECUTE

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

erroneous.

Immediately after the complaint was filed, the trial court ordered its deputy sheriff/process server to
serve summons and notice of the hearing on the application for issuance of TRO and/or writ of preliminary

injunction. The subpoena to Glasgow was, however, returned unserved as Glasgow could no longer be found at

its given address and had moved out of the building since August 1, 2002.
 Meanwhile, after due hearing, the trial court issued a writ of preliminary injunction enjoining Glasgow

from removing, dissipating or disposing of the subject bank deposits and CSBI from allowing any transaction

on, withdrawal, transfer, removal, dissipation or disposition thereof.

As the summons on Glasgow was returned unserved, and considering that its whereabouts could not be

ascertained despite diligent inquiry, the Republic filed a verified omnibus motion for (a) issuance

of alias summons and (b) leave of court to serve summons by publication on October 8, 2003. While the trial

court issued an alias summons in its order dated October 15, 2003, it kept quiet on the prayer for leave of court

to serve summons by publication.

Subsequently, in an order dated January 30, 2004, the trial court archived the case for failure of the

Republic to cause the service of alias summons. The Republic filed an ex parte omnibus motion to (a) reinstate

the case and (b) resolve its pending motion for leave of court to serve summons by publication.

In an order dated May 31, 2004, the trial court ordered the reinstatement of the case and directed the

Republic to cause the service of the alias summons on Glasgow and CSBI within 15 days. However, it deferred

its action on the Republics motion for leave of court to serve summons by publication until a return was made

on the alias summons.

Meanwhile, the Republic continued to exert efforts to obtain information from other government

agencies on the whereabouts or current status of respondent Glasgow if only to save on expenses of publication

of summons. Its efforts, however, proved futile. The records on file with the Securities and Exchange

Commission provided no information. Other inquiries yielded negative results.

On July 12, 2004, the Republic received a copy of the sheriffs return dated June 30, 2004 stating that

the alias summons had been returned unserved as Glasgow was no longer holding office at the given address

since July 2002 and left no forwarding address. Still, no action was taken by the trial court on the Republics

motion for leave of court to serve summons by publication. Thus, on August 11, 2005, the Republic filed a
manifestation and ex parte motion to resolve its motion for leave of court to serve summons by publication.
 It was at that point that Glasgow filed a motion to dismiss by way of special appearance which the

Republic vigorously opposed. Strangely, to say the least, the trial court issued the assailed order granting

Glasgows motion.

Given these circumstances, how could the Republic be faulted for failure to prosecute the complaint for

civil forfeiture? While there was admittedly a delay in the proceeding, it could not be entirely or primarily

ascribed to the Republic. That Glasgows whereabouts could not be ascertained was not only beyond the

Republics control, it was also attributable to Glasgow which left its principal office address without informing

the Securities and Exchange Commission or any official regulatory body (like the Bureau of Internal Revenue

or the Department of Trade and Industry) of its new address. Moreover, as early as October 8, 2003, the

Republic was already seeking leave of court to serve summons by publication.

In Marahay v. Melicor,[18] this Court ruled:

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

We see no pattern or scheme on the part of the Republic to delay the disposition of the case or a wanton

failure to observe the mandatory requirement of the rules. The trial court should not have so eagerly wielded its

power to dismiss the Republics complaint.

SERVICE OF SUMMONS
MAY BE BY PUBLICATION

In Republic v. Sandiganbayan,[19] this Court declared that the rule is settled that forfeiture proceedings

are actions in rem. While that case involved forfeiture proceedings under RA 1379, the same principle applies

in cases for civil forfeiture under RA 9160, as amended, since both cases do not terminate in the imposition of a
penalty but merely in the forfeiture of the properties either acquired illegally or related to unlawful activities in

favor of the State.

 As an action in rem, it is a proceeding against the thing itself instead of against the person.[20] In

actions in rem or quasi in rem, jurisdiction over the person of the defendant is not a prerequisite to conferring

jurisdiction on the court, provided that the court acquires jurisdiction over the res.[21] Nonetheless, summons

must be served upon the defendant in order to satisfy the requirements of due process.[22] For this purpose,

service may be made by publication as such mode of service is allowed in actions in rem and quasi in rem.[23]

In this connection, Section 8, Title II of the Rule of Procedure in Cases of Civil Forfeiture provides:

Sec. 8. Notice and manner of service. - (a) The respondent shall be given notice of the petition in
the same manner as service of summons under Rule 14 of the Rules of Court and the following
rules:
1. The notice shall be served on respondent personally, or by any other means
prescribed in Rule 14 of the Rules of Court;

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

3. The notice shall likewise contain a proviso that, if no comment or opposition is filed
within the reglementary period, the court shall hear the case ex parte and render such judgment
as may be warranted by the facts alleged in the petition and its supporting evidence.
(b) Where the respondent is designated as an unknown owner or whenever his
whereabouts are unknown and cannot be ascertained by diligent inquiry, service
may, by leave of court, be effected upon him by publication of the notice of the
petition in a newspaper of general circulation in such places and for such time as
the court may order. In the event that the cost of publication exceeds the value or
amount of the property to be forfeited by ten percent, publication shall not be required.
(emphasis supplied)

WHEREFORE, the petition is hereby GRANTED. The October 27, 2005 order of the Regional Trial

Court of Manila, Branch 47, in Civil Case No. 03-107319 is SET ASIDE. The August 11, 2005 motion to

dismiss of Glasgow Credit and Collection Services, Inc. is DENIED. And the complaint for forfeiture of the

Republic of the Philippines, represented by the Anti-Money Laundering Council, is REINSTATED.

The case is hereby REMANDED to the Regional Trial Court of Manila, Branch 47 which shall

forthwith proceed with the case pursuant to the provisions of A.M. No. 05-11-04-SC. Pending final

determination of the case, the November 23, 2005 temporary restraining order issued by this Court is
hereby MAINTAINED.

SO ORDERED.
 Republic of the Philippines
Supreme Court
Manila

SECOND DIVISION

VICENTE GO, G.R. No. 168842

Petitioner,
Present:

CARPIO, J.,
Chairperson,
- versus - NACHURA,
PERALTA,
ABAD, and
MENDOZA, JJ.

METROPOLITAN BANK AND Promulgated:

TRUST CO.,
Respondent. August 11, 2010

x------------------------------------------------------------------------------------x

DECISION

NACHURA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the
Decision[1] dated May 27, 2005 and the Resolution[2] dated August 31, 2005 of the Court of Appeals (CA) in
CA-G.R. CV No. 63469.

The Facts

The facts of the case are as follows:

Petitioner filed two separate cases before the Regional Trial Court (RTC) of Cebu. Civil Case No. CEB-9713
was filed by petitioner against Ma. Teresa Chua (Chua) and Glyndah Tabaag (Tabaag) for a sum of money with
preliminary attachment. Civil Case No. CEB-9866 was filed by petitioner for a sum of money with damages
against herein respondent Metropolitan Bank and Trust Company (Metrobank) and Chua.[3]
In both cases, petitioner alleged that he was doing business under the name Hope Pharmacy which sells
medicine and other pharmaceutical products in the City of Cebu. Petitioner had in his employ Chua as his
pharmacist and trustee or caretaker of the business; Tabaag, on the other hand, took care of the receipts and
invoices and assisted Chua in making deposits for petitioners accounts in the business operations of Hope
Pharmacy.[4]

In CEB-9713, petitioner claimed that there were unauthorized deposits and encashments made by Chua and
Tabaag in the total amount of One Hundred Nine Thousand Four Hundred Thirty-three Pesos and Thirty
Centavos (P109,433.30). He questioned particularly the following:

(1) FEBTC Check No. 251111 dated April 29, 1990 in the amount of P22,635.00 which was
issued by plaintiffs [petitioners] customer Loy Libron in payment of the stocks purchased was
deposited under Metrobank Savings Account No. 420-920-6 belonging to the defendant Ma.
Teresa Chua;
(2) RCBC Checks Nos. 330958 and 294515, which were in blank but pre-signed by him
(plaintiff [petitioner] Vicente Go) for convenience and intended for payment to plaintiffs
[petitioners] suppliers, were filled up and dated September 22, 1990 and September 7, 1990 in
the amount of P30,000.00 and P50,000.00 respectively, and were deposited with defendant
Chuas aforestated account with Metrobank;

(3) PBC Check No. 005874, drawn by Elizabeth Enriquez payable to the Hope Pharmacy in the
amount of P6,798.30 was encashed by the defendant Glyndah Tabaag;

(4) There were unauthorized deposits and encashments in the total sum of P109,433.30;[5]

In CEB-9866, petitioner averred that there were thirty-two (32) checks with Hope Pharmacy as payee, for
varying sums, amounting to One Million Four Hundred Ninety-Two Thousand Five Hundred Ninety-Five Pesos
and Six Centavos (P1,492,595.06), that were not endorsed by him but were deposited under the personal
account of Chua with respondent bank,[6] and these are the following:

C HEC K NO . DATE AMOUNT

FEBTC 251166 5-23-90 P 65,214.88
FEBTC 239399 5-08-90 24,917.75
FEBTC 251350 7-24-90 212,326.56
PBC 279887 6-27-90 2,000.00
PBC 162387 1-24-90 6,300.00
PBC 162317 12-22-89 3,300.00
PBC 279881 6-23-90 7,650.00
PBC 009005 7-21-89 3,584.00
PBC 279771 5-14-90 3,600.00
PBC 279726 4-25-90 2,000.00
PBC 168004 3-22-90 2,800.00
PBC 167963 3-07-90 1,700.00
FEBTC 267793 8-20-90 80,085.66
FEBTC 267761 7-21-90 45,304.63
FEBTC 251252 6-03-90 64,000.00
 FEBTC 267798 8-15-90 40,078.67
PBC 367292 8-06-90 2,100.00
PBC 376445 9-26-90 1,125.00
PBC 009056 8-07-89 2,500.00
PBC 376402 9-12-90 12,105.40
BPI 197074 7-17-90 5,240.00
BPI 197051 7-06-90 1,350.00
BPI 204358 9-19-90 5,402.60
BPI 204252 7-31-90 6,715.60
FEBTC 251171 6-27-90 83,175.54
FEBTC 251165 6-28-90 231,936.10
FEBTC 251251 6-30-90 47,087.25
FEBTC 251163 6-21-90 170,600.85
FEBTC 251170 5-23-90 16,440.00
FEBTC 251112 5-31-90 211,592.69
FEBTC 239400 6-15-90 47,664.03
FEBTC 251162 6-22-90 82,697.85
P1,492,595.06[7]

Petitioner claimed that the said checks were crossed checks payable to Hope Pharmacy only; and that without
the participation and connivance of respondent bank, the checks could not have been accepted for deposit to any
other account, except petitioners account.[8]
Thus, in CEB-9866, petitioner prayed that Chua and respondent bank be ordered, jointly and severally, to pay
the principal amount of P1,492,595.06, plus interest at 12% from the dates of the checks, until the obligation
shall have been fully paid; moral damages of Five Hundred Thousand Pesos (P500,000.00); exemplary damages
of P500,000.00; and attorneys fees and costs in the amount of P500,000.00.[9]

On February 23, 1995, the RTC rendered a Joint Decision,[10] the dispositive portion of which reads:

WHEREFORE, premises considered, the Court hereby renders judgment dismissing

plaintiff Vicente Gos complaint against the defendant Ma. Teresa Chua and Glyndah Tabaag in
Civil Case No. CEB-9713, as well as plaintiffs complaint against the same defendant Ma. Teresa
Chua in Civil Case No. CEB-9866.

Plaintiff Vicente Go is moreover sentenced to pay P50,000.00 in attorneys fees and

litigation expenses to the defendants Ma. Teresa Chua and Glyndah Tabaag in Civil Case No.
CEB-9713.

Defendant Metrobank in Civil Case No. CEB-9866 is hereby condemned to pay unto
plaintiff Vicente Go/Hope Pharmacy the amount of P50,000.00 as moral damages, and attorneys
fees and litigation expenses in the aggregate sum of P25,000.00.

The defendant Metrobanks crossclaim against its co-defendant Ma. Teresa Chua in Civil
Case No. CEB-9866 is dismissed for lack of merit.

No special pronouncement as to costs in both instances.

SO ORDERED.[11]
In striking down the complaint of the petitioner against Chua and Tabaag in CEB-9713, the RTC made the
following findings:

(1) FEBTC Check No. 251111, dated April 29, 1990, in the amount of P22,635.00 payable to
cash, was drawn by Loy Libron in payment of her purchases of medicines and other drugs which
Ma. Teresa Chua was selling side by side with the medicines and drugs of the Hope Pharmacy,
for which she (Maritess) was granted permission by its owner, Mr. Vicente Chua. These
medicines and drugs from Thailand were Maritess sideline, and were segregated from the stocks
of Hope Pharmacy; x x x.

(2) RCBC Check Nos. 294519 and 330958 were checks belonging to plaintiff Vicente Go
payable to cash x x x; these checks were replacements of the sums earlier advanced by Ma.
Teresa Chua, but which were deposited in the account of Vicente Go with RCBC, as shown by
the deposit slips x x x, and confirmed by the statement of account of Vicente Go with RCBC.

(3) Check No. PCIB 005374 drawn by Elizabeth Enriquez payable to Hope Pharmacy/Cash in
the amount of P6,798.30 dated September 6, 1990, was admittedly encashed by the defendant,
Glyndah Tabaag. As per instruction by Vicente Go, Glyndah requested the drawer to insert the
word Cash, so that she could encash the same with PCIB, to meet the Hope Pharmacys
overdraft.

The listings x x x, made by Glyndah Tabaag and Flor Ouano will show that the corresponding
amounts covered thereby were in fact deposited to the account of Mr. Vicente Go with RCBC;
the Bank Statement of Mr. Go x x x, confirms defendants claim independently of the deposit
slip[s] x x x.[12]

The trial court absolved Chua in CEB-9866 because of the finding that the subject checks in CEB-9866 were
payments of petitioner for his loans or borrowings from the parents of Ma. Teresa Chua, through Ma. Teresa,
who was given the total discretion by petitioner to transfer money from the offices of Hope Pharmacy to pay the
advances and other obligations of the drugstore; she was also given the full discretion where to source the funds
to cover the daily overdrafts, even to the extent of borrowing money with interest from other persons.[13]

While the trial court exonerated Chua in CEB-9866, it however declared respondent bank liable for being
negligent in allowing the deposit of crossed checks without the proper indorsement.

Petitioner filed an appeal before the CA. On May 27, 2005, the CA rendered a Decision, [14] the fallo of which
reads:

WHEREFORE, except for the award of attorneys fees and litigation expenses in favor of
defendants Chua and Tabaag which is hereby deleted, the decision of the lower court is
hereby AFFIRMED.

SO ORDERED.[15]
Hence, this petition.

The Issue

Petitioner presented this sole issue for resolution:

The Court of Appeals Erred In Not Holding Metrobank Liable For Allowing The Deposit, Of
Crossed Checks Which Were Issued In Favor Of And Payable To Petitioner And Without Being
Indorsed By The Petitioner, To The Account Of Maria Teresa Chua.[16]

The Ruling of the Court

A check is a bill of exchange drawn on a bank payable on demand.[17] There are different kinds of checks. In
this case, crossed checks are the subject of the controversy. A crossed check is one where two parallel lines are
drawn across its face or across the corner thereof. It may be crossed generally or specially.[18]

A check is crossed specially when the name of a particular banker or a company is written between the parallel
lines drawn. It is crossed generally when only the words "and company" are written or nothing is written at all
between the parallel lines, as in this case. It may be issued so that presentment can be made only by a bank.[19]

In order to preserve the credit worthiness of checks, jurisprudence has pronounced that crossing of a check has
the following effects: (a) the check may not be encashed but only deposited in the bank; (b) the check may be
negotiated only once to one who has an account with a bank; and (c) the act of crossing the check serves as
warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has
received the check pursuant to that purpose, otherwise, he is not a holder in due course.[20]

The Court has taken judicial cognizance of the practice that a check with two parallel lines in the upper left
hand corner means that it could only be deposited and notconverted into cash. The effect of crossing a check,

thus, relates to the mode of payment, meaning that the drawer had intended the check for deposit only by the
rightful person, i.e., the payee named therein.[21] The crossing of a check is a warning that the check should be
deposited only in the account of the payee. Thus, it is the duty of the collecting bank to ascertain that the check
be deposited to the payees account only.[22]

In the instant case, there is no dispute that the subject 32 checks with the total amount of P1,492,595.06 were
crossed checks with petitioner as the named payee. It is the submission of petitioner that respondent bank
should be held accountable for the entire amount of the checks because it accepted the checks for deposit under
Chuas account despite the fact that the checks were crossed and that the payee named therein was not Chua.
In its defense, respondent bank countered that petitioner is not entitled to reimbursement of the total sum
of P1,492,595.06 from either Maria Teresa Chua or respondent bank because petitioner was not damaged
thereby.[23]

Respondent banks contention is meritorious. Respondent bank should not be held liable for the entire amount of
the checks considering that, as found by the RTC and affirmed by the CA, the checks were actually given to
Chua as payments by petitioner for loans obtained from the parents of Chua. Furthermore, petitioners non-
inclusion of Chua and Tabaag in the petition before this Court is, in effect, an admission by the petitioner that
Chua, in representation of her parents, had rightful claim to the proceeds of the checks, as payments by
petitioner for money he borrowed from the parents of Chua. Therefore, petitioner suffered no pecuniary loss in
the deposit of the checks to the account of Chua.

However, we affirm the finding of the RTC that respondent bank was negligent in permitting the deposit and
encashment of the crossed checks without the proper indorsement. An indorsement is necessary for the proper
negotiation of checks specially if the payee named therein or holder thereof is not the one depositing or
encashing it. Knowing fully well that the subject checks were crossed, that the payee was not the holder and that
the checks contained no indorsement, respondent bank should have taken reasonable steps in order to determine
the validity of the representations made by Chua. Respondent bank was amiss in its duty as an agent of the
payee. Prudence dictates that respondent bank should not have merely relied on the assurances given by Chua.

Respondent presented Jonathan Davis as its witness in the trial before the RTC. He was the officer-in-charge
and ranked second to the assistant vice president of the bank at the time material to this case. Davis testimony
was summarized by the RTC as follows:

Davis also testified that he allowed Ma. Teresa Chua to deposit the checks subject of this
litigation which were payable to Hope Pharmacy. According to him, it was a privilege given to
valued customers on a highly selective case to case basis, for marketing purposes, based on trust
and confidence, because Ma. Teresa [Chua] told him that those checks belonged to her as
payment for the advances she extended to Mr. Go/Hope Pharmacy. x x x

Davis stressed that Metrobank granted the privilege to Ma. Teresa Chua that for every check she
deposited with Metrobank, the same would be credited outright to her account, meaning that she
could immediately make use of the amount credited; this arrangement went on for about three
years, without any complaint from Mr. Go/Hope Pharmacy, and Ma. Teresa Chua made warranty
that she would reimburse Metrobank if Mr. Go complained. He did not however call or inform
Mr. Go about this arrangement, because their bank being a Chinese bank, transactions are based
on trust and confidence, and for him to inform Mr. Vicente Go about it, was tantamount to
questioning the integrity of their client, Ma. Teresa Chua. Besides, this special privilege or
arrangement would not bring any monetary gain to the bank.[24]

Negligence was committed by respondent bank in accepting for deposit the crossed checks without indorsement
and in not verifying the authenticity of the negotiation of the checks. The law imposes a duty of extraordinary
diligence on the collecting bank to scrutinize checks deposited with it, for the purpose of determining their
genuineness and regularity.[25] As a business affected with public interest and because of the nature of its
functions, the banks are under obligation to treat the accounts of its depositors with meticulous care, always
having in mind the fiduciary nature of the relationship.[26] The fact that this arrangement had been practiced for
three years without Mr. Go/Hope Pharmacy raising any objection does not detract from the duty of the bank to
exercise extraordinary diligence. Thus, the Decision of the RTC, as affirmed by the CA, holding respondent
bank liable for moral damages is sufficient to remind it of its responsibility to exercise extraordinary diligence
in the course of its business which is imbued with public interest.

WHEREFORE, the Decision dated May 27, 2005 and the Resolution dated August 31, 2005 of the Court of
Appeals in CA-G.R. CV No. 63469 are hereby AFFIRMED.

Republic of the Philippines

Supreme Court
Manila

SECOND DIVISION

PHILIPPINE COMMERCIAL G.R. No. 158143

INTERNATIONAL BANK,
Petitioner, Present:

VELASCO, JR.,* J.,

BRION,**
- versus - Acting Chairperson,
PEREZ,
SERENO, and
REYES, JJ.
ANTONIO B. BALMACEDA and ROLANDO
N. RAMOS, Promulgated:
Respondents.
September 21, 2011

x------------------------------------------------------------------------------------x

DECISION

BRION, J.:
 Before us is a petition for review on certiorari,[1] filed by the Philippine Commercial International
Bank[2] (Bank or PCIB), to reverse and set aside the decision[3] dated April 29, 2003 of the Court of Appeals
(CA) in CA-G.R. CV No. 69955. The CA overturned the September 22, 2000 decision of the Regional Trial
Court (RTC) of Makati City, Branch 148, in Civil Case No. 93-3181, which held respondent Rolando Ramos
liable to PCIB for the amount of P895,000.00.

FACTUAL ANTECEDENTS
On September 10, 1993, PCIB filed an action for recovery of sum of money with damages before the
RTC against Antonio Balmaceda, the Branch Manager of its Sta. Cruz, Manila branch. In its complaint, PCIB
alleged that between 1991 and 1993, Balmaceda, by taking advantage of his position as branch manager,
fraudulently obtained and encashed 31 Managers checks in the total amount of Ten Million Seven Hundred
Eighty Two Thousand One Hundred Fifty Pesos (P10,782,150.00).

On February 28, 1994, PCIB moved to be allowed to file an amended complaint to implead Rolando Ramos as
one of the recipients of a portion of the proceeds from Balmacedas alleged fraud. PCIB also increased the
number of fraudulently obtained and encashed Managers checks to 34, in the total amount of Eleven Million
Nine Hundred Thirty Seven Thousand One Hundred Fifty Pesos (P11,937,150.00). The RTC granted this
motion.

Since Balmaceda did not file an Answer, he was declared in default. On the other hand, Ramos filed an Answer
denying any knowledge of Balmacedas scheme. According to Ramos, he is a reputable businessman engaged in
the business of buying and selling fighting cocks, and Balmaceda was one of his clients. Ramos admitted
receiving money from Balmaceda as payment for the fighting cocks that he sold to Balmaceda, but maintained
that he had no knowledge of the source of Balmacedas money.

THE RTC DECISION

On September 22, 2000, the RTC issued a decision in favor of PCIB, with the following dispositive portion:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the

plaintiff and against the defendants as follows:

1. Ordering defendant Antonio Balmaceda to pay the amount of P11,042,150.00 with

interest thereon at the legal rate from [the] date of his misappropriation of the said amount until
full restitution shall have been made[.]
 2. Ordering defendant Rolando Ramos to pay the amount of P895,000.00 with interest at
the legal rate from the date of misappropriation of the said amount until full restitution shall have
been made[.]

3. Ordering the defendants to pay plaintiff moral damages in the sum of P500,000.00 and
attorneys fees in the amount of ten (10%) percent of the total misappropriated amounts sought to
be recovered.

4. Plus costs of suit.

SO ORDERED.[4]

From the evidence presented, the RTC found that Balmaceda, by taking undue advantage of his position
and authority as branch manager of the Sta. Cruz, Manila branch of PCIB, successfully obtained and
misappropriated the banks funds by falsifying several commercial documents. He accomplished this by
claiming that he had been instructed by one of the Banks corporate clients to purchase Managers checks on its
behalf, with the value of the checks to be debited from the clients corporate bank account. First, he would
instruct the Bank staff to prepare the application forms for the purchase of Managers checks, payable to several
persons. Then, he would forge the signature of the clients authorized representative on these forms and sign the
forms as PCIBs approving officer. Finally, he would have an authorized officer of PCIB issue the Managers
checks. Balmaceda would subsequently ask his subordinates to release the Managers checks to him, claiming
that the client had requested that he deliver the checks.[5] After receiving the Managers checks, he encashed
them by forging the signatures of the payees on the checks.

In ruling that Ramos acted in collusion with Balmaceda, the RTC noted that although the Managers
checks payable to Ramos were crossed checks, Balmaceda was still able to encash the checks.[6] After
Balmaceda encashed three of these Managers checks, he deposited most of the money into Ramos
account.[7] The RTC concluded that from the P11,937,150.00 that Balmaceda misappropriated from
PCIB, P895,000.00 actually went to Ramos. Since the RTC disbelieved Ramos allegation that the sum of
money deposited into his Savings Account (PCIB, Pasig branch) were proceeds from the sale of fighting cocks,
it held Ramos liable to pay PCIB the amount of P895,000.00.

THE COURT OF APPEALS DECISION

On appeal, the CA dismissed the complaint against Ramos, holding that no sufficient evidence existed to prove
that Ramos colluded with Balmaceda in the latters fraudulent manipulations.[8]

According to the CA, the mere fact that Balmaceda made Ramos the payee in some of the Managers checks
does not suffice to prove that Ramos was complicit in Balmacedas fraudulent scheme. It observed that other
persons were also named as payees in the checks that Balmaceda acquired and encashed, and PCIB only chose
to go after Ramos. With PCIBs failure to prove Ramos actual participation in Balmacedas fraud, no legal and
factual basis exists to hold him liable.
 The CA also found that PCIB acted illegally in freezing and debiting P251,910.96 from Ramos bank
account. The CA thus decreed:

WHEREFORE, the appeal is granted. The Decision of the trial court rendered on September 22,
2000[,] insofar as appellant Ramos is concerned, is SET ASIDE, and the complaint below
against him is DISMISSED.

Appellee is hereby ordered to release the amount of P251,910.96 to appellant Ramos plus
interest at [the] legal rate computed from September 30, 1993 until appellee shall have fully
complied therewith.

Appellee is likewise ordered to pay appellant Ramos the following:

a) P50,000.00 as moral damages

b) P50,000.00 as exemplary damages, and
c) P20,000.00 as attorneys fees.

No costs.

SO ORDERED.[9]

THE PETITION

In the present petition, PCIB avers that:

I
THE APPELLATE COURT ERRED IN HOLDING THAT THERE IS NO EVIDENCE TO
HOLD THAT RESPONDENT RAMOS ACTED IN COMPLICITY WITH RESPONDENT
BALMACEDA

II

THE APPELLATE COURT ERRED IN ORDERING THE PETITIONER TO RELEASE THE

AMOUNT OF P251,910.96 TO RESPONDENT RAMOS AND TO PAY THE LATTER
MORAL AND EXEMPLARY DAMAGES AND ATTORNEYS FEES[10]

PCIB contends that the circumstantial evidence shows that Ramos had knowledge of, and acted in
complicity with Balmaceda in, the perpetuation of the fraud. Ramos explanation that he is a businessman and
that he received the Managers checks as payment for the fighting cocks he sold to Balmaceda is unconvincing,
given the large sum of money involved. While Ramos presented evidence that he is a reputable businessman,
this evidence does not explain why the Managers checks were made payable to him in the first place.
 PCIB maintains that it had the right to freeze and debit the amount of P251,910.96 from Ramos bank
account, even without his consent, since legal compensation had taken place between them by operation of law.
PCIB debited Ramos bank account, believing in good faith that Ramos was not entitled to the proceeds of the
Managers checks and was actually privy to the fraud perpetrated by Balmaceda. PCIB cannot thus be held liable
for moral and exemplary damages.

OUR RULING

We partly grant the petition.

At the outset, we observe that the petition raises mainly questions of fact whose resolution requires the
re-examination of the evidence on record. As a general rule, petitions for review on certiorari only involve
questions of law.[11] By way of exception, however, we can delve into evidence and the factual circumstance of
the case when the findings of fact in the tribunals below (in this case between those of the CA and of the RTC)
are conflicting. When the exception applies, we are given latitude to review the evidence on record to decide
the case with finality.[12]

Ramos participation in Balmacedas scheme not proven

From the testimonial and documentary evidence presented, we find it beyond question that Balmaceda, by
taking advantage of his position as branch manager of PCIBs Sta. Cruz, Manila branch, was able to apply for
and obtain Managers checks drawn against the bank account of one of PCIBs clients. The unsettled question is
whether Ramos, who received a portion of the money that Balmaceda took from PCIB, should also be held
liable for the return of this money to the Bank.

PCIB insists that it presented sufficient evidence to establish that Ramos colluded with Balmaceda in the
scheme to fraudulently secure Managers checks and to misappropriate their proceeds. Since Ramos defense
anchored on mere denial of any participation in Balmacedas wrongdoing is an intrinsically weak defense, it was
error for the CA to exonerate Ramos from any liability.

In civil cases, the party carrying the burden of proof must establish his case by a preponderance of
evidence, or evidence which, to the court, is more worthy of belief than the evidence offered in
opposition.[13] This Court, in Encinas v. National Bookstore, Inc.,[14] defined preponderance of evidence in the
following manner:

"Preponderance of evidence" is the weight, credit, and value of the aggregate evidence on either
side and is usually considered to be synonymous with the term "greater weight of the evidence"
or "greater weight of the credible evidence." Preponderance of evidence is a phrase which, in the
last analysis, means probability of the truth. It is evidence which is more convincing to the court
as worthy of belief than that which is offered in opposition thereto.
 The party, whether the plaintiff or the defendant, who asserts the affirmative of an issue has the onus to
prove his assertion in order to obtain a favorable judgment, subject to the overriding rule that the burden to
prove his cause of action never leaves the plaintiff. For the defendant, an affirmative defense is one that is not
merely a denial of an essential ingredient in the plaintiff's cause of action, but one which, if established, will
constitute an "avoidance" of the claim.[15]

Thus, PCIB, as plaintiff, had to prove, by preponderance of evidence, its positive assertion that Ramos
conspired with Balmaceda in perpetrating the latters scheme to defraud the Bank. In PCIBs estimation, it
successfully accomplished this through the submission of the following evidence:

[1] Exhibits A, D, PPPP, QQQQ, and RRRR and their submarkings, the application forms for
MCs, show that [these MCs were applied for in favor of Ramos;]

[2] Exhibits K, N, SSSS, TTTT, and UUUU and their submarkings prove that the MCs were
issued in favor of x x x Ramos[; and]

[3] [T]estimonies of the witness for [PCIB].[16]

We cannot accept these submitted pieces of evidence as sufficient to satisfy the burden of proof that
PCIB carries as plaintiff.

On its face, all that PCIBs evidence proves is that Balmaceda used Ramos name as a payee when he
filled up the application forms for the Managers checks. But, as the CA correctly observed, the mere fact that
Balmaceda made Ramos the payee on some of the Managers checks is not enough basis to conclude that Ramos
was complicit in Balmacedas fraud; a number of other people were made payees on the other Managers checks
yet PCIB never alleged them to be liable, nor did the Bank adduce any other evidence pointing to Ramos
participation that would justify his separate treatment from the others. Also, while Ramos is Balmacedas
brother-in-law, their relationship is not sufficient, by itself, to render Ramos liable, absent concrete proof of his
actual participation in the fraudulent scheme.

Moreover, the evidence on record clearly shows that Balmaceda acted on his own when he applied for
the Managers checks against the bank account of one of PCIBs clients, as well as when he encashed the
fraudulently acquired Managers checks.

Mrs. Elizabeth Costes, the Area Manager of PCIB at the time of the relevant events, testified that
Balmaceda committed all the acts necessary to obtain the unauthorized Managers checks from filling up the
application form by forging the signature of the clients representative, to forging the signatures of the payees in
order to encash the checks. As Mrs. Costes stated in her testimony:
 Q: I am going into [these] particular instances where you said that Mr. Balmaceda [has]
been making unauthorized withdrawals from particular account of a client or a client of yours at
Sta. Cruz branch. Would you tell us how he effected his unauthorized withdrawals?
A: He prevailed upon the domestic remittance clerk to prepare the application of a
Managers check which [has] been debited to a clients account. This particular Managers check
will be payable to a certain individual thru his account as the instruction of the client.

Q: What was your findings in so far as the particular alleged instruction of a client is
concerned?
A: We found out that he forged the signature of the client.

Q: On that particular application?

A: Yes sir.

Q: Showing to you several applications for Managers Check previously attached as

Annexes A, B, C, D and E[] of the complaint. Could you please tell us where is that particular
alleged signature of a client applying for the Managers check which you claimed to have been
forged by Mr. Balmaceda?
A: Here sir.

xxxx

Q: After the accomplishment of this application form as you stated Mrs. witness, do you
know what happened to the application form?
A: Before that application form is processed it goes to several stages. Here for example
this was signed supposed to be by the client and his signature representing that, he certified the
signature based on their records to be authentic.

Q: When you said he to whom are you referring to?

A: Mr. Balmaceda. And at the same time he approved the transaction.

xxxx

Q: Do you know if the corresponding checks applied for in the application forms were
issued?
A: Yes sir.

Q: Could you please show us where these checks are now, the one applied for in Exhibit
A which is in the amount of P150,000.00, where is the corresponding check?

A: Rolando Ramos dated December 26, 1991 and one of the signatories with higher
authority, this is Mr. Balmacedas signature.

Q: In other words he is likewise approving signatory to the Managers check?

A: Yes sir. This is an authority that the check [has] been encashed.

Q: In other words this check issued to Rolando Ramos dated December 26, 1991 is a
cross check but nonetheless he allowed to encash by granting it.

Could you please show us?

 ATTY. PACES: Witness pointing to an initial of the defendant Antonio Balmaceda, the
notation cross check.

A: And this is his signature.

xxxx

Q: How about the check corresponding to Exhibit E-2 which is an application

for P125,000.00 for a certain Rolando Ramos. Do you have the check?
A: Yes sir.

ATTY. PACES: Witness producing a check dated December 19, 1991 the amount
of P125,000.00 payable to certain Rolando Ramos.

Q: Can you tell us whether the same modus operandi was ad[o]pted by Mr. Balmaceda in
so far as he is concerned?
A: Yes sir he is also the right signer and he authorized the cancellation of the cross
[17]
check. (emphasis ours)

xxxx

Q: These particular checks [Mrs.] witness in your findings, do you know if Mr.
Balmaceda [has] again any participation in these checks?
A: He is also the right signer and approved officer and he was authorized to debit on file.

xxxx

Q: And do you know if these particular checks marked as Exhibit G-2 to triple FFF were
subsequently encashed?
A: Yes sir.

Q: Were you able to find out who encashed?

A: Mr. Balmaceda himself and besides he approved the encashment because of the
signature that he allowed the encashment of the check.

xxxx

Q: Do you know if this particular person having in fact withdraw of received the
proceeds of [these] particular checks, the payee?
A: No sir.

Q: It was all Mr. Balmaceda dealing with you?

A: Yes sir.

Q: In other words it would be possible that Mr. Balmaceda himself gotten the
proceeds of the checks by forging the payees signature?
A: Yes sir.[18] (emphases ours)
 Mrs. Nilda Laforteza, the Commercial Account Officer of PCIBs Sta. Cruz, Manila branch at the time
the events of this case occurred, confirmed Mrs. Costes testimony by stating that it was Balmaceda who
forged Ramos signature on the Managers checks where Ramos was the payee, so as to encash the
amounts indicated on the checks.[19] Mrs. Laforteza also testified that Ramos never went to the PCIB, Sta.
Cruz, Manila branch to encash the checks since Balmaceda was the one who deposited the checks into
Ramos bank account. As revealed during Mrs. Lafortezas cross-examination:

Q: Mrs. Laforteza, these checks that were applied for by Mr. Balmaceda, did you
ever see my client go to the bank to encash these checks?
A: No it is Balmaceda who is depositing in his behalf.

Q: Did my client ever call up the bank concerning this amount?

A: Yes he is not going to call PCIBank Sta. Cruz branch because his account is
maintained at Pasig.

Q: So Mr. Balmaceda was the one who just remitted or transmitted the amount that
you claimed [was sent] to the account of my client?
A: Yes.[20] (emphases ours)

Even Mrs. Rodelia Nario, presented by PCIB as its rebuttal witness to prove that Ramos encashed a
Managers check for P480,000.00, could only testify that the money was deposited into Ramos PCIB bank
account. She could not attest that Ramos himself presented the Managers check for deposit in his bank
account.[21]These testimonies clearly dispute PCIBs theory that Ramos was instrumental in the encashment of
the Managers checks.

We also find no reason to doubt Ramos claim that Balmaceda deposited these large sums of money into
his bank account as payment for the fighting cocks that Balmaceda purchased from him. Ramos presented two
witnesses Vicente Cosculluela and Crispin Gadapan who testified that Ramos previously engaged in the
business of buying and selling fighting cocks, and that Balmaceda was one of Ramos biggest clients.

Quoting from the RTC decision, PCIB stresses that Ramos own witness and business partner, Cosculluela,
testified that the biggest net profit he and Ramos earned from a single transaction with Balmaceda amounted to
no more than P100,000.00, for the sale of approximately 45 fighting cocks.[22] In PCIBs view, this testimony
directly contradicts Ramos assertion that he received approximately P400,000.00 from his biggest transaction
with Balmaceda. To PCIB, the testimony also renders questionable Ramos assertion that Balmaceda deposited
large amounts of money into his bank account as payment for the fighting cocks.

On this point, we find that PCIB misunderstood Cosculluelas testimony. A review of the testimony
shows that Cosculluela specifically referred to the net profitthat they earned from the sale of the fighting
cocks;[23] PCIB apparently did not take into account the capital, transportation and other expenses that are
components of these transactions. Obviously, in sales transactions, the buyer has to pay not only for the value of
the thing sold, but also for the shipping costs and other incidental costs that accompany the acquisition of the
thing sold. Thus, while the biggest net profit that Ramos and Cosculluela earned in a single transaction
amounted to no more than P100,000.00,[24] the inclusion of the actual acquisition costs of the fighting cocks, the
transportation expenses (i.e., airplane tickets from Bacolod or Zamboanga to Manila) and other attendant
expenses could account for the P400,000.00 that Balmaceda deposited into Ramos bank account.

Given that PCIB failed to establish Ramos participation in Balmacedas scheme, it was not even
necessary for Ramos to provide an explanation for the money he received from Balmaceda. Even if the
evidence adduced by the plaintiff appears stronger than that presented by the defendant, a judgment cannot be
entered in the plaintiffs favor if his evidence still does not suffice to sustain his cause of action;[25] to reiterate, a
preponderance of evidence as defined must be established to achieve this result.

PCIB itself at fault as employer

In considering this case, one point that cannot be disregarded is the significant role that PCIB played
which contributed to the perpetration of the fraud. We cannot ignore that Balmaceda managed to carry out his
fraudulent scheme primarily because other PCIB employees failed to carry out their assigned tasks flaws
imputable to PCIB itself as the employer.

Ms. Analiza Vega, an accounting clerk, teller and domestic remittance clerk working at the PCIB, Sta.
Cruz, Manila branch at the time of the incident, testified that Balmaceda broke the Banks protocol when he
ordered the Banks employees to fill up the application forms for the Managers checks, to be debited from the
bank account of one of the banks clients, without providing the necessary Authority to Debit from the
client.[26] PCIB also admitted that these Managers checks were subsequently released to Balmaceda, and not to
the clients representative, based solely on Balmacedas word that the client had tasked him to deliver these
checks.[27]

Despite Balmacedas gross violations of bank procedures mainly in the processing of the applications for
Managers checks and in the releasing of the Managers checks Balmacedas co-employees not only turned a blind
eye to his actions, but actually complied with his instructions. In this way, PCIBs own employees
were unwitting accomplices in Balmacedas fraud.

Another telling indicator of PCIBs negligence is the fact that it allowed Balmaceda to encash the
Managers checks that were plainly crossed checks. A crossed check is one where two parallel lines are
drawn across its face or across its corner.[28] Based on jurisprudence, the crossing of a check has the following
effects: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated
only once to the one who has an account with the bank; and (c) the act of crossing the check serves as a warning
to the holder that the check has been issued for a definite purpose and he must inquire if he received the check
pursuant to this purpose; otherwise, he is not a holder in due course.[29] In other words, the crossing of a check is
a warning that the check should be deposited only in the account of the payee. When a check is crossed, it is
the duty of the collecting bank to ascertain that the check is only deposited to the payees account.[30]In
complete disregard of this duty, PCIBs systems allowed Balmaceda to encash 26 Managers checks which were
all crossed checks, or checks payable to the payees account only.

The General Banking Law of 2000[31] requires of banks the highest standards of integrity and
performance. The banking business is impressed with public interest. Of paramount importance is the trust and
confidence of the public in general in the banking industry. Consequently, the diligence required of banks is
more than that of a Roman pater familias or a good father of a family.[32] The highest degree of diligence is
expected.[33]

While we appreciate that Balmaceda took advantage of his authority and position as the branch manager
to commit these acts, this circumstance cannot be used to excuse the manner the Bank through its employees
handled its clients bank accounts and thereby ignored established bank procedures at the branch managers mere
order. This lapse is made all the more glaring by Balmacedas repetition of his modus operandi 33 more times in
a period of over one year by the Banks own estimation. With this kind of record, blame must be imputed on the
Bank itself and its systems, not solely on the weakness or lapses of individual employees.

Principle of unjust enrichment not applicable

PCIB maintains that even if Ramos did not collude with Balmaceda, it still has the right to recover the
amounts unjustly received by Ramos pursuant to the principle of unjust enrichment. This principle is embodied
in Article 22 of the Civil Code which provides:

Article 22. Every person who through an act of performance by another, or any other means,
acquires or comes into possession of something at the expense of the latter without just or legal
ground, shall return the same to him.

To have a cause of action based on unjust enrichment, we explained in University of the Philippines v.
Philab Industries, Inc.[34] that:

Unjust enrichment claims do not lie simply because one party benefits from the efforts or
obligations of others, but instead it must be shown that a party was unjustly enriched in the sense
that the term unjustly could mean illegally or unlawfully.

Moreover, to substantiate a claim for unjust enrichment, the claimant must unequivocally
prove that another party knowingly received something of value to which he was not
entitled and that the state of affairs are such that it would be unjust for the person to keep
the benefit. Unjust enrichment is a term used to depict result or effect of failure to make
remuneration of or for property or benefits received under circumstances that give rise to legal or
 equitable obligation to account for them; to be entitled to remuneration, one must confer benefit
by mistake, fraud, coercion, or request. Unjust enrichment is not itself a theory of reconvey.
Rather, it is a prerequisite for the enforcement of the doctrine of restitution.[35] (emphasis ours)

Ramos cannot be held liable to PCIB on account of unjust enrichment simply because he received payments out
of money secured by fraud from PCIB. To hold Ramos accountable, it is necessary to prove that he received the
money from Balmaceda, knowing that he (Ramos) was not entitled to it. PCIB must also prove that Ramos, at
the time that he received the money from Balmaceda, knew that the money was acquired through fraud.
Knowledge of the fraud is the link between Ramos and PCIB that would obligate Ramos to return the money
based on the principle of unjust enrichment.

However, as the evidence on record indicates, Ramos accepted the deposits that Balmaceda made
directly into his bank account, believing that these deposits were payments for the fighting cocks that
Balmaceda had purchased. Significantly, PCIB has not presented any evidence proving that Ramos participated
in, or that he even knew of, the fraudulent sources of Balmacedas funds.

PCIB illegally froze and debited Ramos assets

We also find that PCIB acted illegally in freezing and debiting Ramos bank account. In BPI Family
Bank v. Franco,[36] we cautioned against the unilateral freezing of bank accounts by banks, noting that:

More importantly, [BPI Family Bank] does not have a unilateral right to freeze the
accounts of Franco based on its mere suspicion that the funds therein were proceeds of the multi-
million peso scam Franco was allegedly involved in. To grant [BPI Family Bank], or any bank
for that matter, the right to take whatever action it pleases on deposits which it supposes are
derived from shady transactions, would open the floodgates of public distrust in the banking
industry.[37]

We see no legal merit in PCIBs claim that legal compensation took place between it and Ramos, thereby
warranting the automatic deduction from Ramos bank account. For legal compensation to take place,
two persons, in their own right, must first be creditors and debtors of each other.[38] While PCIB, as the
depositary bank, is Ramos debtor in the amount of his deposits, Ramos is not PCIBs debtor under the evidence
the PCIB adduced. PCIB thus had no basis, in fact or in law, to automatically debit from Ramos bank account.

On the award of damages

Although PCIBs act of freezing and debiting Ramos account is unlawful, we cannot hold PCIB liable for
moral and exemplary damages. Since a contractual relationship existed between Ramos and PCIB as the
depositor and the depositary bank, respectively, the award of moral damages depends on the applicability of
Article 2220 of the Civil Code, which provides:
 Article 2220. Willful injury to property may be a legal ground for awarding moral damages if the
court should find that, under the circumstances, such damages are justly due. The same rule
applies to breaches of contract where the defendant acted fraudulently or in bad faith. [emphasis
ours]

Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral
obliquity and conscious commission of a wrong; it partakes of the nature of fraud.[39]

As the facts of this case bear out, PCIB did not act out of malice or bad faith when it froze Ramos bank
account and subsequently debited the amount of P251,910.96 therefrom. While PCIB may have acted hastily
and without regard to its primary duty to treat the accounts of its depositors with meticulous care and utmost
fidelity,[40] we find that its actions were propelled more by the need to protect itself, and not out of malevolence
or ill will. One may err, but error alone is not a ground for granting moral damages.[41]

We also disallow the award of exemplary damages. Article 2234 of the Civil Code requires a party to first prove
that he is entitled to moral, temperate or compensatory damages before he can be awarded exemplary damages.
Since no reason exists to award moral damages, so too can there be no reason to award exemplary damages.
We deem it just and equitable, however, to uphold the award of attorneys fees in Ramos favor. Taking into
consideration the time and efforts involved that went into this case, we increase the award of attorneys fees
from P20,000.00 to P75,000.00.

WHEREFORE, the petition is PARTIALLY GRANTED. We AFFIRM the decision of the Court of
Appeals dated April 29, 2003 in CA-G.R. CV No. 69955 with the MODIFICATION that the award of moral
and exemplary damages in favor of Rolando N. Ramos is DELETED, while the award of attorneys fees
is INCREASED to P75,000.00. Costs against the Philippine Commercial International Bank.

SO ORDERED.

BANK SECRECY

12
9. Joseph Victor Ejercito vs. SandiganbayanG.R. Nos. 157294-95 - 30 November 2006Carpio-
Morales, J.:FACTS:
The Office of the Ombudsman requested the Sandiganbayan to issue subpoenaduces
tecum against the Urban Bank relative to the case against President JosephEstrada. Ms.
Dela Paz, receiver of the Urban Bank, furnished the Office of the Ombudsmancertified
copies of manager checks detailed in the subpoena duces tecum. TheSandiganbayan
granted the same.However, Ejercito claims that the subpoenas issued by the
Sandiganbayan areinvalid and may not be enforced because the information found
therein, given theirextremely detailed character and could only have been obtained by
the Special ProsecutionPanel through an illegal disclosure by the bank officials. Ejercito
thus contended that,following the fruit of the poisonous tree doctrine, the subpoenas
must be quashed.Moreover, the extremely-detailed information obtained by the
Ombudsman from the bank officials concerned during a previous investigation of the
charges against him, such inquiryinto his bank accounts would itself be illegal.
ISSUE:
Whether or not subpoena duces tecum/ad testificandum may be issued to order
theproduction of statement of bank accounts even before a case for plunder is filed in
court
HELD:
The Supreme Court held that plunder is analogous to bribery, and therefore,
theexception to R.A. 1405 must also apply to cases of plunder. The court also reiterated
theruling in Marquez v. Desierto that before an in camera inspection may be allowed
theremust be a pending case before a court of competent jurisdiction. Further, the
account must be clearly identified, the inspection limited to the subject matter of
pending case before thecourt of competent jurisdiction.As no plunder case against then
President Estrada had yet been filed before a court of competent jurisdiction at the time
the Ombudsman conducted an investigation, heconcludes that the information about his
bank accounts were acquired illegally, hence, it may not be lawfully used to facilitate a
subsequent inquiry into the same bank accounts.Thus, his attempt to make the
exclusionary rule applicable to the instant case fails.The high Court, however, rejected
the arguments of the petitioner Ejercito that thebank accounts which where demanded
from certain banks even before the case was filedbefore the proper court is inadmissible
in evidence being fruits of poisonous tree. This isbecause the Ombudsman issued the
subpoenas bearing on the bank accounts of Ejercitoabout four months before Marquez
was promulgated on June 27, 2001. While judicialinterpretations of statutes, such as
that made in Marquez with respect to R.A. No. 6770 or

13
the Ombudsman Act of 1989, are deemed part of the statute as of the date it was
originallypassed, the rule is not absolute. Thus, the Court referred to the teaching of
ColumbiaPictures Inc., v. Court of Appeals, that: It is consequently clear that a judicial
interpretationbecomes a part of the law as of the date that law was originally passed,
subject only to thequalification that when a doctrine of this Court is overruled and
a different view is adopted,and more so when there is a reversal thereof, the new
doctrine should be appliedprospectively and should not apply to parties who relied on
the old doctrine and acted ingood faith.

14
10. BSB Group Inc. vs. Sally GoG.R. No. 168644 February 16, 2010Peralta,
J.:
FACTS:
Petitioner, the BSB Group, Inc., is a duly organized domestic corporation presidedby its
herein representative, Ricardo Bangayan (Bangayan). Respondent Sally Go,alternatively
referred to as Sally Sia Go and Sally Go-Bangayan, is Bangayan's wife, who
wasemployed in the company as a cashier, and was engaged, among others, to receive
andaccount for the payments made by the various customers of the company.In
2002, Bangayan filed with the Manila Prosecutor's Office a complaint forestafaand/or
qualified theft against respondent, alleging that several checks representingthe
aggregate amount of P1,534,135.50 issued by the company's customers in payment
of their obligation were, instead of being turned over to the company's coffers, indorsed
byrespondent who deposited the same to her personal banking account
maintained at Security Bank and Trust Company (Security Bank) in Divisoria, Manila
Branch. Upon afinding that the evidence adduced was uncontroverted, the assistant city
prosecutorrecommended the filing of the Information for qualified theft against
respondent.Accordingly, respondent was charged before the Regional Trial Court
of Manila. Shewas found guilty; that in the commission of the said offense, said accused
acted with graveabuse of confidence, being then employed as cashier by said
complainant at the time of thecommission of the said offense and as such she was
entrusted with the said amount of money.Respondent entered a negative plea when
arraigned. The trial ensued. On thepremise that respondent had allegedly encashed the
subject checks and deposited thecorresponding amounts thereof to her personal banking
account.Petitioner, opposing respondent's move, argued for the relevancy of the
Metrobank account on the ground that the complaint-affidavit showed that there were
two checkswhich respondent allegedly deposited in an account with the said bank. To
this, respondent filed a supplemental motion to quash, invoking the absolutely
confidential nature of theMetrobank account under the provisions of Republic Act(R.A.)
No. 1405. The trial court didnot sustain respondent; hence, it denied the motion to
quash for lack of merit.Meanwhile, the prosecution was able to present in court the
testimony of ElenitaMarasigan (Marasigan), the representative of Security Bank.
In a nutshell ,Marasigan'stestimony sought to prove that between 1988 and 1989,
respondent ,while engaged ascashier at the BSB Group, Inc., was able to run away with
the checks issued to the companyby its customers, endorse the same, and credit the
corresponding amounts to her personaldeposit account with Security Bank. In the course
of the testimony, the subject checkswere presented to Marasigan for identification and
marking as the same checks received byrespondent, endorsed, and then deposited in
her personal account with Security Bank. CA
affirmed RTCs decision.

ISSUE:
Whether or not there is no difference between cash and check for purposesof
prosecuting respondent for theft of cash

EN BANC

JOSEPH VICTOR G. EJERCITO, G.R. Nos. 157294-95

Petitioner, Present:

PANGANIBAN, C.J.,
PUNO,
QUISUMBING,
- versus - YNARES-SANTIAGO,
SANDOVAL-GUTIERREZ,
CARPIO,
 AUSTRIA-MARTINEZ,
CORONA,
SANDIGANBAYAN (SPECIAL CARPIO MORALES,
DIVISION) AND PEOPLE OF CALLEJO, SR.,
THEPHILIPPINES, AZCUNA,
Respondents. TINGA,
CHICO-NAZARIO,
GARCIA, and
VELASCO, JR., JJ.
Promulgated:

November 30, 2006

x--------------------------------------------------x

DECISION

CARPIO MORALES, J.:

The present petition for certiorari under Rule 65 assails the Sandiganbayan Resolutions dated February 7
and 12, 2003 denying petitioner Joseph Victor G. Ejercitos Motions to Quash Subpoenas Duces Tecum/Ad
Testificandum, and Resolution dated March 11, 2003 denying his Motion for Reconsideration of the first two
resolutions.

The three resolutions were issued in Criminal Case No. 26558, People of the Philippines v. Joseph
Ejercito Estrada, et al., for plunder, defined and penalized in R.A. 7080, AN ACT DEFINING AND
PENALIZING THE CRIME OF PLUNDER.

In above-stated case of People v. Estrada, et al., the Special Prosecution Panel[1] filed on January 20,
2003 before the Sandiganbayan a Request for Issuance of Subpoena Duces Tecum for the issuance of a
subpoena directing the President of Export and Industry Bank (EIB, formerly Urban Bank) or his/her authorized
representative to produce the following documents during the hearings scheduled on January 22 and 27, 2003:

I. For Trust Account No. 858;

1. Account Opening Documents;
2. Trading Order No. 020385 dated January 29, 1999;
3. Confirmation Advice TA 858;
4. Original/Microfilm copies, including the dorsal side, of the following:

a. Bank of Commerce MC # 0256254 in the amount of P2,000,000.00;

b. Urban bank Corp. MC # 34181 dated November 8, 1999 in the amount of
P10,875,749.43;
c. Urban Bank MC # 34182 dated November 8, 1999 in the amount of P42,716,554.22;
d. Urban Bank Corp. MC # 37661 dated November 23, 1999 in the amount
of P54,161,496.52;

5. Trust Agreement dated January 1999:

Trustee: Joseph Victor C. Ejercito
 Nominee: URBAN BANK-TRUST DEPARTMENT
Special Private Account No. (SPAN) 858; and
6. Ledger of the SPAN # 858.

II. For Savings Account No. 0116-17345-9

SPAN No. 858

1. Signature Cards; and

2. Statement of Account/Ledger

III. Urban Bank Managers Check and their corresponding Urban Bank Managers Check Application
Forms, as follows:

1. MC # 039975 dated January 18, 2000 in the amount of P70,000,000.00;

2. MC # 039976 dated January 18, 2000 in the amount of P2,000,000.00;
3. MC # 039977 dated January 18, 2000 in the amount of P2,000,000.00;
4. MC # 039978 dated January 18, 2000 in the amount of P1,000,000.00;

The Special Prosecution Panel also filed on January 20, 2003, a Request for Issuance of Subpoena
Duces Tecum/Ad Testificandum directed to the authorized representative of Equitable-PCI Bank to produce
statements of account pertaining to certain accounts in the name of Jose Velarde and to testify thereon.

The Sandiganbayan granted both requests by Resolution of January 21, 2003 and subpoenas were
accordingly issued.

The Special Prosecution Panel filed still another Request for Issuance of Subpoena Duces Tecum/Ad
Testificandum dated January 23, 2003 for the President of EIB or his/her authorized representative to produce
the same documents subject of the Subpoena Duces Tecum dated January 21, 2003 and to testify thereon on the
hearings scheduled on January 27 and 29, 2003 and subsequent dates until completion of the testimony. The
request was likewise granted by the Sandiganbayan. A Subpoena Duces Tecum/Ad Testificandum was
accordingly issued on January 24, 2003.

Petitioner, claiming to have learned from the media that the Special Prosecution Panel had requested for
the issuance of subpoenas for the examination of bank accounts belonging to him, attended the hearing of the
case on January 27, 2003 and filed before the Sandiganbayan a letter of even date expressing his concerns as
follows, quoted verbatim:

Your Honors:

It is with much respect that I write this court relative to the concern of subpoenaing the
undersigneds bank account which I have learned through the media.

I am sure the prosecution is aware of our banking secrecy laws everyone supposed to
observe. But, instead of prosecuting those who may have breached such laws, it seems it is even
going to use supposed evidence which I have reason to believe could only have been illegally
obtained.
 The prosecution was not content with a general request. It even lists and identifies specific
documents meaning someone else in the bank illegally released confidential information.

If this can be done to me, it can happen to anyone. Not that anything can still shock our
family. Nor that I have anything to hide. Your Honors.

But, I am not a lawyer and need time to consult one on a situation that affects every bank
depositor in the country and should interest the bank itself, the Bangko Sentral ng Pilipinas, and
maybe the Ombudsman himself, who may want to investigate, not exploit, the serious breach
that can only harm the economy, a consequence that may have been overlooked. There appears
to have been deplorable connivance.

xxxx

I hope and pray, Your Honors, that I will be given time to retain the services of a lawyer to help
me protect my rights and those of every banking depositor. But the one I have in mind is out of
the country right now.

May I, therefore, ask your Honors, that in the meantime, the issuance of the subpoena be held in
abeyance for at least ten (10) days to enable me to take appropriate legal steps in connection with
the prosecutions request for the issuance of subpoena concerning my accounts. (Emphasis
supplied)

From the present petition, it is gathered that the accounts referred to by petitioner in his above-quoted
letter are Trust Account No. 858 and Savings Account No. 0116-17345-9.[2]

In open court, the Special Division of the Sandiganbayan, through Associate Justice Edilberto Sandoval,
advised petitioner that his remedy was to file a motion to quash, for which he was given up to 12:00 noon the
following day, January 28, 2003.

Petitioner, unassisted by counsel, thus filed on January 28, 2003 a Motion to Quash Subpoena Duces
Tecum/Ad Testificandum praying that the subpoenas previously issued to the President of the EIB dated
January 21 and January 24, 2003 be quashed.[3]

In his Motion to Quash, petitioner claimed that his bank accounts are covered by R.A. No. 1405 (The
Secrecy of Bank Deposits Law) and do not fall under any of the exceptions stated therein. He further claimed
that the specific identification of documents in the questioned subpoenas, including details on dates and
amounts, could only have been made possible by an earlier illegal disclosure thereof by the EIB and the
Philippine Deposit Insurance Corporation (PDIC) in its capacity as receiver of the then Urban Bank.

The disclosure being illegal, petitioner concluded, the prosecution in the case may not be allowed to
make use of the information.
 Before the Motion to Quash was resolved by the Sandiganbayan, the prosecution filed another Request
for the Issuance of Subpoena Duces Tecum/Ad Testificandum dated January 31, 2003, again to direct the
President of the EIB to produce, on the hearings scheduled on February 3 and 5, 2003, the same documents
subject of the January 21 and 24, 2003 subpoenas with the exception of the Bank of Commerce MC #0256254
in the amount of P2,000,000 as Bank of Commerce MC #0256256 in the amount of P200,000,000 was instead
requested. Moreover, the request covered the following additional documents:

IV. For Savings Account No. 1701-00646-1:

1. Account Opening Forms;
2. Specimen Signature Card/s; and
3. Statements of Account.

The prosecution also filed a Request for the Issuance of Subpoena Duces Tecum/Ad Testificandum
bearing the same date, January 31, 2003, directed to Aurora C. Baldoz, Vice President-CR-II of the PDIC for
her to produce the following documents on the scheduled hearings on February 3 and 5, 2003:

1. Letter of authority dated November 23, 1999 re: SPAN [Special Private Account
Number] 858;

2. Letter of authority dated January 29, 2000 re: SPAN 858;

3. Letter of authority dated April 24, 2000 re: SPAN 858;

4. Urban Bank check no. 052092 dated April 24, 2000 for the amount of P36, 572, 315.43;

5. Urban Bank check no. 052093 dated April 24, 2000 for the amount of P107,191,780.85; and

6. Signature Card Savings Account No. 0116-17345-9. (Underscoring supplied)

The subpoenas prayed for in both requests were issued by the Sandiganbayan on January 31, 2003.

On February 7, 2003, petitioner, this time assisted by counsel, filed an Urgent Motion to Quash
Subpoenae Duces Tecum/Ad Testificandum praying that the subpoena dated January 31, 2003 directed to
Aurora Baldoz be quashed for the same reasons which he cited in the Motion to Quash[4] he had earlier filed.

On the same day, February 7, 2003, the Sandiganbayan issued a Resolution denying petitioners Motion
to Quash Subpoenae Duces Tecum/Ad Testificandum dated January 28, 2003.

Subsequently or on February 12, 2003, the Sandiganbayan issued a Resolution denying petitioners
Urgent Motion to Quash Subpoena Duces Tecum/Ad Testificandum dated February 7, 2003.
 Petitioners Motion for Reconsideration dated February 24, 2003 seeking a reconsideration of the
Resolutions of February 7 and 12, 2003 having been denied by Resolution of March 11, 2003, petitioner filed
the present petition.

Raised as issues are:

1. Whether petitioners Trust Account No. 858 is covered by the term deposit as used in R.A.
1405;

2. Whether petitioners Trust Account No. 858 and Savings Account No. 0116-17345-9 are
excepted from the protection of R.A. 1405; and

3. Whether the extremely-detailed information contained in the Special Prosecution Panels

requests for subpoena was obtained through a prior illegal disclosure of petitioners bank accounts,
in violation of the fruit of the poisonous tree doctrine.

Respondent People posits that Trust Account No. 858[5] may be inquired into, not merely because it falls
under the exceptions to the coverage of R.A. 1405, but because it is not even contemplated therein. For, to
respondent People, the law applies only to deposits which strictly means the money delivered to the bank by
which a creditor-debtor relationship is created between the depositor and the bank.

The contention that trust accounts are not covered by the term deposits, as used in R.A. 1405, by the
mere fact that they do not entail a creditor-debtor relationship between the trustor and the bank, does not lie. An
examination of the law shows that the term deposits used therein is to be understood broadly and not limited
only to accounts which give rise to a creditor-debtor relationship between the depositor and the bank.

The policy behind the law is laid down in Section 1:

SECTION 1. It is hereby declared to be the policy of the Government to give encouragement to

the people to deposit their money in banking institutions and to discourage private hoarding so
that the same may be properly utilized by banks in authorized loans to assist in the economic
development of the country. (Underscoring supplied)

If the money deposited under an account may be used by banks for authorized loans to third persons,
then such account, regardless of whether it creates a creditor-debtor relationship between the depositor and the
bank, falls under the category of accounts which the law precisely seeks to protect for the purpose of boosting
the economic development of the country.

Trust Account No. 858 is, without doubt, one such account. The Trust Agreement between petitioner
and Urban Bank provides that the trust account covers deposit, placement or investment of funds by Urban
Bank for and in behalf of petitioner.[6] The money deposited under Trust Account No. 858, was, therefore,
intended not merely to remain with the bank but to be invested by it elsewhere. To hold that this type of account
is not protected by R.A. 1405 would encourage private hoarding of funds that could otherwise be invested by
banks in other ventures, contrary to the policy behind the law.

Section 2 of the same law in fact even more clearly shows that the term deposits was intended to be
understood broadly:

SECTION 2. All deposits of whatever nature with banks or banking institutions in the
Philippines including investments in bonds issued by the Government of the Philippines, its
political subdivisions and its instrumentalities, are hereby considered as of an absolutely
confidential nature and may not be examined, inquired or looked into by any person, government
official, bureau or office, except upon written permission of the depositor, or in cases of
impeachment, or upon order of a competent court in cases of bribery or dereliction of duty of
public officials, or in cases where the money deposited or invested is the subject matter of the
litigation. (Emphasis and underscoring supplied)

The phrase of whatever nature proscribes any restrictive interpretation of deposits. Moreover, it is clear
from the immediately quoted provision that, generally, the law applies not only to money which is deposited but
also to those which are invested. This further shows that the law was not intended to apply only to deposits in
the strict sense of the word. Otherwise, there would have been no need to add the phrase or invested.

Clearly, therefore, R.A. 1405 is broad enough to cover Trust Account No. 858.

The protection afforded by the law is, however, not absolute, there being recognized exceptions thereto,
as above-quoted Section 2 provides. In the present case, two exceptions apply, to wit: (1) the examination of
bank accounts is upon order of a competent court in cases of bribery or dereliction of duty of public officials,
and (2) the money deposited or invested is the subject matter of the litigation.

Petitioner contends that since plunder is neither bribery nor dereliction of duty, his accounts are not
excepted from the protection of R.A. 1405. Philippine National Bank v. Gancayco[7] holds otherwise:

Cases of unexplained wealth are similar to cases of bribery or dereliction of duty and no reason
is seen why these two classes of cases cannot be excepted from the rule making bank deposits
confidential. The policy as to one cannot be different from the policy as to the other. This policy
expresses the notion that a public office is a public trust and any person who enters upon its
discharge does so with the full knowledge that his life, so far as relevant to his duty, is open to
public scrutiny.

Undoubtedly, cases for plunder involve unexplained wealth. Section 2 of R.A. No. 7080 states so.

SECTION 2. Definition of the Crime of Plunder; Penalties. Any public officer who, by himself
or in connivance with members of his family, relatives by affinity or consanguinity, business
 associates, subordinates or other persons, amasses, accumulates or acquires ill-gotten
wealth through a combination or series of overt or criminal acts as described in Section 1(d)
hereof, in the aggregate amount or total value of at least Seventy-five million pesos
(P75,000,000.00), shall be guilty of the crime of plunder and shall be punished by life
imprisonment with perpetual absolute disqualification from holding any public office. Any
person who participated with said public officer in the commission of plunder shall likewise be
punished. In the imposition of penalties, the degree of participation and the attendance of
mitigating and extenuating circumstances shall be considered by the court. The court shall
declare any and all ill-gotten wealth and their interests and other incomes and assets including
the properties and shares of stock derived from the deposit or investment thereof forfeited in
favor of the State. (Emphasis and underscoring supplied)

An examination of the overt or criminal acts as described in Section 1(d) of R.A. No. 7080 would make
the similarity between plunder and bribery even more pronounced since bribery is essentially included among
these criminal acts. Thus Section 1(d) states:

d) Ill-gotten wealth means any asset, property, business enterprise or material possession
of any person within the purview of Section Two (2) hereof, acquired by him directly or
indirectly through dummies, nominees, agents, subordinates and or business associates by any
combination or series of the following means or similar schemes.

1) Through misappropriation, conversion, misuse, or malversation of public funds or raids on the

public treasury;

2) By receiving, directly or indirectly, any commission, gift, share, percentage, kickbacks or

any other form of pecuniary benefit from any person and/or entity in connection with
any government contract or project or by reason of the office or position of the public
officer concerned;

3) By the illegal or fraudulent conveyance or disposition of assets belonging to the National

Government or any of its subdivisions, agencies or instrumentalities or government-owned
or -controlled corporations and their subsidiaries;

4) By obtaining, receiving or accepting directly or indirectly any shares of stock, equity or any
other form of interest or participation including promise of future employment in any
business enterprise or undertaking;

5) By establishing agricultural, industrial or commercial monopolies or other combinations

and/or implementation of decrees and orders intended to benefit particular persons or
special interests; or

6) By taking undue advantage of official position, authority, relationship, connection or influence

to unjustly enrich himself or themselves at the expense and to the damage and prejudice of
the Filipino people and the Republic of the Philippines. (Emphasis supplied)
 Indeed, all the above-enumerated overt acts are similar to bribery such that, in each case, it may be said
that no reason is seen why these two classes of cases cannot be excepted from the rule making bank deposits
confidential.[8]

The crime of bribery and the overt acts constitutive of plunder are crimes committed by public officers,
and in either case the noble idea that a public office is a public trust and any person who enters upon its
discharge does so with the full knowledge that his life, so far as relevant to his duty, is open to public scrutiny
applies with equal force.

Plunder being thus analogous to bribery, the exception to R.A. 1405 applicable in cases of bribery must
also apply to cases of plunder.

Respecting petitioners claim that the money in his bank accounts is not the subject matter of the
litigation, the meaning of the phrase subject matter of the litigation as used in R.A. 1405 is explained in Union
Bank of the Philippines v. Court of Appeals,[9] thus:

Petitioner contends that the Court of Appeals confuses the cause of action with the
subject of the action. In Yusingco v. Ong Hing Lian, petitioner points out, this Court
distinguished the two concepts.

x x x The cause of action is the legal wrong threatened or committed,

while the object of the action is to prevent or redress the wrong by obtaining some
legal relief; but the subject of the action is neither of these since it is not the
wrong or the relief demanded, the subject of the action is the matter or thing with
respect to which the controversy has arisen, concerning which the wrong has been
done, and this ordinarily is the property or the contract and its subject matter, or
the thing in dispute.

The argument is well-taken. We note with approval the difference between the subject of
the action from the cause of action. We also find petitioners definition of the phrase subject
matter of the action is consistent with the term subject matter of the litigation, as the latter is used
in the Bank Deposits Secrecy Act.

In Mellon Bank, N.A. v. Magsino, where the petitioner bank inadvertently caused the
transfer of the amount of US$1,000,000.00 instead of only US$1,000.00, the Court sanctioned
the examination of the bank accounts where part of the money was subsequently caused to
be deposited:

x x x Section 2 of [Republic Act No. 1405] allows the disclosure of bank

deposits in cases where the money deposited is the subject matter of the
litigation. Inasmuch as Civil Case No. 26899 is aimed at recovering the
amount converted by the Javiers for their own benefit, necessarily, an
inquiry into the whereabouts of the illegally acquired amount extends to
whatever is concealed by being held or recorded in the name of persons other
than the one responsible for the illegal acquisition.
 Clearly, Mellon Bank involved a case where the money deposited was the subject matter
of the litigation since the money deposited was the very thing in dispute. x x x (Emphasis and
underscoring supplied)

The plunder case now pending with the Sandiganbayan necessarily involves an inquiry into the
whereabouts of the amount purportedly acquired illegally by former President Joseph Estrada.

In light then of this Courts pronouncement in Union Bank, the subject matter of the litigation cannot be
limited to bank accounts under the name of President Estrada alone, but must include those accounts to
which the money purportedly acquired illegally or a portion thereof was alleged to have been transferred. Trust
Account No. 858 and Savings Account No. 0116-17345-9 in the name of petitioner fall under this description
and must thus be part of the subject matter of the litigation.

In a further attempt to show that the subpoenas issued by the Sandiganbayan are invalid and may not be
enforced, petitioner contends, as earlier stated, that the information found therein, given their extremely detailed
character, could only have been obtained by the Special Prosecution Panel through an illegal disclosure by the
bank officials concerned. Petitioner thus claims that, following the fruit of the poisonous tree doctrine, the
subpoenas must be quashed.

Petitioner further contends that even if, as claimed by respondent People, the extremely-detailed
information was obtained by the Ombudsman from the bank officials concerned during a previous investigation
of the charges against President Estrada, such inquiry into his bank accounts would itself be illegal.

Petitioner relies on Marquez v. Desierto[10] where the Court held:

We rule that before an in camera inspection may be allowed there must be a pending case before
a court of competent jurisdiction. Further, the account must be clearly identified, the inspection
limited to the subject matter of the pending case before the court of competent jurisdiction. The
bank personnel and the account holder must be notified to be present during the inspection, and
such inspection may cover only the account identified in the pending case. (Underscoring
supplied)

As no plunder case against then President Estrada had yet been filed before a court of competent
jurisdiction at the time the Ombudsman conducted an investigation, petitioner concludes that the information
about his bank accounts were acquired illegally, hence, it may not be lawfully used to facilitate a subsequent
inquiry into the same bank accounts.

Petitioners attempt to make the exclusionary rule applicable to the instant case fails. R.A. 1405, it bears
noting, nowhere provides that an unlawful examination of bank accounts shall render the evidence obtained
therefrom inadmissible in evidence. Section 5 of R.A. 1405 only states that [a]ny violation of this law will
subject the offender upon conviction, to an imprisonment of not more than five years or a fine of not more than
twenty thousand pesos or both, in the discretion of the court.

The case of U.S. v. Frazin,[11] involving the Right to Financial Privacy Act of 1978 (RFPA) of
the United States, is instructive.
Because the statute, when properly construed, excludes a suppression remedy, it would
not be appropriate for us to provide one in the exercise of our supervisory powers over the
administration of justice. Where Congress has both established a right and provided exclusive
remedies for its violation, we would encroach upon the prerogatives of Congress were we to
authorize a remedy not provided for by statute. United States v. Chanen, 549 F.2d 1306, 1313
(9th Cir.), cert. denied, 434 U.S. 825, 98 S.Ct. 72, 54 L.Ed.2d 83 (1977).

The same principle was reiterated in U.S. v. Thompson:[12]

x x x When Congress specifically designates a remedy for one of its acts, courts generally
presume that it engaged in the necessary balancing of interests in determining what the
appropriate penalty should be. See Michaelian, 803 F.2d at 1049 (citing cases); Frazin, 780 F.2d
at 1466. Absent a specific reference to an exclusionary rule, it is not appropriate for the courts to
read such a provision into the act.

Even assuming arguendo, however, that the exclusionary rule applies in principle to cases involving
R.A. 1405, the Court finds no reason to apply the same in this particular case.

Clearly, the fruit of the poisonous tree doctrine[13] presupposes a violation of law. If there was no
violation of R.A. 1405 in the instant case, then there would be no poisonous tree to begin with, and, thus, no
reason to apply the doctrine.

How the Ombudsman conducted his inquiry into the bank accounts of petitioner is recounted by
respondent People of the Philippines, viz:

x x x [A]s early as February 8, 2001, long before the issuance of the Marquez ruling, the Office of the
Ombudsman, acting under the powers granted to it by the Constitution and R.A. No. 6770, and
acting on information obtained from various sources, including impeachment (of then Pres.
Joseph Estrada) related reports, articles and investigative journals, issued a Subpoena Duces
Tecum addressed to Urban Bank. (Attachment 1-b) It should be noted that the description of the
documents sought to be produced at that time included that of numbered accounts 727, 737, 747,
757, 777 and 858 and included such names as Jose Velarde, Joseph E. Estrada, Laarni Enriquez,
Guia Gomez, Joy Melendrez, Peachy Osorio, Rowena Lopez, Kevin or Kelvin
Garcia. The subpoena did not single out account 858.

xxxx
Thus, on February 13, 2001, PDIC, as receiver of Urban Bank, issued a certification as to the
availability of bank documents relating to A/C 858 and T/A 858 and the non-availability of bank
records as to the other accounts named in the subpoena. (Attachments 2, 2-1 and 2-b)

Based on the certification issued by PDIC, the Office of the Ombudsman on February 16, 2001 again
issued a Subpoena Duces Tecum directed to Ms. Corazon dela Paz, as Interim Receiver, directing
the production of documents pertinent to account A/C 858 and T/C 858. (Attachment 3)

In compliance with the said subpoena dated February 16, 2001, Ms. Dela Paz, as interim receiver,
furnished the Office of the Ombudsman certified copies of documents under cover latter
dated February 21, 2001:

1. Transaction registers dated 7-02-99, 8-16-99, 9-17-99, 10-18-99, 11-22-99, 1-07-

00, 04-03-00 and 04-24-00;
2. Report of Unregularized TAFs & TDs for UR COIN A & B Placements of Various
Branches as of February 29, 2000 and as of December 16, 1999; and
3. Trading Orders Nos. A No. 78102 and A No. 078125.

Trading Order A No. 07125 is filed in two copies a white copy which showed set up
information; and a yellow copy which showed reversal information. Both copies have
been reproduced and are enclosed with this letter.

We are continuing our search for other records and documents pertinent to your request
and we will forward to you on Friday, 23 February 2001, such additional records and
documents as we might find until then. (Attachment 4)

The Office of the Ombudsman then requested for the mangers checks, detailed in the Subpoena
Duces Tecum dated March 7, 2001. (Attachment 5)

PDIC again complied with the said Subpoena Duces Tecum dated March 7, 2001 and provided
copies of the managers checks thus requested under cover letter dated March 16,
2001. (Attachment 6)[14] (Emphasis in the original)

The Sandiganbayan credited the foregoing account of respondent People.[15] The Court finds no reason
to disturb this finding of fact by the Sandiganbayan.

The Marquez ruling notwithstanding, the above-described examination by the Ombudsman of petitioners bank
accounts, conducted before a case was filed with a court of competent jurisdiction, was lawful.

For the Ombudsman issued the subpoenas bearing on the bank accounts of petitioner about four
months before Marquez was promulgated on June 27, 2001.

While judicial interpretations of statutes, such as that made in Marquez with respect to R.A. No. 6770 or
the Ombudsman Act of 1989, are deemed part of the statute as of the date it was originally passed, the rule is
not absolute.
Columbia Pictures, Inc. v. Court of Appeals[16] teaches:

It is consequently clear that a judicial interpretation becomes a part of the law as of the date that
law was originally passed, subject only to the qualification that when a doctrine of this Court
is overruled and a different view is adopted, and more so when there is a reversal thereof,
the new doctrine should be applied prospectively and should not apply to parties who relied
on the old doctrine and acted in good faith. (Emphasis and underscoring supplied)

When this Court construed the Ombudsman Act of 1989, in light of the Secrecy of Bank Deposits Law
in Marquez, that before an in camera inspection may be allowed there must be a pending case before a court of
competent jurisdiction, it was, in fact, reversing an earlier doctrine found in Banco Filipino Savings and
Mortgage Bank v. Purisima[17].

Banco Filipino involved subpoenas duces tecum issued by the Office of the Ombudsman, then known as
the Tanodbayan,[18] in the course of its preliminary investigation of a charge of violation of the Anti-Graft and
Corrupt Practices Act.

While the main issue in Banco Filipino was whether R.A. 1405 precluded the Tanodbayans issuance
of subpoena duces tecum of bank records in the name of persons other than the one who was charged, this
Court, citing P.D. 1630,[19] Section 10, the relevant part of which states:

(d) He may issue a subpoena to compel any person to appear, give sworn testimony, or
produce documentary or other evidence the Tanodbayan deems relevant to a matter under his
inquiry,

held that The power of the Tanodbayan to issue subpoenae ad testificandum and subpoenae duces tecum
at the time in question is not disputed, and at any rate does not admit of doubt.[20]

As the subpoenas subject of Banco Filipino were issued during a preliminary investigation, in effect this
Court upheld the power of the Tandobayan under P.D. 1630 to issue subpoenas duces tecum for bank
documents prior to the filing of a case before a court of competent jurisdiction.

Marquez, on the other hand, practically reversed this ruling in Banco Filipino despite the fact that the
subpoena power of the Ombudsman under R.A. 6770 was essentially the same as that under P.D. 1630. Thus
Section 15 of R.A. 6770 empowers the Office of the Ombudsman to

(8) Administer oaths, issue subpoena and subpoena duces tecum, and take testimony in any
investigation or inquiry, including the power to examine and have access to bank accounts and
records;
A comparison of this provision with its counterpart in Sec. 10(d) of P.D. 1630 clearly shows that it is only more
explicit in stating that the power of the Ombudsman includes the power to examine and have access to bank
accounts and records which power was recognized with respect to the Tanodbayan through Banco Filipino.

The Marquez ruling that there must be a pending case in order for the Ombudsman to validly inspect bank
records in camera thus reversed a prevailing doctrine.[21]Hence, it may not be retroactively applied.

The Ombudsmans inquiry into the subject bank accounts prior to the filing of any case before a court of
competent jurisdiction was therefore valid at the time it was conducted.

Likewise, the Marquez ruling that the account holder must be notified to be present during the inspection may
not be applied retroactively to the inquiry of the Ombudsman subject of this case. This ruling is not a judicial
interpretation either of R.A. 6770 or R.A. 1405, but a judge-made law which, as People v.
Luvendino[22]instructs, can only be given prospective application:

x x x The doctrine that an uncounselled waiver of the right to counsel is not to be given
legal effect was initially a judge-made one and was first announced on 26 April
1983 in Morales v. Enrile and reiterated on 20 March 1985 in People v. Galit. x x x

While the Morales-Galit doctrine eventually became part of Section 12(1) of the 1987
Constitution, that doctrine affords no comfort to appellant Luvendino for the requirements and
restrictions outlined in Morales and Galit have no retroactive effect and do not reach
waivers made prior to 26 April 1983 the date of promulgation of Morales. (Emphasis supplied)

In fine, the subpoenas issued by the Ombudsman in this case were legal, hence, invocation of the fruit of
the poisonous tree doctrine is misplaced.

AT ALL EVENTS, even if the challenged subpoenas are quashed, the Ombudsman is not barred from
requiring the production of the same documents based solely on information obtained by it from
sources independent of its previous inquiry.

In particular, the Ombudsman, even before its inquiry, had already possessed information giving him grounds to
believe that (1) there are bank accounts bearing the number 858, (2) that such accounts are in the custody of
Urban Bank, and (3) that the same are linked with the bank accounts of former President Joseph Estrada who
was then under investigation for plunder.
Only with such prior independent information could it have been possible for the Ombudsman to issue
the February 8, 2001 subpoena duces tecum addressed to the President and/or Chief Executive Officer of Urban
Bank, which described the documents subject thereof as follows:
 (a) bank records and all documents relative thereto pertaining to all bank accounts (Savings,
Current, Time Deposit, Trust, Foreign Currency Deposits, etc) under the account names of Jose
Velarde, Joseph E. Estrada, Laarni Enriquez, Guia Gomez, Joy Melendrez, Peach Osorio,
Rowena Lopez, Kevin or Kelvin Garcia, 727, 737, 747, 757, 777 and 858.(Emphasis and
underscoring supplied)

The information on the existence of Bank Accounts bearing number 858 was, according to respondent People of
the Philippines, obtained from various sources including the proceedings during the impeachment of President
Estrada, related reports, articles and investigative journals.[23] In the absence of proof to the contrary, this
explanation proffered by respondent must be upheld. To presume that the information was obtained in violation
of R.A. 1405 would infringe the presumption of regularity in the performance of official functions.

Thus, with the filing of the plunder case against former President Estrada before the Sandiganbayan, the
Ombudsman, using the above independent information, may now proceed to conduct the same investigation it
earlier conducted, through which it can eventually obtain the same information previously disclosed to it by the
PDIC, for it is an inescapable fact that the bank records of petitioner are no longer protected by R.A. 1405 for
the reasons already explained above.

Since conducting such an inquiry would, however, only result in the disclosure of the same documents
to the Ombudsman, this Court, in avoidance of what would be a time-wasteful and circuitous way of
administering justice,[24] upholds the challenged subpoenas.

Respecting petitioners claim that the Sandiganbayan violated his right to due process as he was neither
notified of the requests for the issuance of the subpoenas nor of the grant thereof, suffice it to state that the
defects were cured when petitioner ventilated his arguments against the issuance thereof through his earlier
quoted letter addressed to the Sandiganbayan and when he filed his motions to quash before the Sandiganbayan.

IN SUM, the Court finds that the Sandiganbayan did not commit grave abuse of discretion in issuing the
challenged subpoenas for documents pertaining to petitioners Trust Account No. 858 and Savings Account No.
0116-17345-9 for the following reasons:

1. These accounts are no longer protected by the Secrecy of Bank Deposits Law, there being two
exceptions to the said law applicable in this case, namely: (1) the examination of bank accounts is upon order of
a competent court in cases of bribery or dereliction of duty of public officials, and (2) the money deposited or
invested is the subject matter of the litigation. Exception (1) applies since the plunder case pending against
former President Estrada is analogous to bribery or dereliction of duty, while exception (2) applies because the
money deposited in petitioners bank accounts is said to form part of the subject matter of the same plunder case.

2. The fruit of the poisonous tree principle, which states that once the primary source (the tree) is shown
to have been unlawfully obtained, any secondary or derivative evidence (the fruit) derived from it is also
inadmissible, does not apply in this case. In the first place, R.A. 1405 does not provide for the application of
this rule. Moreover, there is no basis for applying the same in this case since the primary source for the detailed
information regarding petitioners bank accounts the investigation previously conducted by the Ombudsman was
lawful.

3. At all events, even if the subpoenas issued by the Sandiganbayan were quashed, the Ombudsman may
conduct on its own the same inquiry into the subject bank accounts that it earlier conducted last February-March
2001, there being a plunder case already pending against former President Estrada. To quash the challenged
subpoenas would, therefore, be pointless since the Ombudsman may obtain the same documents by another
route. Upholding the subpoenas avoids an unnecessary delay in the administration of justice.

WHEREFORE, the petition is DISMISSED. The Sandiganbayan Resolutions dated February 7 and 12,
2003 and March 11, 2003 are upheld.

The Sandiganbayan is hereby directed, consistent with this Courts ruling in Marquez v. Desierto, to
notify petitioner as to the date the subject bank documents shall be presented in court by the persons
subpoenaed.
Ejercito vs. Sandiganbayan G.R. Nos. 157294-95, 30 November 2006
MARCH 16, 2014LEAVE A COMMENT
RA 1405 does not provide for the application of this rule. At all events, the Ombudsman is not barred from
requiring the production of documents based solely on information obtained by it from sources
independentof its previous inquiry.
Facts: Joseph Victor G. Ejercito is the owner of Trust Account No. 858 which was originally opened at Urban
Bank but which is now maintained at Export and Industry Bank, which is the purchaser and owner now of the
former Urban Bank and Urbancorp Investment, Inc. He is also the owner of Savings Account No. 0116-17345-
9 which was originally opened at Urban Bank but which is now maintained at Export and Industry Bank, the
purchaser and owner of the former Urban Bank and Urbancorp Investment, Inc.

Estrada was subsequently charged with Plunder. The Sandiganbayan a Request for Issuance of Subpoena
Duces Tecum for the issuance of a subpoena directing the President of Export and Industry Bank (EIB, formerly
Urban Bank) or his/her authorized representative to produce various document related to the investigation.

The Special Prosecution Panel also filed a Request for Issuance of Subpoena Duces Tecum/Ad Testificandum
directed to the authorized representative of Equitable-PCI Bank to produce statements of account pertaining to
certain accounts in the name of Jose Velarde and to testify thereon.

The Sandiganbayan granted both requests by Resolution and subpoenas were accordingly issued. The Special
Prosecution Panel filed still another Request for Issuance of Subpoena Duces Tecum/Ad Testificandum for the
President of EIB or his/her authorized representative to produce the same documents subject of the first
Subpoena Duces Tecum and to testify thereon on the hearings scheduled and subsequent dates until completion
of the testimony. The request was likewise granted by the Sandiganbayan. A Subpoena Duces Tecum/Ad
Testificandum was accordingly issued. Ejercito filed various motions to quash the various Subpoenas Duces
Tecum/Ad Testificandum previously issued. In his Motion to Quash, he claimed that his bank accounts are
covered by R.A. No. 1405 (The Secrecy of Bank Deposits Law) and do not fall under any of the exceptions
stated therein. He further claimed that the specific identification of documents in the questioned subpoenas,
including details on dates and amounts, could only have been made possible by an earlier illegal disclosure
thereof by the EIB and the Philippine Deposit Insurance Corporation (PDIC) in its capacity as receiver of the
then Urban Bank. The disclosure being illegal, he concluded, the prosecution in the case may not be allowed to
make use of the information. Before the motion was resolved by the Sandiganbayan, the prosecution filed
another

Issue: Whether or not a Trust Account is covered by the term deposit as used in R.A. 1405;

Held: R.A. 1405 is broad enough to cover Trust Account No. 858. However, the protection afforded by the law
is not absolute. There being recognized exceptions thereto, as above-quoted Section 2 provides. In the present
case, two exceptions apply, to wit: (1) the examination of bank accounts is upon order of a competent court in
cases of bribery or dereliction of duty of public officials, and (2) the money deposited or invested is the subject
matter of the litigation. Ejercito contends that since plunder is neither bribery nor dereliction of duty, his
accounts are not excepted from the protection of R.A. 1405.

Cases of unexplained wealth are similar to cases of bribery or dereliction of duty and no reason is seen why
these two classes of cases cannot be excepted from the rule making bank deposits confidential. The policy as to
one cannot be different from the policy as to the other. This policy expresses the notion that a public office is a
public trust and any person who enters upon its discharge does so with the full knowledge that his life, so far as
relevant to his duty, is open to public scrutiny. Undoubtedly, cases for plunder involve unexplained wealth. The
crime of bribery and the overt acts constitutive of plunder are crimes committed by public officers, noble idea
that a public office is a public trust and any person who enters upon its discharge does so with the full
knowledge that his life, so far as relevant to his duty, is open to public scrutiny applies with equal force.

Also, the plunder case now pending with the Sandiganbayan necessarily involves an inquiry into the
whereabouts of the amount purportedly acquired illegally by former President Joseph Estrada. Republic Act
No. 1405 allows the disclosure of bank deposits in cases where the money deposited is the subject matter of
the litigation. Hence, these accounts are no longer protected by the Secrecy of Bank Deposits Law, there being
two exceptions to the said law applicable in this case, namely: (1)the examination of bank accounts is upon
order of a competent court in cases of bribery or dereliction of duty of public officials, and (2)the money
deposited or invested is the subject matter of the litigation. Exception (1) applies since the plunder case pending
against former President Estrada is analogous to bribery or dereliction of duty, while exception (2) applies
because the money deposited in Ejercitos bank accounts is said to form part of the subject matter of the same
plunder case. The fruit of the poisonous tree doctrine or the exclusionary rule is inapplicable in cases of
unlawful examination of bank accounts.

Republic of the Philippines

Supreme Court
Manila

THIRD DIVISION

BSB GROUP, INC., represented by its G.R. No. 168644

President, Mr. RICARDO BANGAYAN,
Petitioner,
Present:

CORONA, J., Chairperson,

VELASCO, JR.,
-versus- NACHURA,
PERALTA, and
MENDOZA, JJ.

SALLY GO a.k.a. SALLY GO-

BANGAYAN, Promulgated:
Respondent.
February 16, 2010
x-----------------------------------------------------------------------------------------x

DECISION

PERALTA, J.:
 This is a Petition for Review under Rule 45 of the Rules of Court assailing the Decision
of the Court of Appeals in CA-G.R. SP No. 87600[1] dated April 20, 2005, which reversed and
set aside the September 13, 2004[2] and November 5, 2004[3] Orders issued by the Regional
Trial Court of Manila, Branch 36[4] in Criminal Case No. 02-202158 for qualified theft. The
said orders, in turn, respectively denied the motion filed by herein respondent Sally Go for the
suppression of the testimonial and documentary evidence relative to a Security Bank account,
and denied reconsideration.

The basic antecedents are no longer disputed.

Petitioner, the BSB Group, Inc., is a duly organized domestic corporation presided by its herein
representative, Ricardo Bangayan (Bangayan). Respondent Sally Go, alternatively referred to as
Sally Sia Go and Sally Go-Bangayan, is Bangayans wife, who was employed in the company as
a cashier, and was engaged, among others, to receive and account for the payments made by the
various customers of the company.

In 2002, Bangayan filed with the Manila Prosecutors Office a complaint for estafa and/or
qualified theft[5] against respondent, alleging that several checks[6]representing the aggregate
amount of P1,534,135.50 issued by the companys customers in payment of their obligation
were, instead of being turned over to the companys coffers, indorsed by respondent who
deposited the same to her personal banking account maintained at Security Bank and Trust
Company (Security Bank) in Divisoria, Manila Branch.[7] Upon a finding that the evidence
adduced was uncontroverted, the assistant city prosecutor recommended the filing of the
Information for qualified theft against respondent.[8]

Accordingly, respondent was charged before the Regional Trial Court of Manila, Branch
36, in an Information, the inculpatory portion of which reads:

That in or about or sometime during the period comprised (sic) between

January 1988 [and] October 1989, inclusive, in the City of Manila, Philippines, the
said accused did then and there willfully, unlawfully and feloniously with intent [to]
gain and without the knowledge and consent of the owner thereof, take, steal and
carry away cash money in the total amount of P1,534,135.50 belonging to BSB
GROUP OF COMPANIES represented by RICARDO BANGAYAN, to the damage
and prejudice of said owner in the aforesaid amount of P1,534,135.50, Philippine
currency.

That in the commission of the said offense, said accused acted with grave abuse
of confidence, being then employed as cashier by said complainant at the time of the
commission of the said offense and as such she was entrusted with the said amount of
money.
 Contrary to law.[9]

Respondent entered a negative plea when arraigned.[10] The trial ensued. On the premise that
respondent had allegedly encashed the subject checks and deposited the corresponding amounts
thereof to her personal banking account, the prosecution moved for the issuance of
subpoena duces tecum /ad testificandum against the respective managers or records custodians
of Security Banks Divisoria Branch, as well as of the Asian Savings Bank (now Metropolitan
Bank & Trust Co. [Metrobank]), in Jose Abad Santos, Tondo, Manila Branch. [11] The trial court
granted the motion and issued the corresponding subpoena.[12]

Respondent filed a motion to quash the subpoena dated November 4, 2003, addressed to
Metrobank, noting to the court that in the complaint-affidavit filed with the prosecutor, there
was no mention made of the said bank account, to which respondent, in addition to the Security
Bank account identified as Account No. 01-14-006, allegedly deposited the proceeds of the
supposed checks. Interestingly, while respondent characterized the Metrobank account as
irrelevant to the case, she, in the same motion,
nevertheless waived her objection to the irrelevancy of the Security
Bank account mentioned in the same complaint-affidavit, inasmuch as she was admittedly
willing to address the allegations with respect thereto.[13]

Petitioner, opposing respondents move, argued for the relevancy of the Metrobank
account on the ground that the complaint-affidavit showed that there were two checks which
respondent allegedly deposited in an account with the said bank.[14] To this, respondent filed a
supplemental motion to quash, invoking the absolutely confidential nature of the Metrobank
account under the provisions of Republic Act (R.A.) No. 1405.[15] The trial court did not sustain
respondent; hence, it denied the motion to quash for lack of merit.[16]

Meanwhile, the prosecution was able to present in court the testimony of Elenita
Marasigan (Marasigan), the representative of Security Bank. In a nutshell, Marasigans
testimony sought to prove that between 1988 and 1989, respondent, while engaged as cashier at
the BSB Group, Inc., was able to run away with the checks issued to the company by its
customers, endorse the same, and credit the corresponding amounts to her personal deposit
account with Security Bank. In the course of the testimony, the subject checks were presented to
Marasigan for identification and marking as the same checks received by respondent, endorsed,
and then deposited in her personal account with Security Bank.[17] But before the testimony
could be completed, respondent filed a Motion to Suppress,[18] seeking the exclusion of
Marasigans testimony and accompanying documents thus far received, bearing on the subject
Security Bank account. This time respondent invokes, in addition to irrelevancy, the privilege of
confidentiality under R.A. No. 1405.

The trial court, nevertheless, denied the motion in its September 13, 2004 Order.[19] A
motion for reconsideration was subsequently filed, but it was also denied in the Order dated
November 5, 2004.[20] These two orders are the subject of the instant case.

Aggrieved, and believing that the trial court gravely abused its discretion in acting the way it
did, respondent elevated the matter to the Court of Appeals via a petition for certiorari under
Rule 65. Finding merit in the petition, the Court of Appeals reversed and set aside the assailed
orders of the trial court in its April 20, 2005 Decision.[21] The decision reads:

WHEREFORE, the petition is hereby GRANTED. The assailed orders dated

September 13, 2004 and November 5, 2004 are REVERSED and SET ASIDE. The
testimony of the SBTC representative is ordered stricken from the records.

SO ORDERED.[22]

With the denial of its motion for reconsideration,[23] petitioner is now before the Court pleading
the same issues as those raised before the lower courts.

In this Petition[24] under Rule 45, petitioner averred in the main that the Court of Appeals
had seriously erred in reversing the assailed orders of the trial court, and in effect striking out
Marasigans testimony dealing with respondents deposit account with Security Bank.[25] It
asserted that apart from the fact that the said evidence had a direct relation to the subject matter
of the case for qualified theft and, hence, brings the case under one of the exceptions to the
coverage of confidentiality under R.A. 1405.[26] Petitioner believed that what constituted the
subject matter in litigation was to be determined by the allegations in the information and, in
this respect, it alluded to the assailed November 5, 2004 Order of the trial court, which declared
to be erroneous the limitation of the present inquiry merely to what was contained in the
information.[27]

For her part, respondent claimed that the money represented by the Security Bank
account was neither relevant nor material to the case, because nothing in the criminal
information suggested that the money therein deposited was the subject matter of the case. She
invited particular attention to that portion of the criminal Information which averred that she has
stolen and carried away cash money in the total amount of P1,534,135.50. She advanced the
notion that the term cash money stated in the Information was not synonymous with the checks
she was purported to have stolen from petitioner and deposited in her personal banking
account. Thus, the checks which the prosecution had Marasigan identify, as well as the
testimony itself of Marasigan, should be suppressed by the trial court at least for violating
respondents right to due process.[28] More in point, respondent opined that admitting the
testimony of Marasigan, as well as the evidence pertaining to the Security Bank account, would
violate the secrecy rule under R.A. No. 1405.[29]

In its reply, petitioner asserted the sufficiency of the allegations in the criminal Information for
qualified theft, as the same has sufficiently alleged the elements of the offense charged. It posits
that through Marasigans testimony, the Court would be able to establish that the checks
involved, copies of which were attached to the complaint-affidavit filed with the prosecutor, had
indeed been received by respondent as cashier, but were, thereafter, deposited by the latter to
her personal account with Security Bank. Petitioner held that the checks represented the cash
money stolen by respondent and, hence, the subject matter in this case is not only the cash
amount represented by the checks supposedly stolen by respondent, but also the checks
themselves.[30]

We derive from the conflicting advocacies of the parties that the issue for resolution is whether
the testimony of Marasigan and the accompanying documents are irrelevant to the case, and
whether they are also violative of the absolutely confidential nature of bank deposits and, hence,
excluded by operation of R.A. No. 1405.The question of admissibility of the evidence thus
comes to the fore. And the Court, after deliberative estimation, finds the subject evidence to be
indeed inadmissible.

Prefatorily, fundamental is the precept in all criminal prosecutions, that the constitutive
acts of the offense must be established with unwavering exactitude and moral certainty because
this is the critical and only requisite to a finding of guilt. [31] Theft is present when a person,
with intent to gain but without violence against or intimidation of persons or force upon things,
takes the personal property of another without the latters consent. It is qualified when, among
others, and as alleged in the instant case, it is committed with abuse of confidence. [32] The
prosecution of this offense necessarily focuses on the existence of the following elements: (a)
there was taking of personal property belonging to another; (b) the taking was done with intent
to gain; (c) the taking was done without the consent of the owner; (d) the taking was done
without violence against or intimidation of persons or force upon things; and (e) it was done
with abuse of confidence.[33] In turn, whether these elements concur in a way that overcomes the
presumption of guiltlessness, is a question that must pass the test of relevancy and competency
in accordance with Section 3[34] Rule 128 of the Rules of Court.

Thus, whether these pieces of evidence sought to be suppressed in this case the
testimony of Marasigan, as well as the checks purported to have been stolen and deposited in
respondents Security Bank account are relevant, is to be addressed by considering whether
they have such direct relation to the fact in issue as to induce belief in its existence or non-
existence; or whether they relate collaterally to a fact from which, by process of logic, an
inference may be made as to the existence or non-existence of the fact in issue.[35]

The fact in issue appears to be that respondent has taken away cash in the amount
of P1,534,135.50 from the coffers of petitioner. In support of this allegation, petitioner seeks to
establish the existence of the elemental act of taking by adducing evidence that respondent, at
several times between 1988 and 1989, deposited some of its checks to her personal account with
Security Bank. Petitioner addresses the incongruence between the allegation of theft of cash in
the Information, on the one hand, and the evidence that respondent had first stolen the checks
and deposited the same in her banking account, on the other hand, by impressing upon the Court
that there obtains no difference between cash and check for purposes of prosecuting respondent
for theft of cash. Petitioner is mistaken.

In theft, the act of unlawful taking connotes deprivation of personal property of one by
another with intent to gain, and it is immaterial that the offender is able or unable to freely
dispose of the property stolen because the deprivation relative to the offended party has already
ensued from such act of execution.[36] The allegation of theft of money, hence, necessitates that
evidence presented must have a tendency to prove that the offender has unlawfully taken money
belonging to another. Interestingly, petitioner has taken pains in attempting to draw a
connection between the evidence subject of the instant review, and the allegation of theft in the
Information by claiming that respondent had fraudulently deposited the checks in her own
name. But this line of argument works more prejudice than favor, because it in effect, seeks to
establish the commission, not of theft, but rather of some other crime probably estafa.

Moreover, that there is no difference between cash and check is true in other
instances. In estafa by conversion, for instance, whether the thing converted is cash or check, is
immaterial in relation to the formal allegation in an information for that offense; a check, after
all, while not regarded as legal tender, is normally accepted under commercial usage as a
substitute for cash, and the credit it represents in stated monetary value is properly capable of
appropriation. And it is in this respect that what the offender does with the check subsequent to
the act of unlawfully taking it becomes material inasmuch as this offense is a continuing
one.[37] In other words, in pursuing a case for this offense, the prosecution may establish its
cause by the presentation of the checks involved. These checks would then constitute the best
evidence to establish their contents and to prove the elemental act of conversion in support of
the proposition that the offender has indeed indorsed the same in his own name. [38]

Theft, however, is not of such character. Thus, for our purposes, as the Information in this
case accuses respondent of having stolen cash, proof tending to establish that respondent has
actualized her criminal intent by indorsing the checks and depositing the proceeds thereof in her
personal account, becomes not only irrelevant but also immaterial and, on that score,
inadmissible in evidence.

We now address the issue of whether the admission of Marasigans testimony on the
particulars of respondents account with Security Bank, as well as of the corresponding evidence
of the checks allegedly deposited in said account, constitutes an unallowable inquiry under R.A.
1405.
It is conceded that while the fundamental law has not bothered with the triviality of specifically
addressing privacy rights relative to banking accounts, there, nevertheless, exists in our
jurisdiction a legitimate expectation of privacy governing such accounts. The source of this
right of expectation is statutory, and it is found in R.A. No. 1405,[39] otherwise known as the
Bank Secrecy Act of 1955. [40]

R.A. No. 1405 has two allied purposes. It hopes to discourage private hoarding and at the
same time encourage the people to deposit their money in banking institutions, so that it may be
utilized by way of authorized loans and thereby assist in economic development.[41] Owing to
this piece of legislation, the confidentiality of bank deposits remains to be a basic state policy in
the Philippines.[42] Section 2 of the law institutionalized this policy by characterizing as
absolutely confidential in general all deposits of whatever nature with banks and other financial
institutions in the country. It declares:

Section 2. All deposits of whatever nature with banks or banking institutions in

the Philippines including investments in bonds issued by the Government of the
Philippines, its political subdivisions and its instrumentalities, are hereby considered
as of an absolutely confidential nature and may not be examined, inquired or looked
into by any person, government official, bureau or office, except upon written
permission of the depositor, or in cases of impeachment, or upon order of a competent
court in cases of bribery or dereliction of duty of public officials, or in cases where the
money deposited or invested is the subject matter of the litigation.

Subsequent statutory enactments[43] have expanded the list of exceptions to this policy yet
the secrecy of bank deposits still lies as the general rule, falling as it does within the legally
recognized zones of privacy.[44] There is, in fact, much disfavor to construing these primary and
supplemental exceptions in a manner that would authorize unbridled discretion, whether
governmental or otherwise, in utilizing these exceptions as authority for unwarranted inquiry
into bank accounts. It is then perceivable that the present legal order is obliged to conserve the
absolutely confidential nature of bank deposits.[45]

The measure of protection afforded by the law has been explained in China Banking
Corporation v. Ortega.[46] That case principally addressed the issue of whether the prohibition
against an examination of bank deposits precludes garnishment in satisfaction of a
judgment. Ruling on that issue in the negative, the Court found guidance in the relevant
portions of the legislative deliberations on Senate Bill No. 351 and House Bill No. 3977, which
later became the Bank Secrecy Act, and it held that the absolute confidentiality rule in R.A. No.
1405 actually aims at protection from unwarranted inquiry or investigation if the purpose of
such inquiry or investigation is merely to determine the existence and nature, as well as the
amount of the deposit in any given bank account. Thus,

x x x The lower court did not order an examination of or inquiry into the deposit of
B&B Forest Development Corporation, as contemplated in the law. It merely required
Tan Kim Liong to inform the court whether or not the defendant B&B Forest
Development Corporation had a deposit in the China Banking Corporation only for
purposes of the garnishment issued by it, so that the bank would hold the same intact
and not allow any withdrawal until further order. It will be noted from the discussion
of the conference committee report on Senate Bill No. 351 and House Bill No.
3977which later became Republic Act No. 1405, that it was not the intention of the
lawmakers to place banks deposits beyond the reach of execution to satisfy a final
judgment. Thus:

x x x Mr. Marcos: Now, for purposes of the record, I should like the
Chairman of the Committee on Ways and Means to clarify this
further. Suppose an individual has a tax case. He is being held liable by
the Bureau of Internal Revenue [(BIR)] or, say, P1,000.00 worth of tax
liability, and because of this the deposit of this individual [has been]
attached by the [BIR].

Mr. Ramos: The attachment will only apply after the court has
pronounced sentence declaring the liability of such person. But where
the primary aim is to determine whether he has a bank deposit in
order to bring about a proper assessment by the [BIR], such inquiry
is not allowed by this proposed law.

Mr. Marcos: But under our rules of procedure and under the Civil
Code, the attachment or garnishment of money deposited is allowed. Let
us assume for instance that there is a preliminary attachment which is for
garnishment or for holding liable all moneys deposited belonging to a
certain individual, but such attachment or garnishment will bring out into
the open the value of such deposit. Is that prohibited by... the law?

Mr. Ramos: It is only prohibited to the extent that the inquiry... is

made only for the purpose of satisfying a tax liability already declared
for the protection of the right in favor of the government; but when the
object is merely to inquire whether he has a deposit or not for
purposes of taxation, then this is fully covered by the law. x x x
 Mr. Marcos: The law prohibits a mere investigation into the
existence and the amount of the deposit.

Mr. Ramos: Into the very nature of such deposit. x x x[47]

In taking exclusion from the coverage of the confidentiality rule, petitioner in the instant
case posits that the account maintained by respondent with Security Bank contains the proceeds
of the checks that she has fraudulently appropriated to herself and, thus, falls under one of the
exceptions in Section 2 of R.A. No. 1405 that the money kept in said account is the subject
matter in litigation. To highlight this thesis, petitioner avers, citing Mathay v. Consolidated
Bank and Trust Co.,[48]that the subject matter of the action refers to the physical facts; the things
real or personal; the money, lands, chattels and the like, in relation to which the suit is
prosecuted, which in the instant case should refer to the money deposited in the Security Bank
account.[49] On the surface, however, it seems that petitioners theory is valid to a point, yet a
deeper treatment tends to show that it has argued quite off-tangentially. This, because,
while Mathay did explain what the subject matter of an action is, it nevertheless did so only to
determine whether the class suit in that case was properly brought to the court.

What indeed constitutes the subject matter in litigation in relation to Section 2 of R.A.
No. 1405 has been pointedly and amply addressed in Union Bank of the Philippines v. Court of
Appeals,[50] in which the Court noted that the inquiry into bank deposits allowable under R.A.
No. 1405 must be premised on the fact that the money deposited in the account is itself the
subject of the action.[51] Given this perspective, we deduce that the subject matter of the action
in the case at bar is to be determined from the indictment that charges respondent with the
offense, and not from the evidence sought by the prosecution to be admitted into the records. In
the criminal Information filed with the trial court, respondent, unqualifiedly and in plain
language, is charged with qualified theft by abusing petitioners trust and confidence and
stealing cash in the amount of P1,534,135.50. The said Information makes no factual allegation
that in some material way involves the checks subject of the testimonial and documentary
evidence sought to be suppressed. Neither do the allegations in said Information make mention
of the supposed bank account in which the funds represented by the checks have allegedly been
kept.

In other words, it can hardly be inferred from the indictment itself that the Security Bank
account is the ostensible subject of the prosecutions inquiry. Without needlessly expanding the
scope of what is plainly alleged in the Information, the subject matter of the action in this case
is the money amounting to P1,534,135.50 alleged to have been stolen by respondent, and not
the money equivalent of the checks which are sought to be admitted in evidence. Thus, it is that,
which the prosecution is bound to prove with its evidence, and no other.
 It comes clear that the admission of testimonial and documentary evidence relative to
respondents Security Bank account serves no other purpose than to establish the existence of
such account, its nature and the amount kept in it. It constitutes an attempt by the prosecution at
an impermissible inquiry into a bank deposit account the privacy and confidentiality of which is
protected by law. On this score alone, the objection posed by respondent in her motion to
suppress should have indeed put an end to the controversy at the very first instance it was raised
before the trial court.

In sum, we hold that the testimony of Marasigan on the particulars of respondents

supposed bank account with Security Bank and the documentary evidence represented by the
checks adduced in support thereof, are not only incompetent for being excluded by operation of
R.A. No. 1405. They are likewise irrelevant to the case, inasmuch as they do not appear to have
any logical and reasonable connection to the prosecution of respondent for qualified theft. We
find full merit in and affirm respondents objection to the evidence of the prosecution. The Court
of Appeals was, therefore, correct in reversing the assailed orders of the trial court.

A final note. In any given jurisdiction where the right of privacy extends its scope to
include an individuals financial privacy rights and personal financial matters, there is an
intermediate or heightened scrutiny given by courts and legislators to laws infringing such
rights.[52] Should there be doubts in upholding the absolutely confidential nature of bank
deposits against affirming the authority to inquire into such accounts, then such doubts must be
resolved in favor of the former.This attitude persists unless congress lifts its finger to reverse
the general state policy respecting the absolutely confidential nature of bank deposits.[53]

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-
G.R. SP No. 87600 dated April 20, 2005, reversing the September 13, 2004 and November 5,
2004 Orders of the Regional Trial Court of Manila, Branch 36 in Criminal Case No. 02-202158,
is AFFIRMED.

SO ORDERED.

10. BSB Group Inc. vs. Sally GoG.R. No. 168644 February 16, 2010Peralta,
J.:
FACTS:
Petitioner, the BSB Group, Inc., is a duly organized domestic corporation presidedby its
herein representative, Ricardo Bangayan (Bangayan). Respondent Sally Go,alternatively
referred to as Sally Sia Go and Sally Go-Bangayan, is Bangayan's wife, who
wasemployed in the company as a cashier, and was engaged, among others, to receive
andaccount for the payments made by the various customers of the company.In
2002, Bangayan filed with the Manila Prosecutor's Office a complaint forestafaand/or
qualified theft against respondent, alleging that several checks representingthe
aggregate amount of P1,534,135.50 issued by the company's customers in payment
of their obligation were, instead of being turned over to the company's coffers, indorsed
byrespondent who deposited the same to her personal banking account
maintained at Security Bank and Trust Company (Security Bank) in Divisoria, Manila
Branch. Upon afinding that the evidence adduced was uncontroverted, the assistant city
prosecutorrecommended the filing of the Information for qualified theft against
respondent.Accordingly, respondent was charged before the Regional Trial Court
of Manila. Shewas found guilty; that in the commission of the said offense, said accused
acted with graveabuse of confidence, being then employed as cashier by said
complainant at the time of thecommission of the said offense and as such she was
entrusted with the said amount of money.Respondent entered a negative plea when
arraigned. The trial ensued. On thepremise that respondent had allegedly encashed the
subject checks and deposited thecorresponding amounts thereof to her personal banking
account.Petitioner, opposing respondent's move, argued for the relevancy of the
Metrobank account on the ground that the complaint-affidavit showed that there were
two checkswhich respondent allegedly deposited in an account with the said bank. To
this, respondent filed a supplemental motion to quash, invoking the absolutely
confidential nature of theMetrobank account under the provisions of Republic Act(R.A.)
No. 1405. The trial court didnot sustain respondent; hence, it denied the motion to
quash for lack of merit.Meanwhile, the prosecution was able to present in court the
testimony of ElenitaMarasigan (Marasigan), the representative of Security Bank.
In a nutshell ,Marasigan'stestimony sought to prove that between 1988 and 1989,
respondent ,while engaged ascashier at the BSB Group, Inc., was able to run away with
the checks issued to the companyby its customers, endorse the same, and credit the
corresponding amounts to her personaldeposit account with Security Bank. In the course
of the testimony, the subject checkswere presented to Marasigan for identification and
marking as the same checks received byrespondent, endorsed, and then deposited in
her personal account with Security Bank. CA
affirmed RTCs decision.

ISSUE:
Whether or not there is no difference between cash and check for purposesof
prosecuting respondent for theft of cash

15
HELD:
In theft, the act of unlawful taking connotes deprivation of personal property of oneby
another with intent to gain, and it is immaterial that the offender is able or unable
tofreely dispose of the property stolen because the deprivation relative to the offended
partyhas already ensued from such act of execution. The allegation of theft of money,
hence,necessitates that evidence presented must have a tendency to prove that the
offender hasunlawfully taken money belonging to another. Interestingly, petitioner
has taken painsin attempting to draw a connection between the evidence subject of
the instant review, andthe allegation of theft in the Information by claiming that
respondent had fraudulentlydeposited the checks in her own name. But this line of
argument works more prejudicethan favor, because it in effect, seeks to establish the
commission, not of theft, but rather of some other crime probably estafa.Moreover, that
there is no difference between cash and check is true in otherinstances. In estafa by
conversion, for instance, whether the thing converted is cash orcheck, is immaterial in
relation to the formal allegation in an information for that offense; acheck, after all,
while not regarded as legal tender, is normally accepted under commercialusage as
a substitute for cash, and the credit it represents instated monetary value isproperly
capable of appropriation. And it is in this respect that what the offender does withthe
check subsequent to the act of unlawfully taking it becomes material inasmuch as
thisoffense is a continuing one. In other words, in pursuing a case for this
offense, theprosecution may establish its cause by the presentation of the checks
involved. Thesechecks would then constitute the best evidence to establish their
contents and to provethe elemental act of conversion in support of the proposition that
the offender hasindeed indorsed the same in his own name.
Philippine Deposit Insurance Corporation vs. Citibank GR NO.170290 April 11,
2012Mendoza, J.:FACTS:
Petitioner Philippine Deposit Insurance Corporation
(PDIC)
is a government instrumentality created by virtue of Republic Act
(R.A.)
No. 3591, as amended by R.A. No.9302.Respondent Citibank, N.A.
(Citibank)
is a banking corporation while respondent Bank of America, S.T. & N.A.
(BA)
is a national banking association, both of which are dulyorganized and existing under the
laws of the United States of America and duly licensed todo business in the Philippines,
with offices in Makati City.In 1977, PDIC conducted an examination of the books of
account of Citibank. It discovered that Citibank, in the course of its banking business,
from September 30, 1974 toJune 30, 1977, received from its head office and other
foreign branches a totalof P11,923,163,908.00 in dollars, covered by Certificates of
Dollar Time Deposit that wereinterest-bearing with corresponding maturity dates. These
funds, which were lodged inthe books of
Citibank under the account Their Account
-Head Office/Branches-Foreign
Currency, were not reported to PDIC as deposit liabilities that were subject to assessment
for insurance. As such, in a letter dated March 16, 1978, PDIC assessed Citibank
fordeficiency in the sum of P1,595,081.96.Similarly, sometime in 1979, PDIC examined
the books of accounts of BA whichrevealed that from September 30, 1976 to June 30,
1978, BA received from its head officeand its other foreign branches a total of
P629,311,869.10 in dollars, covered by Certificatesof Dollar Time Deposit that were
interest-bearing with corresponding maturity dates and
lodged in their books under the account Due to Head Office/Branches. Because BA also
excluded these from its deposit liabilities, PDIC wrote to BA on October 9, 1979, seeking
theremittance of P109,264.83 representing deficiency premium
assessments for dollardeposits.Believing that litigation would inevitably arise from this
dispute, Citibank and BAeach filed a petition for declaratory relief before the Court of
First Instance (now theRegional Trial Court) of Rizal on July 19, 1979 and December 11,
1979, respectively. Intheir petitions, Citibank and BA sought a declaratory judgment
stating that the moneyplacements they received from their head office and other foreign
branches were not deposits and did not give rise to insurable deposit liabilities under
Sections 3 and 4 of R.A.No. 3591
(the PDIC Charter)
and, as a consequence, the deficiency assessments made byPDIC were improper and
erroneous. The cases were then consolidated.On June 29, 1998, the Regional Trial
Court, Branch 163, PasigCity
(RTC)
promulgated its Decision in favor of Citibank and BA. Aggrieved, PDIC appealedto the CA
which affirmed the ruling of the RTC in its October 27, 2005 Decision. Hence,
thispetition.
ISSUE:
Whether or not a branch of a bank has a separate legal Personality.

21
HELD
: No
.
A branch has no separate legal personality. This Court is of the opinion that thekey to
the resolution of this controversy is the relationship of the Philippine branches
of Citibank and BA to their respective head offices and their other foreign branches.

The Court begins by examining the manner by which a foreign corporation canestablish
its presence in the Philippines. It may choose to incorporate its own subsidiary asa
domestic corporation, in which case such subsidiary would have its own separate
andindependent legal personality to conduct business in the country. In the alternative,
it maycreate a branch in the Philippines, which would not be a legally independent unit,
andsimply obtain a license to do business in the Philippines.In the case of Citibank and
BA, it is apparent that they
both did not incorporate
aseparate domestic corporation to represent its business interests in
the Philippines. TheirPhilippine branches are, as the name implies, merely branches,
without a separate legalpersonality from their parent company, Citibank and BA. Thus,
being one and the sameentity, the funds placed by the respondents in their respective
branches inthe Philippines should not be treated as deposits made by third parties
subject to deposit insurance under the PDIC Charter. The purpose of the PDIC is to
protect the depositingpublic in the event of a bank closure. It has already been
sufficiently establishedby US jurisprudence and Philippine statutes that the head
office shall answer for theliabilities of its branch. Now, suppose the Philippine branch of
Citibank suddenly closes forsome reason. Citibank N.A. would then be required to
answer for the deposit liabilities of Citibank Philippines. If the Court were to adopt the
posture of PDIC that the head office andthe branch are two separate entities and that
the funds placed by the head office and itsforeign branches with the Philippine branch
are considered deposits within the meaning of the PDIC Charter, it would result to the
incongruous situation where Citibank, as the headoffice, would be placed in the
ridiculous position of having to reimburse itself, as depositor,for the losses it may incur
occasioned by the closure of Citibank Philippines. Surely our lawmakers could not have
envisioned such a preposterous circumstance when they createdPDIC.Finally, the Court
agrees with the CA ruling that there is nothing in the definition of
a bank and a banking institution in Section 3(b) of the PDIC Charter
[27]
which explicitlystates that the head office of a foreign bank and its other branches are
separate and distinct from their Philippine branches.There is no need to complicate the
matter when it can be solved by simple logicbolstered by law and jurisprudence. Based
on the foregoing, it is clear that the head officeof a bank and its branches are considered
as one under the eyes of the law. While branchesare treated as separate business units
for commercial and financial reporting purposes, inthe end, the head office remains
responsible and answerable for the liabilities of itsbranches which are under its
supervision and control. As such, it is unreasonable for PDICto require the respondents,
Citibank and BA, to insure the money placements made by theirhome office and other
branches. Deposit insurance is superfluous and entirely unnecessarywhen, as in this
case, the institution holding the funds and the one which made theplacements are one
and the same legal entity.

Dona Adela Export International v. Trade and

Investment Development Corp (G.R.
No. 201931)
Oct16by Jai Cdn

Facts:

Petitioner Dona Adela filed a Petition for Voluntary Insolvency before the RTC. After finding the petition
sufficient in form and substance, RTC declared petitioner herein as insolvent and stayed all civil proceedings
against it. Thereafter, Atty. Arlene Gonzales was appointed as a receiver and proceeded to make the necessary
report, to engage appraisers and require the creditors to submit proof of their respective claims. Atty. Gonzales
then filed a Motion for Parties to Enter Into Compromise Agreement incorporating therein her proposed terms
of compromise. Then, TIDCORP and BPI also filed a Joint Motion to Approve Agreement which was
approved. Petitioner filed a motion for partial reconsideration claiming that TIDCORP and BPIs agreement
imposes upon it several obligations such as payment of expenses and taxes and waiver of confidentiality of
bank deposits when it is not a party and signatory to the said agreement. RTC denied the motion.

Issue:
Whether or not petitioner is bound by the provision in the BPI-TIDCORP Joint Motion to Approve Agreement
to waive its rights to confidentiality of its bank deposits under R.A. No. 1405.

Ruling: NO.

R.A. No. 1405 provides for exceptions when records of deposits may be disclosed. These are under any of the
following instances: (a) upon written permission of the depositor, (b) in cases of impeachment, (c) upon order
of a competent court in the case of bribery or dereliction of duty of public officials or, (d) when the money
deposited or invested is the subject matter of the litigation, and (e) in cases of violation of the Anti-Money
Laundering Act, the Anti-Money Laundering Council may inquire into a bank account upon order of any
competent court.

In this case, the Joint Motion to Approve Agreement was executed by BPI and TIDCORP only. There was no
written consent given by petitioner or its representative, Epifanio Ramos, Jr., that petitioner is waiving the
confidentiality of its bank deposits. The provision on the waiver of the confidentiality of petitioners bank
deposits was merely inserted in the agreement. It is clear therefore that petitioner is not bound by the said
provision since it was without the express consent of petitioner who was not a party and signatory to the said
agreement.

Clearly, the waiver of confidentiality of petitioners bank deposits in the BPI-TIDCORP Joint Motion to
Approve Agreement lacks the required written consent of petitioner and conformity of the receiver. We, thus,
hold that petitioner is not bound by the said provision.

G.R. No. 201931, February 11, 2015 - DOA ADELA1 EXPORT INTERNATIONAL, INC., Petitioner, v. TRADE AND INVESTMENT
DEVELOPMENT CORPORATION (TIDCORP), AND THE BANK OF THE PHILIPPINE ISLANDS (BPI), Respondents.

THIRD DIVISION

G.R. No. 201931, February 11, 2015

DOA ADELA1 EXPORT INTERNATIONAL, INC., Petitioner, v. TRADE AND INVESTMENT DEVELOPMENT CORPORATION
(TIDCORP), AND THE BANK OF THE PHILIPPINE ISLANDS (BPI), Respondents.

DECISION

VILLARAMA, JR., J.:

Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, assailing the
Decision2 dated November 15, 2011 and the Order3 dated May 14, 2012 of the Regional Trial Court (RTC) of Mandaluyong City,
Branch 211 in SEC Case No. MC06-103 for Voluntary Insolvency. The RTC approved the Joint Motion to Approve Agreement filed
by respondents Trade and Investment Development Corporation of the Philippines (TIDCORP) and the Bank of the Philippine
Islands (BPI). Respondents stipulated in their agreement that petitioner shall waive its rights to confidentiality under the
provisions of the Law on Secrecy of Bank Deposits and the General Banking Law of 2000.

The facts follow:

On August 23, 2006, petitioner Doa Adela Export International, Inc., (petitioner, for brevity) filed a Petition for Voluntary
Insolvency.4 The case was docketed as SEC Case No. MC06-103 and raffled off to the RTC of Mandaluyong City, Branch 211.

On August 28, 2006, the RTC, after finding the petition sufficient in form and substance, issued an order declaring petitioner as
insolvent and staying all civil proceedings against petitioner. In the same order, the RTC set the initial hearing on October 19,
2006.5 cralawlawl ib rary

Thereafter, Atty. Arlene Gonzales was appointed as receiver. After taking her oath, Atty. Gonzales proceeded to make the
necessary report, engaged appraisers and required the creditors to submit proof of their respective claims.

On October 22, 2010, Atty. Gonzales filed a Motion for Parties to Enter Into Compromise Agreement6incorporating therein her
proposed terms of compromise, the pertinent portion of which reads: chanRoble svirtual Lawlib ra ry

1. The remaining assets of the Petitioner Dona Adela Export Intl., Inc., (Dona Adela) consists of the following:

Asset Appraised Value Remarks

1.1 Land P5,616,000 w/ REM to TRC
1.2 Building 6,480,000 w/ REM to TRC
1.3 Sewing machines 942,000 w/o chattel mortgage to TRC
(sic)
1.4 Sewing machines 755,000 w/chattel mortgage
1.5 Furnitures and Fixtures w/o appraised value

2.
The detailed list of the abovementioned assets and the corresponding appraised value is attached hereto as Annex A;

3. The claims of the creditors of Petitioner previously submitted with their respective proofs of claim are shown below:

NAME OF CREDITOR AMOUNT

Technology Resource Center 29,546,342.45
BPI 11,069,575.82
*TIDCORP
City of Mandaluyong as of 3/25/09 1,061,370.12

4.

*TIDCORP has not yet submitted its peso amount of claim

xxxx

WHEREFORE, undersigned receiver respectfully proposed for the concerned parties of this (sic) proceedings to enter into a
compromise Agreement under the following terms and conditions:

a. That the remaining assets of the Petitioner mentioned under 1 above be assigned and applied to their respective claims in
the following manner:

a.1. The real estate property mentioned under 1.1 and 1.2 above with real estate mortgage (REM) to Technology
Resource Center (TRC) be assigned and applied to its credit. All costs and expenses for the transfer of the registration of
the said property, including its unpaid real estate taxes due to the City of Mandaluyong, and cost for cancellation of real
estate mortgage shall be borne by TRC.

a.2. For TRC to assign and waive its rights over the sewing machines and equipments under chattel mortgage to it
mentioned under 1.3 above as its share for the administrative costs of this proceedings.

a.3. To assign to BPI and TIDCORP the sewing machines and equipments mentioned under 1.3 and 1.4 above in
proportion with their credits.
 a.4. All other remaining assets of Petitioner under 1.5 above be assigned to the Court-appointed receiver, Atty. Arlene T.
Gonzales for payment of receivers fees.

a.5. All other administrative expenses, if any, shall be for the account of TRC, BPI and TIDCORP, in proportion to their
respective credits.

b. That for the abovementioned purpose mentioned under 3.a. above, the appraisal value of the property (as appraised by
Royal Asia Appraisers which was previously submitted to the Honorable Court) be made as the basis in determining the
value of the properties; and the amount of the claims that will be approved by this Honorable Court be made as the basis
in the determination of the amount of credits due to the respective creditors.

c. Furthermore, that the Compromise Agreement being proposed herein shall be without prejudice to rights of the creditors
to enforce actions against other debtors who are jointly and solidarily liable with the petitioner.

d. Finally, that the petitioner, Dona Adela Intl., Inc., be discharged from its debts to the party-creditors by virtue of the
Compromise Agreement as being proposed herein.7

On May 26, 2011, petitioner, through its President Epifanio C. Ramos, Jr., and Technology Resource Center (TRC) entered into
a Dacion En Pago by Compromise Agreement8 wherein petitioner agreed to transfer a 351-square meter parcel of land covered by
TCT No. 10027 with existing improvements situated in the Barrio of Jolo, Mandaluyong City, in favor of TRC in full payment of
petitioners obligation. The agreement bears the conformity of Atty. Gonzales as receiver. TRC filed on May 26, 2011 a
Compliance, Manifestation and Motion to Approve Dacion En Pago by Compromise Agreement.9 cra lawlawlib ra ry

On August 11, 2011, creditors TIDCORP and BPI also filed a Joint Motion to Approve Agreement10which contained the following
terms: chanRob lesvi rtual Lawl ibra ry

1. OBLIGATION OF PETITIONER. The parties agree that the outstanding principal obligation of petitioner to TIDCORP
shall be in the amount of NINE MILLION FORTY-FOUR THOUSAND SEVEN HUNDRED EIGHT & 15/100 PESOS
(P9,044,708.15), while to BPI in the amount of ELEVEN MILLION SIXTY NINE THOUSAND FIVE HUNDRED
SEVENTY FIVE & 82/100 PESOS (P11,069,575.82).

2. SETTLEMENT. TIDCORP and BPI both hereby agree to accept all the machineries in petitioners inventory set aside
pursuant to the Motion for Parties to Enter Into Compromise Agreement dated 18 October 2010 filed by the Receiver,
Atty. Arlene T. Gonzales. The said machineries valued at THREE HUNDRED FIFTY THOUSAND PESOS
(P350,000.00) shall be divided equally between TIDCORP and BPI.

3. SETTLEMENT OF CLAIMS. TIDCORP and BPI hereby agree that acceptance of the abovementioned settlement shall
constitute payment of petitioners aforesaid obligation pursuant to Act No. 1956 (Insolvency Act). However, the benefit of
payment under the said Insolvency Act shall only be in favor of petitioner and shall not in any manner affect the claims of
TIDCORP and BPI as against its sureties and/or guarantors.

4. EXPENSES AND TAXES. All necessary expenses, including but not limited to, fees of the Receiver, documentation and
notarization, as well as all fees incurred or to be incurred in connection to the full implementation of this Agreement shall
be for the account of Mr. Epifanio C. Ramos, Jr.

All taxes and fees incurred or to be incurred including but not limited to gross receipts tax shall be for the account of the
petitioner.

5. WAIVER OF CONFIDENTIALITY. The petitioner and the members of its Board of Directors shall waive all rights to
confidentiality provided under the provisions of Republic Act No. 1405, as amended, otherwise known as the Law on
Secrecy of Bank Deposits, and Republic Act No. 8791, otherwise known as The General Banking Law of
2000. Accordingly, the petitioner and the members of its Board of Directors by these presents grant TIDCORP and BPI
access to any deposit or other accounts maintained by them with any bank.For this purpose, the petitioner and the
members of its Board of Directors shall authorize TIDCORP and BPI to make, sign, execute and deliver any document of
whatever kind or nature which may be necessary or proper to allow them access to such deposits or other accounts.

TIDCORP and BPI shall be further authorized to delegate to any person, who may exercise in their stead, any or all of the
powers and authority herein granted to them or substitute any person in their place to do and perform said powers and
authority.

18. HOLD FREE AND HARMLESS. The petitioner shall indemnify and hold TIDCORP and BPI, their respective Board of
Directors, and officers free and harmless against any liability or claim of whatever kind or nature which may arise from, or
in connection with, or in relation to this Agreement.11 (Underscoring supplied)

Epifanio Ramos, Jr. filed a Manifestation and Motion to the Proposed Compromise Agreement12 of TIDCORP and BPI wherein he
stated that petitioner has a personality separate and distinct from its stockholders and officers. He argued that he cannot be held
liable for the expenses and taxes as a consequence of the auction or distribution/payment of said machineries to the creditors;
hence, his name should be deleted as a party to the Compromise Agreement.

Likewise, Atty. Gonzales filed a Manifestation and Comment (On Dacion En Pago by Compromise Agreement with TRC and Joint
Motion to Approve Agreement of BPI and TIDCORP) with Motion for Payment of Administrative Expenses and Receivers
Fees.13 Atty. Gonzales manifested that she is entitled to payment of administrative expenses and receivers fees in the total
amount of P740,200.00. She further stated that it is just and fair for her to ask her due for services rendered as officer of the
Court from TRC who benefitted the most from the insolvency proceedings; and, that she is waiving the administrative expenses
and receivers fees due from TIDCORP and BPI.

In its Comment,14 TRC requested that the receivers fee be reduced to P106,000.00. In her Reply,15Atty. Gonzales said that she
will accept the amount of P106,000.00 being offered by TRC.

On November 15, 2011, the RTC rendered the assailed Decision approving the Dacion En Pago by Compromise Agreement and the
Joint Motion to Approve Agreement, to wit: chanRoble svi rtual Lawli bra ry

WHEREFORE, premises considered, judgment is hereby rendered based on the foregoing exchange of pleadings, as follows:

1. Finding the aforequoted Dacion En Pago by Compromise Agreement dated May 26, 2011 executed by and between Dona
Adela Export International, Inc., represented by its president Epifanio C. Ramos, Jr., and Technology Resource Center,
represented by its Director General Dennis L. Cunanan, to be in order and not contrary to law, morals, good customs,
public order or public policy, and the fact that the Court-Appointed Receiver in her Reply filed on October 24, 2011
intimated her conformity to the Dacion En Pago by Compromise Agreement, the same is hereby APPROVED and is made
the basis of this judgment;

2. As regards the Joint Motion to Approve Agreement dated July 29, 2011, filed by creditors Trade and Investment
Development Corporation of the Philippines and the Bank of the Philippine Islands, with the exception of paragraph 4
thereof pertaining to Expenses and Taxes, the same is likewise APPROVED, for the same is not contrary to law, morals,
good customs, public order or public policy, and the fact that the Court-Appointed Receiver in her Reply filed on October
24, 2011 intimated her conformity to said Joint Motion to Approve Agreement;

3. Pursuant to its Comment filed on October 19, 2011, Technology Resource Center is hereby ordered to pay the Court-
Appointed Receiver, Atty. Arlene T. Gonzales the sum of P106,000.00, representing its proportionate share of the
administrative expenses incurred by the receiver with legal interest from date of termination of this insolvency
proceedings.

Let a copy of this Decision be furnished to the Securities and Exchange Commission who is directed to cause the removal of
petitioner Dona Adela Export International, Inc., from the list of registered legal entities and to make a report to this Court of its
Compliance within fifteen (15) days from said elimination so that the Court could terminate the instant insolvency proceedings and
release the Court-Appointed receiver from her duties and responsibilities.

SO ORDERED.16
ChanRobles Vi rtualaw lib rary

Petitioner filed a motion for partial reconsideration17 and claimed that TIDCORP and BPIs agreement imposes on it several
obligations such as payment of expenses and taxes and waiver of confidentiality of its bank deposits but it is not a party and
signatory to the said agreement.

In its Order18 dated May 14, 2012, the RTC denied the motion and held that petitioners silence and acquiescence to the joint
motion to approve compromise agreement while it was set for hearing by creditors BPI and TIDCORP is tantamount to admission
and acquiescence thereto. There was no objection filed by petitioner to the joint motion to approve compromise agreement prior
to its approval, said the RTC. The RTC also noted that petitioners President attended every hearing of the case but did not
interpose any objection to the said motion when its conditions were being discussed and formulated by the parties and Atty.
Gonzales.19 cralawlaw lib rary

Hence, this petition.

Petitioner asserts that express and written waiver from the depositor concerned is required by law before any third person or
entity is allowed to examine bank deposits or bank records. According to petitioner, it is not a party to the compromise agreement
between BPI and TIDCORP and its silence or acquiescence is not tantamount to an admission that binds it to the compromise
agreement of the creditors especially the waiver of confidentiality of bank deposits. Petitioner cites the rule on relativity of
contracts which states that contracts can only bind the parties who entered into it, and it cannot favor or prejudice a third person,
even if he is aware of such contract and has knowledge thereof. Petitioner also maintains that waivers are not presumed, but
must be clearly and convincingly shown, either by express stipulation or acts admitting no other reasonable explanation.

Respondent BPI counters that petitioner is estopped from questioning the BPI-TIDCORP compromise agreement because
petitioner and its counsel participated in all the proceedings involving the subject compromise agreement and did not object when
the compromise agreement was considered by the RTC.
Respondent TIDCORP contends that the waiver of confidentiality under Republic Act (R.A.) Nos. 1405 and 8791 does not require
the express or written consent of the depositor. It is TIDCORPs position that upon declaration of insolvency, the insolvency court
obtains complete jurisdiction over the insolvents property which includes the authority to issue orders to look into the insolvents
bank deposits. Since bank deposits are considered debts owed by the banks to the petitioner, the receiver is empowered to
recover them even without petitioners express or written consent, said TIDCORP.

TIDCORP further avers that the BPI-TIDCORP compromise agreement approved by the RTC is binding on petitioner and its Board
of Directors by reason of estoppel. The compromise agreement is not an ordinary contract. Since it was approved by the
insolvency court, the compromise agreement has the force and effect of judgment; it is immediately executory and not
appealable, except for vices of consent or forgery, TIDCORP concluded.

The main issue for our consideration is whether the petitioner is bound by the provision in the BPI-TIDCORP Joint Motion to
Approve Agreement that petitioner shall waive its rights to confidentiality of its bank deposits under R.A. No. 1405, as amended,
otherwise known as the Law on Secrecy of Bank Deposits and R.A. No. 8791, otherwise known as The General Banking Law of
2000.

The petition is meritorious.

A judgment rendered on the basis of a compromise agreement between the parties in a civil case is final, unappealable, and
immediately executory.20 c ralawlaw lib rary

However, if one of the parties claims that his consent was obtained through fraud, mistake, or duress, he must file a motion with
the trial court that approved the compromise agreement to reconsider the judgment and nullify or set aside said contract on any
of the said grounds for annulment of contract within 15 days from notice of judgment. Under Rule 37, said party can either file a
motion for new trial or reconsideration. A party can file a motion for new trial based on fraud, accident or mistake, excusable
negligence, or newly discovered evidence. On the other hand, a party may decide to seek the recall or modification of the
judgment by means of a motion for reconsideration on the ground that the decision or final order is contrary to law if the
consent was procured through fraud, mistake, or duress. Thus, the motion for a new trial or motion for reconsideration is the
readily available remedy for a party to challenge a judgment if the 15-day period from receipt of judgment for taking an appeal
has not yet expired.21cralawlawl ib rary

In this case, petitioner sought partial reconsideration of the decision based on compromise agreement assailing the waiver of
confidentiality provision in the Agreement between its two creditors, TIDCORP and BPI, in which petitioner was not a party. After
the trial court denied the motion on the ground of estoppel, petitioner sought a direct recourse to this Court.

We stress that a direct recourse to this Court from the decisions, final resolutions and orders of the RTC may be taken where only
questions of law are raised or involved. There is a question of law when the doubt or difference arises as to what the law is on a
certain state of facts, which does not call for an examination of the probative value of the evidence presented by the parties-
litigants. On the other hand, there is a question of fact when the doubt or controversy arises as to the truth or falsity of the
alleged facts. Simply put, when there is no dispute as to fact, the question of whether the conclusion drawn therefrom is correct
or not, is a question of law.22 cralawlaw lib rary

Petitioner submits the lone question of law on whether the waiver of confidentiality provision in the Agreement between TIDCORP
and BPI is valid despite petitioner not being a party and signatory to the same. According to petitioner, R.A. No. 1405 requires
the express and written consent of the depositor to make the waiver effective.

Section 2 of R.A. No. 1405, the Law on Secrecy of Bank Deposits enacted in 1955, was first amended by Presidential Decree No.
1792 in 1981 and further amended by R.A. No. 7653 in 1993. It now reads: chanRoblesvirtual Lawli bra ry

SEC. 2. All deposits of whatever nature with banks or banking institutions in the Philippines including investments in bonds issued
by the Government of the Philippines, its political subdivisions and its instrumentalities, are hereby considered as of an absolutely
confidential nature and may not be examined, inquired or looked into by any person, government official, bureau or office, except
when the examination is made in the course of a special or general examination of a bank and is specifically authorized by the
Monetary Board after being satisfied that there is reasonable ground to believe that a bank fraud or serious irregularity has been
or is being committed and that it is necessary to look into the deposit to establish such fraud or irregularity, or when the
examination is made by an independent auditor hired by the bank to conduct its regular audit provided that the examination is for
audit purposes only and the results thereof shall be for the exclusive use of the bank, or upon written permission of the depositor,
or in cases of impeachment, or upon order of a competent court in cases of bribery or dereliction of duty of public officials, or in
cases where the money deposited or invested is the subject matter of the litigation.

R.A. No. 1405 provides for exceptions when records of deposits may be disclosed. These are under any of the following
instances: (a) upon written permission of the depositor, (b) in cases of impeachment, (c) upon order of a competent court in the
case of bribery or dereliction of duty of public officials or, (d) when the money deposited or invested is the subject matter of the
litigation, and (e) in cases of violation of the Anti-Money Laundering Act, the Anti-Money Laundering Council may inquire into a
bank account upon order of any competent court.23 cralawlawlibra ry

In this case, the Joint Motion to Approve Agreement was executed by BPI and TIDCORP only. There was no written consent given
by petitioner or its representative, Epifanio Ramos, Jr., that petitioner is waiving the confidentiality of its bank deposits. The
provision on the waiver of the confidentiality of petitioners bank deposits was merely inserted in the agreement. It is clear
therefore that petitioner is not bound by the said provision since it was without the express consent of petitioner who was not a
party and signatory to the said agreement.

Neither can petitioner be deemed to have given its permission by failure to interpose its objection during the proceedings. It is an
elementary rule that the existence of a waiver must be positively demonstrated since a waiver by implication is not normally
countenanced. The norm is that a waiver must not only be voluntary, but must have been made knowingly, intelligently, and with
sufficient awareness of the relevant circumstances and likely consequences. There must be persuasive evidence to show an
actual intention to relinquish the right. Mere silence on the part of the holder of the right should not be construed as a surrender
thereof; the courts must indulge every reasonable presumption against the existence and validity of such waiver.24 cralawlawl ib rary

In addition, considering that petitioner was already declared insolvent by the RTC, all its property, assets and belongings were
ordered delivered to the appointed receiver or assignee. Thus, in the order of the RTC appointing Atty. Gonzales as receiver,
petitioner was directed to assign and convey to Atty. Gonzales all its real and personal property, monies, estate and effects with
all the deeds, books and papers relating thereto,25 pursuant to Section 3226 of the Insolvency Law.27 Such assignment shall
operate to vest in the assignee all of the estate of the insolvent debtor not exempt by law from execution.28 Corollarily, the
stipulation in the Joint Motion to Approve Compromise Agreement that petitioner waives its right to confidentiality of its bank
deposits requires the approval and conformity of Atty. Gonzales as receiver since all the property, money, estate and effects of
petitioner have been assigned and conveyed to her29 and she has the right to recover all the estate, assets, debts and claims
belonging to or due to the insolvent debtor.30 c ralawlawli bra ry

While it was Atty. Gonzales who filed the Motion for Parties to Enter Into Compromise Agreement, she did not sign or approve the
Joint Motion to Approve Agreement submitted by TIDCORP and BPI. In her Manifestation and Comment (on Dacion En Pago by
Compromise Agreement with TRC and Joint Motion to Approve Agreement of BPI and TIDCORP) there is no showing that Atty.
Gonzales signified her conformity to the waiver of confidentiality of petitioners bank deposits. Atty. Gonzales stated thus: chanRoblesv irt ual Lawlib rary

13. COMPROMISE AGREEMENT OF TIDCORP AND BPI

The undersigned receiver is in conformity with the compromise agreement of TIDCORP and BPI, attached hereto as Annex C,
which they submitted to this Honorable Court under the abovementioned Joint Motion in so far as the sharing scheme of the
sewing machine inventories of Dona Adela is concerned. However, the undersigned receiver has the following comments on
the other provisions of the said compromise agreement:
cralaw red

xxxx

13.2.The undersigned receiver reiterates that Dona Adela has no cash or other assets to
source payment for expenses and taxes provided under no. 4 of the Joint Motion to
Approve Agreement. In fact, except for the amount of P5,000.00 she initially asked for
administrative expenses and the appraisal fees for the assets of Dona Adela advanced
by MR. EPIFANIO RAMOS, she has been shouldering all the administrative expenses of
this insolvency proceedings.
xxxx
21. As also mentioned under 13.2. above, Dona Adela has no cash to source payment for the abovementioned administrative
expenses and receivers fees, and its assets, which should have been the source for payment for administrative expenses and
receivers fees before the distribution to the creditors, have already been assigned to the creditors by compromise agreement.

22. After considering its savings from foreclosure expenses, sheriffs fees and other related expenses had it pursued foreclosure
proceedings, it is just fair for the undersigned receiver to ask her due for services rendered as officer of this Honorable Court from
TRC who benefitted the most from the insolvency proceedings.31 (Emphasis ours)

Clearly, the waiver of confidentiality of petitioners bank deposits in the BPI-TIDCORP Joint Motion to Approve Agreement lacks the
required written consent of petitioner and conformity of the receiver. We, thus, hold that petitioner is not bound by the said
provision.

It is basic in law that a compromise agreement, as a contract, is binding only upon the parties to the compromise, and not upon
non-parties. This is the doctrine of relativity of contracts.32 The rule is based on Article 1311 (1) of the Civil Code which provides
that contracts take effect only between the parties, their assigns and heirs x x x.33 The sound reason for the exclusion of non-
parties to an agreement is the absence of a vinculum or juridical tie which is the efficient cause for the establishment of an
obligation.34 Consistent with this principle, a judgment based entirely on a compromise agreement is binding only on the parties to
the compromise the court approved, and not upon the parties who did not take part in the compromise agreement and in the
proceedings leading to its submission and approval by the court. Otherwise stated, a court judgment made solely on the basis of
a compromise agreement binds only the parties to the compromise, and cannot bind a party litigant who did not take part in the
compromise agreement.35 c ralawlawli bra ry

WHEREFORE, premises considered, the petition is hereby GRANTED. The second paragraph of the November 15, 2011 Decision
of the Regional Trial Court of Mandaluyong City, Branch 211, in SEC Case No. MC06-103 is hereby MODIFIED to read as
follows:
chanRoblesvirtualLawlib rary

2. As regards the Joint Motion to Approve Agreement dated July 29, 2011, filed by creditors Trade and Investment Development
Corporation of the Philippines and the Bank of the Philippine Islands, with the exception of paragraph 4 and paragraph 5thereof
pertaining to Expenses and Taxes and Waiver of Confidentiality, the same is likewise APPROVED, for the same is not contrary
to law, morals, good customs, public order or public policy, and the fact that the Court-Appointed Receiver in her Reply filed on
October 24, 2011 intimated her conformity to said Joint Motion to Approve Agreement.

UNCLAIMED BALANCES

Republic of the Philippines

Supreme Court
Manila

SECOND DIVISION

RIZAL COMMERCIAL BANKING G.R. No. 192413

CORPORATION,
Petitioner, Present:

CARPIO, J., Chairperson,

versus BRION,
PEREZ,
SERENO, and
HI-TRI DEVELOPMENT REYES, JJ.
CORPORATION and LUZ R.
BAKUNAWA, Promulgated:
Respondents.
June 13, 2012
x--------------------------------------------------x

DECISION

SERENO, J.:

Before the Court is a Rule 45 Petition for Review on Certiorari filed by petitioner Rizal
Commercial Banking Corporation (RCBC) against respondents Hi-Tri Development
Corporation (Hi-Tri) and Luz R. Bakunawa (Bakunawa). Petitioner seeks to appeal from the 26
November 2009 Decision and 27 May 2010 Resolution of the Court of Appeals (CA), [1] which
reversed and set aside the 19 May 2008 Decision and 3 November 2008 Order of the Makati
City Regional Trial Court (RTC) in Civil Case No. 06-244.[2] The case before the RTC involved
the Complaint for Escheat filed by the Republic of the Philippines (Republic) pursuant to Act
No. 3936, as amended by Presidential Decree No. 679 (P.D. 679), against certain deposits,
credits, and unclaimed balances held by the branches of various banks in the Philippines. The
trial court declared the amounts, subject of the special proceedings, escheated to the Republic
and ordered them deposited with the Treasurer of the Philippines (Treasurer) and credited in
favor of the Republic.[3] The assailed RTC judgments included an unclaimed balance in the
amount of 1,019,514.29, maintained by RCBC in its Ermita Business Center branch.

We quote the narration of facts of the CA[4] as follows:

x x x Luz [R.] Bakunawa and her husband Manuel, now deceased (Spouses Bakunawa)
are registered owners of six (6) parcels of land covered by TCT Nos. 324985 and 324986 of the
Quezon City Register of Deeds, and TCT Nos. 103724, 98827, 98828 and 98829 of the Marikina
Register of Deeds. These lots were sequestered by the Presidential Commission on Good
Government [(PCGG)].

Sometime in 1990, a certain Teresita Millan (Millan), through her representative, Jerry
Montemayor, offered to buy said lots for 6,724,085.71, with the promise that she will take care
of clearing whatever preliminary obstacles there may[]be to effect a completion of the sale. The
Spouses Bakunawa gave to Millan the Owners Copies of said TCTs and in turn, Millan made a
down[]payment of 1,019,514.29 for the intended purchase. However, for one reason or another,
Millan was not able to clear said obstacles. As a result, the Spouses Bakunawa rescinded the sale
and offered to return to Millan her down[]payment of 1,019,514.29. However, Millan refused to
accept back the 1,019,514.29 down[]payment. Consequently, the Spouses Bakunawa, through
their company, the Hi-Tri Development Corporation (Hi-Tri) took out on October 28, 1991, a
Managers Check from RCBC-Ermita in the amount of 1,019,514.29, payable to Millans
company Rosmil Realty and Development Corporation (Rosmil) c/o Teresita Millan and used
this as one of their basis for a complaint against Millan and Montemayor which they filed with
the Regional Trial Court of Quezon City, Branch 99, docketed as Civil Case No. Q-91-10719 [in
1991], praying that:

1. That the defendants Teresita Mil[l]an and Jerry Montemayor may be ordered
to return to plaintiffs spouses the Owners Copies of Transfer Certificates of
Title Nos. 324985, 324986, 103724, 98827, 98828 and 98829;

2. That the defendant Teresita Mil[l]an be correspondingly ordered to receive

the amount of One Million Nineteen Thousand Five Hundred Fourteen Pesos
and Twenty Nine Centavos (1,019,514.29);

3. That the defendants be ordered to pay to plaintiffs spouses moral damages in

the amount of 2,000,000.00; and

4. That the defendants be ordered to pay plaintiffs attorneys fees in the amount
of 50,000.00.

Being part and parcel of said complaint, and consistent with their prayer in Civil Case
No. Q-91-10719 that Teresita Mil[l]an be correspondingly ordered to receive the amount of One
Million Nineteen Thousand Five Hundred Fourteen Pesos and Twenty Nine [Centavos]
(1,019,514.29)[], the Spouses Bakunawa, upon advice of their counsel, retained custody of
RCBC Managers Check No. ER 034469 and refrained from canceling or negotiating it.

All throughout the proceedings in Civil Case No. Q-91-10719, especially during
negotiations for a possible settlement of the case, Millan was informed that the Managers Check
was available for her withdrawal, she being the payee.

On January 31, 2003, during the pendency of the abovementioned case and without the
knowledge of [Hi-Tri and Spouses Bakunawa], x x x RCBC reported the 1,019,514.29-credit
existing in favor of Rosmil to the Bureau of Treasury as among its unclaimed balances as of
January 31, 2003. Allegedly, a copy of the Sworn Statement executed by Florentino N.
Mendoza, Manager and Head of RCBCs Asset Management, Disbursement & Sundry
Department (AMDSD) was posted within the premises of RCBC-Ermita.

On December 14, 2006, x x x Republic, through the [Office of the Solicitor General
(OSG)], filed with the RTC the action below for Escheat [(Civil Case No. 06-244)].

On April 30, 2008, [Spouses Bakunawa] settled amicably their dispute with Rosmil and
Millan. Instead of only the amount of 1,019,514.29, [Spouses Bakunawa] agreed to pay Rosmil
and Millan the amount of 3,000,000.00, [which is] inclusive [of] the amount of
[]1,019,514.29. But during negotiations and evidently prior to said settlement, [Manuel
Bakunawa, through Hi-Tri] inquired from RCBC-Ermita the availability of the 1,019,514.29
under RCBC Managers Check No. ER 034469. [Hi-Tri and Spouses Bakunawa] were however
dismayed when they were informed that the amount was already subject of the escheat
proceedings before the RTC.

On April 17, 2008, [Manuel Bakunawa, through Hi-Tri] wrote x x x RCBC, viz:

We understand that the deposit corresponding to the amount of Php 1,019,514.29

stated in the Managers Check is currently the subject of escheat proceedings
pending before Branch 150 of the Makati Regional Trial Court.

Please note that it was our impression that the deposit would be taken from [Hi-
Tris] RCBC bank account once an order to debit is issued upon the payees
presentation of the Managers Check. Since the payee rejected the negotiated
Managers Check, presentation of the Managers Check was never made.

Consequently, the deposit that was supposed to be allocated for the payment of
the Managers Check was supposed to remain part of the Corporation[s] RCBC
bank account, which, thereafter, continued to be actively maintained and operated.
For this reason, We hereby demand your confirmation that the amount of Php
1,019,514.29 continues to form part of the funds in the Corporations RCBC bank
account, since pay-out of said amount was never ordered. We wish to point out
that if there was any attempt on the part of RCBC to consider the amount
indicated in the Managers Check separate from the Corporations bank account,
RCBC would have issued a statement to that effect, and repeatedly reminded the
Corporation that the deposit would be considered dormant absent any fund
movement. Since the Corporation never received any statements of account from
RCBC to that effect, and more importantly, never received any single letter from
RCBC noting the absence of fund movement and advising the Corporation that
the deposit would be treated as dormant.
 On April 28, 2008, [Manuel Bakunawa] sent another letter to x x x RCBC reiterating
their position as above-quoted.

In a letter dated May 19, 2008, x x x RCBC replied and informed [Hi-Tri and Spouses
Bakunawa] that:

The Banks Ermita BC informed Hi-Tri and/or its principals regarding the
inclusion of Managers Check No. ER034469 in the escheat proceedings docketed
as Civil Case No. 06-244, as well as the status thereof, between 28 January 2008
and 1 February 2008.

xxx xxx xxx

Contrary to what Hi-Tri hopes for, the funds covered by the Managers Check No.
ER034469 does not form part of the Banks own account. By simple operation of
law, the funds covered by the managers check in issue became a deposit/credit
susceptible for inclusion in the escheat case initiated by the OSG and/or Bureau of
Treasury.

xxx xxx xxx

Granting arguendo that the Bank was duty-bound to make good the check, the
Banks obligation to do so prescribed as early as October 2001.

(Emphases, citations, and annotations were omitted.)

The RTC Ruling

The escheat proceedings before the Makati City RTC continued. On 19 May 2008, the trial
court rendered its assailed Decision declaring the deposits, credits, and unclaimed balances
subject of Civil Case No. 06-244 escheated to the Republic. Among those included in the order
of forfeiture was the amount of 1,019,514.29 held by RCBC as allocated funds intended for
the payment of the Managers Check issued in favor of Rosmil. The trial court ordered the
deposit of the escheated balances with the Treasurer and credited in favor of the Republic.
Respondents claim that they were not able to participate in the trial, as they were not informed
of the ongoing escheat proceedings.

Consequently, respondents filed an Omnibus Motion dated 11 June 2008, seeking the
partial reconsideration of the RTC Decision insofar as it escheated the fund allocated for the
payment of the Managers Check. They asked that they be included as party-defendants or, in the
alternative, allowed to intervene in the case and their motion considered as an answer-in-
intervention. Respondents argued that they had meritorious grounds to ask reconsideration of
the Decision or, alternatively, to seek intervention in the case. They alleged that the deposit was
subject of an ongoing dispute (Civil Case No. Q-91-10719) between them and Rosmil since
1991, and that they were interested parties to that case.[5]

On 3 November 2008, the RTC issued an Order denying the motion of respondents. The
trial court explained that the Republic had proven compliance with the requirements of
publication and notice, which served as notice to all those who may be affected and prejudiced
by the Complaint for Escheat. The RTC also found that the motion failed to point out the
findings and conclusions that were not supported by the law or the evidence presented, as
required by Rule 37 of the Rules of Court. Finally, it ruled that the alternative prayer to
intervene was filed out of time.

The CA Ruling

On 26 November 2009, the CA issued its assailed Decision reversing the 19 May 2008
Decision and 3 November 2008 Order of the RTC. According to the appellate court,[6] RCBC
failed to prove that the latter had communicated with the purchaser of the Managers Check (Hi-
Tri and/or Spouses Bakunawa) or the designated payee (Rosmil) immediately before the bank
filed its Sworn Statement on the dormant accounts held therein. The CA ruled that the banks
failure to notify respondents deprived them of an opportunity to intervene in the escheat
proceedings and to present evidence to substantiate their claim, in violation of their right to due
process. Furthermore, the CA pronounced that the Makati City RTC Clerk of Court failed to
issue individual notices directed to all persons claiming interest in the unclaimed balances, as
well as to require them to appear after publication and show cause why the unclaimed balances
should not be deposited with the Treasurer of the Philippines. It explained that the jurisdictional
requirement of individual notice by personal service was distinct from the requirement of notice
by publication. Consequently, the CA held that the Decision and Order of the RTC were void
for want of jurisdiction.

Issue
 After a perusal of the arguments presented by the parties, we cull the main issues as
follows:

I. Whether the Decision and Order of the RTC were void for failure to send separate
notices to respondents by personal service

II. Whether petitioner had the obligation to notify respondents immediately before it
filed its Sworn Statement with the Treasurer

III. Whether or not the allocated funds may be escheated in favor of the Republic

Discussion

Petitioner bank assails[7] the CA judgments insofar as they ruled that notice by personal
service upon respondents is a jurisdictional requirement in escheat proceedings. Petitioner
contends that respondents were not the owners of the unclaimed balances and were thus not
entitled to notice from the RTC Clerk of Court. It hinges its claim on the theory that the funds
represented by the Managers Check were deemed transferred to the credit of the payee or holder
upon its issuance.

We quote the pertinent provision of Act No. 3936, as amended, on the rule on service of
processes, to wit:

Sec. 3. Whenever the Solicitor General shall be informed of such unclaimed balances, he shall
commence an action or actions in the name of the People of the Republic of the
Philippines in the Court of First Instance of the province or city where the bank, building and
loan association or trust corporation is located, in which shall be joined as parties the bank,
building and loan association or trust corporation and all such creditors or depositors. All or
any of such creditors or depositors or banks, building and loan association or trust corporations
may be included in one action. Service of process in such action or actions shall be made by
delivery of a copy of the complaint and summons to the president, cashier, or managing
officer of each defendant bank, building and loan association or trust corporation and by
publication of a copy of such summons in a newspaper of general circulation, either in English,
in Filipino, or in a local dialect, published in the locality where the bank, building and loan
association or trust corporation is situated, if there be any, and in case there is none, in the City
of Manila, at such time as the court may order. Upon the trial, the court must hear all parties
who have appeared therein, and if it be determined that such unclaimed balances in any
defendant bank, building and loan association or trust corporation are unclaimed as
 hereinbefore stated, then the court shall render judgment in favor of the Government of
the Republic of the Philippines, declaring that said unclaimed balances have escheated to the
Government of the Republic of the Philippines and commanding said bank, building and loan
association or trust corporation to forthwith deposit the same with the Treasurer of the
Philippines to credit of the Government of the Republic of the Philippines to be used as the
National Assembly may direct.

At the time of issuing summons in the action above provided for, the clerk of court shall also
issue a notice signed by him, giving the title and number of said action, and referring to the
complaint therein, and directed to all persons, other than those named as defendants therein,
claiming any interest in any unclaimed balance mentioned in said complaint, and requiring
them to appear within sixty days after the publication or first publication, if there are several,
of such summons, and show cause, if they have any, why the unclaimed balances involved in
said action should not be deposited with the Treasurer of the Philippines as in this Act
provided and notifying them that if they do not appear and show cause, the Government of
the Republic of the Philippines will apply to the court for the relief demanded in the
complaint. A copy of said notice shall be attached to, and published with the copy of, said
summons required to be published as above, and at the end of the copy of such notice so
published, there shall be a statement of the date of publication, or first publication, if there are
several, of said summons and notice. Any person interested may appear in said action and
become a party thereto. Upon the publication or the completion of the publication, if there
are several, of the summons and notice, and the service of the summons on the defendant
banks, building and loan associations or trust corporations, the court shall have full and
complete jurisdiction in the Republic of the Philippines over the said unclaimed balances
and over the persons having or claiming any interest in the said unclaimed balances, or any
of them, and shall have full and complete jurisdiction to hear and determine the issues
herein, and render the appropriate judgment thereon. (Emphasis supplied.)

Hence, insofar as banks are concerned, service of processes is made by delivery of a

copy of the complaint and summons upon the president, cashier, or managing officer of the
defendant bank.[8] On the other hand, as to depositors or other claimants of the unclaimed
balances, service is made by publication of a copy of the summons in a newspaper of general
circulation in the locality where the institution is situated.[9] A notice about the forthcoming
escheat proceedings must also be issued and published, directing and requiring all persons who
may claim any interest in the unclaimed balances to appear before the court and show cause
why the dormant accounts should not be deposited with the Treasurer.

Accordingly, the CA committed reversible error when it ruled that the issuance of
individual notices upon respondents was a jurisdictional requirement, and that failure to effect
personal service on them rendered the Decision and the Order of the RTC void for want of
jurisdiction. Escheat proceedings are actions in rem,[10]whereby an action is brought against the
thing itself instead of the person.[11] Thus, an action may be instituted and carried to judgment
without personal service upon the depositors or other claimants. [12] Jurisdiction is secured by the
power of the court over the res.[13] Consequently, a judgment of escheat is conclusive upon
persons notified by advertisement, as publication is considered a general and constructive notice
to all persons interested.[14]

Nevertheless, we find sufficient grounds to affirm the CA on the exclusion of the funds
allocated for the payment of the Managers Check in the escheat proceedings.

Escheat proceedings refer to the judicial process in which the state, by virtue of its
sovereignty, steps in and claims abandoned, left vacant, or unclaimed property, without there
being an interested person having a legal claim thereto.[15] In the case of dormant accounts, the
state inquires into the status, custody, and ownership of the unclaimed balance to determine
whether the inactivity was brought about by the fact of death or absence of or abandonment by
the depositor.[16] If after the proceedings the property remains without a lawful owner interested
to claim it, the property shall be reverted to the state to forestall an open invitation to self-
service by the first comers.[17] However, if interested parties have come forward and lain claim
to the property, the courts shall determine whether the credit or deposit should pass to the
claimants or be forfeited in favor of the state.[18] We emphasize that escheat is not a proceeding
to penalize depositors for failing to deposit to or withdraw from their accounts. It is a
proceeding whereby the state compels the surrender to it of unclaimed deposit balances when
there is substantial ground for a belief that they have been abandoned, forgotten, or without an
owner.[19]

Act No. 3936, as amended, outlines the proper procedure to be followed by banks and
other similar institutions in filing a sworn statement with the Treasurer concerning dormant
accounts:

Sec. 2. Immediately after the taking effect of this Act and within the month of January of every
odd year, all banks, building and loan associations, and trust corporations shall forward to the
Treasurer of the Philippines a statement, under oath, of their respective managing officers, of
all credits and deposits held by them in favor of persons known to be dead, or who have not
made further deposits or withdrawals during the preceding ten years or more, arranged in
alphabetical order according to the names of creditors and depositors, and showing:
 (a) The names and last known place of residence or post office addresses of the persons in
whose favor such unclaimed balances stand;

(b) The amount and the date of the outstanding unclaimed balance and whether the same is in
money or in security, and if the latter, the nature of the same;

(c) The date when the person in whose favor the unclaimed balance stands died, if known, or
the date when he made his last deposit or withdrawal; and

(d) The interest due on such unclaimed balance, if any, and the amount thereof.

A copy of the above sworn statement shall be posted in a conspicuous place in the premises
of the bank, building and loan association, or trust corporation concerned for at least sixty days
from the date of filing thereof: Provided, That immediately before filing the above sworn
statement, the bank, building and loan association, and trust corporation shall communicate
with the person in whose favor the unclaimed balance stands at his last known place of
residence or post office address.

It shall be the duty of the Treasurer of the Philippines to inform the Solicitor General from time
to time the existence of unclaimed balances held by banks, building and loan associations, and
trust corporations. (Emphasis supplied.)

As seen in the afore-quoted provision, the law sets a detailed system for notifying
depositors of unclaimed balances. This notification is meant to inform them that their deposit
could be escheated if left unclaimed. Accordingly, before filing a sworn statement, banks and
other similar institutions are under obligation to communicate with owners of dormant
accounts. The purpose of this initial notice is for a bank to determine whether an inactive
account has indeed been unclaimed, abandoned, forgotten, or left without an owner. If the
depositor simply does not wish to touch the funds in the meantime, but still asserts ownership
and dominion over the dormant account, then the bank is no longer obligated to include the
account in its sworn statement.[20] It is not the intent of the law to force depositors into
unnecessary litigation and defense of their rights, as the state is only interested in escheating
balances that have been abandoned and left without an owner.
 In case the bank complies with the provisions of the law and the unclaimed balances
are eventually escheated to the Republic, the bank shall not thereafter be liable to any person for
the same and any action which may be brought by any person against in any bank xxx for
unclaimed balances so deposited xxx shall be defended by the Solicitor General without cost to
such bank.[21] Otherwise, should it fail to comply with the legally outlined procedure to the
prejudice of the depositor, the bank may not raise the defense provided under Section 5 of Act
No. 3936, as amended.

Petitioner asserts[22] that the CA committed a reversible error when it required RCBC to
send prior notices to respondents about the forthcoming escheat proceedings involving the
funds allocated for the payment of the Managers Check. It explains that, pursuant to the law,
only those whose favor such unclaimed balances stand are entitled to receive notices. Petitioner
argues that, since the funds represented by the Managers Check were deemed transferred to the
credit of the payee upon issuance of the check, the proper party entitled to the notices was the
payee Rosmil and not respondents. Petitioner then contends that, in any event, it is not liable for
failing to send a separate notice to the payee, because it did not have the address of Rosmil.
Petitioner avers that it was not under any obligation to record the address of the payee of a
Managers Check.

In contrast, respondents Hi-Tri and Bakunawa allege[23] that they have a legal interest in
the fund allocated for the payment of the Managers Check. They reason that, since the funds
were part of the Compromise Agreement between respondents and Rosmil in a separate civil
case, the approval and eventual execution of the agreement effectively reverted the fund to the
credit of respondents. Respondents further posit that their ownership of the funds was evidenced
by their continued custody of the Managers Check.

An ordinary check refers to a bill of exchange drawn by a depositor (drawer) on a bank

(drawee),[24] requesting the latter to pay a person named therein (payee) or to the order of the
payee or to the bearer, a named sum of money.[25] The issuance of the check does not of itself
operate as an assignment of any part of the funds in the bank to the credit of the
drawer.[26] Here, the bank becomes liable only after it accepts or certifies the check.[27] After the
check is accepted for payment, the bank would then debit the amount to be paid to the holder of
the check from the account of the depositor-drawer.
 There are checks of a special type called managers or cashiers checks. These are bills of
exchange drawn by the banks manager or cashier, in the name of the bank, against the bank
itself.[28] Typically, a managers or a cashiers check is procured from the bank by allocating a
particular amount of funds to be debited from the depositors account or by directly paying or
depositing to the bank the value of the check to be drawn. Since the bank issues the check in its
name, with itself as the drawee, the check is deemed accepted in advance.[29] Ordinarily, the
check becomes the primary obligation of the issuing bank and constitutes its written promise to
pay upon demand.[30]

Nevertheless, the mere issuance of a managers check does not ipso facto work as an
automatic transfer of funds to the account of the payee. In case the procurer of the managers or
cashiers check retains custody of the instrument, does not tender it to the intended payee, or
fails to make an effective delivery, we find the following provision on undelivered
instruments under the Negotiable Instruments Law applicable:[31]

Sec. 16. Delivery; when effectual; when presumed. Every contract on a negotiable
instrument is incomplete and revocable until delivery of the instrument for the purpose of
giving effect thereto. As between immediate parties and as regards a remote party other than a
holder in due course, the delivery, in order to be effectual, must be made either by or under
the authority of the party making, drawing, accepting, or indorsing, as the case may be; and,
in such case, the delivery may be shown to have been conditional, or for a special purpose only,
and not for the purpose of transferring the property in the instrument. But where the instrument is
in the hands of a holder in due course, a valid delivery thereof by all parties prior to him so as to
make them liable to him is conclusively presumed. And where the instrument is no longer in the
possession of a party whose signature appears thereon, a valid and intentional delivery by him is
presumed until the contrary is proved. (Emphasis supplied.)

Petitioner acknowledges that the Managers Check was procured by respondents, and that the
amount to be paid for the check would be sourced from the deposit account of Hi-Tri.[32] When
Rosmil did not accept the Managers Check offered by respondents, the latter retained custody of
the instrument instead of cancelling it. As the Managers Check neither went to the hands of
Rosmil nor was it further negotiated to other persons, the instrument remained undelivered.
Petitioner does not dispute the fact that respondents retained custody of the instrument. [33]

Since there was no delivery, presentment of the check to the bank for payment did not
occur. An order to debit the account of respondents was never made. In fact, petitioner confirms
that the Managers Check was never negotiated or presented for payment to its Ermita Branch,
and that the allocated fund is still held by the bank.[34] As a result, the assigned fund is deemed
to remain part of the account of Hi-Tri, which procured the Managers Check. The doctrine that
the deposit represented by a managers check automatically passes to the payee is inapplicable,
because the instrument although accepted in advance remains undelivered. Hence, respondents
should have been informed that the deposit had been left inactive for more than 10 years, and
that it may be subjected to escheat proceedings if left unclaimed.

After a careful review of the RTC records, we find that it is no longer necessary to
remand the case for hearing to determine whether the claim of respondents was valid. There
was no contention that they were the procurers of the Managers Check. It is undisputed that
there was no effective delivery of the check, rendering the instrument incomplete. In addition,
we have already settled that respondents retained ownership of the funds. As it is obvious from
their foregoing actions that they have not abandoned their claim over the fund, we rule that the
allocated deposit, subject of the Managers Check, should be excluded from the escheat
proceedings. We reiterate our pronouncement that the objective of escheat proceedings is state
forfeiture of unclaimed balances. We further note that there is nothing in the records that would
show that the OSG appealed the assailed CA judgments. We take this failure to appeal as an
indication of disinterest in pursuing the escheat proceedings in favor of the Republic.

WHEREFORE the Petition is DENIED. The 26 November 2009 Decision and 27 May
2010 Resolution of the Court of Appeals in CA-G.R. SP No. 107261 are hereby AFFIRMED.

SO ORDERED.

RCBC

vs.
 Hi-Tri Development

G.R. No. 192413June 13, 2012

FACTS:

Before the Court is a Rule 45 Petition for Review on Certiorari file !" #etitioner
Ri$alCo%%er&ial Ban'in( Cor#oration )RCBC* a(ainst res#on ents +i -ri evelo#%ent
Cor#oration)+i -ri* an /u$ R. Ba'unawa )Ba'unawa*. Petitioner see's to a##eal fro% the 2
Nove%!er 2009 e&ision an 2 a" 2010 Resolution of the Court of ##eals )C *,

whi&h reverse an set asi e the 19 a" 200 e&ision an 3 Nove%!er 200
r er of the a'ati Cit" Re(ional-rial Court )R-C* in Civil Case No. 0 244. -he &ase !efore
the R-C involve the Co%#laintfor 6s&heat file !" the Re#u!li& of the Phili##ines
)Re#u!li&* #ursuant to &t No. 393 ,
asa%en e !" Presi ential e&ree No. 9 )P. . 9*, a(ainst &ertain e#osits, &re its,
an un&lai%e !alan&es hel !" the !ran&hes of various !an's in the Phili##ines. -he trial
&ourt e&lare the a%ounts, su!7e&t of the s#e&ial #ro&ee in(s, es&heate to the Re#u!li&
an or ere the% e#osite with the -reasurer of the Phili##ines )-reasurer* an &re ite
in favor of theRe#u!li&. -he assaile R-
C 7u (%ents in&lu e an un&lai%e !alan&e in the a%ountof

P
1,019,514.29, %aintaine !" RCBC in its 6r%ita Business Center !ran&h.

ISSUE:

8hether or not the allo&ate fun s %a" !e es&heate in favor of the Re#u!li&

HELD: