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BANKING On July 29, 1988, PESALA's Board of Directors sent

NCBA to Director Lirio a letter concerning the 16th regular


examination of PESALA's records.
[G.R. No. 95326. March 11, 1999] On September 9, 1988, the Monetary Board
adopted and issued MB Resolution No. 805 the pertinent
ROMEO P. BUSUEGO, CATALINO F. BANEZ and RENATO F.
provisions of which are as follows:
LIM, peti
tioners, vs. THE HONORABLE COURT OF APPEALS and THE "1. To note the report on the examination of the
MONETARY BOARD OF THE CENTRAL BANK OF PAL Employees' Savings and Loan Association, Inc.
THE PHILIPPINES, respondents. (PESALA) as of December 31, 1987, as submitted in
a memorandum of the Director, Supervision and
DECISION Examination Section (SES) Department IV, dated
August 19, 1988;
PURISIMA, J.:
This is a petition for review on certiorari under Rule 2. To require the board of directors of PESALA to
45 of the Rules of Court seeking a reversal of the immediately inform the members of PESALA of the
Decision[1], dated September 14, 1990, of the Court of results of the Central Bank examination and their
Appeals in CA-G.R. CV No. 23656. effects on the financial condition of the Association;

As culled from the records, the facts of the case are xxx
as follows:
5. To include the names of Mr. Catalino Banez, Mr.
The 16th regular examination of the books and Romeo Busuego and Mr. Renato Lim in the Sector's
records of the PAL Employees Savings and Loan watchlist to prevent them from holding responsible
Association, Inc. ("PESALA") was conducted from March positions in any institution under Central Bank
14 to April 16, 1988 by a team of CB examiners headed supervision;
by Belinda Rodriguez. Following the said examination,
several anomalies and irregularities committed by the
6. To require PESALA to enforce collection of the
herein petitioners; PESALA's directors and officers, were overpayment to the Vista Grande Management and
uncovered, among which are: Development Corporation and to require the
1. Questionable investment In a multi-million accounting of P12.28 million unaccounted and
peso real estate project (Pesalaville) unremitted bank loan proceeds and P3.9 million
other unsupported cash disbursements from the
2. Conflict of interest in the conduct of responsible directors and officers; or to properly
business charge these against their respective accounts, if
3. Unwarranted declaration and payment of necessary;
dividends
7. To require the board of directors of PESALA to
4. Commission of unsound and unsafe business file civil and criminal cases against Messrs. Catalino
practices. Banez, Romeo Busuego and Renato Lim for all the
On July 19, 1988,, Central Bank ("CB") Supervision misfeasance and malfeasance committed by them,
and Examination Section ("SES") Department IV Director as warranted by the evidence;
Ricardo. F. Lirio sent a letter to the Board of Directors of
PESALA inviting them to a conference on July 21, 1988 to 8. To require the board of directors of PESALA to
discuss subject findings noted in the said 16th regular improve the operations of the Association, correct
examination, but petitioners did not attend such all violations noted, and adopt internal control
conference. measures to prevent the recurrence of similar
incidents as shown in Annex E of the subject
On July 28, 1988, petitioner Renato Lim wrote the memorandum of the Director, SES Department
PESALA's Board of Directors explaining his side on the IV;"[3]
said examination of PESALA's records and requesting
that a copy of his letter be furnished the CB, which was xxx xxx xxx
fortwith made by the Board.[2]

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On January 23, 1989, petitioners filed a Petition for more specially from filing Informations in I.S. Nos.-90-
Injunction with Prayer for the Immediate Issuance of a 1836; 90-1831; 90-1835; 90-1832; 90-1248; 90-1249; 90-
Temporary Restraining Order[4] docketed as Civil Case 3031; 90-3032; 90-1837; 90-1834, pending the final
No. Q-89-1617 before Branch 104 of the Regional Trial resolution of the case at bar xxx." However, in the
Court of Quezon City. Resolution[11] dated September 9, 1992, the court
denied the said motion.
On January 26 1989, the said court issued a
temporary restraining order[5] enjoining the defendant, The petition poses as issues for resolution.
the Monetary Board of the Central Bank, (now Banko
I
Sentral ng Pilipinas) from including the names of
petitioners in the watchlist.
WHETHER OR NOT THE PETITIONERS WERE
On February 10, 1989, the same trial court issued a DEPRIVED OF THEIR RIGHT TO A NOTICE AND THE
writ of preliminary injunction[6], conditioned upon the OPPORTUNITY TO BE HEARD BY THE MONETARY
filing by petitioners of a bond in the amount of Ten BOARD PRIOR TO ITS ISSUANCE OF MONETARY
Thousand (P10,000.00) Pesos each. The Monetary Board BOARD RESOLUTION NO. 805.
presented a Motion for Reconsideration[7] of the said
II
Order, but the same was denied.
On September 11, 1989, the trial court handed WHETHER OR NOT THE RESPONDENT BOARD IS
down its Decision,[8] disposing thus: LEGALLY BOUND TO OBSERVE THE ESSENTIAL
REQUIREMENTS OF DUE PROCESS OF A VALID
"WHEREFORE, judgment is hereby rendered declaring CHARGE, NOTICE AND OPPORTUNITY TO BE HEARD
Monetary Board Resolution No. 805 as void and INSOFAR AS THE PETITIONERS' SUBJECT CASE IS
inexistent. The writ of preliminary prohibitory CONCERNED.
injunctions issued on February 10, 1989 is deemed
III
permanent. Costs against respondent."
The Monetary Board appealed the aforesaid WHETHER OR NOT MONETARY BOARD
Decision to the Court of Appeals which came out with a RESOLUTION NO. 805 IS NULL AND VOID FOR
Decision[9] of reversal on September 14, 1990, the BEING VIOLATIVE OF PETITIONERS' RIGHTS TO DUE
decretal portion of which is to the following effect: PROCESS.
With respect to the first issue, the trial court said:
"WHEREFORE, the decision appealed from is hereby
reversed and another one entered dismissing the
petition for injunction." "The evidence submitted preponderates in favor of
petitioners. The deprivation of petitioners' rights in the
Dissatisfied with the said Decision of the Court of Resolution undermines the constitutional guarantee of
Appeals, petitioners have come to this Court via the due process. Petitioners were never notified that they
present petition for review on certiorari. were being investigated, much so, they were not
informed of any charges against them and were not
On June 5, 1992, petitioners filed an "Urgent
afforded the opportunity to adduce countervailing
Motion for the Immediate Issuance of a Temporary
evidence so as to deserve the punitive measures
Restraining Order and/or Writ of Preliminary Injunction
promulgated in Resolution No. 805 of the Monetary
against the Secretary of Justice and the City Prosecutor
Board. xxx[12]
of Pasay"[10] stating that several complaints were lodged
against the petitioners before the Office of the City The foregoing disquisition by the trial court is
Prosecutor of Pasay City pursuant to Monetary Board untenable under the facts and circumstances of the
Resolution No. 805; that the said complaints were case. Petitioners were duly afforded their right to due
dismissed by the City Prosecutor and the dismissals were process by the Monetary Board, it appearing that:
appealed to the Secretary of Justice for review, some of
which have been reversed already. Petitioners prayed 1. Petitioners were invited by Director Lirio to a
that a Temporary Restraining Order and/or Writ of conference scheduled for July 21, 1988 to discuss the
Preliminary Injunction issue "restraining and enjoining findings made in the 16th regular examination of
the Secretary of Justice and the City Prosecutor of Pasay PESALA's records. Petitioners did not attend, said
City from proceeding and taking further actions, and conference;

Banking 1st Set of Cases | 2


2. Petitioner Renato Lim's letter of July 28, 1988 to Contrary to petitioners' allegation, it appears that
PESALA's Board of Directors, explaining his side of the the requisites of procedural due process were complied
controversy, was forwarded to the Monetary Board with by the Monetary Board before it issued the
which the latter considered in adopting Monetary Board questioned Monetary Board Resolution No. 805. Firstly,
Resolution No. 805; and the petitioners were invited to a conference to discuss
the findings gathered during the 16th regular
3. PESALA's Board of Director's letter, dated July 29,
examination of PESALA's records. (The requirement of a
1988, to the Monetary Board, explaining the Board's side
hearing is complied with as long as there was an
of the controversy, was properly considered in the
opportunity to be heard, and not necessarily that an
adoption of Monetary Board Resolution No. 805.
actual hearing was conducted.[17]) Secondly, the
Petitioners therefore cannot complain of Monetary Board considered the evidence
deprivation of their right to due process, as they were presented. Thirdly, fourthly and fifthly, Monetary Board
given ample opportunity by the Monetary Board to air Resolution No. 805 was adopted on the basis of said
their Submission and defenses as to the findings of findings unearthed during the 16th regular examination
irregularity during the said 16th regular examination.The of PESALA's records and derived from the letter-
essence of due process is to be afforded a reasonable comments submitted by the parties. Sixthly, the
opportunity to be heard and to submit any evidence one members of the Monetary Board acted independently
may have in support of his defense.[13] What is offensive on their own in issuing subject Resolution, placing
to due process is the denial of the opportunity to be reliance on the said findings made during the 16th
heard.[14] Petitioners having availed of their opportunity regular examination. Lastly, the reason for the issuance
to present their position to the Monetary Board by their of Monetary Board Resolution No. 805 is readily
letters-explanation, they were not denied due apparent, which is to prevent further irregularities from
process[15]. being committed and to prosecute the officials
responsible therefor.
Petitioners cite Ang Tibay v. CIR[16] and assert that
the following requisites of procedural due process were With respect to the second issue, there is tenability
not observed by the Monetary Board: in petitioners' contention that the Monetary Board, as
an administrative agency, is legally bound to observe
1. The right to a hearing, which includes the due process, although they are free from the rigidity of
right to present one's case and submit evidence in certain procedural requirements. As held in Adamson
support thereof; and Adamson, Inc. v. Amores[18]:
2. The tribunal must consider the evidence
presented; "While administrative tribunals exercising quasi-judicial
functions are free from the rigidity of certain procedural
3. The decision must have something to requirements they are bound by law and practice to
support itself; observe the fundamental and essential requirements of
4. The evidence must be substantial; due process in justiciable cases presented before
them. However, the standard of due process that must
5. The decision must be rendered on the be met in administrative tribunals allows a certain
evidence presented at the hearing, or at least latitude as long as the element of fairness is not
contained in the record and disclosed to the parties ignored. Hence, there is no denial of due process where
affected; records show that hearings were held with prior notice
6. The tribunal or body or any of its judges to adverse parties. But even in the absence of previous
must act or its or his own independent notice, there is no denial of procedural due, process as
consideration of the law and facts of the long as the parties are given the opportunity to be
controversy and not simply accept the view of a heard."
subordinate in arriving at a decision; Even Section 28, (c) and (d), of Republic Act No.
7. The board or body should, in all 3779 ("RA 3779") delineating the powers of the
controversial questions, render its decision in such Monetary Board over savings and loan associations,
a manner that the parties to the proceedings can require observance of due process in the exercise of its
know the various issues involved, and the reason powers:
for the decision rendered.
xxx

Banking 1st Set of Cases | 3


(c) To conduct at least once every year, and whenever against petitioners as the Resolution certainly affects
necessary, any inspection, examination or investigation their 'life, liberty and property.'
of the books, and records, business affairs,
administration, and financial condition of any savings Monetary Board Resolution No. 805 Violates basic and
and loan association with or without prior notice but essential requirements. It must therefore be, as it is
always with fairness and reasonable opportunity for the hereby, declared, as void and inexistent because among
association or any of its officials to give their side of the other things, it openly derogates the fundamental rights
case. x x x of petitioners."
Petitioners opine that with the issuance of Monetary
(d) After proper notice and hearing, to suspend a savings
Board Resolution No. 805, "they are now barred from
and loan association for violation of law, for unsafe and
being elected or designated as officers again of PESALA,
unsound practices or for reason of insolvency. x x x
and are likewise prevented from future engagements or
x x x. employments in all institutions under the supervision of
the Central Bank thereby virtually depriving them of the
(f) To decide, after appropriate notice and hearings any opportunity to seek employments in the field which they
controversy as to the rights or obligations of the savings can excel and are best fitted." According to them, the
and loan association, its directors, officers, stockholders Monetary Board is not vested with "the authority to
and members under its charter, and, by order, to disqualify persons from occupying positions in
enforce the same; institutions under the supervision of the Central Bank
without proper notice and hearing" nor is it vested with
x x x" (italics supplied)
authority "to file civil and criminal cases against its
Anent the third issue, petitioners theorize that officers/directors for suspected fraudulent acts."
Monetary Board Resolution No. 805 is null and void for
Petitioners' contentions are untenable. It must be
being violative of petitioners' right to due process. To
remembered that the Central Bank of the. Philippines
support their stance, they cite the trial court's ruling, to
(now Bangko Sentral ng Pilipinas), through the Monetary
wit:
Board, is the government agency charged with the
responsibility of administering the monetary, banking
"A reading of Monetary Board Resolution No. 805 and credit system of the country[19] and is granted the
discloses that it imposes administrative sanctions against power of supervision and examination over banks and
petitioners. In fact, it does not only penalize petitioners non-bank financial institutions performing quasi-banking
by including them in the watchlist to prevent them from functions, of which savings and loan associations, such
holding responsible positions in any institution under as PESALA, form part of[20].
Central Bank supervision,' it mandates the PESALA Board
of Directors as well to file Civil and Criminal charges The special law governing savings and loan
against them 'for all the misfeasance and malfeasance association is Republic Act No. 3779, as amended,
committed by them, as warranted by the evidence.' otherwise known as the "Savings and Loan Association
Monetary Board Resolution No. 805 virtually deprives Act." Said law authorizes the Monetary Board to conduct
petitioners their respective gainful employment, and at regular yearly examinations of the books and records of
the same time marks them for judicial prosecution. The savings and loan associations, to suspend, a savings and
crucial question here is that were petitioners afforded loan association for violation of law, to decide any
due process in the investigations conducted which controversy over the obligations and duties of directors
prompted the issuance of Monetary Board Resolution and officers, and to take remedial measures, among
No. 805? others. Section 28 of Rep. Act No. 3779, reads:

x x x Although the Monetary Board is free from the "SEC. 28. Supervisory powers over savings and loan
rigidity of certain procedural requirements, it failed 'to associations. - In addition to whatever powers have been
observe the essential requirement of due process' conferred by the foregoing provisions, the Monetary
(Adamson and Adamson, Inc. v. Amores, 152 SCRA 237) Board shall have the power to exercise the following:
specifically its failure to afford petitioners the
xxx
opportunity to be heard. In short, there is a clear
showing of arbitrariness resulting in an irreparable injury
(c) To conduct at least once every year, and whenever-
necessary, any inspection, examination or investigation

Banking 1st Set of Cases | 4


of the books and records, business affairs, xxx
administration, and financial condition of any savings
and loan association with or without prior notice but (l) To conduct such investigations, take such remedial
always with fairness and reasonable opportunity for the measures, exercise all powers which are now or may
association or any of its officials to give their side of the hereafter be conferred upon it by Republic Act
case. Whenever an inspection, examination or Numbered Two Hundred sixty-five in the enforcement of
investigation is conducted under this grant of power, the this legislation, and impose upon associations, whether
person authorized to do so may seize books and records stock or noti-stock their directors and/or officers
and keep them under his custody after giving proper administrative sanctions under Sections 34-A or 34-B of
receipts therefor; may make any marking or notation on Republic Act Two Hundred sixty-five, as amended."
any paper, record, document or book to show that it has
From the foregoing, it is gleanable that the Central
been examined and verified and may padlock or seal
Bank, through the Monetary Board, is empowered to
shelves, vaults, safes, receptacles or similar containers
conduct investigations and examine the records of
and prohibit the opening thereof without first securing
savings and loan associations. If any irregularity is
authority therefor, for as long as may be necessary in
discovered in the process, the Monetary Board may
connection with the investigation or examination being
impose appropriate sanctions, such as suspending the
conducted. The official of the Central Bank in charge of
offender from holding office or from being employed
savings and loan associations and his deputies are
with the Central Bank, or placing the names of the
hereby authorized to administer oaths to any director,
offenders in a watchlist.
officer or employee of any association under the
supervision of the Monetary Board; The requirement of prior notice is also relaxed
under Section 28 (c) of RA 3779 as investigations or
xxx
examinations may be conducted with or without prior
notice "but always with fairness and reasonable
(d) After proper notice and hearing, to suspend a savings
opportunity for the association or any of its officials to
and loan association for violation of law, for unsafe and
give their side." As may be gathered from the records,
unsound practices or for reason of insolvency. The
the said requirement was properly complied with by the
Monetary Board may likewise, upon the proof that a
respondent Monetary Board.
savings and loan association or its board or directors or
officers are conducting and managing its affairs in a We sustain the ruling of the Court of Appeals that
manner contrary to laws, orders, instructions, rules and petitioners' suspension was only preventive in nature
regulations promulgated by the Monetary Board or in a and therefore, no notice or, hearing was necessary. Until
manner substantially prejudicial to the interest of the such time that the petitioners have proved their
government, depositors or creditor, take over the innocence, they may be preventively suspended from
management of the savings and loan association after holding office so as not to influence the conduct of
due hearing, until a new board of directors and officers investigation, and to prevent the commission of further
are elected and qualified without prejudice to the irregularities.
prosecution of the persons responsible for such
violations. The management by the Monetary Board Neither were petitioners deprived of their lawful
shall be without expense to the savings and loan calling as they are free to look for another employment
association, except such as is actually necessary for its so long as the agency or company involved is not subject
operation, pending the election and qualification of a to Central Bank control and supervision. Petitioners can
new board of directors and officers to take the place of still practise their profession or engage in business as
those responsible for the violation or acts contrary to long as these are not within the ambit of Monetary
the interest of the government, depositors or creditors; Board Resolution No. 805.

xxx All things studiedly considered, the court upholds


the validity of Monetary Board Resolution No. 805 and
affirms the decision of the respondent court.
(f) To decide, after appropriate notice and hearings any
controversy as to the rights or obligations of the savings WHEREFORE, the petition is DENIED, and the
and loan association, its directors, officers, stockholders assailed Decision dated September 14, 1990 of the Court
and members under its charter, and, by order, to of Appeals AFFIRMED. No pronouncement as to costs.
enforce the same;
SO ORDERED.

Banking 1st Set of Cases | 5


Romero, (Chairman), Vitug, Trading Order8 and a Confirmation of Sale.9 However,
Panganiban, and Gonzaga-Reyes, JJ., concur. instead of delivering the Treasury Bills, the PDB delivered
the seven CB bills to the BOC, as evidenced by a PDB
Security Delivery Receipt, bearing a
G.R. Nos. 154470-71 September 24, 2012 "note: ** substitution in lieu of 06-29-94" referring to
the Treasury Bills.10 Nevertheless, the PDB retained
BANK OF COMMERCE, Petitioner, possession of the Detached Assignments. It is basically
vs. the nature of this April 15 transaction that the PDB and
PLANTERS DEVELOPMENT BANK and BANGKO SENTRAL the BOC cannot agree on.
NG PILIPINAS, Respondent.
The transfer of the first set of seven CB bills
x-----------------------x
i. CB bill nos. 45351-53
G.R. Nos. 154589-90
On April 20, 1994, according to the BOC, it "sold
BANGKO SENTRAL NG PILIPINAS, Petitioner, back"11 to the PDB three of the seven CB bills. In turn,
vs. the PDB transferred these three CB bills to Bancapital
PLANTERS DEVELOPMENT BANK, Respondent. Development Corporation (Bancap). On April 25, 1994,
the BOC bought the three CB bills from Bancap so,
Before the Court are two consolidated petitions for ultimately, the BOC reacquired these three CB
review on certiorari under Rule 45,1 on pure questions of bills,12 particularly described as follows:
law, filed by the petitioners Bank of Commerce (BOC) Serial No.: 2BB XM 045351
and the Bangko Sentral ng Pilipinas (BSP). They assail the 2BB XM 045352
January 10, 2002 and July 23, 2002 Orders (assailed 2BB XM 045353
orders) of the Regional Trial Court (RTC) of Makati City,
Branch 143, in Civil Case Nos. 94-3233 and 94-3254. Quantity: Three (3)
These orders dismissed (i) the petition filed by the
Planters Development Bank (PDB), (ii) the Denomination: Php 10 million
"counterclaim" filed by the BOC, and (iii) the counter- Total Face Value: Php 30 million
complaint/cross-claim for interpleader filed bythe BSP;
and denied the BOCs and the BSPs motions for
reconsideration. ii. CB bill nos. 45347-50

THE ANTECEDENTS On April 20, 1994, the BOC sold the remaining four (4)
CB bills to Capital One Equities Corporation13 which
The Central Bank bills transferred them to All-Asia Capital and Trust
Corporation (All Asia). On September 30, 1994, All Asia
I. First set of CB bills further transferred the four CB bills back to the RCBC.14

The Rizal Commercial Banking Corporation (RCBC) was On November 16, 1994, the RCBC sold back to All Asia
the registered owner of seven Central Bank (CB) bills one of these 4 CB bills. When the BSP refused to release
with a total face value of 70 million, issued on January the amount of this CB bill on maturity, the BOC
2, 1994 and would mature on January 2, 1995.2 As purchased from All Asia this lone CB bill,15 particularly
evidenced by a "Detached Assignment" dated April 8, described as follows:16
1994,3 the RCBC sold these CB bills to the BOC.4 As Serial No.: 2BB XM 045348
evidenced by another "Detached Assignment"5 of even
date, the BOC, in turn, sold these CB bills to the Quantity: One (1)
PDB.6 The BOC delivered the Detached Assignments to Denomination: Php 10 million
the PDB.7
Total Face Value: Php 10 million
On April 15, 1994 (April 15 transaction), the PDB, in turn,
sold to the BOC Treasury Bills worth 70 million, with
maturity date of June 29, 1994, as evidenced by a

Banking 1st Set of Cases | 6


As the registered owner of the remaining three CB bills, registered bond may be transferred on the books of the
the RCBC sold them to IVI Capital and Insular Savings BSP.25
Bank. Again, when the BSP refused to release the
amount of this CB bill on maturity, the RCBC paid back its In a July 25, 1994 letter, the PDB clarified to Nuqui that it
transferees, reacquired these three CB bills and sold was not "asking for the transfer of the CB Bills. rather it
them to the BOC ultimately, the BOC acquired these intends to put the BSP on formal notice that whoever is
three CB bills. in possession of said bills is not a holder in due course,"
and, therefore the BSP should not make payment upon
All in all, the BOC acquired the first set of seven CB bills. the presentation of the CB bills on maturity.26 Nuqui
responded that the BSP was "not in a position at that
II. Second set of CB bills point in time to determine who is and who is not the
holder in due course since it is not privy to all acts and
On April 19, 1994, the RCBC, as registered owner, (i) sold time involving the transfers or negotiation" of the CB
two CB bills with a total face value of 20 million to the bills. Nuqui added that the BSPs action shall be
PDB and (ii) delivered to the PDB the corresponding governed by CB Circular No. 28, as amended.27
Detached Assignment.17 The two CB bills were
particularly described as follows: On November 17, 1994, the PDB also asked BSP Deputy
Governor Edgardo Zialcita that (i) a notation in the BSPs
Serial No.: BB XM 045373
books be made against the transfer, exchange, or
BB XM 045374
payment of the bonds and the payment of interest
Issue date: January 3, 1994 thereon; and (ii) the presenter of the bonds upon
maturity be required to submit proof as a holder in due
Maturity date: January 2, 1995 course (of the first set of CB bills). The PDB relied on
Section 10 (d) 4 of CB Circular No. 28.28 This provision
Denomination: Php 10 million
reads:
Total Face value: Php 20 million
(4) Assignments effected by fraud Where the
assignment of a registered bond is secured by fraudulent
On even date, the PDB delivered to Bancap the two CB
representations, the Central Bank can grant no relief if
bills18 (April 19 transaction). In turn, Bancap sold the CB
the assignment has been honored without notice of
bills to Al-Amanah Islamic Investment Bank of the
fraud. Otherwise, the Central Bank, upon receipt of
Philippines, which in turn sold it to the BOC.19
notice that the assignment is claimed to have been
secured by fraudulent representations, or payment of
PDBs move against the transfer of
the bond the payment of interest thereon, and when the
the first and second sets of CB bills
bond is presented, will call upon the owner and the
person presenting the bond to substantiate their
On June 30, 1994, upon learning of the transfers respective claims.If it then appears that the person
involving the CB bills, the PDB informed20 the Officer-in- presenting the bond stands in the position of bonafide
Charge of the BSPs Government Securities holder for value, the Central Bank, after giving the owner
Department,21 Lagrimas Nuqui, of the PDBs claim over an opportunity to assert his claim, will pass the bond for
these CB bills, based on the Detached Assignments in its
transfer, exchange or payments, as the case may be,
possession. The PDB requested the BSP22 to record its without further question.
claim in the BSPs books, explaining that its non-
possession of the CB bills is "on account of imperfect
In a December 29, 1994 letter, Nuqui again denied the
negotiations thereof and/or subsequent setoff or
request, reiterating the BSPs previous stand.
transfer."23
In light of these BSP responses and the impending
Nuqui denied the request, invoking Section 8 of CB
maturity of the CB bills, the PDB filed29 with the RTC two
Circular No. 28 (Regulations Governing Open Market
separate petitions for Mandamus, Prohibition and
Operations, Stabilization of the Securities Market, Issue,
Injunction with prayer for Preliminary Injunction and
Servicing and Redemption of the Public Debt)24 which
Temporary Restraining Order, docketed as Civil Case No.
requires the presentation of the bond before a
94-3233 (covering the first set of CB bills) and Civil Case

Banking 1st Set of Cases | 7


94-3254 (covering the second set of CB bills) against (d) the costs of suit.36
Nuqui, the BSP and the RCBC.30
After the petitions were filed, the BOC
The PDB essentially claims that in both the April 15 acquired/reacquired all the nine CB bills the first and
transaction (involving the first set of CB bills) and the second sets of CB bills (collectively, subject CB bills).
April 19 transaction (involving the second set of CB bills),
there was no intent on its part to transfer title of the CB Defenses of the BSP and of the BOC37
bills, as shown by its non-issuance of a detached
assignment in favor of the BOC and Bancap, respectively. The BOC filed its Answer, praying for the dismissal of the
The PDB particularly alleges that it merely petition. It argued that the PDB has no cause of action
"warehoused"31 the first set of CB bills with the BOC, as against it since the PDB is no longer the owner of the CB
security collateral. bills. Contrary to the PDBs "warehousing theory,"38 the
BOC asserted that the (i) April 15 transaction and the (ii)
On December 28, 1994, the RTC temporarily enjoined April 19 transaction covering both sets of CB bills -
Nuqui and the BSP from paying the face value of the CB were valid contracts of sale, followed by a transfer of
bills on maturity.32 On January 10, 1995, the PDB filed an title (i) to the BOC (in the April 15 transaction) upon the
Amended Petition, additionally impleading the BOC and PDBs delivery of the 1st set of CB bills in substitution of
All Asia.33 In a January 13, 1995 Order, the cases were the Treasury Bills the PDB originally intended to sell, and
consolidated.34 On January 17, 1995, the RTC granted (ii) to Bancap (in the April 19 transaction) upon the PDBs
the PDBs application for a writ of preliminary delivery of the 2nd set of CB bills to Bancap, likewise by
prohibitory injunction.35 In both petitions, the PDB way of substitution.
identically prayed:
The BOC adds that Section 10 (d) 4 of CB Circular No. 28
WHEREFORE, it is respectfully prayed x x x that, after due cannot apply to the PDBs case because (i) the PDB is not
notice and hearing, the Writs of Mandamus, Prohibition in possession of the CB bills and (ii) the BOC acquired
and Injunction, be issued; (i) commanding the BSP and these bills from the PDB, as to the 1st set of CB bills, and
Nuqui, or whoever may take her place - from Bancap, as to the 2nd set of CB bills, in good faith
and for value. The BOC also asserted a compulsory
(a) to record forthwith in the books of BSP the claim of x counterclaim for damages and attorneys fees.
x x PDB on the [two sets of] CB Bills in accordance with
Section 10 (d) (4) of revised C.B. Circular No. 28; and On the other hand, the BSP countered that the PDB
cannot invoke Section 10 (d) 4 of CB Circular No. 28
(b) also pursuant thereto, when the bills are presented because this section applies only to an "owner" and a
on maturity date for payment, to call (i) x x x PDB, (ii) x x "person presenting the bond," of which the PDB is
x RCBC x x x, (iii) x x x BOC x x x, and (iv) x x x ALL-ASIA x x neither. The PDB has not presented to the BSP any
x; or whoever will present the [first and second sets of] assignment of the subject CB bills, duly recorded in the
CB Bills for payment, to submit proof as to who stands as BSPs books, in its favor to clothe it with the status of an
the holder in due course of said bills, and, thereafter, act "owner."39 According to the BSP
accordingly;
Section 10 d. (4) applies only to a registered bond which
and (ii) ordering the BSP and Nuqui to pay jointly and is assigned. And the issuance of CB Bills x x x are required
severally to x x x PDB the following: to be recorded/registered in BSPs books. In this regard,
Section 4 a. (1) of CB Circular 28 provides that registered
(a) the sum of 100,000.00, as and for bonds "may be transferred only by an assignment
exemplary damages; thereon duly executed by the registered owner or his
duly authorized representative x x x and duly recorded
(b) the sum of at least 500,000.00, or such on the books of the Central Bank."
amount as shall be proved at the trial, as and for
attorneys fees; xxxx

(c) the legal rate of interest from the filing of this The alleged assignment of subject CB Bills in PDBs favor
Petition until full payment of the sums is not recorded/registered in BSPs
40
mentioned in this Petition; and books. (underscoring supplied)

Banking 1st Set of Cases | 8


Consequently, when Nuqui and the BSP refused the Motion.48 Accordingly, the BSP released the maturity
PDBs request (to record its claim), they were merely proceeds of the CB bills by crediting the Demand Deposit
performing their duties in accordance with CB Circular Account of the PDB and of the BOC with 50% each of the
No. 28. maturity proceeds of the amount in escrow.49

Alternatively, the BSP asked that an interpleader suit be In view of the BOCs acquisition of all the CB bills, All
allowed between and among the claimants to the Asia50 moved to be dropped as a respondent (with the
subject CB bills on the position that while it is able and PDBs conformity51 ), which the RTC granted.52 The RCBC
willing to pay the subject CB bills face value, it is duty subsequently followed suit.53
bound to ensure that payment is made to the rightful
owner. The BSP prayed that judgment be rendered: In light of the developments, on May 4, 1998, the RTC
required the parties to manifest their intention
a. Ordering the dismissal of the PDBs petition regarding the case and to inform the court of any
for lack of merit; amicable settlement; "otherwise, th[e] case shall be
dismissed for lack of interest."54 Complying with the
b. Determining which between/among [PDB] RTCs order, the BOC moved (i) that the case be set for
and the other claimants is/are lawfully entitled pre-trial and (ii) for further proceeding to resolve the
to the ownership of the subject CB bills and the remaining issues between the BOC and the PDB,
proceeds thereof; particularly on "who has a better right over the subject
CB bills."55 The PDB joined the BOC in its motion.56
c. x x x;
On September 28, 2000, the RTC granted the BSPs
d. Ordering PDB to pay BSP and Nuqui such motion to interplead and, accordingly, required the BOC
actual/compensatory and exemplary damages to amend its Answer and for the conflicting claimants to
as the RTC may deem warranted; and comment thereon.57 In October 2000, the BOC filed its
Amended Consolidated Answer with Compulsory
e. Ordering PDB to pay Nuqui moral damages Counterclaim, reiterating its earlier arguments asserting
and to pay the costs of the suit.41 ownership over the subject CB bills.58

Subsequent events In the alternative, the BOC added that even assuming
that there was no effective transfer of the nine CB bills
The PDB agreed with the BSPs alternative response for ultimately to the BOC, the PDB remains obligated to
an interpleader deliver to the BOC, as buyer in the April 15 transaction
and ultimate successor-in-interest of the buyer (Bancap)
4. PDB agrees that the various claimants should now in the April 19 transaction, either the original subjects of
interplead and substantiate their respective claims on the sales or the value thereof, plus whatever income
the subject CB bills. However, the total face value of the that may have been earned during the pendency of the
subject CB bills should be deposited in escrow with a case.59
private bank to be disposed of only upon order of the
RTC.42 That BOC prayed:

Accordingly, on June 9, 199543 and August 4, 1995,44 the 1. To declare BOC as the rightful owner of the
BOC and the PDB entered into two separate Escrow nine (9) CB bills and as the party entitled to the
Agreements.45 The first agreement covered the first set proceeds thereof as well as all income earned
of CB bills, while the second agreement covered the pursuant to the two (2) Escrow Agreements
second set of CB bills. The parties agreed to jointly entered into by BOC and PDB.
collect from the BSP the maturity proceeds of these CB
bills and to deposit said amount in escrow, "pending 2. In the alternative, ordering PDB to deliver the
final determination by Court judgment, or amicable original subject of the sales transactions or the
settlement as to who shall be eventually entitled value thereof and whatever income earned by
thereto."46 The BOC and the PDB filed a Joint way of interest at prevailing rate.
Motion,47 submitting these Escrow Agreements for court
approval. The RTC gave its approval to the parties Joint

Banking 1st Set of Cases | 9


Without any opposition or objection from the PDB, on in possession (holder) of the CB bills.67Consequently, the
February 23, 2001, the RTC admitted60 the BOCs PDBs case can only falls under the third situation which
Amended Consolidated Answer with Compulsory leaves the RTC, as a court of general jurisdiction, with
Counterclaims. the authority to resolve the issue of ownership of a
registered bond (the CB bills) not falling in either of the
In May 2001, the PDB filed an Omnibus first two situations.
Motion,61 questioning the RTCs jurisdiction over the
BOCs "additional counterclaims." The PDB argues that The BOC asserts that the policy consideration supportive
its petitions pray for the BSP (not the RTC) to determine of its interpretation of CB Circular No. 28 is to have a
who among the conflicting claimants to the CB bills reliable system to protect the registered owner; should
stands in the position of the bona fide holder for value. he file a notice with the BSP about a fraudulent
The RTC cannot entertain the BOCs counterclaim, assignment of certain CB bills, the BSP simply has to look
regardless of its nature, because it is the BSP which has at its books to determine who is the owner of the CB
jurisdiction to determine who is entitled to receive the bills fraudulently assigned. Since it is only the registered
proceeds of the CB bills. owner who complied with the BSPs requirement of
recording an assignment in the BSPs books, then "the
The BOC opposed62 the PDBs Omnibus Motion. The PDB protective mantle of administrative proceedings" should
filed its Reply.63 necessarily benefit him only, without extending the
same benefit to those who chose to ignore the Circulars
In a January 10, 2002 Order, the RTC dismissed the PDBs requirement, like the PDB.68
petition, the BOCs counterclaim and the BSPs counter-
complaint/cross-claim for interpleader, holding that Assuming arguendo that the PDBs case falls under the
under CB Circular No. 28, it has no jurisdiction (i) over second situation i.e., the BSP has jurisdiction to resolve
the BOCs "counterclaims" and (ii) to resolve the issue of the issue of ownership of the CB bills the more recent
ownership of the CB bills.64 With the denial of their CB Circular No. 769-80 (Rules and Regulations Governing
separate motions for Reconsideration,65 the BOC and the Central Bank Certificates of Indebtedness) already
BSP separately filed the present petitions for review on superseded CB Circular No. 28, and, in particular,
certiorari.66 effectively amended Section 10 (d) 4 of CB Circular No.
28. The pertinent provisions of CB Circular No. 769-80
THE BOCS and THE BSPS PETITIONS read:

The BOC argues that the present cases do not fall within Assignment Affected by Fraud. Any assignment for
the limited provision of Section 10 (d) 4 of CB Circular transfer of ownership of registered certificate obtained
No. 28, which contemplates only of three situations: through fraudulent representation if honored by the
first, where the fraudulent assignment is not coupled Central Bank or any of its authorized service agencies
with a notice to the BSP, it can grant no relief; second, shall not make the Central Bank or agency liable
where the fraudulent assignment is coupled with a therefore unless it has previous formal notice of the
notice of fraud to the BSP, it will make a notation against fraud. The Central Bank, upon notice under oath that the
the assignment and require the owner and the holder to assignment was secured through fraudulent means, shall
substantiate their claims; and third, where the case does immediately issue and circularize a "stop order" against
not fall on either of the first two situations, the BSP will the transfer, exchange, redemption of the Certificate
have to await action on the assignment pending including the payment of interest coupons. The Central
settlement of the case, whether by agreement or by Bank or service agency concerned shall continue to
court order. withhold action on the certificate until such time that
the conflicting claims have been finally settled either by
The PDBs case cannot fall under the first two situations. amicable settlement between the parties or by order of
With particular regard to the second situation, CB the Court.
Circular No. 28 requires that the conflict must be
between an "owner" and a "holder," for the BSP to Unlike CB Circular No. 28, CB Circular No. 769-80 limited
exercise its limited jurisdiction to resolve conflicting the BSPs authority to the mere issuance and
claims; and the word "owner" here refers to the circularization of a "stop order" against the transfer,
registered owner giving notice of the fraud to the BSP. exchange and redemption upon sworn notice of a
The PDB, however, is not the registered owner nor is it fraudulent assignment. Under this Circular, the BSP shall

Banking 1st Set of Cases | 10


only continue to withhold action until the dispute is shall have suppletory application to CB Circular No. 769-
ended by an amicable settlement or by judicial 80; and second, the BSP can always designate an office
determination. Given the more passive stance of the BSP to resolve the PDBs claim over the CB bills.
the very agency tasked to enforce the circulars
involved - under CB Circular No. 769-80, the RTCs Lastly, the PDB argues that even assuming that the RTC
dismissal of the BOCs counterclaims is palpably has jurisdiction to resolve the issue of ownership of the
erroneous. CB bills, the RTC has not acquired jurisdiction over the
BOCs so-called "compulsory" counterclaims (which in
Lastly, since Nuquis office (Government Securities truth is merely "permissive") because of the BOCs
Department) had already been abolished,69 it can no failure to pay the appropriate docket fees. These
longer adjudicate the dispute under the second situation counterclaims should, therefore, be dismissed and
covered by CB Circular No. 28. The abolition of Nuquis expunged from the record.
office is not only consistent with the BSPs Charter but,
more importantly, with CB Circular No. 769-80, which THE COURTS RULING
removed the BSPs adjudicative authority over
fraudulent assignments. We grant the petitions.

THE PDBS COMMENT At the outset, we note that the parties have not raised
the validity of either CB Circular No. 28 or CB Circular No.
The PDB claims that jurisdiction is determined by the 769-80 as an issue. What the parties largely contest is
allegations in the complaint/petition and not by the the applicable circular in case of an allegedly
defenses set up in the answer.70 In filing the petition with fraudulently assigned CB bill. The applicable circular, in
the RTC, the PDB merely seeks to compel the BSP to turn, is determinative of the proper remedy available to
determine, pursuant to CB Circular No. 28, the party the PDB and/or the BOC as claimants to the proceeds of
legally entitled to the proceeds of the subject CB bills, the subject CB bills.
which, as the PDB alleged, have been transferred
through fraudulent representations an allegation Indisputably, at the time the PDB supposedly invoked
which properly recognized the BSPs jurisdiction to the jurisdiction of the BSP in 1994 (by requesting for the
resolve conflicting claims of ownership over the CB bills. annotation of its claim over the subject CB bills in the
BSPs books), CB Circular No. 769-80 has long been in
The PDB adds that under the doctrine of primary effect. Therefore, the parties respective interpretations
jurisdiction, courts should refrain from determining a of the provision of Section 10 (d) 4 of CB Circular No. 28
controversy involving a question whose resolution do not have any significance unless it is first established
demands the exercise of sound administrative that that Circular governs the resolution of their
discretion. In the present case, the BSPs special conflicting claims of ownership. This conclusion is
knowledge and experience in resolving disputes on important, given the supposed repeal or modification of
securities, whose assignment and trading are governed Section 10 (d) 4 of CB Circular No. 28 by the following
by the BSPs rules, should be upheld. provisions of CB Circular No. 769-80:

The PDB counters that the BOCs tri-fold interpretation ARTICLE XI


of Section 10 (d) 4 of CB Circular No. 28 sanctions split SUPPLEMENTAL RULES
jurisdiction which is not favored;but even this tri-fold
interpretation which, in the second situation, limits the Section 1. Central Bank Circular No. 28 The provisions
meaning of the "owner" to the registered owner is of Central Bank Circular No. 28 shall have suppletory
flawed. Section 10 (d) 4 aims to protect not just the application to matters not specially covered by these
registered owner but anyone who has been deprived of Rules.
his bond by fraudulent representation in order to deter
fraud in the secondary trading of government securities.

The PDB asserts that the existence of CB Circular No. ARTICLE XII
769-80 or the abolition of Nuquis office does not result EFFECTIVITY
in depriving the BSP of its jurisdiction: first, CB Circular
No. 769-80 expressly provides that CB Circular No. 28

Banking 1st Set of Cases | 11


Effectivity The rules and regulations herein prescribed constitutes an implied repeal of the earlier one. The
shall take effect upon approval by the Monetary Board, other occurs when the later act covers the whole subject
Central Bank of the Philippines, and all circulars, of the earlier one and is clearly intended as a substitute;
memoranda, or office orders inconsistent herewith are thus, it will operate to repeal the earlier law.75
revoked or modified accordingly. (Emphases added)
A general reading of the two circulars shows that the
We agree with the PDB that in view of CB Circular No. second instance of implied repeal is present in this case.
28s suppletory application, an attempt to harmonize CB Circular No. 28, entitled "Regulations Governing
the apparently conflicting provisions is a prerequisite Open Market Operations, Stabilization of Securities
before one may possibly conclude that an amendment Market, Issue, Servicing and Redemption of Public Debt,"
or a repeal exists.71 Interestingly, however, even the PDB is a regulation governing the servicing and redemption
itself failed to submit an interpretation based on its own of public debt, including the issue, inscription,
position of harmonization. registration, transfer, payment and replacement of
bonds and securities representing the public debt.76 On
The repealing clause of CB Circular No. 769-80 obviously the other hand, CB Circular No. 769-80, entitled "Rules
did not expressly repeal CB Circular No. 28; in fact, it and Regulations Governing Central Bank Certificate of
even provided for the suppletory application of CB Indebtedness," is the governing regulation on
Circular No. 28 on "matters not specially covered by" CB matters77 (i) involving certificate of indebtedness78issued
Circular No. 769-80. While no express repeal exists, the by the Central Bank itself and (ii) which are similarly
intent of CB Circular No. 769-80 to operate as an implied covered by CB Circular No. 28.
repeal,72or at least to amend earlier CB circulars, is
supported by its text "revoking" or "modif[ying" "all The CB Monetary Board issued CB Circular No. 28 to
circulars" which are inconsistent with its terms. regulate the servicing and redemption of public debt,
pursuant to Section 124 (now Section 119 of Republic
At the outset, we stress that none of the parties disputes Act R.A. No. 7653) of the old Central Bank law79 which
that the subject CB bills fall within the category of a provides that "the servicing and redemption of the
certificate or evidence of indebtedness and that these public debt shall also be effected through the Bangko
were issued by the Central Bank, now the BSP. Thus, Sentral." However, even as R.A. No. 7653 continued to
even without resorting to statutory construction aids, recognize this role by the BSP, the law required a phase-
matters involving the subject CB bills should necessarily out of all fiscal agency functions by the BSP, including
be governed by CB Circular No. 769-80. Even granting, Section 119 of R.A. No. 7653.
however, that reliance on CB Circular No. 769-80 alone is
not enough, we find that CB Circular No. 769-80 In other words, even if CB Circular No. 28 applies broadly
impliedly repeals CB Circular No. 28. to both government-issued bonds and securities and
Central Bank-issued evidence of indebtedness, given the
An implied repeal transpires when a substantial conflict present state of law, CB Circular No. 28 and CB Circular
exists between the new and the prior laws. In the No. 769-80 now operate on the same subject Central
absence of an express repeal, a subsequent law cannot Bank-issued evidence of indebtedness. Under Section 1,
be construed as repealing a prior law unless an Article XI of CB Circular No. 769-80, the continued
irreconcilable inconsistency and repugnancy exist in the relevance and application of CB Circular No. 28 would
terms of the new and the old laws.73 Repeal by depend on the need to supplement any deficiency or
implication is not favored, unless manifestly intended by silence in CB Circular No. 769-80 on a particular matter.
the legislature, or unless it is convincingly and
unambiguously demonstrated, that the laws or orders In the present case, both CB Circular No. 28 and CB
are clearly repugnant and patently inconsistent with one Circular No. 769-80 provide the BSP with a course of
another so that they cannot co-exist; the legislature is action in case of an allegedly fraudulently assigned
presumed to know the existing law and would express a certificate of indebtedness. Under CB Circular No. 28, in
repeal if one is intended.74 case of fraudulent assignments, the BSP would have to
"call upon the owner and the person presenting the
There are two instances of implied repeal. One takes bond to substantiate their respective claims" and, from
place when the provisions in the two acts on the same there, determine who has a better right over the
subject matter are irreconcilably contradictory, in which registered bond. On the other hand, under CB Circular
case, the later act, to the extent of the conflict, No. 769-80, the BSP shall merely "issue and circularize a

Banking 1st Set of Cases | 12


stop order against the transfer, exchange, redemption Parenthetically, the Court observes that none of the
of the [registered] certificate" without any adjudicative parties ever raised the issue of whether the BSP can
function (which is the precise root of the present simply disown its jurisdiction, assuming it has, by the
controversy). As the two circulars stand, the patent simple expedient of promulgating a new circular
irreconcilability of these two provisions does not require (specially applicable to a certificate of indebtedness
elaboration. Section 5, Article V of CB Circular No. 769- issued by the BSP itself), inconsistent with an old
80 inescapably repealed Section 10 (d) 4 of CB Circular circular, assertive of its limited jurisdiction over
No. 28. ownership issues arising from fraudulent assignments of
a certificate of indebtedness. The PDB, in particular,
The issue of BSPs jurisdiction, lay hidden relied solely and heavily on CB Circular No. 28.

On that note, the Court could have written finis to the In light of the above principles pointing to jurisdiction as
present controversy by simply sustaining the BSPs a matter of substantive law, the provisions of the law
hands-off approach to the PDBs problem under CB itself that gave CB Circular 769-80 its life and jurisdiction
Circular No. 769-80. However, the jurisdictional must be examined.
provision of CB Circular No. 769-80 itself, in relation to
CB Circular No. 28, on the matter of fraudulent The Philippine Central Bank
assignment, has given rise to a question of jurisdiction -
the core question of law involved in these petitions - On January 3, 1949, Congress created the Central Bank
which the Court cannot just treat sub-silencio. of the Philippines (Central Bank) as a corporate body
with the primary objective of (i) maintaining the internal
Broadly speaking, jurisdiction is the legal power or and external monetary stability in the Philippines; and (ii)
authority to hear and determine a cause.80 In the preserving the international value and the convertibility
exercise of judicial or quasi-judicial power, it refers to of the peso.90 In line with these broad objectives, the
the authority of a court to hear and decide a case.81 In Central Bank was empowered to issue rules and
the context of these petitions, we hark back to the basic regulations "necessary for the effective discharge of the
principles governing the question of jurisdiction over the responsibilities and exercise of the powers assigned to
subject matter. the Monetary Board and to the Central
Bank."91 Specifically, the Central Bank is authorized to
First, jurisdiction over the subject matter is determined organize (other) departments for the efficient conduct of
only by the Constitution and by law.82 As a matter of its business and whose powers and duties "shall be
substantive law, procedural rules alone can confer no determined by the Monetary Board, within the authority
jurisdiction to courts or administrative agencies.83 In fact, granted to the Board and the Central Bank"92 under its
an administrative agency, acting in its quasi-judicial original charter.
capacity, is a tribunal of limited jurisdiction and, as such,
could wield only such powers that are specifically With the 1973 Constitution, the then Central Bank was
granted to it by the enabling statutes. In contrast, an RTC constitutionally made as the countrys central monetary
is a court of general jurisdiction, i.e., it has jurisdiction authority until such time that Congress93 shall have
over cases whose subject matter does not fall within the established a central bank. The 1987 Constitution
exclusive original jurisdiction of any court, tribunal or continued to recognize this function of the then Central
body exercising judicial or quasi-judicial functions.84 Bank until Congress, pursuant to the Constitution,
created a new central monetary authority which later
Second, jurisdiction over the subject matter is came to be known as the Bangko Sentral ng Pilipinas.
determined not by the pleas set up by the defendant in
his answer85but by the allegations in the Under the New Central Bank Act (R.A. No. 7653),94 the
complaint,86 irrespective of whether the plaintiff is BSP is given the responsibility of providing policy
entitled to favorable judgment on the basis of his directions in the areas of money, banking and credit; it is
assertions.87 The reason is that the complaint is given, too, the primary objective of maintaining price
supposed to contain a concise statement of the ultimate stability, conducive to a balanced and sustainable
facts constituting the plaintiff's causes of action.88 growth of the economy, and of promoting and
maintaining monetary stability and convertibility of the
Third, jurisdiction is determined by the law in force at peso.95
the time of the filing of the complaint.89

Banking 1st Set of Cases | 13


The Constitution expressly grants the BSP, as the deficiencies/irregularities found by or
countrys central monetary authority, the power of discovered by an audit shall be immediately
supervision over the operation of banks, while leaving addressed;
with Congress the authority to define the BSPs
regulatory powers over the operations of finance 4.5. Inquiring into the solvency and liquidity of
companies and other institutions performing similar the institution (2-D); or
functions. Under R.A. No. 7653, the BSPs powers and
functions include (i) supervision over the operation of 4.6. Enforcing prompt corrective action. (n)
banks; (ii) regulation of operations of finance companies
and non-bank financial institutions performing quasi The Bangko Sentral shall also have supervision over the
banking functions; (iii) sole power and authority to issue operations of and exercise regulatory powers over quasi-
currency within the Philippine territory; (iv) engaging in banks, trust entities and other financial institutions
foreign exchange transactions; (v) making rediscounts, which under special laws are subject to Bangko Sentral
discounts, loans and advances to banking and other supervision. (2-Ca)
financial institutions to influence the volume of credit
consistent with the objective of achieving price stability; For the purposes of this Act, "quasi-banks" shall refer to
(vi) engaging in open market operations; and (vii) acting entities engaged in the borrowing of funds through the
as banker and financial advisor of the issuance, endorsement or assignment with recourse or
government.1wphi1 acceptance of deposit substitutes as defined in Section
95 of Republic Act No. 7653 (hereafter the "New Central
On the BSPs power of supervision over the operation of Bank Act") for purposes of relending or purchasing of
banks, Section 4 of R.A. No. 8791 (The General Banking receivables and other obligations. [emphasis ours]
Law of 2000) elaborates as follows:
While this provision empowers the BSP to oversee the
CHAPTER II operations and activities of banks to "ascertain that laws
AUTHORITY OF THE BANGKO SENTRAL and regulations are complied with," the existence of the
BSPs jurisdiction in the present dispute cannot rely on
SECTION 4. Supervisory Powers. The operations and this provision. The fact remains that the BSP already
activities of banks shall be subject to supervision of the made known to the PDB its unfavorable position on the
Bangko Sentral. "Supervision" shall include the following: latters claim of fraudulent assignment due to the
latters own failure to comply96 with existing regulations:
4.1. The issuance of rules of conduct or the
establishment of standards of operation for In this connection, Section 10 (b) 2 also requires that a
uniform application to all institutions or "Detached assignment will be recognized or accepted
functions covered, taking into consideration the only upon previous notice to the Central Bank x x x." In
distinctive character of the operations of fact, in a memo dated September 23, 1991 xxx then CB
institutions and the substantive similarities of Governor Jose L. Cuisia advised all banks (including PDB)
specific functions to which such rules, modes or xxx as follows:
standards are to be applied;
In view recurring incidents ostensibly disregarding
4.2. The conduct of examination to determine certain provisions of CB circular No. 28 (as amended)
compliance with laws and regulations if the covering assignments of registered bonds, all banks and
circumstances so warrant as determined by the all concerned are enjoined to observe strictly the
Monetary Board; pertinent provisions of said CB Circular as hereunder
quoted:
4.3. Overseeing to ascertain that laws and
regulations are complied with; xxxx

4.4. Regular investigation which shall not be Under Section 10.b. (2)
oftener than once a year from the last date of
examination to determine whether an x x x Detached assignment will be recognized or
institution is conducting its business on a safe or accepted only upon previous notice to the Central Bank
sound basis: Provided, That the

Banking 1st Set of Cases | 14


and its use is authorized only under the following including the letters it sent to the BSP) that would
circumstances: support the BSPs jurisdiction outside of CB Circular No.
28, under its power of supervision, over conflicting
(a) x x x claims to the proceeds of the CB bills.

(b) x x x BSP has quasi-judicial powers over a


class of cases which does not include
(c) assignments of treasury notes and the adjudication of ownership of the
certificates of indebtedness in registered form CB bills in question
which are not provided at the back thereof with
assignment form. In United Coconut Planters Bank v. E. Ganzon, Inc.,98 the
Court considered the BSP as an administrative
(d) Assignment of securities which have changed agency,99exercising quasi-judicial functions through its
ownership several times. Monetary Board. It held:

(e) x x x A quasi-judicial agency or body is an organ of


government other than a court and other than a
Non-compliance herewith will constitute a basis for non- legislature, which affects the rights of private parties
action or withholding of action on redemption/payment through either adjudication or rule-making. The very
of interest coupons/transfer transactions or definition of an administrative agency includes its being
denominational exchange that may be directly affected vested with quasi-judicial powers. The ever increasing
thereby. [Boldfacing supplied] variety of powers and functions given to administrative
agencies recognizes the need for the active intervention
Again, the books of the BSP do not show that the of administrative agencies in matters calling for technical
supposed assignment of subject CB Bills was ever knowledge and speed in countless controversies which
recorded in the BSPs books. [Boldfacing supplied] cannot possibly be handled by regular courts. A "quasi-
judicial function" is a term which applies to the action,
However, the PDB faults the BSP for not recording the discretion, etc., of public administrative officers or
assignment of the CB bills in the PDBs favor despite the bodies, who are required to investigate facts, or
fact that the PDB already requested the BSP to record its ascertain the existence of facts, hold hearings, and draw
assignment in the BSPs books as early as June 30, conclusions from them, as a basis for their official action
1994.97 and to exercise discretion of a judicial nature.

The PDBs claim is not accurate. What the PDB Undoubtedly, the BSP Monetary Board is a quasi-judicial
requested the BSP on that date was not the recording of agency exercising quasi-judicial powers or functions. As
the assignment of the CB bills in its favor but the aptly observed by the Court of Appeals, the BSP
annotation of its claim over the CB bills at the time when Monetary Board is an independent central monetary
(i) it was no longer in possession of the CB bills, having authority and a body corporate with fiscal and
been transferred from one entity to another and (ii) all it administrative autonomy, mandated to provide policy
has are the detached assignments, which the PDB has directions in the areas of money, banking and credit. It
not shown to be compliant with Section 10 (b) 2 above- has power to issue subpoena, to sue for contempt those
quoted. Obviously, the PDB cannot insist that the BSP refusing to obey the subpoena without justifiable
take cognizance of its plaint when the basis of the BSPs reason, to administer oaths and compel presentation of
refusal under existing regulation, which the PDB is books, records and others, needed in its examination, to
bound to observe, is the PDBs own failure to comply impose fines and other sanctions and to issue cease and
therewith. desist order. Section 37 of Republic Act No. 7653, in
particular, explicitly provides that the BSP Monetary
True, the BSP exercises supervisory powers (and Board shall exercise its discretion in determining
regulatory powers) over banks (and quasi banks). The whether administrative sanctions should be imposed on
issue presented before the Court, however, does not banks and quasi-banks, which necessarily implies that
concern the BSPs supervisory power over banks as this the BSP Monetary Board must conduct some form of
power is understood under the General Banking Law. In investigation or hearing regarding the same. [citations
fact, there is nothing in the PDBs petition (even omitted]

Banking 1st Set of Cases | 15


The BSP is not simply a corporate entity but qualifies as SEC. 92. Issue and Negotiation of Bangko Sentral
an administrative agency created, pursuant to Obligations. In order to provide the Bangko Sentral
constitutional mandate,100 to carry out a particular with effective instruments for open market operations,
governmental function.101 To be able to perform its role the Bangko Sentral may, subject to such rules and
as central monetary authority, the Constitution granted regulations as the Monetary Board may prescribe and in
it fiscal and administrative autonomy. In general, accordance with the principles stated in Section 90 of
administrative agencies exercise powers and/or this Act, issue, place, buy and sell freely negotiable
functions which may be characterized as administrative, evidences of indebtedness of the Bangko Sentral:
investigatory, regulatory, quasi-legislative, or quasi- Provided, That issuance of such certificates of
judicial, or a mix of these five, as may be conferred by indebtedness shall be made only in cases of
the Constitution or by statute.102 extraordinary movement in price levels. Said evidences
of indebtedness may be issued directly against the
While the very nature of an administrative agency and international reserve of the Bangko Sentral or against
the raison d'tre for its creation103 and proliferation the securities which it has acquired under the provisions
dictate a grant of quasi-judicial power to it, the matters of Section 91 of this Act, or may be issued without
over which it may exercise this power must find relation to specific types of assets of the Bangko Sentral.
sufficient anchorage on its enabling law, either by
express provision or by necessary implication. Once The Monetary Board shall determine the interest rates,
found, the quasi-judicial power partakes of the nature of maturities and other characteristics of said obligations of
a limited and special jurisdiction, that is, to hear and the Bangko Sentral, and may, if it deems it advisable,
determine a class of cases within its peculiar denominate the obligations in gold or foreign currencies.
competence and expertise. In other words, the
provisions of the enabling statute are the yardsticks by Subject to the principles stated in Section 90 of this Act,
which the Court would measure the quantum of quasi- the evidences of indebtedness of the Bangko Sentral to
judicial powers an administrative agency may exercise, which this section refers may be acquired by the Bangko
as defined in the enabling act of such agency.104 Sentral before their maturity, either through purchases
in the open market or through redemptions at par and
Scattered provisions in R.A. No. 7653 and R.A. No. 8791, by lot if the Bangko Sentral has reserved the right to
inter alia, exist, conferring jurisdiction on the BSP on make such redemptions. The evidences of indebtedness
certain matters.105 For instance, under the situations acquired or redeemed by the Bangko Sentral shall not be
contemplated under Section 36, par. 2106 (where a bank included among its assets, and shall be immediately
or quasi bank persists in carrying on its business in an retired and cancelled.108 (italics supplied; emphases ours)
unlawful or unsafe manner) and Section 37107 (where the
bank or its officers willfully violate the banks charter or The primary objective of the BSP is to maintain price
by-laws, or the rules and regulations issued by the stability.109 The BSP has a number of monetary policy
Monetary Board) of R.A. No. 7653, the BSP may place an instruments at its disposal to promote price stability. To
entity under receivership and/or liquidation or impose increase or reduce liquidity in the financial system, the
administrative sanctions upon the entity or its officers or BSP uses open market operations, among
directors. others.110 Open market operation is a monetary tool
where the BSP publicly buys or sells government
Among its several functions under R.A. No. 7653, the securities111 from (or to) banks and financial institutions
BSP is authorized to engage in open market operations in order to expand or contract the supply of money. By
and thereby "issue, place, buy and sell freely negotiable controlling the money supply, the BSP is able to exert
evidences of indebtedness of the Bangko Sentral" in the some influence on the prices of goods and services and
following manner. achieve its inflation objectives.112

SEC. 90. Principles of Open Market Operations. The Once the issue and/or sale of a security is made, the BSP
open market purchases and sales of securities by the would necessarily make a determination, in accordance
Bangko Sentral shall be made exclusively in accordance with its own rules, of the entity entitled to receive the
with its primary objective of achieving price stability. proceeds of the security upon its maturity. This
determination by the BSP is an exercise of its
xxxx administrative powers113 under the law as an incident to
its power to prescribe rules and regulations governing

Banking 1st Set of Cases | 16


open market operations to achieve the "primary order" against the transfer, exchange, redemption of the
objective of achieving price stability."114As a matter of certificate of indebtedness, including the payment of
necessity, too, the same rules and regulations facilitate interest coupons, and (ii) withholding action on the
transaction with the BSP by providing for an orderly certificate.
manner of, among others, issuing, transferring,
exchanging and paying securities representing public A similar conclusion can be drawn from the BSPs
debt. administrative adjudicatory power in cases of "willful
failure or refusal to comply with, or violation of, any
Significantly, when competing claims of ownership over banking law or any order, instruction or regulation
the proceeds of the securities it has issued are brought issued by the Monetary Board, or any order, instruction
before it, the law has not given the BSP the quasi-judicial or ruling by the Governor."118 The non-compliance with
power to resolve these competing claims as part of its the pertinent requirements under CB Circular No. 28, as
power to engage in open market operations. Nothing in amended, deprives a party from any right to demand
the BSPs charter confers on the BSP the jurisdiction or payment from the BSP.
authority to determine this kind of claims, arising out of
a subsequent transfer or assignment of evidence of In other words, the grant of quasi-judicial authority to
indebtedness a matter that appropriately falls within the BSP cannot possibly extend to situations which do
the competence of courts of general jurisdiction. That not call for the exercise by the BSP of its supervisory or
the statute withholds this power from the BSP is only regulatory functions over entities within its
consistent with the fundamental reasons for the jurisdiction.119
creation of a Philippine central bank, that is, to lay down
stable monetary policy and exercise bank supervisory The fact alone that the parties involved are banking
functions. Thus, the BSPs assumption of jurisdiction institutions does not necessarily call for the exercise by
over competing claims cannot find even a stretched-out the BSP of its quasi-judicial powers under the law.120
justification under its corporate powers "to do and
perform any and all things that may be necessary or The doctrine of primary jurisdiction
proper to carry out the purposes" of R.A. No. 7653. 115 argues against BSPs purported
authority to adjudicate ownership
To reiterate, open market operation is a monetary policy issues over the disputed CB bills
instrument that the BSP employs, among others, to
regulate the supply of money in the economy to Given the preceding discussions, even the PDBs
influence the timing, cost and availability of money and invocation of the doctrine of primary jurisdiction is
credit, as well as other financial factors, for the purpose misplaced.
of stabilizing the price level.116 What the law grants the
BSP is a continuing role to shape and carry out the In the exercise of its plenary legislative power, Congress
countrys monetary policy not the authority to may create administrative agencies endowed with quasi-
adjudicate competing claims of ownership over the legislative and quasi-judicial powers. Necessarily,
securities it has issued since this authority would not Congress likewise defines the limits of an agencys
fall under the BSPs purposes under its charter. jurisdiction in the same manner as it defines the
jurisdiction of courts.121 As a result, it may happen that
While R.A. No. 7653117 empowers the BSP to conduct either a court or an administrative agency has exclusive
administrative hearings and render judgment for or jurisdiction over a specific matter or both have
against an entity under its supervisory and regulatory concurrent jurisdiction on the same. It may happen, too,
powers and even authorizes the BSP Governor to that courts and agencies may willingly relinquish
"render decisions, or rulings x x x on matters regarding adjudicatory power that is rightfully theirs in favor of the
application or enforcement of laws pertaining to other. One of the instances when a court may properly
institutions supervised by the BSP and laws pertaining to defer to the adjudicatory authority of an agency is the
quasi-banks, as well as regulations, policies or applicability of the doctrine of primary jurisdiction.122
instructions issued by the Monetary Board," it is
precisely the text of the BSPs own regulation (whose As early as 1954, the Court applied the doctrine of
validity is not here raised as an issue) that points to the primary jurisdiction under the following terms:
BSPs limited role in case of an allegedly fraudulent
assignment to simply (i) issuing and circularizing a "stop

Banking 1st Set of Cases | 17


6. In the fifties, the Court taking cognizance of the move Clearly, the doctrine of primary jurisdiction finds
to vest jurisdiction in administrative commissions and application in this case since the question of what coal
boards the power to resolve specialized disputes xxx areas should be exploited and developed and which
ruled that Congress in requiring the Industrial Court's entity should be granted coal operating contracts over
intervention in the resolution of labor-management said areas involves a technical determination by the
controversies xxx meant such jurisdiction to be exclusive, Bureau of Energy Development as the administrative
although it did not so expressly state in the law. The agency in possession of the specialized expertise to act
Court held that under the "sense-making and on the matter. The Trial Court does not have the
expeditious doctrine of primary jurisdiction ... the courts competence to decide matters concerning activities
cannot or will not determine a controversy involving a relative to the exploration, exploitation, development
question which is within the jurisdiction of an and extraction of mineral resources like coal. These
administrative tribunal, where the question demands issues preclude an initial judicial determination.
the exercise of sound administrative discretion requiring [emphases ours]
the special knowledge, experience, and services of the
administrative tribunal to determine technical and The absence of any express or implied statutory power
intricate matters of fact, and a uniformity of ruling is to adjudicate conflicting claims of ownership or
essential to comply with the purposes of the regulatory entitlement to the proceeds of its certificates of
statute administered."123 (emphasis ours) indebtedness finds complement in the similar absence of
any technical matter that would call for the BSPs special
In Industrial Enterprises, Inc. v. Court of Appeals,124 the expertise or competence.125 In fact, what the PDBs
Court ruled that while an action for rescission of a petitions bear out is essentially the nature of the
contract between coal developers appears to be an transaction it had with the subsequent transferees of
action cognizable by regular courts, the trial court the subject CB bills (BOC and Bancap) and not any
remains to be without jurisdiction to entertain the suit matter more appropriate for special determination by
since the contract sought to be rescinded is "inextricably the BSP or any administrative agency.
tied up with the right to develop coal-bearing lands and
the determination of whether or not the reversion of the In a similar vein, it is well-settled that the interpretation
coal operating contract over the subject coal blocks to given to a rule or regulation by those charged with its
[the plaintiff] would be in line with the countrys national execution is entitled to the greatest weight by the courts
program and objective on coal-development and over-all construing such rule or regulation.126 While there are
coal-supply-demand balance." It then applied the exceptions127 to this rule, the PDB has not convinced us
doctrine of primary jurisdiction that a departure is warranted in this case. Given the
non-applicability of the doctrine of primary jurisdiction,
In recent years, it has been the jurisprudential trend to the BSPs own position, in light of Circular No. 769-80,
apply the doctrine of primary jurisdiction in many cases deserves respect from the Court.
involving matters that demand the special competence
of administrative agencies. It may occur that the Court Ordinarily, cases involving the application of doctrine of
has jurisdiction to take cognizance of a particular case, primary jurisdiction are initiated by an action invoking
which means that the matter involved is also judicial in the jurisdiction of a court or administrative agency to
character. However, if the case is such that its resolve the substantive legal conflict between the
determination requires the expertise, specialized skills parties. In this sense, the present case is quite unique
and knowledge of the proper administrative bodies since the courts jurisdiction was, originally, invoked to
because technical matters or intricate questions of facts compel an administrative agency (the BSP) to resolve the
are involved, then relief must first be obtained in an legal conflict of ownership over the CB bills - instead of
administrative proceeding before a remedy will be obtaining a judicial determination of the same dispute.
supplied by the courts even though the matter is within
the proper jurisdiction of a court. This is the doctrine of The remedy of interpleader
primary jurisdiction. It applies "where a claim is originally
cognizable in the courts, and comes into play whenever Based on the unique factual premise of the present case,
enforcement of the claim requires the resolution of the RTC acted correctly in initially assuming jurisdiction
issues which, under a regulatory scheme, have been over the PDBs petition for mandamus, prohibition and
placed within the special competence of an injunction.128 While the RTC agreed (albeit erroneously)
administrative body." with the PDBs view (that the BSP has jurisdiction), it,

Banking 1st Set of Cases | 18


however, dismissed not only the BOCs/the BSPs in the subject matter or an interest which in whole or in
counterclaims but the PDBs petition itself as well, on part is not disputed by the claimants.132
the ground that it lacks jurisdiction.
Through this remedy, the stakeholder can join all
This is plain error. competing claimants in a single proceeding to determine
conflicting claims without exposing the stakeholder to
Not only the parties themselves, but more so the courts, the possibility of having to pay more than once on a
are bound by the rule on non-waiver of single liability.133
jurisdiction.129believes that jurisdiction over the BOCs
counterclaims and the BSPs counterclaim/crossclaim for When the court orders that the claimants litigate among
interpleader calls for the application of the doctrine of themselves, in reality a new action arises,134 where the
primary jurisdiction, the allowance of the PDBs petition claims of the interpleaders themselves are brought to
even becomes imperative because courts may raise the the fore, the stakeholder as plaintiff is relegated merely
issue of primary jurisdiction sua sponte.130 to the role of initiating the suit. In short, the remedy of
interpleader, when proper, merely provides an avenue
Of the three possible options available to the RTC, the for the conflicting claims on the same subject matter to
adoption of either of these two would lead the trial be threshed out in an action. Section 2 of Rule 62
court into serious legal error: first, if it granted the PDBs provides:
petition, its decision would have to be set aside on
appeal because the BSP has no jurisdiction as previously SEC. 2. Order. Upon the filing of the complaint, the
discussed; and second when it dismissed the PDBs court shall issue an order requiring the conflicting
petitions and the BOCs counterclaims on the ground claimants to interplead with one another. If the interests
that it lacks jurisdiction, the trial court seriously erred of justice so require, the court may direct in such order
because precisely, the resolution of the conflicting that the subject matter be paid or delivered to the court.
claims over the CB bills falls within its general
jurisdiction. This is precisely what the RTC did by granting the BSPs
motion to interplead. The PDB itself "agreed that the
Without emasculating its jurisdiction, the RTC could have various claimants should now interplead." Thus, the PDB
properly dismissed the PDBs petition but on the ground and the BOC subsequently entered into two separate
that mandamus does not lie against the BSP; but even escrow agreements, covering the CB bills, and submitted
this correct alternative is no longer plausible since the them to the RTC for approval.
BSP, as a respondent below, already properly brought
before the RTC the remaining conflicting claims over the In granting the BSPs motion, the RTC acted on the
subject CB bills by way of a counterclaim/crossclaim for correct premise that it has jurisdiction to resolve the
interpleader. Section 1, Rule 62 of the Rules of Court parties conflicting claims over the CB bills - consistent
provides when an interpleader is proper: with the rules and the parties conduct - and accordingly
required the BOC to amend its answer and for the PDB
SECTION 1. When interpleader proper. Whenever to comment thereon. Suddenly, however, the PDB made
conflicting claims upon the same subject matter are or an about-face and questioned the jurisdiction of the
may be made against a person who claims no interest RTC. Swayed by the PDBs argument, the RTC dismissed
whatever in the subject matter, or an interest which in even the PDBs petition - which means that it did not
whole or in part is not disputed by the claimants, he may actually compel the BSP to resolve the BOCs and the
bring an action against the conflicting claimants to PDBs claims.
compel them to interplead and litigate their several
claims among themselves. Without the motion to interplead and the order granting
it, the RTC could only dismiss the PDBs petition since it
The remedy of an action of interpleader131 is designed to is the RTC which has jurisdiction to resolve the parties
protect a person against double vexation in respect of a conflicting claims not the BSP. Given that the motion
single liability.7 It requires, as an indispensable requisite, to interplead has been actually filed, the RTC could not
that conflicting claims upon the same subject matter are have really granted the relief originally sought in the
or may be made against the stakeholder (the possessor PDBs petition since the RTCs order granting the BSPs
of the subject matter) who claims no interest whatever motion to interplead - to which the PDB in fact
acquiesced into - effectively resulted in the dismissal of

Banking 1st Set of Cases | 19


the PDBs petition. This is not altered by the fact that the itself vulnerable to lawsuit/s from those legally entitled
PDB additionally prayed in its petition for damages, to payment.
attorneys fees and costs of suit "against the public
respondents" because the grant of the order to Interpleader is a civil action made special by the
interplead effectively sustained the propriety of the existence of particular rules to govern the uniqueness of
BSPs resort to this procedural device. its application and operation. Under Section 2, Rule 6 of
the Rules of Court, governing ordinary civil actions, a
Interpleader partys claim is asserted "in a complaint, counterclaim,
cross-claim, third (fourth, etc.)-party complaint, or
1. as a special civil action complaint-in-intervention." In an interpleader suit,
however, a claim is not required to be contained in any
What is quite unique in this case is that the BSP did not of these pleadings but in the answer-(of the conflicting
initiate the interpleader suit through an original claimants)-in-interpleader. This claim is different from
complaint but through its Answer. This circumstance the counter-claim (or cross-claim, third party-complaint)
becomes understandable if it is considered that insofar which is separately allowed under Section 5, par. 2 of
as the BSP is concerned, the PDB does not possess any Rule 62.
right to have its claim recorded in the BSPs books;
consequently, the PDB cannot properly be considered 2. the payment of docket fees covering BOCs
even as a potential claimant to the proceeds of the CB counterclaim
bills upon maturity. Thus, the interpleader was only an
alternative position, made only in the BSPs Answer.135 The PDB argues that, even assuming that the RTC has
jurisdiction over the issue of ownership of the CB bills,
The remedy of interpleader, as a special civil action, is the BOCs failure to pay the appropriate docket fees
primarily governed by the specific provisions in Rule 62 prevents the RTC from acquiring jurisdiction over the
of the Rules of Court and secondarily by the provisions BOCs "counterclaims."
applicable to ordinary civil actions.136 Indeed, Rule 62
does not expressly authorize the filing of a complaint-in- We disagree with the PDB.
interpleader as part of, although separate and
independent from, the answer. Similarly, Section 5, Rule To reiterate and recall, the order granting the "PDBs
6, in relation to Section 1, Rule 9 of the Rules of motion to interplead," already resulted in the dismissal
Court137 does not include a complaint-in-interpleader as of the PDBs petition. The same order required the BOC
a claim,138 a form of defense,139 or as an objection that a to amend its answer and for the conflicting claimants to
defendant may be allowed to put up in his answer or in a comment, presumably to conform to the nature of an
motion to dismiss. This does not mean, however, that answer-in interpleader. Perhaps, by reason of the BOCs
the BSPs "counter-complaint/cross-claim for denomination of its claim as a "compulsory
interpleader" runs counter to general procedures. counterclaim" and the PDBs failure to fully appreciate
the RTCs order granting the "BSPs motion for
Apart from a pleading,140 the rules141 allow a party to interpleader" (with the PDBs conformity), the PDB
seek an affirmative relief from the court through the mistakenly treated the BOCs claim as a "permissive
procedural device of a motion. While captioned "Answer counterclaim" which necessitates the payment of docket
with counter complaint/cross-claim for interpleader," fees.
the RTC understood this as in the nature of a
motion,142 seeking relief which essentially consists in an As the preceding discussions would show, however, the
order for the conflicting claimants to litigate with each BOCs "claim" - i.e., its assertion of ownership over the
other so that "payment is made to the rightful or CB bills is in reality just that, a "claim" against the
legitimate owner"143 of the subject CB bills. stakeholder and not as a "counterclaim,"144 whether
compulsory145or permissive. It is only the BOCs
The rules define a "civil action" as "one by which a party alternative prayer (for the PDB to deliver to the BOC, as
sues another for the enforcement or protection of a the buyer in the April 15 transaction and the ultimate
right, or the prevention or redress of a wrong." successor-in-interest of the buyer in the April 19
Interpleader may be considered as a stakeholders transaction, either the original subjects of the sales or
remedy to prevent a wrong, that is, from making the value thereof plus whatever income that may have
payment to one not entitled to it, thereby rendering been earned pendente lite) and its prayer for damages

Banking 1st Set of Cases | 20


that are obviously compulsory counterclaims against the April 19 transactions, in its alternative prayer) an
PDB and, therefore, does not require payment of docket intention to defraud the government that would warrant
fees.146 the dismissal of its claim.149

The PDB takes a contrary position through its insistence At any rate, regardless of the nature of the BOCs
that a compulsory counterclaim should be one where "counterclaims," for purposes of payment of filing fees,
the presence of third parties, of whom the court cannot both the BOC and the PDB, properly as defendants-in-
acquire jurisdiction, is not required. It reasons out that interpleader, must be assessed the payment of the
since the RCBC and All Asia (the intervening holders of correct docket fee arising from their respective claims.
the CB bills) have already been dropped from the case, The seminal case of Sun Insurance Office, Ltd. v. Judge
then the BOCs counterclaim must only be permissive in Asuncion150 provides us guidance in the payment of
nature and the BOC should have paid the correct docket docket fees, to wit:
fees.
1. x x x Where the filing of the initiatory pleading
We see no reason to belabor this claim. Even if we gloss is not accompanied by payment of the docket
over the PDBs own conformity to the dropping of these fee, the court may allow payment of the fee
entities as parties, the BOC correctly argues that a within a reasonable time but in no case beyond
remedy is provided under the Rules. Section 12, Rule 6 the applicable prescriptive or reglementary
of the Rules of Court reads: period.

SEC. 12. Bringing new parties. When the presence of 2. The same rule applies to permissive
parties other than those to the original action is required counterclaims, third-party claims and similar
for the granting of complete relief in the determination pleadings, which shall not be considered filed
of a counterclaim or cross-claim, the court shall order until and unless the filing fee prescribed therefor
them to be brought in as defendants, if jurisdiction over is paid. The court may also allow payment of
them can be obtained. said fee within a reasonable time but also in no
case beyond its applicable prescriptive or
Even then, the strict characterization of the BOCs reglementary period. [underscoring ours]
counterclaim is no longer material in disposing of the
PDBs argument based on non-payment of docket fees. This must be the rule considering that Section 7, Rule 62
of which reads:
When an action is filed in court, the complaint must be
accompanied by the payment of the requisite docket SEC. 7. Docket and other lawful fees, costs and litigation
and filing fees by the party seeking affirmative relief expenses as liens. The docket and other lawful fees
from the court. It is the filing of the complaint or paid by the party who filed a complaint under this Rule,
appropriate initiatory pleading, accompanied by the as well as the costs and litigation expenses, shall
payment of the prescribed docket fee, that vests a trial constitute a lien or charge upon the subject matter of
court with jurisdiction over the claim or the nature of the action, unless the court shall order otherwise.
the action.147 However, the non-payment of the docket
fee at the time of filing does not automatically cause the only pertain to the docket and lawful fees to be paid by
dismissal of the case, so long as the fee is paid within the the one who initiated the interpleader suit, and who,
applicable prescriptive or reglementary period, under the Rules, actually "claims no interest whatever in
especially when the claimant demonstrates a willingness the subject matter." By constituting a lien on the subject
to abide by the rules prescribing such payment.148 matter of the action, Section 7 in effect only aims to
actually compensate the complainant-in-interpleader,
In the present case, considering the lack of a clear who happens to be the stakeholder unfortunate enough
guideline on the payment of docket fee by the claimants to get caught in a legal crossfire between two or more
in an interpleader suit, compounded by the unusual conflicting claimants, for the faultless trouble it found
manner in which the interpleader suit was initiated and itself into. Since the defendants-in-interpleader are
the circumstances surrounding it, we surely cannot actually the ones who make a claim - only that it was
deduce from the BOCs mere failure to specify in its extraordinarily done through the procedural device of
prayer the total amount of the CB bills it lays claim to (or interpleader - then to them devolves the duty to pay the
the value of the subjects of the sales in the April 15 and

Banking 1st Set of Cases | 21


docket fees prescribed under Rule 141 of the Rules of Respondents.
Court, as amended.151

The importance of paying the correct amount of docket Before this Court are two petitions that
fee cannot be overemphasized: originated from a Complaint filed by Ana Maria A.
Koruga (Koruga) before the Regional Trial Court (RTC) of
The matter of payment of docket fees is not a mere Makati City against the Board of Directors of Banco
triviality. These fees are necessary to defray court Filipino and the Members of the Monetary Board of the
expenses in the handling of cases. Consequently, in Bangko Sentral ng Pilipinas (BSP) for violation of the
order to avoid tremendous losses to the judiciary, and to Corporation Code, for inspection of records of a
the government as well, the payment of docket fees corporation by a stockholder, for receivership, and for
cannot be made dependent on the outcome of the case, the creation of a management committee.
except when the claimant is a pauper-litigant.152
G.R. No. 168332
WHEREFORE, premises considered the consolidated
PETITIONS are GRANTED. The Planters Development The first is a Petition for Certiorari under Rule 65
Bank is hereby REQUIRED to file with the Regional Trial of the Rules of Court, docketed as G.R. No. 168332,
Court its comment or answer-in-interpleader to Bank of praying for the annulment of the Court of Appeals (CA)
Commerces Amended Consolidated Answer with Resolution[1] in CA-G.R. SP No. 88422 dated April 18,
Compulsory Counterclaim, as previously ordered by the 2005 granting the prayer for a Writ of Preliminary
Regional Trial Court. The Regional Trial Court of Makati Injunction of therein petitioners Teodoro O. Arcenas, Jr.,
City, Branch 143, is hereby ORDERED to assess the Albert C. Aguirre, Cesar S. Paguio, and Francisco A.
docket fees due from Planters Development Bank and Rivera (Arcenas, et al.).
Bank of Commerce and order their payment, and to
resolve with DELIBERATE DISPATCH the parties Koruga is a minority stockholder of Banco
conflicting claims of ownership over the proceeds of the Filipino Savings and Mortgage Bank. On August 20, 2003,
Central Bank bills. she filed a complaint before the Makati RTC which was
raffled to Branch 138, presided over by Judge Sixto
The Clerk of Court of the Regional Trial Court of Makati Marella, Jr.[2] Korugas complaint alleged:
City, Branch 143, or his duly authorized representative is
hereby ORDERED to assess and collect the appropriate 10. 1 Violation of Sections 31 to 34 of the
amount of docket fees separately due the Bank of Corporation Code (Code) which prohibit self-
Commerce and Planters Development Bank as dealing and conflicts of interest of directors and
conflicting claimants in Bangko Sentral ng Pilipinas officers, thus:
interpleader suit, in accordance with this decision.
(a) For engaging in unsafe,
SO ORDERED. unsound, and fraudulent banking practices
that have jeopardized the welfare of the
ANA MARIA A. KORUGA, Bank, its shareholders, who includes among
Petitioner, others, the Petitioner, and depositors. (sic)
- versus -
TEODORO O. ARCENAS, JR., ALBERT C. AGUIRRE, CESAR S. (b) For granting and approving
PAGUIO, FRANCISCO A. RIVERA, and THE HONORABLE loans and/or loaned sums of money to six (6)
COURT OF APPEALS, THIRD DIVISION, dummy borrower corporations (Borrower
Respondents. Corporations) which, at the time of loan
x-----------------------------x approval, had no financial capacity to justify
TEODORO O. ARCENAS, JR., ALBERT C. AGUIRRE, CESAR S. the loans. (sic)
PAGUIO, and FRANCISCO A. RIVERA,
Petitioners, (c) For approving and accepting
- versus - a dacion en pago, or payment of loans with
HON. SIXTO MARELLA, JR., Presiding Judge, Branch property instead of cash, resulting to a
138, Regional Trial Courtof Makati City, and ANA MARIA A. diminished future cumulative interest income
KORUGA,

Banking 1st Set of Cases | 22


by the Bank and a decline in its liquidity
position. (sic) (f) Rule 9 of the Interim Rules; and

(d) For knowingly giving favorable (g) The General Banking Law of 2000 and the
treatment to the Borrower Corporations in New Central Bank Act.[3]
which some or most of them have
interests, i.e. interlocking directors/officers
thereof, interlocking ownerships. (sic) On September 12, 2003, Arcenas, et al. filed
their Answer raising, among others, the trial courts lack
(e) For employing their respective of jurisdiction to take cognizance of the case. They also
offices and functions as the Banks officers filed a Manifestation and Motion seeking the dismissal
and directors, or omitting to perform their of the case on the following grounds: (a) lack of
functions and duties, with negligence, jurisdiction over the subject matter; (b) lack of
unfaithfulness or abuse of confidence of jurisdiction over the persons of the defendants; (c)
fiduciary duty, misappropriated or misapplied forum-shopping; and (d) for being a
or ratified by inaction the misappropriation nuisance/harassment suit. They then moved that the
or misappropriations, of (sic) almost P1.6 trial court rule on their affirmative defenses, dismiss the
Billion Pesos (sic) constituting the Banks intra-corporate case, and set the case for preliminary
funds placed under their trust and hearing.
administration, by unlawfully releasing loans
to the Borrower Corporations or refusing or In an Order dated October 18, 2004, the trial
failing to impugn these, knowing before the court denied the Manifestation and Motion, ruling thus:
loans were released or thereafter that the
Banks cash resources would be dissipated The result of the procedure sought by
thereby, to the prejudice of the Petitioner, defendants Arcenas, et al. (sic) is for the
other Banco Filipino depositors, and the Court to conduct a preliminary hearing on
public. the affirmative defenses raised by them in
their Answer. This [is] proscribed by the
10.2 Right of a stockholder to inspect the Interim Rules of Procedure on Intracorporate
records of a corporation (including financial (sic) Controversies because when a
statements) under Sections 74 and 75 of the preliminary hearing is conducted it is as if a
Code, as implemented by the Interim Rules; Motion to Dismiss was filed (Rule 16, Section
(a) Unlawful refusal to allow the 6, 1997 Rules of Civil Procedure). A Motion to
Petitioner from inspecting or otherwise Dismiss is a prohibited pleading under the
accessing the corporate records of the bank Interim Rules, for which reason, no favorable
despite repeated demand in writing, where consideration can be given to the
she is a stockholder. (sic) Manifestation and Motion of defendants,
Arcenas, et al.
10.3 Receivership and Creation of a
Management Committee pursuant to: The Court finds no merit to (sic) the claim
that the instant case is a nuisance or
(a) Rule 59 of the 1997 Rules of Civil harassment suit.
Procedure (Rules);
WHEREFORE, the Court defers resolution of
(b) Section 5.2 of R.A. No. 8799; the affirmative defenses raised by the
defendants Arcenas, et al.[4]
(c) Rule 1, Section 1(a)(1) of the Interim
Rules;
Arcenas, et al. moved for reconsideration[5] but,
(d) Rule 1, Section 1(a)(2) of the Interim on January 18, 2005, the RTC denied the motion.[6] This
Rules; prompted Arcenas, et al. to file before the CA a Petition
for Certiorari and Prohibition under Rule 65 of the Rules
(e) Rule 7 of the Interim Rules; of Court with a prayer for the issuance of a writ of

Banking 1st Set of Cases | 23


preliminary injunction and a temporary retraining order Motion for Reconsideration before a Petition
(TRO).[7] for Certiorari is filed.

On February 9, 2005, the CA issued a 60-day They, likewise, alleged that the Petition may
TRO enjoining Judge Marella from conducting further have already been rendered moot and academic by the
proceedings in the case.[8] July 20, 2005 CA Decision,[13] which denied their Petition,
and held that the RTC did not commit grave abuse of
On February 22, 2005, the RTC issued a Notice discretion in issuing the assailed orders, and thus
of Pre-trial[9] setting the case for pre-trial on June 2 and ordered the RTC to proceed with the trial of the case.
9, 2005. Arcenas, et al. filed a Manifestation and
Motion[10] before the CA, reiterating their application for Meanwhile, on March 13, 2006, this Court
a writ of preliminary injunction. Thus, on April 18, 2005, issued a Resolution granting the prayer for a TRO and
the CA issued the assailed Resolution, which reads in enjoining the Presiding Judge of Makati RTC, Branch 138,
part: from proceeding with the hearing of the case upon the
filing by Arcenas, et al. of a P50,000.00 bond. Koruga
(C)onsidering that the Temporary Restraining filed a motion to lift the TRO, which this Court denied on
Order issued by this Court on February 9, 2005 July 5, 2006.
expired on April 10, 2005, it is necessary that a
writ of preliminary injunction be issued in On the other hand, respondents Dr. Conrado P.
order not to render ineffectual whatever final Banzon and Gen. Ramon Montao also filed their
resolution this Court may render in this case, Comment on Korugas Petition, raising substantially the
after the petitioners shall have posted a bond same arguments as Arcenas, et al.
in the amount of FIVE HUNDRED THOUSAND
(P500,000.00) PESOS. G.R. No. 169053

SO ORDERED.[11] G.R. No. 169053 is a Petition for Review


on Certiorari under Rule 45 of the Rules of Court, with
prayer for the issuance of a TRO and a writ of
Dissatisfied, Koruga filed this Petition preliminary injunction filed by Arcenas, et al.
for Certiorari under Rule 65 of the Rules of Court. Koruga
alleged that the CA effectively gave due course to In their Petition, Arcenas, et al. asked the Court
Arcenas, et al.s petition when it issued a writ of to set aside the Decision[14] dated July 20, 2005 of the CA
preliminary injunction without factual or legal basis, in CA-G.R. SP No. 88422, which denied their petition,
either in the April 18, 2005 Resolution itself or in the having found no grave abuse of discretion on the part of
records of the case. She prayed that this Court restrain the Makati RTC. The CA said that the RTC Orders were
the CA from implementing the writ of preliminary interlocutory in nature and, thus, may be assailed
injunction and, after due proceedings, make the by certiorari or prohibition only when it is shown that
injunction against the assailed CA Resolution the court acted without or in excess of jurisdiction or
permanent.[12] with grave abuse of discretion. It added that the
Supreme Court frowns upon resort to remedial
In their Comment, Arcenas, et al. raised several measures against interlocutory orders.
procedural and substantive issues. They alleged that the
Verification and Certification against Forum-Shopping Arcenas, et al. anchored their prayer on the
attached to the Petition was not executed in the manner following grounds: that, in their Answer before the RTC,
prescribed by Philippine law since, as admitted by they had raised the issue of failure of the court to
Korugas counsel himself, the same was only a facsimile. acquire jurisdiction over them due to improper service
of summons; that the Koruga action is a nuisance or
They also averred that Koruga had admitted in harassment suit; that there is another case involving the
the Petition that she never asked for reconsideration of same parties for the same cause pending before the
the CAs April 18, 2005 Resolution, contending that the Monetary Board of the BSP, and this constituted forum-
Petition did not raise pure questions of law as to shopping; and that jurisdiction over the subject matter
constitute an exception to the requirement of filing a of the case is vested by law in the BSP.[15]

Banking 1st Set of Cases | 24


Arcenas, et al. assign the following errors:
On the last page of the Petition in G.R. No.
I. THE COURT OF APPEALS, IN 168332, Korugas counsel executed an Undertaking,
FINDING NO GRAVE ABUSE OF DISCRETION which reads as follows:
COMMITTED BY PUBLIC RESPONDENT
REGIONAL TRIAL COURT OF MAKATI, In view of that fact that the
BRANCH 138, IN ISSUING THE ASSAILED Petitioner is currently in the United
ORDERS, FAILED TO CONSIDER AND MERELY States, undersigned counsel is attaching
GLOSSED OVER THE MORE TRANSCENDENT a facsimile copy of the Verification and
ISSUES OF THE LACK OF JURISDICTION ON Certification Against Forum-Shopping
THE PART OF SAID PUBLIC RESPONDENT duly signed by the Petitioner and
OVER THE SUBJECT MATTER OF THE CASE notarized by Stephanie N. Goggin, a
BEFORE IT, LITIS PENDENTIA AND FORUM Notary Public for the Sate (sic)
SHOPPING, AND THE CASE BELOW BEING A of Washington. Upon arrival of the
NUISANCE OR HARASSMENT SUIT, EITHER original copy of the Verification and
ONE AND ALL OF WHICH GOES/GO TO Certification as certified by the Office of
RENDER THE ISSUANCE BY PUBLIC the Philippine Consul, the undersigned
RESPONDENT OF THE ASSAILED ORDERS A counsel shall immediately provide
GRAVE ABUSE OF DISCRETION. duplicate copies thereof to the
Honorable Court.[17]
II. THE FINDING OF THE COURT OF
APPEALS OF NO GRAVE ABUSE OF
DISCRETION COMMITTED BY PUBLIC Thus, in a Compliance[18] filed with the Court on
RESPONDENT REGIONAL TRIAL COURT OF September 5, 2005, petitioner submitted the original
MAKATI, BRANCH 138, IN ISSUING THE copy of the duly notarized and authenticated
ASSAILED ORDERS, IS NOT IN ACCORD WITH Verification and Certification Against Forum-Shopping
LAW OR WITH THE APPLICABLE DECISIONS she had executed.[19] This Court noted and considered
OF THIS HONORABLE COURT.[16] the Compliance satisfactory in its Resolution dated
November 16, 2005. There is, therefore, no need to
further belabor this issue.
Meanwhile, in a Manifestation and Motion filed
on August 31, 2005, Koruga prayed for, among others, We now discuss the substantive issues in this
the consolidation of her Petition with the Petition for case.
Review on Certiorari under Rule 45 filed by Arcenas, et
al., docketed as G.R. No. 169053. The motion was First, we resolve the prayer to nullify the CAs
granted by this Court in a Resolution dated September April 18, 2005 Resolution.
26, 2005. We hold that the Petition in G.R. No. 168332 has
become moot and academic. The writ of preliminary
Our Ruling injunction being questioned had effectively been
dissolved by the CAs July 20, 2005 Decision. The
Initially, we will discuss the procedural issue. dispositive portion of the Decision reads in part:

Arcenas, et al. argue that Korugas petition The case is REMANDED to the
should be dismissed for its defective Verification and court a quo for further proceedings and
Certification Against Forum-Shopping, since only a to resolve with deliberate dispatch the
facsimile of the same was attached to the Petition. They intra-corporate controversies and
also claim that the Verification and Certification Against determine whether there was actually a
Forum-Shopping, allegedly executed valid service of summons. If, after
in Seattle, Washington, was not authenticated in the hearing, such service is found to have
manner prescribed by Philippine law and not certified by been improper, then new summons
the Philippine Consulate in the United States. should be served forthwith.[20]

This contention deserves scant consideration.

Banking 1st Set of Cases | 25


Accordingly, there is no necessity to restrain the continued operation would cause prejudice to its
implementation of the writ of preliminary injunction depositors, creditors and the general public as well.[23]
issued by the CA on April 18, 2005, since it no longer
exists. The law vests in the BSP the supervision over
operations and activities of banks. The New Central Bank
However, this Court finds that the CA erred in Act provides:
upholding the jurisdiction of, and remanding the case to,
the RTC. Section 25. Supervision and
Examination. - The Bangko Sentral shall
The resolution of these petitions rests mainly on have supervision over, and conduct
the determination of one fundamental issue: Which periodic or special examinations of,
body has jurisdiction over the Koruga Complaint, the RTC banking institutions and quasi-banks,
or the BSP? including their subsidiaries and affiliates
engaged in allied activities.[24]
We hold that it is the BSP that has jurisdiction
over the case.
Specifically, the BSPs supervisory and regulatory
A reexamination of the Complaint is in order. powers include:

Korugas Complaint charged defendants with 4.1 The issuance of rules of conduct or
violation of Sections 31 to 34 of the Corporation Code, the establishment of standards
prohibiting self-dealing and conflict of interest of of operation for uniform
directors and officers; invoked her right to inspect the application to all institutions or
corporations records under Sections 74 and 75 of the functions covered, taking into
Corporation Code; and prayed for Receivership and consideration the distinctive
Creation of a Management Committee, pursuant to Rule character of the operations of
59 of the Rules of Civil Procedure, the Securities institutions and the substantive
Regulation Code, the Interim Rules of Procedure similarities of specific functions
Governing Intra-Corporate Controversies, the General to which such rules, modes or
Banking Law of 2000, and the New Central Bank Act. She standards are to be applied;
accused the directors and officers of Banco Filipino of
engaging in unsafe, unsound, and fraudulent banking 4.2 The conduct of examination to
practices, more particularly, acts that violate the determine compliance with laws
prohibition on self-dealing. and regulations if the
circumstances so warrant as
It is clear that the acts complained of pertain to determined by the Monetary
the conduct of Banco Filipinos banking business. A bank, Board;
as defined in the General Banking Law,[21] refers to an
entity engaged in the lending of funds obtained in the 4.3 Overseeing to ascertain that laws and
form of deposits.[22] The banking business is properly Regulations are complied with;
subject to reasonable regulation under the police power
of the state because of its nature and relation to the 4.4 Regular investigation which shall
fiscal affairs of the people and the revenues of the not be oftener than once a
state.Banks are affected with public interest because year from the last date of
they receive funds from the general public in the form of examination to determine
deposits. It is the Governments responsibility to see to it whether an institution is
that the financial interests of those who deal with banks conducting its business on a
and banking institutions, as depositors or otherwise, are safe or sound
protected. In this country, that task is delegated to the basis: Provided, That
BSP, which pursuant to its Charter, is authorized to the deficiencies/irregularities
administer the monetary, banking, and credit system of found by or discovered by an
the Philippines. It is further authorized to take the audit shall be
necessary steps against any banking institution if its immediately addressed;

Banking 1st Set of Cases | 26


indorser or surety for loans from such
4.5 Inquiring into the solvency bank to others, or in any manner be an
and liquidity of the institution obligor or incur any contractual liability
(2-D); or to the bank except with the written
approval of the majority of all the
4.6 Enforcing prompt corrective directors of the bank, excluding the
action.[25] director concerned: Provided, That such
written approval shall not be required
for loans, other credit accommodations
Koruga alleges that the dispute in the trial court and advances granted to officers under
involves the manner with which the Directors (sic) have a fringe benefit plan approved by the
handled the Banks affairs, specifically the fraudulent Bangko Sentral. The required approval
loans and dacion en pago authorized by the Directors in shall be entered upon the records of the
favor of several dummy corporations known to have bank and a copy of such entry shall be
close ties and are indirectly controlled by the transmitted forthwith to the
Directors.[26] Her allegations, then, call for the appropriate supervising and examining
examination of the allegedly questionable department of the Bangko Sentral.
loans. Whether these loans are covered by the
prohibition on self-dealing is a matter for the BSP to Dealings of a bank with any of
determine. These are not ordinary intra-corporate its directors, officers or stockholders
matters; rather, they involve banking activities which and their related interests shall be upon
are, by law, regulated and supervised by the BSP. As the terms not less favorable to the bank
Court has previously held: than those offered to others.

It is well-settled in both law and After due notice to the board of


jurisprudence that the Central Monetary directors of the bank, the office of any
Authority, through the Monetary Board, bank director or officer who violates the
is vested with exclusive authority to provisions of this Section may be
assess, evaluate and determine the declared vacant and the director or
condition of any bank, and finding such officer shall be subject to the penal
condition to be one of insolvency, or provisions of the New Central Bank Act.
that its continuance in business would
involve a probable loss to its depositors The Monetary Board may
or creditors, forbid bank or non-bank regulate the amount of loans, credit
financial institution to do business in the accommodations and guarantees that
Philippines; and shall designate an may be extended, directly or indirectly,
official of the BSP or other competent by a bank to its directors, officers,
person as receiver to immediately take stockholders and their related interests,
charge of its assets and liabilities.[27] as well as investments of such bank in
enterprises owned or controlled by said
directors, officers, stockholders and their
Correlatively, the General Banking Law of related interests. However, the
2000 specifically deals with loans contracted by bank outstanding loans, credit
directors or officers, thus: accommodations and guarantees which
a bank may extend to each of its
SECTION 36. Restriction on Bank stockholders, directors, or officers and
Exposure to Directors, Officers, their related interests, shall be limited to
Stockholders and Their Related an amount equivalent to their
Interests. No director or officer of any respective unencumbered deposits and
bank shall, directly or indirectly, for book value of their paid-in capital
himself or as the representative or contribution in the bank: Provided,
agent of others, borrow from such bank however, That loans, credit
nor shall he become a guarantor, accommodations and guarantees

Banking 1st Set of Cases | 27


secured by assets considered as non-risk or to the Bangko Sentral or to the
by the Monetary Board shall be public in general;
excluded from such limit: Provided,
further, That loans, credit 56.3. The act or omission has caused
accommodations and advances to any undue injury, or has given
officers in the form of fringe benefits any unwarranted benefits,
granted in accordance with rules as may advantage or preference to the
be prescribed by the Monetary Board bank or any party in the
shall not be subject to the individual discharge by the director or
limit. officer of his duties and
responsibilities through manifest
The Monetary Board shall partiality, evident bad faith or
define the term related interests. gross inexcusable negligence; or

The limit on loans, credit 56.4. The act or omission involves


accommodations and guarantees entering into any contract or
prescribed herein shall not apply to transaction manifestly and
loans, credit accommodations and grossly disadvantageous to the
guarantees extended by a cooperative bank, quasi-bank or trust entity,
bank to its cooperative shareholders.[28] whether or not the director or
officer profited or will profit
thereby.
Furthermore, the authority to determine
whether a bank is conducting business in an unsafe or Whenever a bank, quasi-bank or
unsound manner is also vested in the Monetary trust entity persists in conducting its
Board. The General Banking Law of 2000 provides: business in an unsafe or unsound
manner, the Monetary Board may,
SECTION 56. Conducting without prejudice to the administrative
Business in an Unsafe or Unsound sanctions provided in Section 37 of the
Manner. In determining whether a New Central Bank Act, take action under
particular act or omission, which is not Section 30 of the same Act and/or
otherwise prohibited by any law, rule or immediately exclude the erring bank
regulation affecting banks, quasi-banks from clearing, the provisions of law to
or trust entities, may be deemed as the contrary notwithstanding.
conducting business in an unsafe or
unsound manner for purposes of this
Section, the Monetary Board shall Finally, the New Central Bank Act grants the
consider any of the following Monetary Board the power to impose administrative
circumstances: sanctions on the erring bank:

56.1. The act or omission has Section 37. Administrative


resulted or may result in material Sanctions on Banks and Quasi-banks. -
loss or damage, or abnormal risk Without prejudice to the criminal
or danger to the safety, stability, sanctions against the culpable persons
liquidity or solvency of the provided in Sections 34, 35, and 36 of
institution; this Act, the Monetary Board may, at its
discretion, impose upon any bank or
56.2. The act or omission has quasi-bank, their directors and/or
resulted or may result in material officers, for any willful violation of its
loss or damage or abnormal risk charter or by-laws, willful delay in the
to the institution's depositors, submission of reports or publications
creditors, investors, stockholders thereof as required by law, rules and
regulations; any refusal to permit

Banking 1st Set of Cases | 28


examination into the affairs of the of the director or officer, the period of delay
institution; any willful making of a false shall not be counted in computing the period of
or misleading statement to the Board or suspension herein provided.
the appropriate supervising and
examining department or its examiners; The above administrative sanctions need
any willful failure or refusal to comply not be applied in the order of their severity.
with, or violation of, any banking law or
any order, instruction or regulation Whether or not there is an administrative
issued by the Monetary Board, or any proceeding, if the institution and/or the
order, instruction or ruling by the directors and/or officers concerned continue
Governor; or any commission of with or otherwise persist in the commission of
irregularities, and/or conducting business the indicated practice or violation, the
in an unsafe or unsound manner as may Monetary Board may issue an order requiring
be determined by the Monetary Board, the institution and/or the directors and/or
the following administrative sanctions, officers concerned to cease and desist from the
whenever applicable: indicated practice or violation, and may further
order that immediate action be taken to
(a) fines in amounts as may be determined by correct the conditions resulting from such
the Monetary Board to be appropriate, but in practice or violation. The cease and desist order
no case to exceed Thirty thousand pesos shall be immediately effective upon service on
(P30,000) a day for each violation, taking into the respondents.
consideration the attendant circumstances,
such as the nature and gravity of the violation The respondents shall be afforded an
or irregularity and the size of the bank or opportunity to defend their action in a hearing
quasi-bank; before the Monetary Board or any committee
chaired by any Monetary Board member
(b) suspension of rediscounting privileges or created for the purpose, upon request made by
access to Bangko Sentral credit facilities; the respondents within five (5) days from their
receipt of the order. If no such hearing is
(c) suspension of lending or foreign exchange requested within said period, the order shall be
operations or authority to accept new final. If a hearing is conducted, all issues shall
deposits or make new investments; be determined on the basis of records, after
which the Monetary Board may either
(d) suspension of interbank clearing privileges; reconsider or make final its order.
and/or
The Governor is hereby authorized, at his
(e) revocation of quasi-banking license. discretion, to impose upon banking institutions,
for any failure to comply with the requirements
Resignation or termination from office of law, Monetary Board regulations and
shall not exempt such director or officer from policies, and/or instructions issued by the
administrative or criminal sanctions. Monetary Board or by the Governor, fines not
in excess of Ten thousand pesos (P10,000) a
The Monetary Board may, whenever day for each violation, the imposition of which
warranted by circumstances, preventively shall be final and executory until reversed,
suspend any director or officer of a bank or modified or lifted by the Monetary Board on
quasi-bank pending an investigation: Provided, appeal.[29]
That should the case be not finally decided by
the Bangko Sentral within a period of one
hundred twenty (120) days after the date of Koruga also accused Arcenas, et al. of violation
suspension, said director or officer shall be of the Corporation Codes provisions on self-dealing and
reinstated in his position: Provided, further, conflict of interest. She invoked Section 31 of the
That when the delay in the disposition of the Corporation Code, which defines the liability of
case is due to the fault, negligence or petition directors, trustees, or officers of a corporation for,

Banking 1st Set of Cases | 29


among others, acquiring any personal or pecuniary 2. That the vote of such director or
interest in conflict with their duty as directors or trustee was not necessary for the approval
trustees, and Section 32, which prescribes the conditions of the contract;
under which a contract of the corporation with one or
more of its directors or trustees the so-called self- 3. That the contract is fair and reasonable
dealing directors[30] would be valid. She also alleged that under the circumstances; and
Banco Filipinos directors violated Sections 33 and 34 in 4. That in case of an officer, the contract
approving the loans of corporations with interlocking has been previously authorized by the board
ownerships, i.e., owned, directed, or managed by close of directors.
associates of Albert C. Aguirre.
Where any of the first two conditions set
Sections 31 to 34 of the Corporation Code forth in the preceding paragraph is absent,
provide: in the case of a contract with a director or
trustee, such contract may be ratified by the
vote of the stockholders representing at
Section 31. Liability of directors, trustees least two-thirds (2/3) of the outstanding
or officers. - Directors or trustees who capital stock or of at least two-thirds (2/3) of
wilfully and knowingly vote for or assent to the members in a meeting called for the
patently unlawful acts of the corporation or purpose: Provided, That full disclosure of
who are guilty of gross negligence or bad the adverse interest of the directors or
faith in directing the affairs of the trustees involved is made at such meeting:
corporation or acquire any personal or Provided, however, That the contract is fair
pecuniary interest in conflict with their duty and reasonable under the circumstances.
as such directors or trustees shall be liable
jointly and severally for all damages Section 33. Contracts between
resulting therefrom suffered by the corporations with interlocking directors. -
corporation, its stockholders or members Except in cases of fraud, and provided the
and other persons. contract is fair and reasonable under the
When a director, trustee or officer circumstances, a contract between two or
attempts to acquire or acquires, in violation more corporations having interlocking
of his duty, any interest adverse to the directors shall not be invalidated on that
corporation in respect of any matter which ground alone: Provided, That if the interest
has been reposed in him in confidence, as to of the interlocking director in one
which equity imposes a disability upon him corporation is substantial and his interest in
to deal in his own behalf, he shall be liable the other corporation or corporations is
as a trustee for the corporation and must merely nominal, he shall be subject to the
account for the profits which otherwise provisions of the preceding section insofar
would have accrued to the corporation. as the latter corporation or corporations are
concerned.
Section 32. Dealings of directors, trustees
or officers with the corporation. - A contract Stockholdings exceeding twenty (20%)
of the corporation with one or more of its percent of the outstanding capital stock
directors or trustees or officers is voidable, shall be considered substantial for purposes
at the option of such corporation, unless all of interlocking directors.
the following conditions are present:
Section 34. Disloyalty of a director. -
1. That the presence of such director or Where a director, by virtue of his office,
trustee in the board meeting in which the acquires for himself a business opportunity
contract was approved was not necessary to which should belong to the corporation,
constitute a quorum for such meeting; thereby obtaining profits to the prejudice of
such corporation, he must account to the
latter for all such profits by refunding the
same, unless his act has been ratified by a

Banking 1st Set of Cases | 30


vote of the stockholders owning or The Monetary Board shall terminate the
representing at least two-thirds (2/3) of the conservatorship when it is satisfied that the
outstanding capital stock. This provision institution can continue to operate on its
shall be applicable, notwithstanding the fact own and the conservatorship is no longer
that the director risked his own funds in the necessary. The conservatorship shall
venture. likewise be terminated should the Monetary
Board, on the basis of the report of the
conservator or of its own findings,
Korugas invocation of the provisions of the determine that the continuance in business
Corporation Code is misplaced. In an earlier case of the institution would involve probable
with similar antecedents, we ruled that: loss to its depositors or creditors, in which
case the provisions of Section 30 shall apply.
The Corporation Code, however, is a
general law applying to all types of Section 30. Proceedings in Receivership
corporations, while the New Central Bank and Liquidation. - Whenever, upon report of
Act regulates specifically banks and other the head of the supervising or examining
financial institutions, including the department, the Monetary Board finds that
dissolution and liquidation thereof. As a bank or quasi-bank:
between a general and special law, the
latter shall prevail generalia specialibus non (a) is unable to pay its liabilities
derogant.[31] as they become due in the
ordinary course of business:
Provided, That this shall not
Consequently, it is not the Interim Rules of include inability to pay caused
Procedure on Intra-Corporate Controversies,[32] or Rule by extraordinary demands
59 of the Rules of Civil Procedure on Receivership, that induced by financial panic in the
would apply to this case. Instead, Sections 29 and 30 of banking community;
the New Central Bank Act should be followed, viz.:
(b) has insufficient realizable
Section 29. Appointment of Conservator. - assets, as determined by the
Whenever, on the basis of a report Bangko Sentral, to meet its
submitted by the appropriate supervising or liabilities; or
examining department, the Monetary Board
finds that a bank or a quasi-bank is in a state (c) cannot continue in business
of continuing inability or unwillingness to without involving probable
maintain a condition of liquidity deemed losses to its depositors or
adequate to protect the interest of creditors; or
depositors and creditors, the Monetary
Board may appoint a conservator with such (d) has willfully violated a cease
powers as the Monetary Board shall deem and desist order under Section
necessary to take charge of the assets, 37 that has become final,
liabilities, and the management thereof, involving acts or transactions
reorganize the management, collect all which amount to fraud or a
monies and debts due said institution, and dissipation of the assets of the
exercise all powers necessary to restore its institution; in which cases, the
viability. The conservator shall report and be Monetary Board may summarily
responsible to the Monetary Board and shall and without need for prior
have the power to overrule or revoke the hearing forbid the institution
actions of the previous management and from doing business in the
board of directors of the bank or quasi-bank. Philippines and designate the
Philippine Deposit Insurance
xxxx Corporation as receiver of the
banking institution.

Banking 1st Set of Cases | 31


From the foregoing disquisition, there is no
xxxx doubt that the RTC has no jurisdiction to hear and
decide a suit that seeks to place Banco Filipino under
The actions of the Monetary Board receivership.
taken under this section or under Section 29 of
this Act shall be final and executory, and may Koruga herself recognizes the BSPs power over
not be restrained or set aside by the court the allegedly unlawful acts of Banco Filipinos directors.
except on petition for certiorari on the ground The records of this case bear out that Koruga, through
that the action taken was in excess of her legal counsel, wrote the Monetary Board[34] on April
jurisdiction or with such grave abuse of 21, 2003 to bring to its attention the acts she had
discretion as to amount to lack or excess of enumerated in her complaint before the RTC. The letter
jurisdiction. The petition for certiorari may reads in part:
only be filed by the stockholders of record
representing the majority of the capital stock Banco Filipino and the current members
within ten (10) days from receipt by the board of its Board of Directors should be placed
of directors of the institution of the order under investigation for violations of banking
directing receivership, liquidation or laws, the commission of irregularities, and for
conservatorship. conducting business in an unsafe or unsound
manner. They should likewise be placed
The designation of a conservator under preventive suspension by virtue of the
under Section 29 of this Act or the powers granted to the Monetary Board
appointment of a receiver under this section under Section 37 of the Central Bank Act.
shall be vested exclusively with the Monetary These blatant violations of banking laws
Board. Furthermore, the designation of a should not go by without penalty. They have
conservator is not a precondition to the put Banco Filipino, its depositors and
designation of a receiver.[33] stockholders, and the entire banking system
(sic) in jeopardy.

On the strength of these provisions, it is the xxxx


Monetary Board that exercises exclusive jurisdiction over
proceedings for receivership of banks. We urge you to look into the matter
in your capacity as regulators. Our clients, a
Crystal clear in Section 30 is the provision that minority stockholders, (sic) and many
says the appointment of a receiver under this section depositors of Banco Filipino are prejudiced by
shall be vested exclusively with the Monetary Board. The a failure to regulate, and taxpayers are
term exclusively connotes that only the Monetary Board prejudiced by accommodations granted by
can resolve the issue of whether a bank is to be placed the BSP to Banco Filipino[35]
under receivership and, upon an affirmative finding, it
also has authority to appoint a receiver. This is further In a letter dated May 6, 2003, BSP Supervision
affirmed by the fact that the law allows the Monetary and Examination Department III Director Candon B.
Board to take action summarily and without need for Guerrero referred Korugas letter to Arcenas for
prior hearing. comment.[36] On June 6, 2003, Banco Filipinos then
Executive Vice President and Corporate Secretary
And, as a clincher, the law explicitly provides Francisco A. Rivera submitted the banks comments
that actions of the Monetary Board taken under this essentially arguing that Korugas accusations lacked legal
section or under Section 29 of this Act shall be final and and factual bases.[37]
executory, and may not be restrained or set aside by the
court except on a petition for certiorari on the ground On the other hand, the BSP, in its Answer before
that the action taken was in excess of jurisdiction or with the RTC, said that it had been looking into Banco
such grave abuse of discretion as to amount to lack or Filipinos activities. An October 2002 Report of
excess of jurisdiction. Examination (ROE) prepared by the Supervision and
Examination Department (SED) noted
certain dacion payments, out-of-the-ordinary expenses,

Banking 1st Set of Cases | 32


among other dealings. On July 24, 2003, the Monetary
Board passed Resolution No. 1034 furnishing Banco SO ORDERED.
Filipino a copy of the ROE with instructions for the bank
to file its comment or explanation within 30 to 90 days
SPECIAL SECOND DIVISION
under threat of being fined or of being subjected to
other remedial actions. The ROE, the BSP said, covers
substantially the same matters raised in Korugas
complaint. At the time of the filing of Korugas complaint [G.R. No. 154499. February 27, 2004]
on August 20, 2003, the period for Banco Filipino to
submit its explanation had not yet expired.[38] ALBERTO V. REYES, WILFREDO B. DOMO-ONG and
HERMINIO C. PRINCIPIO, petitioners, vs. RURAL
Thus, the courts jurisdiction could only have BANK OF SAN MIGUEL (BULACAN), INC.,
been invoked after the Monetary Board had taken action represented by HILARIO P. SORIANO, President
on the matter and only on the ground that the action and Principal Stockholder, respondent.
taken was in excess of jurisdiction or with such grave This deals with the Motion for Reconsideration of
abuse of discretion as to amount to lack or excess of petitioners Alberto V. Reyes and Wilfredo B. Domo-ong,
jurisdiction. both Bangko Sentral ng Pilipinas (BSP) officials,[1] and
the Motion for Partial Reconsideration of respondent
Finally, there is one other reason why Korugas Rural Bank of San Miguel (Bulacan), Inc.
complaint before the RTC cannot prosper. Given her
own admission and the same is likewise supported by In the Decision[2] of March 14, 2003, this Court
evidence that she is merely a minority stockholder of found Deputy Governor Reyes and Director Domo-ong
Banco Filipino, she would not have the standing to liable for violation of the standards of professionalism
question the Monetary Boards action. Section 30 of the prescribed by the Code of Conduct and Ethical Standards
New Central Bank Act provides: for Public Officials and Employees (Republic Act No.
6713) in that they used the distressed financial condition
The petition for certiorari may only be of respondent Rural Bank of San Miguel (Bulacan), Inc.
filed by the stockholders of record (RBSMI) as the subject of a case study in one of the BSP
representing the majority of the capital seminars and did the brokering of the sale of RBSMI. The
stock within ten (10) days from receipt Court modified the Decision of the Court of Appeals in
by the board of directors of the CA-GR SP No. 60184[3] by reducing the penalty imposed
institution of the order directing by the appellate court from a fine equivalent to six
receivership, liquidation or months salary to a fine of two months salary for Reyes
conservatorship. and one month salary for Domo-ong.
In the Decision, the Court exonerated petitioner
Herminio C. Principio[4] of the administrative charges.
All the foregoing discussion yields the inevitable The exoneration is the subject of RBSMIs Motion For
conclusion that the CA erred in upholding the Partial Reconsideration.
jurisdiction of, and remanding the case to, the
RTC. Given that the RTC does not have jurisdiction over The Motion for Reconsideration of Reyes and
the subject matter of the case, its refusal to dismiss the Domo-ong is anchored on the following grounds: (1) it
case on that ground amounted to grave abuse of was not under their auspices that the seminar which
discretion. used training materials containing two case studies on
RBSMIs financial distress was conducted but under that
WHEREFORE, the foregoing premises of another department and other officials of BSP; and,
considered, the Petition in G.R. No. 168332 (2) they did not do any act which constituted brokering
is DISMISSED, while the Petition in G.R. No. 169053 of the sale of RBSMI or deviated from the standards of
is GRANTED. The Decision of the Court of Appeals dated professionalism.
July 20, 2005 in CA-G.R. SP No. 88422 is hereby SET
A brief revisit of the operative milieu is warranted
ASIDE. The Temporary Restraining Order issued by this
to gain the needed perspective.
Court on March 13, 2006 is made PERMANENT.
Consequently, Civil Case No. 03-985, pending before In a letter dated May 19, 1999, addressed to then
the Regional TrialCourt of Makati City, is DISMISSED. BSP Governor Singson, RBSMI charged the petitioners

Banking 1st Set of Cases | 33


with violation of Republic Act No. 6713 (Code of Conduct incurring deficiencies in reserves against deposit
and Ethical Standards for Public Officials and liabilities.
Employees). The Monetary Board (MB) of the BSP
On July 21, 1997, Soriano submitted RBSMIs
created an Ad Hoc Committee to investigate the matter.
answers to the BSP exceptions/findings mentioned. He
The ensuing investigation disclosed that sometime stated that the actions taken or to be taken by the bank
in September 1996, RBSMI, which had a history of major (RBSMI) were deliberated and ratified by the Board of
violations/exceptions dating back to 1995, underwent Directors in its regular meeting held on July 9, 1997.
periodic examination by the BSP. The examination team Among the board approved actions was the banks
headed by Principio noted 20 serious request addressed to Domo-ong for BSP to debit the
exceptions/violations and deficiencies of RBSMI.[5] demand deposit of the bank in the amount
of P2,538,483.00 representing the payment of fines and
Through Resolution No. 96, the MB required RBSMI
penalties.
to submit within 15 days a written explanation with
respect to the findings of the examiner. It also directed More than a year after, however, the RBSMI asked
the Department of Rural Banks (DRB), to verify, monitor for a reconsideration of MB Resolution No. 724 insofar
and report to the Deputy Governor, Supervision and as the imposition of fine amounting
Examination Sector (SES) on the findings/exceptions to P2,538,483.00. On January 21, 1999, the MB
noted, until the same shall have been corrected. adopted Resolution No. 71,[8] authorizing the conditional
reversal of sixty percent (60%) of the penalty pending
As directed by the MB, another examination team
resolution of the dispute on the findings on reserve
conducted a special examination on RBSMI. RBSMI
deficiency. Subsequently, on April 7, 1999, the MB
President Hilario Soriano claimed that he was pressured
approved the interim reversal of the entire amount of
into issuing a memorandum to the bank employees
the penalty pending the outcome of the study on the
authorizing the team to review the banks accounting
legal and factual basis for the imposition of the penalty.
and internal control system.
The above incidents, particularly the alleged
Soriano also alleged that sometime in March 1997,
brokering by Reyes and the petitioners unsupported
Reyes started urging him to consider selling the bank. He
recommendation to impose a penalty of P2,538,483.00
specified that on May 28, 1997, Reyes introduced him
for legal reserve deficiency, prompted the respondent to
through telephone to Mr. Exequiel Villacorta, President
file the letter-complaint charging the petitioners with
and Chief Executive Officer of the TA Bank. They agreed
unprofessionalism.
to meet on the following day. In his Affidavit,[6] Villacorta
confirmed that he and Soriano indeed met but the The Motion for Reconsideration bid of Reyes and
meeting never got past the exploratory stage since he Domo-ong is meritorious.
(Villacorta) immediately expressed disinterest because
In pinning liability on Reyes and Domo-ong for the
Soriano wanted to sell all his equity shares while he was
seminar which used the rural bank as a case study, the
merely contemplating a possible buy-in.
court made this ratiocination, viz:
Soriano further alleged that when the talks with
Villacorta failed, Reyes asked him whether he wanted to (W)hile there was indeed no evidence showing that
meet another buyer, to which he answered in the either petitioner Reyes or petitioner Domo-ong
affirmative. Thereafter, Reyes introduced him by distributed or used the materials, the very fact that the
telephone to Benjamin P. Castillo of the Export and seminar was conducted under their auspices is enough
Industry Bank (EIB), whom he met on June 26, 1997. No to make them liable to a certain extent. Petitioner Reyes,
negotiation took place because Soriano desired a total as Head of the BSP Supervision and Examination Sector,
sale while EIB merely desired a joint venture and petitioner Domo-ong, as Director of the BSP
arrangement or a buy-in to allow EIB to gain control of Department of Rural Banks, should have exercised their
RBSMI. power of control and supervision so that the incident
could have been prevented or at the very least remedied.
Meanwhile, on June 13, 1997, the MB
(Emphasis supplied)
approved Resolution No. 724[7] ordering RBSMI to
correct the major exceptions noted within 30 days from Plainly, conclusion on petitioners culpability is
receipt of the advice, and to remit to the BSP the grounded, not on an established fact but on a mere
amount of P2,538,483.00 as fines and penalties for inference that the seminar was conducted under their
auspices. Indeed, the pronouncement on the petitioners

Banking 1st Set of Cases | 34


role is evidently conjectural and evaluation of the extent From another perspective, the negligence of the
of their responsibility admittedly uncertain. subordinate cannot be ascribed to his superior in the
absence of evidence of the latters own
It is conceded that there was no evidence that the
negligence. Indeed, the negligence of the subordinate is
seminar was conducted under petitioners
not tantamount to negligence of the superior official so
patronage. And it was assumed, as indeed there was
the Court ruled in a case[13] where the mandated
absolutely paucity of proof, that they exercised
responsibilities of the superior do not include actual
supervision and control over the persons responsible in
monitoring of projects. In another case,[14] this Court
organizing the seminar. On the contrary, as shown in
rejected the principle of command responsibility
the Motion For Reconsideration, it was the Bangko
although the case involved a provincial constabulary
Sentral ng Pilipinas Institute (BSPI), an office separate
commander, aptly noting that there was neither
and independent from the SES which is directly under
allegation nor proof that he had been in any way guilty
the control and supervision of another Deputy Governor,
of fault or negligence in connection with the unlawful
that for the Resource Management Sector
raid and arrest effected by his subordinates.
(RMS)[9] which is charged with conducting seminars and
lectures for the BSP, including the seminar involved in The immunity of public officers from liability for the
this case. non-feasances, negligence or omissions of duty of their
official subordinates and even for the latters
In its Comment,[10] RBSMI argues that since
misfeasances or positive wrongs rests, according
information on the state of its finances found its way as
to Mechem, upon obvious considerations of public
a training material of RMS, the event could have
policy, the necessities of the public service and the
transpired only because the SES permitted it. Even if the
perplexities and embarrassments of a contrary
subordinates of petitioners were the source of
doctrine.[15] These official subordinates, he notes further,
information, RBSMI further claims in ostensible
are themselves public officers though of an inferior
reference to the principle of command responsibility,
grade, and therefore directly liable in the cases in which
petitioners could be held liable for negligence.
any public officer is liable, for their own misdeeds or
It is noteworthy again that petitioners alleged role defaults.[16]
in the disclosure of information is not anchored on any
Significantly, Mechems disquisition provides the
concrete piece of evidence. That explains the RBSMIs
mooring of the Administrative Code of 1987 which
effort to cast liability vicariously on the petitioners by a
provides that a head of a department or a superior
superficial resort to the principle of command
officer shall not be civilly liable for the wrongful acts,
responsibility which this Court did not reject. But neither
omissions of duty, negligence, or misfeasance of his
the principle itself which is an accepted notion in military
subordinates, unless he has actually authorized by
or police structural dynamics or its counterpart
written order the specific act or misconduct complained
of respondent superior in the law on quasi-
of.[17]
delicts[11] would be relevant in this case, involving as it
does the actual performance in office of the petitioners Now, the label of unprofessionalism bestowed by
and given the fact that petitioners are high ranking the Court on the petitioners at the instance of RBSMI.
officers of the countrys central monetary
In the assailed Decision, the Court categorized
authority. Indeed, as such officers, petitioners cannot be
Reyes telephone introduction of officials of other banks
expected to monitor the activities of their
to RBSMIs President in connection with the latters
subalterns. In Arias v. Sandiganbayan,[12] this Court held
expressed desire to sell the bank as brokering which in
that all heads of offices have to rely to a reasonable
turn constitutes, according to the Court, violation of the
extent on the good faith of their subordinates. The case
standards of professionalism. The standards are set forth
specifically involved the liability of the head of office in
in Section 4 (A) (b) of Republic Act 6713, as follows:
the preparation of bids, purchase of supplies and
contract negotiations done by his subordinates. In the
same fashion, petitioners in this case owing to their high Sec. 4. Norms of Conduct of Public Officials and
Employees. (A) Every public official and employee shall
ranks cannot be expected to acquaint themselves with
observe the following as standards of personal conduct
such minutiae as the flow of files and documents which
in the discharge and execution of official duties:
leave their desks. Myriad details such as those are, by
office practice, left to subalterns and minor employees.
Delegation of function is part of sound management. ...

Banking 1st Set of Cases | 35


(b) Professionalism. Public officials and employees shall out. This is an indelible indication that Reyes was not
perform and discharge their duties with the highest personally involved in the transaction. If he were, he
degree of excellence, professionalism, intelligence and would at least have an inkling of the plans of Villacorta
skill. They shall enter public service with utmost and Castillo; otherwise, he would not have wasted his
devotion and dedication to duty. They shall endeavor to time introducing them to Soriano.
discourage wrong perceptions of their roles as
Indeed, RBSMI miserably failed to establish that
dispensers or peddlers of undue patronage.
Reyes had breached the standard of professional
The Court equates brokering with conduct required of a public servant. It appears to the
unprofessionalism. According to Websters Third New Court that in keeping with the standards of
International Dictionary, professionalism means the professionalism and heeding the mandate of his
conduct, aims, or qualities that characterize or mark a position, he made the telephone introductions for no
profession. Any standard thesaurus defines a other purpose but to pave the way for a possible
professional as a person who engages in an activity with consolidation or merger of RBSMI with interested
great competence. Indeed, to call a person a banks. As this Court found in its Decision, it is indeed the
professional is to describe him as competent, efficient, policy of the BSP to promote mergers and consolidations
experienced, proficient or polished. by providing incentives to banks that would undergo
such corporate combinations.[20] To effectively
The crucial question, therefore, is whether Reyes
implement the policy, it was necessary that the banks be
conducted himself in an unprofessional manner in doing
advised and assisted by a person knowledgeable about
the acts imputed to him.
the transactions like Reyes. The benefits which may
The Court rules in the negative. ultimately arise out of any preliminary facilitation step
such as what Reyes undertook will not accrue to the
In the first place, the acts of Reyes do not constitute facilitator but to the parties to the transaction
brokering. Case law[18] defines a broker as one who is themselves and, of course, the institution whose policy
engaged, for others, on a commission, negotiating initiative is being carried out.
contracts relative to property with the custody of which
he has no concern; the negotiator between other All told, there is neither legal nor factual support for
parties, never acting in his own name but in the name of holding Reyes and Domo-ong liable.
those who employed him. . . . a broker is one whose
As to the motion for partial reconsideration filed by
occupation is to bring the parties together, in matters of
RBSMI, it is argued that Principio should be
trade, commerce or navigation.According to Bouviers
administratively penalized for his undue haste in
Law Dictionary, brokerage refers to the trade or
submitting his report to the MB, in making an
occupation of a broker; the commissions paid to a
unsupported recommendation for imposition of
broker for his services, while brokers are those who are
penalties for legal reserve deficiencies, and for taking
engaged for others on the negotiation of contracts
charge of the examinations of RBSMI three consecutive
relative to property, with the custody of which they have
times. RBSMIs arguments are not new, they having been
no concern.[19]
previously presented to and squarely ruled upon by the
Thus, the word brokering clearly indicates the Court.
performance of certain acts for monetary consideration
In closing, it cannot be overemphasized that the
or compensation. To give it another definition such as
BSP is an independent body corporate bestowed under
that imputed by RBSMI to the acts of Reyes is to distort
its charter[21] with fiscal and administrative autonomy. As
the accepted jurisprudential meaning of the term.
such, its officials should be granted a certain degree of
From the evidence, all that Reyes did was to flexibility in the performance of their duties and
introduce RBSMIs President to the President of TA Bank provided insulation from interference and vexatious
and EIB. Nothing more. There was not even a hint that suits, especially when moves of the kind are resorted to
he was motivated by monetary consideration or swayed as counterfoil to the exercise of their regulatory
by any personal interest in doing what he did. mandate. Elsewise, the institutional independence and
autonomy of the BSP as the central mandatory authority
On his part, Soriano who is RBSMIs President would be rendered illusory.
himself admitted that the talks with Villacorta and
Castillo never got past the exploratory stage because the IN VIEW OF THE FOREGOING, the Court RESOLVES
two wanted a buy-in while he was for a total sell- to GRANT the Motion for Reconsideration of the

Banking 1st Set of Cases | 36


petitioners Deputy Governor Alberto V. Reyes and In September of 2007, the Supervision and Examination
Director Wilfredo B. Domo-ong. The Decision dated Department (SED) of the Bangko Sentral ng
March 14, 2003 is SET ASIDE and another entered, Pilipinas (BSP) conducted examinations of the books of
DISMISSING the administrative complaint and the following banks: Rural Bank of Paraaque, Inc. (RBPI),
EXONERATING all the petitioners. The Motion for Partial Rural Bank of San Jose (Batangas), Inc., Rural Bank of
Reconsideration of the respondent Rural Bank of San Carmen (Cebu), Inc., Pilipino Rural Bank, Inc., Philippine
Miguel (Bulacan), Inc. is DENIED. Countryside Rural Bank, Inc., Rural Bank of Calatagan
(Batangas), Inc. (now Dynamic Rural Bank), Rural Bank of
SO ORDERED.
Darbci, Inc., Rural Bank of Kananga (Leyte), Inc. (now
Quisumbing, (Acting Chairman), Austria-
First Interstate Rural Bank), Rural Bank de Bisayas
Martinez, and Callejo, Sr., JJ., concur.
Minglanilla (now Bank of East Asia), and San Pablo City
Puno, (Chairman), J., on leave.
Development Bank, Inc.

After the examinations, exit conferences were held with


the officers or representatives of the banks wherein the
SED examiners provided them with copies of Lists of
Findings/Exceptions containing the deficiencies
BANGKO SENTRAL NG PILIPINAS MONETARY
discovered during the examinations. These banks were
BOARD and CHUCHI FONACIER,
then required to comment and to undertake the
Petitioners,
remedial measures stated in these lists within 30 days
- versus -
from their receipt of the lists, which remedial measures
HON. NINA G. ANTONIO-VALENZUELA, in her
included the infusion of additional capital. Though the
capacity as Regional Trial Court Judge of Manila,
banks claimed that they made the additional capital
Branch 28; RURAL BANK OF PARAAQUE, INC.;
infusions, petitioner Chuchi Fonacier, officer-in-charge of
RURAL BANK OF SAN JOSE (BATANGAS), INC.;
the SED, sent separate letters to the Board of Directors
RURAL BANK OF CARMEN (CEBU), INC.; PILIPINO
of each bank, informing them that the SED found that
RURAL BANK, INC.; PHILIPPINE COUNTRYSIDE
the banks failed to carry out the required remedial
RURAL BANK, INC.; RURAL BANK OF CALATAGAN
measures. In response, the banks requested that they be
(BATANGAS), INC. (now DYNAMIC RURAL BANK);
given time to obtain BSP approval to amend their
RURAL BANK OF DARBCI, INC.; RURAL BANK OF
Articles of Incorporation, that they have an opportunity
KANANGA (LEYTE), INC. (now FIRST INTERSTATE
to seek investors. They requested as well that the basis
RURAL BANK); RURAL BANK OF BISAYAS
for the capital infusion figures be disclosed, and noted
MINGLANILLA (now BANK OF EAST ASIA); and
that none of them had received the Report of
SAN PABLO CITY DEVELOPMENT BANK, INC.,
Examination (ROE) which finalizes the audit
findings. They also requested meetings with the BSP
The Case audit teams to reconcile audit figures. In response,
Fonacier reiterated the banks failure to comply with the
This is a Petition for Review on Certiorari under Rule 45 directive for additional capital infusions.
with Prayer for Issuance of a Temporary Restraining
Order (TRO)/Writ of Preliminary Injunction, questioning On May 12, 2008, the RBPI filed a complaint for
the Decision dated September 30, 2008[1] of the Court of nullification of the BSP ROE with application for a TRO
Appeals (CA) in CA-G.R. SP No. 103935. The CA Decision and writ of preliminary injunction before the RTC
upheld the Order[2] dated June 4, 2008 of the Regional docketed as Civil Case No. 08-119243 against Fonacier,
Trial Court (RTC), Branch 28 in Manila, issuing writs of the BSP, Amado M. Tetangco, Jr., Romulo L. Neri,
preliminary injunction in Civil Case Nos. 08-119243, 08- Vicente B. Valdepenas, Jr., Raul A. Boncan, Juanita D.
119244, 08-119245, 08-119246, 08-119247, 08-119248, Amatong, Alfredo C. Antonio, and Nelly F.
08-119249, 08-119250, 08-119251, and 08-119273, and Villafuerte. RBPI prayed that Fonacier, her subordinates,
the Order dated May 21, 2008 that consolidated the civil agents, or any other person acting in her behalf be
cases. enjoined from submitting the ROE or any similar report
to the Monetary Board (MB), or if the ROE had already
The Facts been submitted, the MB be enjoined from acting on the
basis of said ROE, on the allegation that the failure to

Banking 1st Set of Cases | 37


furnish the bank with a copy of the ROE violated its right motion for reconsideration of Pilipino Rural Bank, Inc.
to due process. and issued a TRO similar to the ones earlier issued.

The Rural Bank of San Jose (Batangas), Inc., Rural Bank of On May 26, 2008, petitioners filed a Motion to Dismiss
Carmen (Cebu), Inc., Pilipino Rural Bank, Inc., Philippine against all the complaints (except that of the San Pablo
Countryside Rural Bank, Inc., Rural Bank of Calatagan City Development Bank, Inc.), on the grounds that the
(Batangas), Inc., Rural Bank of Darbci, Inc., Rural Bank complaints stated no cause of action and that a
of Kananga (Leyte), Inc., and Rural Bank de Bisayas condition precedent for filing the cases had not been
Minglanilla followed suit, filing complaints with the RTC complied with. On May 29, 2008, a hearing was
substantially similar to that of RBPI, including the reliefs conducted on the application for a TRO and for a writ of
prayed for, which were raffled to different branches and preliminary injunction of San Pablo City Development
docketed as Civil Cases Nos. 08-119244, 08-119245, 08- Bank, Inc.
119246, 08-119247, 08-119248, 08-119249, 08-119250,
and 08-119251, respectively. The Ruling of the RTC

On May 13, 2008, the RTC denied the prayer for a TRO After the parties filed their respective memoranda, the
of Pilipino Rural Bank, Inc. The bank filed a motion for RTC, on June 4, 2008, ruled that the banks were entitled
reconsideration the next day. to the writs of preliminary injunction prayed for. It held
that it had been the practice of the SED to provide the
On May 14, 2008, Fonacier and the BSP filed their ROEs to the banks before submission to the MB. It
opposition to the application for a TRO and writ of further held that as the banks are the subjects of
preliminary injunction in Civil Case No. 08-119243 with examinations, they are entitled to copies of the
the RTC. Respondent Judge Nina Antonio-Valenzuela of ROEs. The denial by petitioners of the banks requests for
Branch 28 granted RBPIs prayer for the issuance of a copies of the ROEs was held to be a denial of the banks
TRO. right to due process.
The dispositive portion of the RTCs order reads:
The other banks separately filed motions for WHEREFORE, the Court rules as follows:
consolidation of their cases in Branch 28, which motions
were granted. Judge Valenzuela set the complaint of 1) Re: Civil Case No. 08-119243. Pursuant to
Rural Bank of San Jose (Batangas), Inc. for hearing on Rule 58, Section 4(b) of the Revised Rules
May 15, 2008. Petitioners assailed the validity of the of Court, plaintiff Rural Bank of Paranaque
consolidation of the nine cases before the RTC, alleging Inc. is directed to post a bond executed to
that the court had already prejudged the case by the the defendants, in the amount of
earlier issuance of a TRO in Civil Case No. 08-119243, P500,000.00 to the effect that the plaintiff
and moved for the inhibition of respondent will pay to the defendants all damages
judge. Petitioners filed a motion for reconsideration which they may sustain by reason of the
regarding the consolidation of the subject cases. injunction if the Court should finally
decide that the plaintiff was not entitled
On May 16, 2008, San Pablo City Development Bank, Inc. thereto. After posting of the bond and
filed a similar complaint against the same defendants approval thereof, let a writ of preliminary
with the RTC, and this was docketed as Civil Case No. 08- injunction be issued to enjoin and restrain
119273 that was later on consolidated with Civil Case the defendants from submitting the
No. 08-119243. Petitioners filed an Urgent Motion to Report of Examination or any other similar
Lift/Dissolve the TRO and an Opposition to the earlier report prepared in connection with the
motion for reconsideration of Pilipino Rural Bank, Inc. examination conducted on the plaintiff, to
the Monetary Board. In case such a Report
On May 19, 2008, Judge Valenzuela issued an Order on Examination [sic] or any other similar
granting the prayer for the issuance of TROs for the report prepared in connection with the
other seven cases consolidated with Civil Case No. 08- examination conducted on the plaintiff
119243. On May 21, 2008, Judge Valenzuela issued an has been submitted to the Monetary
Order denying petitioners motion for reconsideration Board, the latter and its members (i.e.
regarding the consolidation of cases in Branch 28. On defendants Tetangco, Neri, Valdepenas,
May 22, 2008, Judge Valenzuela granted the urgent Boncan, Amatong, Antonio, and

Banking 1st Set of Cases | 38


Villafuerte) are enjoined and restrained examination conducted on the plaintiff
from acting on the basis of said report. has been submitted to the Monetary
Board, the latter and its members (i.e.
2) Re: Civil Case No. 08-119244. Pursuant to defendants Tetangco, Neri, Valdepenas,
Rule 58, Section 4(b) of the Revised Rules Boncan, Amatong, Antonio, and
of Court, plaintiff Rural Bank of San Jose Villafuerte) are enjoined and restrained
(Batangas), Inc. is directed to post a bond from acting on the basis of said report.
executed to the defendants, in the
amount of P500,000.00 to the effect that 4) Re: Civil Case No. 08-119246. Pursuant to
the plaintiff will pay to the defendants all Rule 58, Section 4(b) of the Revised Rules
damages which they may sustain by of Court, plaintiff Pilipino Rural Bank Inc. is
reason of the injunction if the Court directed to post a bond executed to the
should finally decide that the plaintiff was defendants, in the amount of P500,000.00
not entitled thereto. After posting of the to the effect that the plaintiff will pay to
bond and approval thereof, let a writ of the defendants all damages which they
preliminary injunction be issued to enjoin may sustain by reason of the injunction if
and restrain the defendants from the Court should finally decide that the
submitting the Report of Examination or plaintiff was not entitled thereto. After
any other similar report prepared in posting of the bond and approval thereof,
connection with the examination let a writ of preliminary injunction be
conducted on the plaintiff, to the issued to enjoin and restrain the
Monetary Board. In case such a Report on defendants from submitting the Report of
Examination [sic] or any other similar Examination or any other similar report
report prepared in connection with the prepared in connection with the
examination conducted on the plaintiff examination conducted on the plaintiff, to
has been submitted to the Monetary the Monetary Board. In case such a Report
Board, the latter and its members (i.e. on Examination [sic] or any other similar
defendants Tetangco, Neri, Valdepenas, report prepared in connection with the
Boncan, Amatong, Antonio, and examination conducted on the plaintiff
Villafuerte) are enjoined and restrained has been submitted to the Monetary
from acting on the basis of said report. Board, the latter and its members (i.e.
defendants Tetangco, Neri, Valdepenas,
3) Re: Civil Case No. 08-119245. Pursuant to Boncan, Amatong, Antonio, and
Rule 58, Section 4(b) of the Revised Rules Villafuerte) are enjoined and restrained
of Court, plaintiff Rural Bank of Carmen from acting on the basis of said report.
(Cebu), Inc. is directed to post a bond
executed to the defendants, in the 5) Re: Civil Case No. 08-119247. Pursuant to
amount of P500,000.00 to the effect that Rule 58, Section 4(b) of the Revised Rules
the plaintiff will pay to the defendants all of Court, plaintiff Philippine Countryside
damages which they may sustain by Rural Bank Inc. is directed to post a bond
reason of the injunction if the Court executed to the defendants, in the
should finally decide that the plaintiff was amount of P500,000.00 to the effect that
not entitled thereto. After posting of the the plaintiff will pay to the defendants all
bond and approval thereof, let a writ of damages which they may sustain by
preliminary injunction be issued to enjoin reason of the injunction if the Court
and restrain the defendants from should finally decide that the plaintiff was
submitting the Report of Examination or not entitled thereto. After posting of the
any other similar report prepared in bond and approval thereof, let a writ of
connection with the examination preliminary injunction be issued to enjoin
conducted on the plaintiff, to the and restrain the defendants from
Monetary Board. In case such a Report on submitting the Report of Examination or
Examination [sic] or any other similar any other similar report prepared in
report prepared in connection with the connection with the examination

Banking 1st Set of Cases | 39


conducted on the plaintiff, to the injunction be issued to enjoin and restrain
Monetary Board. In case such a Report on the defendants from submitting the
Examination [sic] or any other similar Report of Examination or any other similar
report prepared in connection with the report prepared in connection with the
examination conducted on the plaintiff examination conducted on the plaintiff, to
has been submitted to the Monetary the Monetary Board. In case such a Report
Board, the latter and its members (i.e. on Examination [sic] or any other similar
defendants Tetangco, Neri, Valdepenas, report prepared in connection with the
Boncan, Amatong, Antonio, and examination conducted on the plaintiff
Villafuerte) are enjoined and restrained has been submitted to the Monetary
from acting on the basis of said report. Board, the latter and its members (i.e.
defendants Tetangco, Neri, Valdepenas,
6) Re: Civil Case No. 08-119248. Pursuant to Boncan, Amatong, Antonio, and
Rule 58, Section 4(b) of the Revised Rules Villafuerte) are enjoined and restrained
of Court, plaintiff Dynamic Bank Inc. (Rural from acting on the basis of said report.
Bank of Calatagan) is directed to post a
bond executed to the defendants, in the 8) Re: Civil Case No. 08-119250. Pursuant to
amount of P500,000.00 to the effect that Rule 58, Section 4(b) of the Revised Rules
the plaintiff will pay to the defendants all of Court, plaintiff Rural Bank of Kananga
damages which they may sustain by Inc. (First Intestate Bank), is directed to
reason of the injunction if the Court post a bond executed to the defendants,
should finally decide that the plaintiff was in the amount of P500,000.00 to the
not entitled thereto. After posting of the effect that the plaintiff will pay to the
bond and approval thereof, let a writ of defendants all damages which they may
preliminary injunction be issued to enjoin sustain by reason of the injunction if the
and restrain the defendants from Court should finally decide that the
submitting the Report of Examination or plaintiff was not entitled thereto. After
any other similar report prepared in posting of the bond and approval thereof,
connection with the examination let a writ of preliminary injunction be
conducted on the plaintiff, to the issued to enjoin and restrain the
Monetary Board. In case such a Report on defendants from submitting the Report of
Examination [sic] or any other similar Examination or any other similar report
report prepared in connection with the prepared in connection with the
examination conducted on the plaintiff examination conducted on the plaintiff, to
has been submitted to the Monetary the Monetary Board. In case such a Report
Board, the latter and its members (i.e. on Examination [sic] or any other similar
defendants Tetangco, Neri, Valdepenas, report prepared in connection with the
Boncan, Amatong, Antonio, and examination conducted on the plaintiff
Villafuerte) are enjoined and restrained has been submitted to the Monetary
from acting on the basis of said report. Board, the latter and its members (i.e.
defendants Tetangco, Neri, Valdepenas,
7) Re: Civil Case No. 08-119249. Pursuant to Boncan, Amatong, Antonio, and
Rule 58, Section 4(b) of the Revised Rules Villafuerte) are enjoined and restrained
of Court, plaintiff Rural Bank of DARBCI, from acting on the basis of said report.
Inc. is directed to post a bond executed to
the defendants, in the amount of 9) Re: Civil Case No. 08-119251. Pursuant to
P500,000.00 to the effect that the plaintiff Rule 58, Section 4(b) of the Revised Rules
will pay to the defendants all damages of Court, plaintiff Banco Rural De Bisayas
which they may sustain by reason of the Minglanilla (Cebu) Inc. (Bank of East Asia)
injunction if the Court should finally is directed to post a bond executed to the
decide that the plaintiff was not entitled defendants, in the amount of P500,000.00
thereto. After posting of the bond and to the effect that the plaintiff will pay to
approval thereof, let a writ of preliminary the defendants all damages which they

Banking 1st Set of Cases | 40


may sustain by reason of the injunction if Petitioners then brought the matter to the CA via a
the Court should finally decide that the petition for certiorari under Rule 65 claiming grave
plaintiff was not entitled thereto. After abuse of discretion on the part of Judge Valenzuela
posting of the bond and approval thereof, when she issued the orders dated May 21, 2008 and
let a writ of preliminary injunction be June 4, 2008.
issued to enjoin and restrain the
defendants from submitting the Report of The CA ruled that the RTC committed no grave abuse of
Examination or any other similar report discretion when it ordered the issuance of a writ of
prepared in connection with the preliminary injunction and when it ordered the
examination conducted on the plaintiff, to consolidation of the 10 cases.
the Monetary Board. In case such a Report It held that petitioners should have first filed a motion
on Examination [sic] or any other similar for reconsideration of the assailed orders, and failed to
report prepared in connection with the justify why they resorted to a special civil action of
examination conducted on the plaintiff certiorari instead.
has been submitted to the Monetary
Board, the latter and its members (i.e. The CA also found that aside from the technical aspect,
defendants Tetangco, Neri, Valdepenas, there was no grave abuse of discretion on the part of the
Boncan, Amatong, Antonio, and RTC, and if there was a mistake in the assessment of
Villafuerte) are enjoined and restrained evidence by the trial court, that should be characterized
from acting on the basis of said report. as an error of judgment, and should be correctable via
appeal.
10) Re: Civil Case No. 08-119273. Pursuant to
Rule 58, Section 4(b) of the Revised Rules The CA held that the principles of fairness and
of Court, plaintiff San Pablo City transparency dictate that the respondent banks are
Development Bank, Inc. is directed to post entitled to copies of the ROE.
a bond executed to the defendants, in the Regarding the consolidation of the 10 cases, the CA
amount of P500,000.00 to the effect that found that there was a similarity of facts, reliefs sought,
the plaintiff will pay to the defendants all issues raised, defendants, and that plaintiffs and
damages which they may sustain by defendants were represented by the same sets of
reason of the injunction if the Court counsels. It found that the joint trial of these cases
should finally decide that the plaintiff was would prejudice any substantial right of petitioners.
not entitled thereto. After posting of the
bond and approval thereof, let a writ of Finding that no grave abuse of discretion attended the
preliminary injunction be issued to enjoin issuance of the orders by the RTC, the CA denied the
and restrain the defendants from petition.
submitting the Report of Examination or
any other similar report prepared in On November 24, 2008, a TRO was issued by this Court,
connection with the examination restraining the CA, RTC, and respondents from
conducted on the plaintiff, to the implementing and enforcing the CA Decision dated
Monetary Board. In case such a Report on September 30, 2008 in CA-G.R. SP No. 103935.[4]
Examination [sic] or any other similar
report prepared in connection with the By reason of the TRO issued by this Court, the
examination conducted on the plaintiff SED was able to submit their ROEs to the MB. The MB
has been submitted to the Monetary then prohibited the respondent banks from transacting
Board, the latter and its members (i.e. business and placed them under receivership under
defendants Tetangco, Neri, Valdepenas, Section 53 of Republic Act No. (RA) 8791[5] and Sec. 30 of
Boncan, Amatong, Antonio, and RA
Villafuerte) are enjoined and restrained 7653[6] through MB Resolution No. 1616 dated
from acting on the basis of said report.[3] December 9, 2008; Resolution Nos. 1637 and 1638
dated December 11, 2008; Resolution Nos. 1647, 1648,
The Ruling of the CA and 1649 dated December 12, 2008; Resolution Nos.
1652 and 1653 dated December 16, 2008; and
Resolution Nos. 1692 and 1695 dated December 19,

Banking 1st Set of Cases | 41


2008, with the Philippine Deposit Insurance Corporation ONLY IMPROPER BUT AMOUNTED TO
as the appointed receiver. GRAVE ABUSE OF DISCRETION[7]

Now we resolve the main petition.

Our Ruling

The petition is meritorious.


Grounds in Support of Petition
In Lim v. Court of Appeals it was stated:
I. THE HONORABLE COURT OF
APPEALS GRAVELY ERRED IN NOT The requisites for preliminary injunctive
FINDING THAT THE INJUNCTION relief are: (a) the invasion of right sought to be
ISSUED BY THE REGIONAL TRIAL protected is material and substantial; (b) the
COURT VIOLATED SECTION 25 OF THE right of the complainant is clear and
NEW CENTRAL BANK ACT AND unmistakable; and (c) there is an urgent and
EFFECTIVELY HANDCUFFED THE paramount necessity for the writ to prevent
BANGKO SENTRAL FROM serious damage.
DISCHARGING ITS FUNCTIONS TO THE
GREAT AND IRREPARABLE DAMAGE As such, a writ of preliminary injunction
OF THE COUNTRYS BANKING SYSTEM; may be issued only upon clear showing of an
II. THE HONORABLE COURT OF actual existing right to be protected during the
APPEALS GRAVELY ERRED IN FINDING pendency of the principal action. The twin
THAT RESPONDENTS ARE ENTITLED requirements of a valid injunction are the
TO BE FURNISHED COPIES OF THEIR existence of a right and its actual or
RESPECTIVE ROEs BEFORE THE SAME threatened violations. Thus, to be entitled to
IS SUBMITTED TO THE MONETARY an injunctive writ, the right to be protected
BOARD IN VIEW OF THE PRINCIPLES and the violation against that right must be
OF FAIRNESS AND TRANSPARENCY shown.[8]
DESPITE LACK OF EXPRESS PROVISION
IN THE NEW CENTRAL BANK ACT These requirements are absent in the present
REQUIRING BSP TO DO THE SAME case.
III. THE HONORABLE COURT OF
APPEALS GRAVELY ERRED IN In granting the writs of preliminary injunction,
DEPARTING FROM WELL-ESTABLISHED the trial court held that the submission of the ROEs to
PRECEPTS OF LAW AND the MB before the respondent banks would violate the
JURISPRUDENCE right to due process of said banks.
This is erroneous.
A. THE EXCEPTIONS CITED BY
PETITIONER JUSTIFIED RESORT TO The respondent banks have failed to show that
PETITION FOR CERTIORARI UNDER they are entitled to copies of the ROEs. They can point to
RULE 65 INSTEAD OF FIRST FILING A no provision of law, no section in the procedures of the
MOTION FOR RECONSIDERATION BSP that shows that the BSP is required to give them
B. RESPONDENT BANKS ACT OF copies of the ROEs. Sec. 28 of RA 7653, or the New
RESORTING IMMEDIATELY TO THE Central Bank Act, which governs examinations of
COURT WAS PREMATURE SINCE IT banking institutions, provides that the ROE shall be
WAS MADE IN UTTER DISREGARD OF submitted to the MB; the bank examined is not
THE PRINCIPLE OF PRIMARY mentioned as a recipient of the ROE.
JURISDICTION AND EXHAUSTION OF
ADMINISTRATIVE REMEDY The respondent banks cannot claim a violation
C. THE ISSUANCE OF A WRIT OF of their right to due process if they are not provided with
PRELIMINARY INJUNCTION BY THE copies of the ROEs. The same ROEs are based on the lists
REGIONAL TRIAL COURT WAS NOT of findings/exceptions containing the deficiencies found

Banking 1st Set of Cases | 42


by the SED examiners when they examined the books of aside by the court except on petition for certiorari on the
the respondent banks. As found by the RTC, these lists of ground that the action taken was in excess of jurisdiction
findings/exceptions were furnished to the officers or or with such grave abuse of discretion as to amount to
representatives of the respondent banks, and the lack or excess of jurisdiction. The writs of preliminary
respondent banks were required to comment and to injunction order are precisely what cannot be done
undertake remedial measures stated in said lists. Despite under the law by preventing the MB from taking action
these instructions, respondent banks failed to comply under either Sec. 29 or Sec. 30 of RA 7653.
with the SEDs directive.
As to the third requirement, the respondent
Respondent banks are already aware of what is banks have shown no necessity for the writ of
required of them by the BSP, and cannot claim violation preliminary injunction to prevent serious damage. The
of their right to due process simply because they are not serious damage contemplated by the trial court was the
furnished with copies of the ROEs. Respondent banks possibility of the imposition of sanctions upon
were held by the CA to be entitled to copies of the ROEs respondent banks, even the sanction of closure. Under
prior to or simultaneously with their submission to the the law, the sanction of closure could be imposed upon
MB, on the principles of fairness and transparency. a bank by the BSP even without notice and hearing. The
Further, the CA held that if the contents of the ROEs are apparent lack of procedural due process would not
essentially the same as those of the lists of result in the invalidity of action by the MB. This was the
findings/exceptions provided to said banks, there is no ruling in Central Bank of the Philippines v. Court of
reason not to give copies of the ROEs to the banks. This Appeals.[11] This close now, hear later scheme is
is a flawed conclusion, since if the banks are already grounded on practical and legal considerations to
aware of the contents of the ROEs, they cannot say that prevent unwarranted dissipation of the banks assets and
fairness and transparency are not present. If sanctions as a valid exercise of police power to protect the
are to be imposed upon the respondent banks, they are depositors, creditors, stockholders, and the general
already well aware of the reasons for the sanctions, public. The writ of preliminary injunction cannot, thus,
having been informed via the lists of findings/exceptions, prevent the MB from taking action, by preventing the
demolishing that particular argument. The ROEs would submission of the ROEs and worse, by preventing the
then be superfluities to the respondent banks, and MB from acting on such ROEs.
should not be the basis for a writ of preliminary
injunction. Also, the reliance of the RTC on Banco Filipino The trial court required the MB to respect the
v. Monetary Board[9] is misplaced. The petitioner in that respondent banks right to due process by allowing the
case was held to be entitled to annexes of the respondent banks to view the ROEs and act upon them
Supervision and Examination Sectors reports, as it to forestall any sanctions the MB might impose. Such
already had a copy of the reports themselves. It was not procedure has no basis in law and does in fact violate
the subject of the case whether or not the petitioner the close now, hear later doctrine. We held in Rural Bank
was entitled to a copy of the reports. And the ruling was of San Miguel, Inc. v. Monetary Board, Bangko Sentral ng
made after the petitioner bank was ordered closed, and Pilipinas:
it was allowed to be supplied with annexes of the It is well-settled that the closure
reports in order to better prepare its defense. In this of a bank may be considered as an
instance, at the time the respondent banks requested exercise of police power. The action of
copies of the ROEs, no action had yet been taken by the the MB on this matter is final and
MB with regard to imposing sanctions upon said banks. executory. Such exercise may
nonetheless be subject to judicial
The issuance by the RTC of writs of preliminary inquiry and can be set aside if found to
injunction is an unwarranted interference with the be in excess of jurisdiction or with such
powers of the MB. Secs. 29 and 30 of RA 7653[10] refer to grave abuse of discretion as to amount
the appointment of a conservator or a receiver for a to lack or excess of jurisdiction.[12]
bank, which is a power of the MB for which they need
the ROEs done by the supervising or examining The respondent banks cannotthrough seeking a
department. The writs of preliminary injunction issued writ of preliminary injunction by appealing to lack of due
by the trial court hinder the MB from fulfilling its process, in a roundabout manner prevent their closure
function under the law. The actions of the MB under by the MB. Their remedy, as stated, is a subsequent one,
Secs. 29 and 30 of RA 7653 may not be restrained or set which will determine whether the closure of the bank

Banking 1st Set of Cases | 43


was attended by grave abuse of discretion. Judicial generally rests on the sound discretion of the lower
review enters the picture only after the MB has taken court, this Court may and should intervene in a clear
action; it cannot prevent such action by the MB. The case of abuse.[18]
threat of the imposition of sanctions, even that of WHEREFORE, the petition is hereby GRANTED. The
closure, does not violate their right to due process, and assailed CA Decision dated September 30, 2008 in CA-
cannot be the basis for a writ of preliminary injunction. G.R. SP No. 103935 is hereby REVERSED. The assailed
order and writ of preliminary injunction of respondent
Judge Valenzuela in Civil Case Nos. 08-119243, 08-
The close now, hear later doctrine has already 119244, 08-119245, 08-119246, 08-119247, 08-119248,
been justified as a measure for the protection of the 08-119249, 08-119250, 08-119251, and 08-119273 are
public interest. Swift action is called for on the part of hereby declared NULL and VOID.
the BSP when it finds that a bank is in dire straits. Unless SO ORDERED.
adequate and determined efforts are taken by the
government against distressed and mismanaged banks, [Synopsis/Syllabi]
public faith in the banking system is certain to
deteriorate to the prejudice of the national economy
itself, not to mention the losses suffered by the bank THIRD DIVISION
depositors, creditors, and stockholders, who all deserve
the protection of the government.[13] [G.R. No. 115849. January 24, 1996]
FIRST PHILIPPINE INTERNATIONAL BANK (Formerly
The respondent banks have failed to show their Producers Bank of the Philippines) and
entitlement to the writ of preliminary injunction. It must MERCURIO RIVERA, petitioners, vs. COURT OF
be emphasized that an application for injunctive relief is APPEALS, CARLOS EJERCITO, in substitution of
construed strictly against the pleader.[14] The respondent DEMETRIO DEMETRIA, and JOSE
banks cannot rely on a simple appeal to procedural due JANOLO, respondents.
process to prove entitlement. The requirements for the
issuance of the writ have not been proved. No invasion In the absence of a formal deed of sale, may
of the rights of respondent banks has been shown, nor is commitments given by bank officers in an exchange of
their right to copies of the ROEs clear and letters and/or in a meeting with the buyers constitute a
unmistakable. There is also no necessity for the writ to perfected and enforceable contract of sale over 101
prevent serious damage. Indeed the issuance of the writ hectares of land in Sta. Rosa, Laguna? Does the doctrine
of preliminary injunction tramples upon the powers of of apparent authority apply in this case? If so, may the
the MB and prevents it from fulfilling its functions. There Central Bank-appointed conservator of Producers Bank
is no right that the writ of preliminary injunction would (now First Philippine International Bank) repudiate such
protect in this particular case. In the absence of a clear apparent authority after said contract has been deemed
legal right, the issuance of the injunctive writ constitutes perfected? During the pendency of a suit for specific
grave abuse of discretion.[15] In the absence of proof of a performance, does the filing of a derivative suit by
legal right and the injury sustained by the plaintiff, an the majority shareholders and directors of the distressed
order for the issuance of a writ of preliminary injunction bank to prevent the enforcement or implementation of
will be nullified.[16] the sale violate the ban against forum-shopping?
Simply stated, these are the major questions
brought before this Court in the instant Petition for
review on certiorari under Rule 45 of the Rules of Court,
to set aside the Decision promulgated January 14,
1994 of the respondent Court of Appeals[1] in CA-G.R. CV
Courts are hereby reminded to take greater care No. 35756 and the Resolution promulgated June 14,
in issuing injunctive relief to litigants, that it would not 1994 denying the motion for reconsideration. The
violate any law. The grant of a preliminary injunction in a dispositive portion of the said Decision reads:
case rests on the sound discretion of the court with the
caveat that it should be made with great WHEREFORE, the decision of the lower court is
caution.[17] Thus, the issuance of the writ of preliminary MODIFIED by the elimination of the damages awarded
injunction must have basis in and be in accordance with under paragraphs 3, 4 and 6 of its dispositive portion
law. All told, while the grant or denial of an injunction and the reduction of the award in paragraph 5 thereof to

Banking 1st Set of Cases | 44


P75,000.00, to be assessed against defendant bank. In all After the parties filed their comment, reply,
other aspects, said decision is hereby AFFIRMED. rejoinder, sur-rejoinder and reply to sur-rejoinder, the
petition was given due course in a Resolution
All references to the original plaintiffs in the decision and dated January 18, 1995. Thence, the parties filed their
its dispositive portion are deemed, herein and hereafter, respective memoranda and reply memoranda. The First
to legally refer to the plaintiff-appellee Carlos C. Ejercito. Division transferred this case to the Third Division per
resolution dated October 23, 1995. After carefully
Costs against appellant bank. deliberating on the aforesaid submissions, the Court
assigned the case to the undersigned ponente for the
The dispositive portion of the trial courts[2] decision writing of this Decision.
dated July 10, 1991, on the other hand, is as follows:

WHEREFORE, premises considered, judgment is hereby


The Parties
rendered in favor of the plaintiffs and against the
defendants as follows: Petitioner First Philippine International Bank
(formerly Producers Bank of the Philippines; petitioner
1. Declaring the existence of a perfected contract to buy Bank, for brevity) is a banking institution organized and
and sell over the six (6) parcels of land situated at Don existing under the laws of the Republic of
Jose, Sta. Rosa, Laguna with an area of 101 hectares, the Philippines. Petitioner Mercurio Rivera (petitioner
more or less, covered by and embraced in Transfer Rivera, for brevity) is of legal age and was, at all times
Certificates of Title Nos. T-106932 to T-106937, material to this case, Head Manager of the Property
inclusive, of the Land Records of Laguna, between the Management Department of the petitioner Bank.
plaintiffs as buyers and the defendant Producers Bank
Respondent Carlos Ejercito (respondent Ejercito, for
for an agreed price of Five and One Half Million
brevity) is of legal age and is the assignee of original
(P5,500,000.00) Pesos;
plaintiffs-appellees Demetrio Demetria and Jose Janolo.
2. Ordering defendant Producers Bank of the Philippines, Respondent Court of Appeals is the court which
upon finality of this decision and receipt from the issued the Decision and Resolution sought to be set
plaintiffs the amount of P5.5 Million, to execute in favor aside through this petition.
of said plaintiffs a deed of absolute sale over the
aforementioned six (6) parcels of land, and to
immediately deliver to the plaintiffs the owners copies of The Facts
T.C.T. Nos. T-106932 to T-106937, inclusive, for
purposes of registration of the same deed and transfer The facts of this case are summarized in the
of the six (6) titles in the names of the plaintiffs; respondent Courts Decision,[3] as follows:

3. Ordering the defendants, jointly and severally, to pay (1) In the course of its banking operations, the
plaintiffs Jose A. Janolo and Demetrio Demetria the sums defendant Producer Bank of the Philippines acquired six
of P 200,000.00 each in moral damages; parcels of land with a total area of 101 hectares located
at Don Jose, Sta. Rosa, Laguna, and covered by Transfer
4. Ordering the defendants, jointly and severally, to pay Certificates of Title Nos. T-106932 to T-106937. The
plaintiffs the sum of P 100,000.00 as exemplary property used to be owned by BYME Investment and
damages; Development Corporation which had them mortgaged
with the bank as collateral fora loan. The original
5. Ordering the defendants, jointly and severally, to pay plaintiffs, Demetrio Demetria and Jose O. Janolo, wanted
the plaintiffs the amount of P400,000.00 for and by way to purchase the property and thus initiated negotiations
of attorneys fees; for that purpose.

6. Ordering the defendants to pay the plaintiffs, jointly (2) In the early part of August 1987 said plaintiffs, upon
and severally, actual and moderate damages in the the suggestion of BYME Investments legal counsel, Jose
amount of P20,000.00; Fajardo, met with defendant Mercurio Rivera, Manager
of the Property Management Department of the
defendant bank. The meeting was held pursuant to
With costs against the defendants.
plaintiffs plan to buy the property (TSN of Jan. 16, 1990,

Banking 1st Set of Cases | 45


pp. 7-10). After the meeting, plaintiff Janolo, following We shall be very glad to hear your position on the
the advice of defendant Rivera, made a formal purchase matter.
offer to the bank through a letter dated August 30,
1987 (Exh. B), as follows: Best regards.

August 30, 1987 (4)On September 17, 1987, plaintiff Janolo, responding
to Riveras aforequoted reply, wrote (Exh.
The Producers Bank of the Philippines
Makati, Metro Manila
September 17, 1987
Attn. Mr. Mercurio Q. Rivera Producers Bank
Manager, Property Paseo de Roxas
Management Dept. Makati, Metro Manila

Gentlemen: Attention: Mr. Mercurio Rivera

I have the honor to submit my formal offer to purchase Gentlemen:


your properties covered by titles listed hereunder located
at Sta. Rosa, Laguna, with a total area of 101 hectares, In reply to your letter regarding my proposal to purchase
more or less. your 101-hectare lot located at Sta. Rosa Laguna, I would
like to amend my previous offer and I now propose to
TCT NO. AREA buy the said lot at P4.250 million in CASH.
T-106932 113,580 sq.m.
T-106933 70,899 sq.m. Hoping that this proposal meets your satisfaction.
T-106934 52,246 sq.m.
T-106935 96,768 sq.m. (5) There was no reply to Janolos foregoing letter
T-106936 187,114 sq.m. of September 17, 1987. What took place was a meeting
T-106937 481,481 sq.m. on September 28, 1987 between the plaintiffs and Luis
Co, the Senior Vice-President of defendant bank. Rivera
My offer is for PESOS: THREE MILLION FIVE HUNDRED as well as Fajardo, the BYME lawyer, attended the
THOUSAND (P3,500,000.00) PESOS, in cash. meeting. Two days later, or on September 30, 1987,
plaintiff Janolo sent to the bank, through Rivera, the
Kindly contact me at Telephone Number 921-1344. following letter (Exh. E):
The Producers Bank of the Philippines
(3) On September 1, 1987, defendant Rivera made on Paseo de Roxas, Makati
behalf of the bank a formal reply by letter which is Metro Manila
hereunder quoted (Exh. C):
Attention: Mr. Mercurio Rivera
September 1, 1987
J-P M-P GUTIERREZ ENTERPRISES Re: 101 Hectares of Land in Sta. Rosa,
142 Charisma St., Doa Andres II Laguna
Rosario, Pasig, Metro Manila

Attention: JOSE O. JANOLO Dear Sir:


Gentlemen:
Dear Sir:
Pursuant to our discussion last 28 September 1987, we
Thank you for your letter-offer to buy our six (6) parcels are pleased to inform you that we are accepting your
of acquired lots at Sta. Rosa, Laguna (formerly owned by offer for us to purchase the property at Sta. Rosa,
Byme industrial Corp.). Please be informed however that Laguna, formerly owned by Byme In-vestment, for a total
the banks counter-offer is at P5.5 million for more than price of PESOS: FIVE MILLION FIVE HUNDRED THOUSAND
101 hectares on lot basis. (P5,500,000.00).

Thank you.

Banking 1st Set of Cases | 46


(6) On October 12, 1987, the conservator of the bank In view of the above circumstances, we believe that an
(which has been placed under conservatorship by the agreement has been perfected. We were also informed
Central Bank since 1984) was replaced by an Acting that despite repeated follow-up to consummate the
Conservator in the person of defendant Leonida T. purchase, you now refuse to honor your commitment.
Encarnacion. On November 4, 1987, defendant Rivera Instead, you have advertised for sale the same lot to
wrote plaintiff Demetria the following letter (Exh. F): others.

Attention: Atty. Demetrio Demetria In behalf of our client, therefore, we are making this
formal demand upon you to consummate and execute
Dear Sir: the necessary actions/documentation within three (3)
days from your receipt hereof We are ready to remit the
Your proposal to buy the properties the bank foreclosed agreed amount of P5.5 million at your advice. Otherwise,
from Byme Investment Corp. located at Sta. Rosa, we shall be constrained to file the necessary court action
Laguna is under study yet as of this time by the newly to protect the interest of our client.
created committee for submission to the newly
designated Acting Conservator of the bank. We trust that you will be guided accordingly.

For your information. (8) Defendant bank, through defendant Rivera,


acknowledged receipt of the foregoing letter and stated,
(7) What thereafter transpired was a series of demands in its communication of December 2, 1987 (Exh. I), that
by the plaintiffs for compliance by the bank with what said letter has been referred x x x to the office of our
plaintiff considered as a perfected contract of sale, Conservator for proper disposition. However, no
which demands were in one form or another refused by response came from the Acting Conservator.
the bank. As detailed by the trial court in its decision, on On December 14, 1987, the plaintiffs made a second
November 17, 1987, plaintiffs through a letter to tender of payment (Exhs. L and L-1), this time through
defendant Rivera (Exhibit G) tendered payment of the the Acting Conservator, defendant Encarnacion.
amount of P5.5 million pursuant to (our) perfected sale Plaintiffs letter reads:
agreement. Defendants refused to receive both the PRODUCERS BANK OF
payment and the letter. Instead, the parcels of land THE PHILIPPINES
involved in the transaction were advertised by the bank Paseo de Roxas,
for sale to any interested buyer (Exhs. H and H-1). Makati, Metro Manila
Plaintiffs demanded the execution by the bank of the
documents on what was considered as a perfected Attn.: Atty. NIDA ENCARNACION Central Bank
agreement. Thus: Conservator
Mr. Mercurio Rivera
Manager, Producers Bank Gentlemen:
Paseo de Roxas, Makati
Metro Manila We are sending you herewith, in-behalf of our client, Mr.
JOSE O. JANOLO, MBTC Check No. 258387 in the amount
Dear Mr. Rivera: of P5.5 million as our agreed purchase price of the 101-
hectare lot covered by TCT Nos. 106932, 106933,
This is in connection with the offer of our client, Mr. Jose 106934, 106935, 106936 and 106937 and registered
O. Janolo, to purchase your 101-hectare lot located in under Producers Bank.
Sta. Rosa, Laguna, and which are covered by TCT No. T-
106932 to 106937. This is in connection with the perfected agreement
consequent from your offer of P5.5 Million as the
From the documents at hand, it appears that your purchase price of the said lots. Please inform us of the
counter-offer dated September 1, 1987 of this same lot date of documentation of the sale immediately.
in the amount of P5.5 million was accepted by our client
thru a letter dated September 30, 1987 and was received Kindly acknowledge receipt of our payment.
by you on October 5, 1987.
(9) The foregoing letter drew no response for more than
four months. Then, on May 3, 1988, plaintiff, through

Banking 1st Set of Cases | 47


counsel, made a final demand for compliance by the stop Ejercito from enforcing or implementing the
bank with its obligations under the considered perfected sale.[4] In his answer, Janolo argued that the Second Case
contract of sale (Exhibit N). As recounted by the trial was barred by litis pendentia by virtue of the case then
court (Original Record, p. 656), in a reply letter pending in the Court of Appeals. During the pre-trial
dated May 12, 1988 (Annex 4 of defendants answer to conference in the Second Case, plaintiffs filed a Motion
amended complaint), the defendants through Acting for Leave of Court to Dismiss the Case Without
Conservator Encarnacion repudiated the authority of Prejudice. Private respondent opposed this motion on
defendant Rivera and claimed that his dealings with the the ground, among others, that plaintiffs act of forum
plaintiffs, particularly his counter-offer of P5.5 Million shopping justifies the dismissal of both cases, with
are unauthorized or illegal. On that basis, the defendants prejudice.[5] Private respondent, in his memorandum,
justified the refusal of the tenders of payment and the averred that this motion is still pending in the Makati
non-compliance with the obligations under what the RTC.
plaintiffs considered to be a perfected contract of sale.
In their Petition[6] and Memorandum,[7] petitioners
summarized their position as follows:
(10) On May 16, 1988, plaintiffs filed a suit for specific
performance with damages against the bank, its I.
Manager Rivera and Acting Conservator Encarnacion.
The basis of the suit was that the transaction had with The Court of Appeals erred in declaring that a contract
the bank resulted in a perfected contract of sale. The of sale was perfected between Ejercito (in substitution
defendants took the position that there was no such of Demetria and Janolo) and the bank.
perfected sale because the defendant Rivera is not
authorized to sell the property, and that there was no II.
meeting of the minds as to the price.
The Court of Appeals erred in declaring the existence of
On March 14, 1991, Henry L. Co (the brother of Luis Co), an enforceable contract of sale between the parties.
through counsel Sycip Salazar Hernandez and Gatmaitan, III.
filed a motion to intervene in the trial court, alleging that
as owner of 80% of the Banks outstanding shares of The Court of Appeals erred in declaring that the
stock, he had a substantial interest in resisting the conservator does not have the power to overrule or
complaint. On July 8, 1991, the trial court issued an revoke acts of previous management.
order denying the motion to intervene on the ground
that it was filed after trial had already been concluded. It IV.
also denied a motion for reconsideration filed
thereafter. From the trial courts decision, the Bank, The findings and conclusions of the Court of Appeals do
petitioner Rivera and conservator Encarnacion appealed not conform to the evidence on record.
to the Court of Appeals which subsequently affirmed On the other hand, private respondents prayed for
with modification the said judgment. Henry Co did not dismissal of the instant suit on the ground[8] that:
appeal the denial of his motion for intervention.
I.
In the course of the proceedings in the
respondent Court, Carlos Ejercito was substituted in Petitioners have engaged in forum shopping.
place of Demetria and Janolo, in view of the assignment
of the latters rights in the matter in litigation to said II.
private respondent.
The factual findings and conclusions of the Court of
On July 11, 1992, during the pendency of the Appeals are supported by the evidence on record and
proceedings in the Court of Appeals, Henry Co and may no longer be questioned in this case.
several other stockholders of the Bank, through counsel
Angara Abello Concepcion Regala and Cruz, filed an III.
action (hereafter, the Second Case) -purportedly a
derivative suit - with the Regional Trial Court of Makati, The Court of Appeals correctly held that there was a
Branch 134, docketed as Civil Case No. 92-1606, against perfected contract between Demetria and Janolo
Encarnacion, Demetria and Janolo to declare any (substituted by respondent Ejercito) and the bank.
perfected sale of the property as unenforceable and to

Banking 1st Set of Cases | 48


IV. represented, rights asserted and reliefs sought (as that)
currently pending before the Regional Trial Court,
The Court of Appeals has correctly held that the Makati Branch 134 in the Second Case. In fact, the issues
conservator, apart from being estopped from in the two cases are so intertwined that a judgment or
repudiating the agency and the contract, has no resolution in either case will constitute res judicata in
authority to revoke the contract of sale. the other.[10]
On the other hand, petitioners explain[11] that there
is no forum-shopping because:
The Issues
From the foregoing positions of the parties, the 1) In the earlier or First Case from which this proceeding
issues in this case may be summed up as follows: arose, the Bank was impleaded as a defendant, whereas
in the Second Case (assuming the Bank is the real party
1) Was there forum-shopping on the part of in interest in a derivative suit), it was the plaintiff;
petitioner Bank?
2) Was there a perfected contract of sale between 2) The derivative suit is not properly a suit for and in
the parties? behalf of the corporation under the circumstances;

3) Assuming there was, was the said contract 3) Although the CERTIFICATION/VERIFICATION (supra)
enforceable under the statute of frauds? signed by the Bank president and attached to the
4) Did the bank conservator have the unilateral Petition identifies the action as a derivative suit, it does
power to repudiate the authority of the bank officers not mean that it is one and (t)hat is a legal question for
and/or to revoke the said contract? the courts to decide;

5) Did the respondent Court commit any reversible 4) Petitioners did not hide the Second Case as they
error in its findings of facts? mentioned it in the said VERIFICATION/CERTIFICATION.
We rule for private respondent.
The First Issue: Was There Forum-Shopping? To begin with, forum-shopping originated as a
In order to prevent the vexations of multiple concept in private international law,[12] where non-
petitions and actions, the Supreme Court promulgated resident litigants are given the option to choose the
Revised Circular No. 28-91 requiring that a party must forum or place wherein to bring their suit for various
certify under oath x x x [that] (a) he has not (t)heretofore reasons or excuses, including to secure procedural
commenced any other action or proceeding involving advantages, to annoy and harass the defendant, to avoid
the same issues in the Supreme Court, the Court of overcrowded dockets, or to select a more friendly
Appeals, or any other tribunal or agency; (b) to the best venue. To combat these less than honorable excuses,
of his knowledge, no such action or proceeding is the principle of forum non conveniens was developed
pending in said courts or agencies. A violation of the said whereby a court, in conflicts of law cases, may refuse
circular entails sanctions that include the summary impositions on its jurisdiction where it is not the most
dismissal of the multiple petitions or complaints. To be convenient or available forum and the parties are not
sure, petitioners have included a precluded from seeking remedies elsewhere.
VERIFICATION/CERTIFICATION in their Petition stating In this light, Blacks Law Dictionary[13] says that
for the record(,) the pendency of Civil Case No. 92-1606 forum-shopping occurs when a party attempts to have
before the Regional Trial Court of Makati, Branch 134, his action tried in a particular court or jurisdiction where
involving a derivative suit filed by stockholders of he feels he will receive the most favorable judgment or
petitioner Bank against the conservator and other verdict. Hence, according to Words and Phrases,[14] a
defendants but which is the subject of a pending Motion litigant is open to the charge of forum shopping
to Dismiss Without Prejudice.[9] whenever he chooses a forum with slight connection to
Private respondent Ejercito vigorously argues that factual circumstances surrounding his suit, and litigants
in spite of this verification, petitioners are guilty of actual should be encouraged to attempt to settle their
forum shopping because the instant petition pending differences without imposing undue expense and
before this Court involves identical parties or interests vexatious situations on the courts.

Banking 1st Set of Cases | 49


In the Philippines, forum-shopping has acquired a processes and proceedings x x x.[17] When does forum-
connotation encompassing not only a choice of venues, shopping take place?
as it was originally understood in conflicts of laws, but
also to a choice of remedies. As to the first (choice of There is forum-shopping whenever, as a result of an
venues), the Rules of Court, for example, allow a plaintiff adverse opinion in one forum, a party seeks a favorable
to commence personal actions where the defendant or opinion (other than by appeal or certiorari) in another.
any of the defendants resides or may be found, or where The principle applies not only with respect to suits filed
the plaintiff or any of the plaintiffs resides, at the in the courts but also in connection with litigations
election of the plaintiff (Rule 4, Sec. 2 [b]). As to commenced in the courts while an administrative
remedies, aggrieved parties, for example, are given a proceeding is pending, as in this case, in order to defeat
choice of pursuing civil liabilities independently of the administrative processes and in anticipation of
criminal, arising from the same set of facts. A passenger an unfavorable administrative ruling and a favorable
of a public utility vehicle involved in a vehicular accident court ruling. This is specially so, as in this case, where the
may sue on culpa contractual, culpa aquiliana or culpa court in which the second suit was brought, has no
criminal - each remedy being available independently of jurisdiction [18]
the others - although he cannot recover more than once.
The test for determining whether a party violated
the rule against forum-shopping has been laid down in
In either of these situations (choice of venue or choice of
the 1986 case of Buan vs. Lopez,[19] also by Chief Justice
remedy), the litigant actually shops for a forum of his
Narvasa, and that is, forum-shopping exists where the
action. This was the original concept of the term forum
elements of litis pendentia are present or where a final
shopping.
judgment in one case will amount to res judicata in the
other, as follows:
Eventually, however, instead of actually making a choice
of the forum of their actions, litigants, through the
There thus exists between the action before this Court
encouragement of their lawyers, file their actions in all
and RTC Case No. 86-36563 identity of parties, or at
available courts, or invoke all relevant remedies
least such parties as represent the same interests in
simultaneously. This practice had not only resulted to
both actions, as well as identity of rights asserted and
(sic) conflicting adjudications among different courts and
relief prayed for, the relief being founded on the same
consequent confusion enimical (sic) to an orderly
facts, and the identity on the two preceding particulars
administration of justice. It had created extreme
is such that any judgment rendered in the other action,
inconvenience to some of the parties to the action.
will, regardless of which party is successful, amount
to res adjudicata in the action under consideration: all
Thus, forum-shopping had acquired a different concept -
the requisites, in fine, of auter action pendant.
which is unethical professional legal practice. And this
necessitated or had given rise to the formulation of rules xxx xxx xxx
and canons discouraging or altogether prohibiting the
practice.[15] As already observed, there is between the action at bar
and RTC Case No. 86-36563, an identity as regards
What therefore originally started both in conflicts of
parties, or interests represented, rights asserted and
laws and in our domestic law as a legitimate device for
relief sought, as well as basis thereof, to a degree
solving problems has been abused and misused to
sufficient to give rise to the ground for dismissal known
assure scheming litigants of dubious reliefs.
as auter action pendant or lis pendens. That same
To avoid or minimize this unethical practice of identity puts into operation the sanction of twin
subverting justice, the Supreme Court, as already dismissals just mentioned. The application of this
mentioned, promulgated Circular 28-91. And even sanction will prevent any further delay in the
before that, the Court had proscribed it in the Interim settlement of the controversy which might ensue from
Rules and Guidelines issued on January 11, 1983 and had attempts to seek reconsideration of or to appeal from
struck down in several cases[16] the inveterate use of this the Order of the Regional Trial Court in Civil Case No. 86-
insidious malpractice. Forum-shopping as the filing of 36563 promulgated on July 15, 1986, which dismissed
repetitious suits in different courts has been condemned the petition upon grounds which appear persuasive.
by Justice Andres R. Narvasa (now Chief Justice) in
Consequently, where a litigant (or one representing
Minister of Natural Resources, et al. vs. Heirs of Orval
the same interest or person) sues the same party against
Hughes, et al., as a reprehensible manipulation of court

Banking 1st Set of Cases | 50


whom another action or actions for the alleged violation damages. One can see that although the relief prayed for
of the same right and the enforcement of the same in the two (2) actions are ostensibly different, the
relief is/are still pending, the defense of litis pendencia in ultimate objective in both actions is the same, that is, the
one case is a bar to the others; and, a final judgment in approval of the sale of vessel in favor of petitioner, and
one would constitute res judicata and thus would cause to overturn the letter-directive of the COA of October 10,
the dismissal of the rest. In either case, forum shopping 1988disapproving the sale. (italics supplied)
could be cited by the other party as a ground to ask for
In an earlier case,[23] but with the same logic and
summary dismissal of the two[20] (or more) complaints or
vigor, we held:
petitions, and for the imposition of the other sanctions,
which are direct contempt of court, criminal
In other words, the filing by the petitioners of the instant
prosecution, and disciplinary action against the erring
special civil action for certiorari and prohibition in this
lawyer.
Court despite the pendency of their action in the Makati
Applying the foregoing principles in the case before Regional Trial Court, is a species of forum-shopping.
us and comparing it with the Second Case, it is obvious Both actions unquestionably involve the same
that there exist identity of parties or interests transactions, the same essential facts and
represented, identity of rights or causes and identity of circumstances. The petitioners claim of absence of
reliefs sought. identity simply because the PCGG had not been
impleaded in the RTC suit, and the suit did not involve
Very simply stated, the original complaint in the
certain acts which transpired after its commencement, is
court a quo which gave rise to the instant petition was
specious. In the RTC action, as in the action before this
filed by the buyer (herein private respondent and his
Court, the validity of the contract to purchase and sell of
predecessors-in-interest) against the seller (herein
September 1, 1986, i.e., whether or not it had been
petitioners) to enforce the alleged perfected sale of real
efficaciously rescinded, and the propriety of
estate. On the other hand, the complaint[21] in the
implementing the same (by paying the pledgee banks
Second Case seeks to declare such purported sale
the amount of their loans, obtaining the release of the
involving the same real property as unenforceable as
pledged shares, etc.) were the basic issues. So, too, the
against the Bank, which is the petitioner herein. In other
relief was the same: the prevention of such
words, in the Second Case, the majority stockholders, in
implementation and/or the restoration of the status quo
representation of the Bank, are seeking to accomplish
ante. When the acts sought to be restrained took place
what the Bank itself failed to do in the original case in
anyway despite the issuance by the Trial Court of a
the trial court. In brief, the objective or the relief being
temporary restraining order, the RTC suit did not
sought, though worded differently, is the same, namely,
become functus oflcio. It remained an effective vehicle
to enable the petitioner Bank to escape from the
for obtention of relief; and petitioners remedy in the
obligation to sell the property to respondent. In Danville
premises was plain and patent: the filing of an amended
Maritime, Inc. vs. Commission on Audit,[22] this Court
and supplemental pleading in the RTC suit, so as to
ruled that the filing by a party of two apparently
include the PCGG as defendant and seek nullification of
different actions, but with the same objective,
the acts sought to be enjoined but nonetheless done.
constituted forum shopping:
The remedy was certainly not the institution of another
action in another forum based on essentially the same
In the attempt to make the two actions appear to be
facts. The adoption of this latter recourse renders the
different, petitioner impleaded different respondents
petitioners amenable to disciplinary action and both
therein - PNOC in the case before the lower court and
their actions, in this Court as well as in the Court a quo,
the COA in the case before this Court and sought what
dismissible.
seems to be different reliefs. Petitioner asks this Court to
set aside the questioned letter-directive of the COA In the instant case before us, there is also identity
dated October 10, 1988 and to direct said body to of parties, or at least, of interests represented. Although
approve the Memorandum of Agreement entered into the plaintiffs in the Second Case (Henry L. Co. et al.) are
by and between the PNOC and petitioner, while in the not name parties in the First Case, they represent the
complaint before the lower court petitioner seeks to same interest and entity, namely, petitioner Bank,
enjoin the PNOC from conducting a rebidding and from because:
selling to other parties the vessel T/T Andres Bonifacio,
and for an extension of time for it to comply with the Firstly, they are not suing in their personal capacities, for
paragraph 1 of the memorandum of agreement and they have no direct personal interest in the matter in

Banking 1st Set of Cases | 51


controversy. They are not principally or even subsidiarily where, as in this case, the corporation itself has not
liable; much less are they direct parties in the assailed been remiss in vigorously prosecuting or defending
contract of sale; and corporate causes and in using and applying remedies
available to it. To rule otherwise would be to encourage
Secondly, the allegations of the complaint in the Second corporate litigants to use their shareholders as fronts to
Case show that the stockholders are bringing a circumvent the stringent rules against forum shopping.
derivative suit. In the caption itself, petitioners claim to
Finally, petitioner Bank argued that there cannot be
have brought suit for and in behalf of the Producers
any forum shopping, even assuming arguendo that there
Bank of the Philippines.[24] Indeed, this is the very
is identity of parties, causes of action and reliefs sought,
essence of a derivative suit:
because it (the Bank) was the defendant in the (first)
case while it was the plaintiff in the other (Second Case),
An individual stockholder is permitted to institute a
citing as authority Victronics Computers, Inc. vs. Regional
derivative suit on behalf of the corporation wherein he
Trial Court, Branch 63, Makati, etc. et al.,[27] where the
holds stock in order to protect or vindicate corporate
Court held:
rights, whenever the officials of the corporation refuse
to sue, or are the ones to be sued or hold the control of
The rule has not been extended to a defendant who, for
the corporation. In such actions, the suing stockholder is
reasons known only to him, commences a new action
regarded as a nominal party, with the corporation as the
against the plaintiff - instead of filing a responsive
real party in interest. (Gamboa v. Victoriano, 90 SCRA 40,
pleading in the other case - setting forth therein, as
47 [1979]; italics supplied).
causes of action, specific denials, special and affirmative
In the face of the damaging admissions taken from defenses or even counterclaims. Thus, Velhagens and
the complaint in the Second Case, petitioners, quite Kings motion to dismiss Civil Case No. 91-2069 by no
strangely, sought to deny that the Second Case was a means negates the charge of forum-shopping as such
derivative suit, reasoning that it was brought, not by the did not exist in the first place. (italics supplied)
minority shareholders, but by Henry Co et al., who not
Petitioner pointed out that since it was merely the
only own, hold or control over 80% of the outstanding
defendant in the original case, it could not have chosen
capital stock, but also constitute the majority in the
the forum in said case.
Board of Directors of petitioner Bank. That being so,
then they really represent the Bank. So, whether they Respondent, on the other hand, replied that there
sued derivatively or directly, there is undeniably an is a difference in factual setting between Victronics and
identity of interests/entity represented. the present suit. In the former, as underscored in the
above-quoted Court ruling, the defendants did not file
Petitioner also tried to seek refuge in the corporate
any responsive pleading in the first case. In other words,
fiction that the personality of the Bank is separate and
they did not make any denial or raise any defense or
distinct from its shareholders. But the rulings of this
counter-claim therein. In the case before us however,
Court are consistent: When the fiction is urged as a
petitioners filed a responsive pleading to the complaint -
means of perpetrating a fraud or an illegal act or as a
as a result of which, the issues were joined.
vehicle for the evasion of an existing obligation, the
circumvention of statutes, the achievement or Indeed, by praying for affirmative reliefs and
perfection of a monopoly or generally the perpetration interposing counter-claims in their responsive pleadings,
of knavery or crime, the veil with which the law covers the petitioners became plaintiffs themselves in the
and isolates the corporation from the members or original case, giving unto themselves the very remedies
stockholders who compose it will be lifted to allow for its they repeated in the Second Case.
consideration merely as an aggregation of individuals.[25]
Ultimately, what is truly important to consider in
In addition to the many cases[26] where the determining whether forum-shopping exists or not is the
corporate fiction has been disregarded, we now add the vexation caused the courts and parties-litigant by a party
instant case, and declare herewith that the corporate who asks different courts and/or administrative agencies
veil cannot be used to shield an otherwise blatant to rule on the same or related causes and/or to grant
violation of the prohibition against forum-shopping. the same or substantially the same reliefs, in the process
Shareholders, whether suing as the majority in direct creating the possibility of conflicting decisions being
actions or as the minority in a derivative suit, cannot be rendered by the different fora upon the same issue. In
allowed to trifle with court processes, particularly this case, this is exactly the problem: a decision

Banking 1st Set of Cases | 52


recognizing the perfection and directing the on the matter is clearly delineated in the testimony of
enforcement of the contract of sale will directly conflict Rivera himself, which testimony was relied upon by both
with a possible decision in the Second Case barring the the bank and by Rivera in their appeal briefs. Thus (TSN
parties from enforcing or implementing the said sale. of July 30, 1990. pp. 19-20):
Indeed, a final decision in one would constitute res
judicata in the other.[28] A: The procedure runs this way: Acquired assets was
turned over to me and then I published it in the form of
The foregoing conclusion finding the existence of
an inter-office memorandum distributed to all branches
forum-shopping notwithstanding, the only sanction
that these are acquired assets for sale. I was instructed
possible now is the dismissal of both cases with
to advertise acquired assets for sale so on that basis, I
prejudice, as the other sanctions cannot be imposed
have to entertain offer; to accept offer, formal offer and
because petitioners present counsel entered their
upon having been offered, I present it to the Committee.
appearance only during the proceedings in this Court,
I provide the Committee with necessary information
and the Petitions VERIFICATION/CERTIFICATION
about the property such as original loan of the borrower,
contained sufficient allegations as to the pendency of
bid price during the foreclosure, total claim of the bank,
the Second Case to show good faith in observing Circular
the appraised value at the time the property is being
28-91. The lawyers who filed the Second Case are not
offered for sale and then the information which are
before us; thus the rudiments of due process prevent us
relative to the evaluation of the bank to buy which the
from motu propio imposing disciplinary measures
Committee considers and it is the Committee that
against them in this Decision. However, petitioners
evaluate as against the exposure of the bank and it is
themselves (and particularly Henry Co, et al.) as litigants
also the Committee that submit to the Conservator for
are admonished to strictly follow the rules against
final approval and once approved, we have to execute
forum-shopping and not to trifle with court proceedings
the deed of sale and it is the Conservator that sign the
and processes. They are warned that a repetition of the
deed of sale, sir.
same will be dealt with more severely.
Having said that, let it be emphasized that this The plaintiffs, therefore, at that meeting of August 1987
petition should be dismissed not merely because of regarding their purpose of buying the property, dealt
forum-shopping but also because of the substantive with and talked to the right person. Necessarily, the
issues raised, as will be discussed shortly. agenda was the price of the property, and plaintiffs were
dealing with the bank official authorized to entertain
offers, to accept offers and to present the offer to the
The Second Issue: Was The Contract Perfected? Committee before which the said official is authorized to
discuss information relative to price determination.
The respondent Court correctly treated the Necessarily, too, it being inherent in his authority, Rivera
question of whether or not there was, on the basis of is the officer from whom official information regarding
the facts established, a perfected contract of sale as the the price, as determined by the Committee and
ultimate issue. Holding that a valid contract has been approved by the Conservator, can be had. And Rivera
established, respondent Court stated: confirmed his authority when he talked with the plaintiff
in August 1987. The testimony of plaintiff Demetria is
There is no dispute that the object of the transaction is clear on this point (TSN of May 31, 1990, pp. 27-28):
that property owned by the defendant bank as acquired
assets consisting of six (6) parcels of land specifically Q: When you went to the Producers Bank and
identified under Transfer Certificates of Title Nos. T- talked with Mr. Mercurio Rivera, did you
106932 to T-106937. It is likewise beyond cavil that the ask him point-blank his authority to sell
bank intended to sell the property. As testified to by the any property?
Banks Deputy Conservator, Jose Entereso, the bank was A: No, sir. Not point blank although it came
looking for buyers of the property. It is definite that the from him. (W)hen I asked him how long it
plaintiffs wanted to purchase the property and it was would take because he was saying that
precisely for this purpose that they met with defendant the matter of pricing will be passed upon
Rivera, Manager of the Property Management by the committee. And when I asked him
Department of the defendant bank, in early August how long it will take for the committee to
1987. The procedure in the sale of acquired assets as decide and he said the committee meets
well as the nature and scope of the authority of Rivera every week. If I am not mistaken

Banking 1st Set of Cases | 53


Wednesday and in about two weeks (sic) on this point are at best equivocal and considering the
time, in effect what he was saying he was gratuitous and self-serving character of these
not the one who was to decide. But he declarations, the banks submission on this point does
would refer it to the committee and he not inspire belief. Both Co and Entereso, as members of
would relay the decision of the committee the Past Due Committee of the bank, claim that the offer
to me. of the plaintiff was never discussed by the Committee. In
the same vein, both Co and Entereso openly admit that
Q: Please answer the question.
they seldom attend the meetings of the Committee. It is
A: He did not say that he had the authority(.) important to note that negotiations on the price had
But he said he would refer the matter to started in early August and the plaintiffs had already
the committee and he would relay the offered an amount as purchase price, having been made
decision to me and he did just like that. to understand by Rivera, the official in charge of the
negotiation, that the price will be submitted for approval
Parenthetically, the Committee referred to was the Past by the bank and that the banks decision will be relayed
Due Committee of which Luis Co was the Head, with to plaintiffs. From the facts, the amount of P5.5 Million
Jose Entereso as one of the members. has a definite significance. It is the official bank price. At
any rate, the bank placed its official, Rivera, in a position
What transpired after the meeting of early August 1987 of authority to accept offers to buy and negotiate the
are consistent with the authority and the duties of sale by having the offer officially acted upon by the bank.
Rivera and the banks internal procedure in the matter of The bank cannot turn around and later say, as it now
the sale of banks assets. As advised by Rivera, the does, that what Rivera states as the banks action on the
plaintiffs made a formal offer by a letter dated August matter is not in fact so. It is a familiar doctrine, the
20, 1987 stating that they would buy at the price of P3.5 doctrine of ostensible authority, that if a corporation
Million in cash. The letter was for the attention of knowingly permits one of its officers, or any other agent,
Mercurio Rivera who was tasked to convey and accept to do acts within the scope of an apparent authority, and
such offers. Considering an aspect of the official duty of thus holds him out to the public as possessing power to
Rivera as some sort of intermediary between the do those acts, the corporation will, as against any one
plaintiffs-buyers with their proposed buying price on one who has in good faith dealt with the corporation through
hand, and the bank Committee, the Conservator and such agent, he estopped from denying his authority
ultimately the bank itself with the set price on the other, (Francisco v. GSIS, 7 SCRA 577, 583-584; PNB v. Court of
and considering further the discussion of price at the Appeals, 94 SCRA 357, 369-370; Prudential Bank v. Court
meeting of August resulting in a formal offer of P3.5 of Appeals, G.R. No. 103957, June 14, 1993).[29]
Million in cash, there can be no other logical conclusion Article 1318 of the Civil Code enumerates the
than that when, on September 1, 1987, Rivera informed requisites of a valid and perfected contract as follows:
plaintiffs by letter that the banks counter-offer is at P5.5 (1) Consent of the contracting parties; (2) Object certain
Million for more than 101 hectares on lot basis, such which is the subject matter of the contract; (3) Cause of
counter-offer price had been determined by the Past the obligation which is established.
Due Committee and approved by the Conservator after
Rivera had duly presented plaintiffs offer for discussion There is no dispute on requisite no. 2. The object of
by the Committee of such matters as original loan of the questioned contract consists of the six (6) parcels of
borrower, bid price during foreclosure, total claim of the land in Sta. Rosa, Laguna with an aggregate area of
bank, and market value. Tersely put, under the about 101 hectares, more or less, and covered by
established facts, the price of P5.5 Million was, as clearly Transfer Certificates of Title Nos. T-106932 to T-106937.
worded in Riveras letter (Exh. E), the official and There is, however, a dispute on the first and third
definitive price at which the bank was selling the requisites.
property.
Petitioners allege that there is no counter-offer
made by the Bank, and any supposed counter-offer
There were averments by defendants below, as well as which Rivera (or Co) may have made is unauthorized.
before this Court, that the P5.5 Million price was not Since there was no counter-offer by the Bank, there was
discussed by the Committee and that it was merely nothing for Ejercito (in substitution of Demetria and
quoted to start negotiations regarding the price. As Janolo) to accept.[30] They disputed the factual basis of
correctly characterized by the trial court, this is not
the respondent Courts findings that there was an offer
credible. The testimonies of Luis Co and Jose Entereso
made by Janolo for P3.5 million, to which the Bank

Banking 1st Set of Cases | 54


counter-offered P5.5 million. We have perused the benefit (McIntosh v. Dakota Trust Co., 52 ND 752, 204
evidence but cannot find fault with the said Courts NW 818, 40 ALR 1021).
findings of fact. Verily, in a petition under Rule 45 such
as this, errors of fact -if there be any - are, as a rule, not Application of these principles is especially necessary
reviewable. The mere fact that respondent Court (and because banks have a fiduciary relationship with the
the trial court as well) chose to believe the evidence public and their stability depends on the confidence of
presented by respondent more than that presented by the people in their honesty and efficiency. Such faith will
petitioners is not by itself a reversible error. in fact, such be eroded where banks do not exercise strict care in the
findings merit serious consideration by this Court, selection and supervision of its employees, resulting in
particularly where, as in this case, said courts carefully prejudice to their depositors.
and meticulously discussed their findings. This is basic.
From the evidence found by respondent Court, it is
Be that as it may, and in addition to the foregoing obvious that petitioner Rivera has apparent or implied
disquisitions by the Court of Appeals, let us review the authority to act for the Bank in the matter of selling its
question of Riveras authority to act and petitioners acquired assets. This evidence includes the following:
allegations that the P5.5 million counter-offer was
extinguished by the P4.25 million revised offer of Janolo. (a) The petition itself in par. II-1 (p. 3) states that Rivera
Here, there are questions of law which could be drawn was at all times material to this case, Manager of the
from the factual findings of the respondent Court. They Property Management Department of the Bank. By his
also delve into the contractual elements of consent and own admission, Rivera was already the person in charge
cause. of the Banks acquired assets (TSN, August 6, 1990, pp. 8-
9);
The authority of a corporate officer in dealing with
third persons may be actual or apparent. The doctrine of
(b) As observed by respondent Court, the land was
apparent authority, with special reference to banks, was
laid out in Prudential Bank vs. Court of Appeals,[31] where definitely being sold by the Bank. And during the initial
it was held that: meeting between the buyers and Rivera, the latter
suggested that the buyers offer should be no less than
P3.3 million (TSN, April 26, 1990, pp. 16-17);
Conformably, we have declared in countless decisions
that the principal is liable for obligations contracted by
the agent. The agents apparent representation yields to (c) Rivera received the buyers letter dated August 30,
the principals true representation and the contract is 1987 offering P3.5 million (TSN, 30 July 1990, p. 11);
considered as entered into between the principal and
the third person (citing National Food Authority vs. (d) Rivera signed the letter dated September 1,
Intermediate Appellate Court, 184 SCRA 166). 1987 offering to sell the property for P5.5 million (TSN,
July 30, p. 11);
A bank is liable for wrongful acts of its officers done in
the interests of the bank or in the course of dealings of (e) Rivera received the letter dated September 17,
the officers in their representative capacity but not for 1987 containing the buyers proposal to buy the property
acts outside the scope of their authority (9 C.J.S., p. 417). for P4.25 million (TSN, July 30, 1990, p. 12);
A bank holding out its officers and agents as worthy of
confidence will not be permitted to profit by the frauds (f) Rivera, in a telephone conversation, confirmed that
they may thus be enabled to perpetrate in the apparent the P5.5 million was the final price of the Bank (TSN,
scope of their employment; nor will it be permitted to January 16, 1990, p. 18);
shirk its responsibility for such frauds, even though no
benefit may accrue to the bank therefrom (10 Am Jur (g) Rivera arranged the meeting between the buyers and
2d, p. 114). Accordingly, a banking corporation is liable Luis Co on September 28, 1987, during which the Banks
to innocent third persons where the representation is offer of P5.5 million was confirmed by Rivera (TSN, April
made in the course of its business by an agent acting 26, 1990, pp. 34-35). At said meeting, Co, a major
within the general scope of his authority even though, in shareholder and officer of the Bank, confirmed Riveras
the particular case, the agent is secretly abusing his statement as to the finality of the Banks counter-offer of
authority and attempting to perpetrate a fraud upon his P5.5 million (TSN, January 16, 1990, p. 21; TSN, April 26,
principal or some other person, for his own ultimate 1990, p. 35);

Banking 1st Set of Cases | 55


(h) In its newspaper advertisements and 1319 of the Civil Code[36] and related Supreme Court
announcements, the Bank referred to Rivera as the rulings starting with Beaumont vs. Prieto.[37]
officer acting for the Bank in relation to parties
However, the above-cited authorities and
interested in buying assets owned/acquired by the Bank.
precedents cannot apply in the instant case because, as
In fact, Rivera was the officer mentioned in the Banks
found by the respondent Court which reviewed the
advertisements offering for sale the property in question
testimonies on this point, what was accepted by Janolo
(cf. Exhs. S and S-I).
in his letter dated September 30, 1987 was the Banks
In the very recent case of Limketkai Sons Milling, offer of P5.5 million as confirmed and reiterated to
Inc. vs. Court of Appeals, et al.,[32] the Court, through Demetria and Atty. Jose Fajardo by Rivera and Co during
Justice Jose A. R. Melo, affirmed the doctrine of their meeting on September 28, 1987. Note that the said
apparent authority as it held that the apparent authority letter of September 30, 1987begins with (p)ursuant to
of the officer of the Bank of P.I. in charge of acquired our discussion last 28 September 1987 x x x.
assets is borne out by similar circumstances surrounding
Petitioners insist that the respondent Court should
his dealings with buyers.
have believed the testimonies of Rivera and Co that
To be sure, petitioners attempted to repudiate the September 28, 1987 meeting was meant to have the
Riveras apparent authority through documents and offerors improve on their position of P5.5
testimony which seek to establish million.[38] However, both the trial court and the Court of
Riveras actual authority. These pieces of evidence, Appeals found petitioners testimonial evidence not
however, are inherently weak as they consist of Riveras credible, and we find no basis for changing this finding of
self-serving testimony and various inter-office fact.
memoranda that purport to show his limited actual
Indeed, we see no reason to disturb the lower
authority, of which private respondent cannot be
courts (both the RTC and the CA) common finding that
charged with knowledge. In any event, since the issue is
private respondents evidence is more in keeping with
apparent authority, the existence of which is borne out
truth and logic - that during the meeting on September
by the respondent Courts findings, the evidence of
28, 1987, Luis Co and Rivera confirmed that the P5.5
actual authority is immaterial insofar as the liability of a
million price has been passed upon by the Committee
corporation is concerned.[33]
and could no longer be lowered (TSN of April 27, 1990,
Petitioners also argued that since Demetria and pp. 34-35).[39] Hence, assuming arguendo that the
Janolo were experienced lawyers and their law firm had counter-offer of P4.25 million extinguished the offer of
once acted for the Bank in three criminal cases, they P5.5 million, Luis Cos reiteration of the said P5.5 million
should be charged with actual knowledge of Riveras price during the September 28,
limited authority. But the Court of Appeals in its Decision 1987 meeting revived the said offer. And by virtue of
(p. 12) had already made a factual finding that the the September 30, 1987 letter accepting
buyers had no notice of Riveras actual authority prior to this revived offer, there was a meeting of the minds, as
the sale. In fact, the Bank has not shown that they acted the acceptance in said letter was absolute and
as its counsel in respect to any acquired assets; on the unqualified.
other hand, respondent has proven that Demetria and
We note that the Banks repudiation, through
Janolo merely associated with a loose aggrupation of
Conservator Encarnacion, of Riveras authority and
lawyers (not a professional partnership), one of whose
action, particularly the latters counter-offer of P5.5
members (Atty. Susana Parker) acted in said criminal
million, as being unauthorized and illegal came only on
cases.
May 12, 1988 or more than seven (7) months after
Petitioners also alleged that Demetrias and Janolos Janolos acceptance. Such delay, and the absence of any
P4.25 million counter-offer in the letter circumstance which might have justifiably prevented the
dated September 17, 1987 extinguished the Banks offer Bank from acting earlier, clearly characterizes the
of P5.5 million.[34] They disputed the respondent Courts repudiation as nothing more than a last-minute attempt
finding that there was a meeting of minds when on 30 on the Banks part to get out of a binding contractual
September 1987 Demetria and Janolo through Annex L obligation.
(letter dated September 30, 1987) accepted Riveras
Taken together, the factual findings of the
counter offer of P5.5 million under Annex J (letter dated
respondent Court point to an implied admission on the
September 17, 1987), citing the late Justice Paras, [35] Art.
part of the petitioners that the written offer made

Banking 1st Set of Cases | 56


on September 1, 1987 was carried through during the x x x Of course, the banks letter of September 1, 1987 on
meeting of September 28, 1987. This is the conclusion the official price and the plaintiffs acceptance of the
consistent with human experience, truth and good faith. price on September 30, 1987, are not, in themselves,
formal contracts of sale. They are however clear
It also bears noting that this issue of extinguishment
embodiments of the fact that a contract of sale was
of the Banks offer of P5.5 million was raised for the first
perfected between the parties, such contract being
time on appeal and should thus be disregarded.
binding in whatever form it may have been entered into
(case citations omitted). Stated simply, the banks letter
This Court in several decisions has repeatedly adhered to
of September 1, 1987, taken together with plaintiffs
the principle that points of law, theories, issues of fact
letter dated September 30, 1987, constitute in law a
and arguments not adequately brought to the attention
sufficient memorandum of a perfected contract of sale.
of the trial court need not be, and ordinarily will not be,
considered by a reviewing court, as they cannot be The respondent Court could have added that the
raised for the first time on appeal (Santos vs. IAC, No. written communications commenced not only
74243, November 14, 1986, 145 SCRA 592).[40] from September 1, 1987 but from Janolos August 20,
1987 letter. We agree that, taken together, these letters
xxx It is settled jurisprudence that an issue which was constitute sufficient memoranda - since they include the
neither averred in the complaint nor raised during the names of the parties, the terms and conditions of the
trial in the court below cannot be raised for the first time contract, the price and a description of the property as
on appeal as it would be offensive to the basic rules of the object of the contract.
fair play, justice and due process (Dihiansan vs. CA, 153
But let it be assumed arguendo that the counter-
SCRA 713 [1987]; Anchuelo vs. IAC, 147 SCRA 434
offer during the meeting on September 28, 1987 did
[1987]; Dulos Realty & Development Corp. vs. CA, 157
constitute a new offer which was accepted by Janolo
SCRA 425 [1988]; Ramos vs. IAC, 175 SCRA 70
on September 30, 1987. Still, the statute of frauds will
[1989]; Gevero vs. IAC, G.R. 77029, August 30, 1990).[41]
not apply by reason of the failure of petitioners to object
Since the issue was not raised in the pleadings as an to oral testimony proving petitioner Banks counter-offer
affirmative defense, private respondent was not given of P5.5 million. Hence, petitioners - by such utter failure
an opportunity in the trial court to controvert the same to object - are deemed to have waived any defects of
through opposing evidence. Indeed, this is a matter of the contract under the statute of frauds, pursuant to
due process. But we passed upon the issue anyway, if Article 1405 of the Civil Code:
only to avoid deciding the case on purely procedural
grounds, and we repeat that, on the basis of the Art. 1405. Contracts infringing the Statute of Frauds,
evidence already in the record and as appreciated by the referred to in No. 2 of Article 1403, are ratified by the
lower courts, the inevitable conclusion is simply that failure to object to the presentation of oral evidence to
there was a perfected contract of sale. prove the same, or by the acceptance of benefits under
them.
As private respondent pointed out in his
The Third Issue: Is the Contract Enforceable? Memorandum, oral testimony on the reaffirmation of
The petition alleged:[42] the counter-offer of P5.5 million is aplenty -and the
silence of petitioners all throughout the presentation
Even assuming that Luis Co or Rivera did relay a verbal makes the evidence binding on them thus:
offer to sell at P5.5 million during the meeting of 28 A - Yes, sir. I think it was September 28,
September 1987, and it was this verbal offer that 1987 and I was again present because
Demetria and Janolo accepted with their letter of 30 Atty. Demetria told me to accompany him
September 1987, the contract produced thereby would and we were able to meet Luis Co at the
be unenforceable by action - there being no note, Bank.
memorandum or writing subscribed by the Bank to
evidence such contract. (Please see Article 1403[2], Civil xxx xxx xxx
Code.) Q - Now, what transpired during this meeting
Upon the other hand, the respondent Court in its with Luis Co of the Producers Bank?
Decision (p. 14) stated:

Banking 1st Set of Cases | 57


A - Atty. Demetria asked Mr. Luis Co whether Office in Producers Bank Building during
the price could be reduced, sir. this meeting?
Q - What price? A - Mr. Co himself, Mr. Rivera, Atty. Fajardo
and I.
A - The 5.5 million pesos and Mr. Luis Co said
that the amount cited by Mr. Mercurio Q - By Mr. Co you are referring to?
Rivera is the final price and that is the
A - Mr. Luis Co.
price they intends (sic) to have, sir.
Q - After this meeting with Mr. Luis Co, did you
Q - What do you mean?
and your partner accede on (sic) the
A - That is the amount they want, sir. counter offer by the bank?
Q - What is the reaction of the plaintiff A - Yes, sir, we did. Two days thereafter we
Demetria to Luis Cos statment (sic) that sent our acceptance to the bank which
the defendant Riveras counter-offer of offer we accepted, the offer of the bank
5.5 million was the defendants bank (sic) which is P5.5 million.
final offer?
[Direct testimony of Atty. Demetria, TSN, 26 April 1990,
A - He said in a day or two, he will make final
at pp. 34-36.]
acceptance, sir.
---- 0 ----
Q - What is the response of Mr. Luis Co?
Q - According to Atty. Demetrio Demetria, the
A - He said he will wait for the position of Atty.
amount of P5.5 million was reached by
Demetria, sir.
the Committee and it is not within his
power to reduce this amount. What can
[Direct testimony of Atty. Jose Fajardo, TSN, January 16,
you say to that statement that the
1990, at pp. 18-21.]
amount of P5.5 million was reached by
----0---- the Committee?
Q - What transpired during that meeting A - It was not discussed by the Committee but
between you and Mr. Luis Co of the it was discussed initially by Luis Co and
defendant Bank? the group of Atty. Demetrio Demetria and
Atty. Pajardo (sic), in that September 28,
A - We went straight to the point because he 1987 meeting, sir.
being a busy person, I told him if the
amount of P5.5 million could still be
[Direct testimony of Mercurio Rivera, TSN, 30 July 1990,
reduced and he said that was already
pp. 14-15.]
passed upon by the committee. What the
bank expects which was contrary to what
Mr. Rivera stated. And he told me that is
The Fourth Issue: May the Conservator Revoke
the final offer of the bank P5.5 million and
the Perfected and Enforceable Contract?
we should indicate our position as soon as
possible. It is not disputed that the petitioner Bank was
under a conservator placed by the Central Bank of
Q - What was your response to the answer of
the Philippines during the time that the negotiation and
Mr. Luis Co?
perfection of the contract of sale took place. Petitioners
A - I said that we are going to give him our energetically contended that the conservator has the
answer in a few days and he said that was power to revoke or overrule actions of the management
it. Atty. Fajardo and I and Mr. Mercurio or the board of directors of a bank, under Section 28-A
[Rivera] was with us at the time at his of Republic Act No. 265 (otherwise known as the Central
office. Bank Act) as follows:
Q - For the record, your Honor please, will you
Whenever, on the basis of a report submitted by the
tell this Court who was with Mr. Co in his
appropriate supervising or examining department, the

Banking 1st Set of Cases | 58


Monetary Board finds that a bank or a non-bank We deny that Producers Bank has ever made a legal
financial intermediary performing quasi - banking counter-offer to any of your clients nor perfected a
functions is in a state of continuing inability or contract to sell and buy with any of them for the
unwillingness to maintain a state of liquidity deemed following reasons.
adequate to protect the interest of depositors and
creditors, the Monetary Board may appoint a In the Inter-Office Memorandum dated April 25, 1986
conservator to take charge of the assets, liabilities, and addressed to and approved by former Acting Conservator
the management of that institution, collect all monies Mr. Andres I. Rustia, Producers Bank Senior Manager
and debts due said institution and exercise all powers Perfecto M. Pascua detailed the functions of Property
necessary to preserve the assets of the institution, Management Department (PMD) staff and officers
reorganize the management thereof, and restore its (Annex A), you will immediately read that Manager Mr.
viability. He shall have the power to overrule or revoke Mercurio Rivera or any of his subordinates
the actions of the previous management and board of has no authority, power or right to make any alleged
directors of the bank or non-bank financial intermediary counter-offer. In short, your lawyer-clients did not deal
performing quasi-banking functions, any provision of law with the authorized officers of the bank.
to the contrary notwithstanding, and such other powers
as the Monetary Board shall deem necessary. Moreover, under Secs. 23 and 36 of the Corporation
Code of the Philippines (Batas Pambansa Blg. 68) and
In the first place, this issue of the Conservators
Sec. 28-A of the Central Bank Act (Rep. Act No. 265, as
alleged authority to revoke or repudiate the perfected
amended), only the Board of Directors/Conservator may
contract of sale was raised for the first time in this
authorize the sale of any property of the
Petition - as this was not litigated in the trial court or
corporation/bank.
Court of Appeals. As already stated earlier, issues not
raised and/or ventilated in the trial court, let alone in the
Court of Appeals, cannot be raised for the first time on Our records do not show that Mr. Rivera was authorized
appeal as it would be offensive to the basic rules of fair by the old board or by any of the bank conservators
play, justice and due process.[43] (starting January, 1984) to sell the aforesaid property to
any of your clients. Apparently, what took place were just
In the second place, there is absolutely no evidence preliminary discussions/ consultations between him and
that the Conservator, at the time the contract was your clients, which everyone knows cannot bind the
perfected, actually repudiated or overruled said contract Banks Board or Conservator.
of sale. The Banks acting conservator at the time,
Rodolfo Romey, never objected to the sale of the We are, therefore, constrained to refuse any tender of
property to Demetria and Janolo. What petitioners are payment by your clients, as the same is patently violative
really referring to is the letter of Conservator of corporate and banking laws. We believe that this is
Encarnacion, who took over from Romey after the sale more than sufficient legal justification for refusing said
was perfected on September 30, 1987 (Annex V, alleged tender.
petition) which unilaterally repudiated - not the contract
- but the authority of Rivera to make a binding offer - Rest assured that we have nothing personal against your
and which unarguably came months after the perfection clients. All our acts are official, legal and in accordance
of the contract. Said letter dated May 12, 1988 is with law. We also have no personal interest in any of the
reproduced hereunder: properties of the Bank.

May 12, 1988 Please be advised accordingly.


Atty. Noe C. Zarate
Zarate Carandang Perlas & Ass. Very truly yours,
Suite 323 Rufino Building (Sgd.) Leonida T. Encarnacion
Ayala Avenue, Makati, Metro Manila LEONIDA T. ENCARNACION
Acting Conservator
Dear Atty. Zarate:
In the third place, while admittedly, the Central
This pertains to your letter dated May 5, 1988 on behalf Bank law gives vast and far-reaching powers to the
of Attys. Janolo and Demetria regarding the six (6) conservator of a bank, it must be pointed out that such
parcels of land located at Sta. Rosa, Laguna. powers must be related to the (preservation of) the

Banking 1st Set of Cases | 59


assets of the bank, (the reorganization of) the [Chan vs. Court of Appeals, G.R. No. L-27488, June 30,
management thereof and (the restoration of) its 1970, 33 SCRA 737, reiterating a long line of decisions].
viability. Such powers, enormous and extensive as they This Court has emphatically declared that it is not the
are, cannot extend to the post-facto repudiation of function of the Supreme Court to analyze or weigh such
perfected transactions, otherwise they would infringe evidence all over again, its jurisdiction being limited to
against the non-impairment clause of the reviewing errors of law that might have been committed
Constitution.[44] If the legislature itself cannot revoke an by the lower court (Tiongco v. De la Merced, G.R. No. L-
existing valid contract, how can it delegate such non- 24426, July 25, 1974, 58 SCRA 89; Coronavs. Court of
existent powers to the conservator under Section 28-A Appeals, G.R. No. L-62482, April 28, 1983, 121 SCRA 865;
of said law? Baniqued vs. Court of Appeals, G.R. No. L-
47531, February 20, 1984, 127 SCRA 596). Barring,
Obviously, therefore, Section 28-A merely gives the
therefore, a showing that the findings complained of are
conservator power to revoke contracts that are, under
totally devoid of support in the record, or that they are so
existing law, deemed to be defective - i.e., void,
glaringly erroneous as to constitute serious abuse of
voidable, unenforceable or rescissible. Hence, the
discretion, such findings must stand, for this Court is not
conservator merely takes the place of a banks board of
expected or required to examine or contrast the oral and
directors. What the said board cannot do - such as
documentary evidence submitted by the parties [Santa
repudiating a contract validly entered into under the
Ana, Jr. vs. Hernandez, G.R. No. L-16394, December 17,
doctrine of implied authority - the conservator cannot
1966, 18 SCRA 973] [at pp. 144-145.]
do either. Ineluctably, his power is not unilateral and he
cannot simply repudiate valid obligations of the Bank. Likewise, in Bernardo vs. Court of Appeals,[46] we
His authority would be only to bring court actions to held:
assail such contracts - as he has already done so in the
instant case. A contrary understanding of the law would The resolution of this petition invites us to closely
simply not be permitted by the Constitution. Neither by scrutinize the facts of the case, relating to the sufficiency
common sense. To rule otherwise would be to enable a of evidence and the credibility of witnesses presented.
failing bank to become solvent, at the expense of third This Court so held that it is not the function of the
parties, by simply getting the conservator to unilaterally Supreme Court to analyze or weigh such evidence all
revoke all previous dealings which had one way or over again. The Supreme Courts jurisdiction is limited to
another come to be considered unfavorable to the Bank, reviewing errors of law that may have been committed
yielding nothing to perfected contractual rights nor by the lower court. The Supreme Court is not a trier of
vested interests of the third parties who had dealt with facts. x x x
the Bank.
As held in the recent case of Chua Tiong Tay vs.
Court of Appeals and Goldrock Construction and
The Fifth Issue: Were There Reversible Errors of Fact?
Development Corp.:[47]
Basic is the doctrine that in petitions for review
under Rule 45 of the Rules of Court, findings of fact by
the Court of Appeals are not reviewable by the Supreme The Court has consistently held that the factual findings
Court. In Andres vs. Manufacturers Hanover & Trust of the trial court, as well as the Court of Appeals, are
Corporation,[45] we held: final and conclusive and may not be reviewed on appeal.
Among the exceptional circumstances where a
reassessment of facts found by the lower courts is
x x x. The rule regarding questions of fact being raised
allowed are when the conclusion is a finding grounded
with this Court in a petition for certiorari under Rule 45
entirely on speculation, surmises or conjectures; when
of the Revised Rules of Court has been stated in
the inference made is manifestly absurd, mistaken or
Remalante vs. Tibe, G.R. No. 59514, February 25, 1988,
impossible; when there is grave abuse of discretion in
158 SCRA 138, thus:
the appreciation of facts; when the judgment is
premised on a misapprehension of facts; when the
The rule in this jurisdiction is that only questions of law
findings went beyond the issues of the case and the
may be raised in a petition for certiorari under Rule 45 of
same are contrary to the admissions of both appellant
the Revised Rules of Court. The jurisdiction of the
and appellee. After a careful study of the case at bench,
Supreme Court in cases brought to it from the Court of
we find none of the above grounds present to justify the
Appeals is limited to reviewing and revising the errors of
re-evaluation of the findings of fact made by the courts
law imputed to it, its findings of the fact being conclusive
below.

Banking 1st Set of Cases | 60


In the same vein, the ruling of this Court in the The respondent Court did not believe the evidence
recent case of South Sea Surety and Insurance Company, of the petitioners on this point, characterizing it as not
Inc. vs. Hon. Court of Appeals, et al.[48] is equally credible and at best equivocal, and considering the
applicable to the present case: gratuitous and self-serving character of these
declarations, the banks submissions on this point do not
We see no valid reason to discard the factual inspire belief.
conclusions of the appellate court. x x x (I)t is not the
To become credible and unequivocal, petitioners
function of this Court to assess and evaluate all over
should have presented then Conservator Rodolfo Romey
again the evidence, testimonial and documentary,
to testify on their behalf, as he would have been in the
adduced by the parties, particularly where, such as here,
best position to establish their thesis. Under the rules on
the findings of both the trial court and the appellate
evidence,[51]such suppression gives rise to the
court on the matter coincide. (italics supplied)
presumption that his testimony would have been
Petitioners, however, assailed the respondent adverse, if produced.
Courts Decision as fraught with findings and conclusions
The second point was squarely raised in the Court
which were not only contrary to the evidence on record
of Appeals, but petitioners evidence was deemed
but have no bases at all, specifically the findings that (1)
insufficient by both the trial court and the respondent
the Banks counter-offer price of P5.5 million had been
Court, and instead, it was respondents submissions that
determined by the past due committee and approved by
were believed and became bases of the conclusions
conservator Romey, after Rivera presented the same
arrived at.
for discussion and (2) the meeting with Co was not to
scale down the price and start negotiations anew, but a In fine, it is quite evident that the legal conclusions
meeting on the already determined price of P5.5 million. arrived at from the findings of fact by the lower courts
Hence, citing Philippine National Bank vs. Court of are valid and correct. But the petitioners are now asking
Appeals,[49] petitioners are asking us to review and this Court to disturb these findings to fit the conclusion
reverse such factual findings. they are espousing. This we cannot do.
The first point was clearly passed upon by the Court To be sure, there are settled exceptions where the
of Appeals,[50] thus: Supreme Court may disregard findings of fact by the
Court of Appeals.[52] We have studied both the records
There can be no other logical conclusion than that when, and the CA Decision and we find no such exceptions in
on September 1, 1987, Rivera informed plaintiffs by this case. On the contrary, the findings of the said Court
letter that the banks counter-offer is at P5.5 Million for are supported by a preponderance of competent and
more than 101 hectares on lot basis, such counter-offer credible evidence. The inferences and conclusions are
price had been determined by the Past Due Committee reasonably based on evidence duly identified in the
and approved by the Conservator after Rivera had duly Decision. Indeed, the appellate court patiently traversed
presented plaintiffs offer for discussion by the and dissected the issues presented before it, lending
Committee x x x. Tersely put, under the established fact, credibility and dependability to its findings. The best that
the price of P5.5 Million was, as clearly worded in can be said in favor of petitioners on this point is that
Riveras letter (Exh. E), the official and definitive price at the factual findings of respondent Court did not
which the bank was selling the property. (p. 11, CA correspond to petitioners claims, but were closer to the
Decision) evidence as presented in the trial court by private
respondent. But this alone is no reason to reverse or
xxx xxx xxx ignore such factual findings, particularly where, as in this
case, the trial court and the appellate court were in
xxx. The argument deserves scant consideration. As common agreement thereon. Indeed, conclusions of fact
pointed out by plaintiff, during the meeting of of a trial judge - as affirmed by the Court of Appeals - are
September 28, 1987 between the plaintiffs, Rivera and conclusive upon this Court, absent any serious abuse or
Luis Co, the senior vice-president of the bank, where the evident lack of basis or capriciousness of any kind,
topic was the possible lowering of the price, the bank because the trial court is in a better position to observe
official refused it and confirmed that the P5.5 Million the demeanor of the witnesses and their courtroom
price had been passed upon by the Committee and manner as well as to examine the real evidence
could no longer be lowered (TSN of April 27, 1990, pp. presented.
34-35) (p. 15, CA Decision).

Banking 1st Set of Cases | 61


Epilogue fulfillment of binding contracts. Certainly, the Court
cannot stamp its imprimatur on such outrageous
In summary, there are two procedural issues
proposition.
involved - forum-shopping and the raising of issues for
the first time on appeal [viz., the extinguishment of the WHEREFORE, finding no reversible error in the
Banks offer of P5.5 million and the conservators powers questioned Decision and Resolution, the Court hereby
to repudiate contracts entered into by the Banks DENIES the petition. The assailed Decision is AFFIRMED.
officers] - which per se could justify the dismissal of the Moreover, petitioner Bank is REPRIMANDED for
present case. We did not limit ourselves thereto, but engaging in forum-shopping and WARNED that a
delved as well into the substantive issues - the repetition of the same or similar acts will be dealt with
perfection of the contract of sale and its enforceability, more severely. Costs against petitioners.
which required the determination of questions of fact.
SO ORDERED.
While the Supreme Court is not a trier of facts and as a
Narvasa, C.J. (Chairman), Davide, Jr.,
rule we are not required to look into the factual bases of
Melo, and Francisco, JJ., concur.
respondent Courts decisions and resolutions, we did so
just the same, if only to find out whether there is reason
to disturb any of its factual findings, for we are only too
aware of the depth, magnitude and vigor by which the THIRD DIVISION
parties, through their respective eloquent counsel, [G.R. No. 100701. March 28, 2001]
argued their positions before this Court. PRODUCERS BANK OF THE PHILIPPINES, petitioner,
vs. NATIONAL LABOR RELATIONS COMMISSION
We are not unmindful of the tenacious plea that
and PRODUCERS BANK EMPLOYEES
the petitioner Bank is operating abnormally under a [1]
ASSOCIATION, respondents.
government-appointed conservator and there is need to
rehabilitate the Bank in order to get it back on its feet x x Before us is a special civil action for certiorari with
x as many people depend on (it) for investments, prayer for preliminary injunction and/or restraining
deposits and well as employment. As of June 1987, the order seeking the nullification of (1) the decision of
Banks overdraft with the Central Bank had already public respondent in NLRC-NCR Case No. 02-00753-88,
reached P1.023 billion x x x and there were (other) offers entitled Producers Bank Employees Association v.
to buy the subject properties for a substantial amount of Producers Bank of the Philippines, promulgated on 30
money.[53] April 1991, reversing the Labor Arbiters dismissal of
private respondents complaint and (2) public
While we do not deny our sympathy for this
respondents resolution dated 18 June 1991 denying
distressed bank, at the same time, the Court cannot
petitioners motion for partial reconsideration.
emotionally close its eyes to overriding considerations of
substantive and procedural law, like respect for The present petition originated from a complaint
perfected contracts, non-impairment of obligations and filed by private respondent on 11 February 1988 with
sanctions against forum-shopping, which must be the Arbitration Branch, National Capital Region, National
upheld under the rule of law and blind justice. Labor Relations Commission (NLRC), charging petitioner
with diminution of benefits, non-compliance with Wage
This Court cannot just gloss over private
Order No. 6 and non-payment of holiday pay. In
respondents submission that, while the subject
addition, private respondent prayed for damages.[2]
properties may currently command a much higher price,
it is equally true that at the time of the transaction in On 31 March 1989, Labor Arbiter Nieves V. de
1987, the price agreed upon of P5.5 million was Castro found private respondents claims to be
reasonable, considering that the Bank acquired these unmeritorious and dismissed its complaint.[3] In a
properties at a foreclosure sale for no more than P 3.5 complete reversal, however, the NLRC[4] granted all of
million.[54] That the Bank procrastinated and refused to private respondents claims, except for damages.[5] The
honor its commitment to sell cannot now be used by it dispositive portion of the NLRCs decision provides
to promote its own advantage, to enable it to escape its
binding obligation and to reap the benefits of the WHEREFORE, premises considered, the appealed
increase in land values. To rule in favor of the Bank Decision is, as it is hereby, SET ASIDE and another one
simply because the property in question has issued ordering respondent-appellee to pay
algebraically accelerated in price during the long period complainant-appellant:
of litigation is to reward lawlessness and delays in the

Banking 1st Set of Cases | 62


1. The unpaid bonus (mid-year and Christmas bonus) 3. On the alleged non-payment of legal holiday pay, the
and 13th month pay; NLRC again gravely abused its discretion when it patently
and palpably erred in approving and adopting the
2. Wage differentials under Wage Order No. 6 for position of appellant (private respondent UNION)
November 1, 1984 and the corresponding adjustment without giving any reason or justification therefor which
thereof; and position does not squarely traverse or refute the Labor
Arbiters correct finding and ruling (p. 18, Motion for
3. Holiday pay under Article 94 of the Labor Code, but Partial Reconsideration, Annex H).[6]
not to exceed three (3) years.
On 29 July 1991, the Court granted petitioners
prayer for a temporary restraining order enjoining
The rest of the claims are dismissed for lack of merit. respondents from executing the 30 April 1991 Decision
and 18 June 1991 Resolution of the NLRC.[7]
SO ORDERED.
Coming now to the merits of the petition, the Court
Petition filed a Motion for Partial Reconsideration, shall discuss the issues ad seriatim.
which was denied by the NLRC in a Resolution issued on
18 June 1991. Hence, recourse to this Court. Bonuses
Petitioner contends that the NLRC gravely abused As to the bonuses, private respondent declared in
its discretion in ruling as it did for the succeeding its position paper[8] filed with the NLRC that
reasons stated in its Petition
1. Producers Bank of the Philippines, a banking
1. On the alleged diminution of benefits, the NLRC institution, has been providing several benefits to its
gravely abused its discretion when (1) it contravened the employees since 1971 when it started its
Supreme Court decision in Traders Royal Bank v. NLRC, operation. Among the benefits it had been regularly
et al., G.R. No. 88168, promulgated on August 30, 1990, giving is a mid-year bonus equivalent to an employees
(2) its ruling is not justified by law and Art. 100 of the one-month basic pay and a Christmas bonus equivalent
Labor Code, (3) its ruling is contrary to the CBA, and (4) to an employees one whole month salary (basic pay plus
the so-called company practice invoked by it has no legal allowance);
and moral bases (p. 2, Motion for Partial
Reconsideration, Annex H); 2. When P.D. 851, the law granting a 13th month pay,
took effect, the basic pay previously being given as part
2. On the alleged non-compliance with Wage Order No. of the Christmas bonus was applied as compliance to it
6, the NLRC again gravely abused its discretion when it (P.D. 851), the allowances remained as Christmas bonus;
patently and palpably erred in holding that it is more
inclined to adopt the stance of appellant (private 3. From 1981 up to 1983, the bank continued giving one
respondent UNION) in this issue since it is more in month basic pay as mid-year bonus, one month basic
keeping with the law and its implementing provisions pay as 13th month pay but the Christmas bonus was no
and the intendment of the parties as revealed in their longer based on the allowance but on the basic pay of
CBA without giving any reason or justification for such the employees which is higher;
conclusions as the stance of appellant (private
respondent UNION) does not traverse the clear and 4. In the early part of 1984, the bank was placed under
correct finding and conclusion of the Labor Arbiter. conservatorship but it still provided the traditional mid-
year bonus;
Furthermore, the petitioner,
under conservatorship and distressed, is exempted 5. By virtue of an alleged Monetary Board Resolution No.
under Wage Order No. 6. 1566, the bank only gave a one-half (1/2) month basic
pay as compliance of the 13th month pay and none for
Finally, the wage differentials under Wage Order No. 6 the Christmas bonus. In a tabular form, here are the
for November 1, 1984 and the corresponding banks violations:
adjustment thereof (par. 2, dispositive portion, NLRC YEAR MID-YEAR CHRISTMAS 13TH MO. PAY
Decision), has prescribed (p. 12, Motion for Partial BONUS BONUS
Reconsideration, Annex H). previous one mo. basic one mo. basic one mo.
years basic

Banking 1st Set of Cases | 63


1984 [one mo. - none - one-half mo. it is made part of the wage, salary or compensation of
basic] basic the employee.[15]
1985 one-half mo. - none - one-half mo.
However, an employer cannot be forced to
basic basic
distribute bonuses which it can no longer afford to
1986 one-half mo. one-half mo. one mo.
pay. To hold otherwise would be to penalize the
basic basic basic
employer for his past generosity. Thus, in Traders Royal
1987 one-half mo. one-half mo. one mo. Bank v. NLRC,[16] we held that
basic basic basic
Private respondent argues that the mid-year and It is clear x x x that the petitioner may not be obliged to
Christmas bonuses, by reason of their having been given pay bonuses to its employees. The matter of giving them
for thirteen consecutive years, have ripened into a bonuses over and above their lawful salaries and
vested right and, as such, can no longer be unilaterally allowances is entirely dependent on the profits, if any,
withdrawn by petitioner without violating Article 100 of realized by the Bank from its operations during the past
Presidential Decree No. 442[9] which prohibits the year.
diminution or elimination of benefits already being
enjoyed by the employees. Although private respondent From 1979-1985, the bonuses were less because the
concedes that the grant of a bonus is discretionary on income of the Bank had decreased. In 1986, the income
the part of the employer, it argues that, by reason of its of the Bank was only 20.2 million pesos, but the Bank
long and regular concession, it may become part of the still gave out the usual two (2) months basic mid-year
employees regular compensation.[10] and two months gross year-end bonuses.The petitioner
pointed out, however, that the Bank weakened
On the other hand, petitioner asserts that it cannot considerably after 1986 on account of political
be compelled to pay the alleged bonus differentials due developments in the country. Suspected to be a Marcos-
to its depressed financial condition, as evidenced by the owned or controlled bank, it was placed under
fact that in 1984 it was placed under conservatorship by
sequestration by the present administration and is now
the Monetary Board. According to petitioner, it
managed by the Presidential Commission on Good
sustained losses in the millions of pesos from 1984 to
Government (PCGG).
1988, an assertion which was affirmed by the labor
arbiter. Moreover, petitioner points out that the
In light of these submissions of the petitioner, the
collective bargaining agreement of the parties does not
contention of the Union that the granting of bonuses to
provide for the payment of any mid-year or Christmas
the employees had ripened into a company practice that
bonus. On the contrary, section 4 of the collective
may not be adjusted to the prevailing financial condition
bargaining agreement states that
of the Bank has no legal and moral bases. Its fiscal
condition having declined, the Bank may not be forced
Acts of Grace. Any other benefits or privileges which are
to distribute bonuses which it can no longer afford to
not expressly provided in this Agreement, even if now
pay and, in effect, be penalized for its past generosity to
accorded or hereafter accorded to the employees, shall
its employees.
be deemed purely acts of grace dependent upon the
sole judgment and discretion of the BANK to grant,
Private respondents contention, that the decrease in the
modify or withdraw.[11]
mid-year and year-end bonuses constituted a diminution
A bonus is an amount granted and paid to an of the employees salaries, is not correct, for bonuses are
employee for his industry and loyalty which contributed not part of labor standards in the same class as salaries,
to the success of the employers business and made cost of living allowances, holiday pay, and leave benefits,
possible the realization of profits. It is an act of which are provided by the Labor Code.
generosity granted by an enlightened employer to spur
This doctrine was reiterated in the more recent
the employee to greater efforts for the success of the
case of Manila Banking Corporation v. NLRC[17] wherein
business and realization of bigger profits.[12] The granting
the Court made the following pronouncements
of a bonus is a management prerogative, something
given in addition to what is ordinarily received by or
By definition, a bonus is a gratuity or act of liberality of
strictly due the recipient.[13] Thus, a bonus is not a
the giver which the recipient has no right to demand as a
demandable and enforceable obligation,[14] except when
matter of right. It is something given in addition to what
is ordinarily received by or strictly due the recipient. The

Banking 1st Set of Cases | 64


granting of a bonus is basically a management interest of depositors and creditors, the Monetary Board
prerogative which cannot be forced upon the employer may appoint a conservator to take charge of the assets,
who may not be obliged to assume the onerous burden liabilities, and the management of that banking
of granting bonuses or other benefits aside from the institution, collect all monies and debts due said bank
employees basic salaries or wages, especially so if it is and exercise all powers necessary to preserve the assets
incapable of doing so. of the bank, reorganize the management thereof and
restore its viability. He shall have the power to overrule
xxx xxx xxx
or revoke the actions of the previous management and
board of directors of the bank, any provision of law to
Clearly then, a bonus is an amount given ex gratia to an
the contrary notwithstanding, and such other powers as
employee by an employer on account of success in
the Monetary Board shall deem necessary.
business or realization of profits. How then can an
employer be made liable to pay additional benefits in xxx xxx xxx
the nature of bonuses to its employees when it has been
Under Section 28-A, the Monetary Board may place
operating on considerable net losses for a given period
a bank under the control of a conservator when it finds
of time?
that the bank is continuously unable or unwilling to
maintain a condition of solvency or liquidity. In Central
Records bear out that petitioner Manilabank was already
Bank of the Philippines v. Court of Appeals,[23] the Court
in dire financial straits in the mid-80s. As early as 1984,
declared that the order placing petitioner herein under
the Central Bank found that Manilabank had been
conservatorship had long become final and its validity
suffering financial losses. Presumably, the problems
could no longer be litigated upon. Also, in the same case,
commenced even before their discovery in 1984. As
the Court found that sometime in August, 1983, some
earlier chronicled, the Central Bank placed petitioner
news items triggered a bank-run in petitioner which
bank under comptrollership in 1984 because of liquidity
resulted in continuous over-drawings on petitioners
problems and excessive interbank borrowings. In 1987, it
demand deposit account with the Central Bank; the
was placed under receivership and ordered to close
over-drawings reached P143.955 million by 17 January
operation. In 1988, it was ordered liquidated.
1984; and as of 13 February 1990, petitioner had over-
drawings of up to P1.233 billion, which evidences
It is evident, therefore, that petitioner bank was petitioners continuing inability to maintain a condition of
operating on net losses from the years 1984, 1985 and solvency and liquidity, thus justifying the
1986, thus, resulting to its eventual closure in 1987 and conservatorship. Our findings in the Central Bank case
liquidation in 1988. Clearly, there was no success in coincide with petitioners claims that it continuously
business or realization of profits to speak of that would
suffered losses from 1984 to 1988 as follows -
warrant the conferment of additional benefits sought by
private respondents. No company should be compelled
YEAR NET LOSSES IN MILLIONS OF PESOS
to act liberally and confer upon its employees additional
1984 P 144.418
benefits over and above those mandated by law when it
1985 P 144.940
is plagued by economic difficulties and financial
1986 P 132.940
losses. No act of enlightened generosity and self-interest
1987 P 84.182
can be exacted from near empty, if not empty coffers.
It was established by the labor arbiter[18] and the January-February 1988 P 9.271
NLRC[19] and admitted by both parties[20] that petitioner
was placed under conservatorship by the Monetary These losses do not include the interest expenses on the
Board, pursuant to its authority under Section 28-A of overdraft loan of the petitioner to the Central Bank,
Republic Act No. 265,[21] as amended by Presidential which interest as of July 31, 1987, amounted to
Decree No. 72,[22] which provides P610.065 Million, and penalties on reserve deficiencies
which amounted to P89.029 Million. The principal
Sec. 28-A. Appointment of conservator. - Whenever, on balance of the overdraft amounted to P971.632 Million
the basis of a report submitted by the appropriate as of March 16, 1988.[24]
supervising and examining department, the Monetary
Petitioner was not only experiencing a decline in its
Board finds that a bank is in a state of continuing
profits, but was reeling from tremendous losses
inability or unwillingness to maintain a condition of
triggered by a bank-run which began in 1983. In such a
solvency and liquidity deemed adequate to protect the

Banking 1st Set of Cases | 65


depressed financial condition, petitioner cannot be PD 851, which was issued by President Marcos on
legally compelled to continue paying the same amount 16 December 1975, requires all employers to pay their
of bonuses to its employees. Thus, the conservator was employees receiving a basic salary of not more than
justified in reducing the mid-year and Christmas bonuses P1,000 a month,[29] regardless of the nature of the
of petitioners employees. To hold otherwise would be to employment, a 13th month pay, not later than December
defeat the reason for the conservatorship which is to 24 of every year.[30] However, employers already paying
preserve the assets and restore the viability of the their employees a 13th month pay or its equivalent are
financially precarious bank. Ultimately, it is to the not covered by the law. Under the Revised Guidelines on
employees advantage that the conservatorship achieve the Implementation of the 13th-Month Pay Law,[31] the
its purposes for the alternative would be petitioners term equivalent shall be construed to include Christmas
closure whereby employees would lose not only their bonus, mid-year bonus, cash bonuses and other
benefits, but their jobs as well. payments amounting to not less than 1/12 of the basic
salary. The intention of the law was to grant some relief
13th Month Pay
not to all workers but only to those not actually paid a
With regard to the 13th month pay, the NLRC 13th month salary or what amounts to it, by whatever
adopted the position taken by private respondent and name called. It was not envisioned that a double burden
held that the conservator was not justified in diminishing would be imposed on the employer already paying his
or not paying the 13th month pay and that petitioner employees a 13th month pay or its equivalent whether
should have instead applied for an exemption, in out of pure generosity or on the basis of a binding
accordance with section 7 of Presidential Decree No. agreement. To impose upon an employer already giving
851 (PD 851), as amended by Presidential Decree No. his employees the equivalent of a 13th month pay would
1364, but that it did not do so.[25] The NLRC held that the be to penalize him for his liberality and in all probability,
actions of the conservator ran counter to the provisions the employer would react by withdrawing the bonuses
of PD 851. or resist further voluntary grants for fear that if and
when a law is passed giving the same benefits, his prior
In its position paper,[26] private respondent claimed concessions might not be given due credit.[32]
that petitioner made the following payments to its
members In the case at bar, even assuming the truth of
YEAR MID-YEAR 13th MONTH PAY CHRISTMAS private respondents claims as contained in its position
BONUS BONUS paper or Memorandum regarding the payments
1984 1 month basic month basic None received by its members in the form of 13th month pay,
1985 month basic month basic None mid-year bonus and Christmas bonus, it is noted that, for
1986 month basic 1 month basic month basic each and every year involved, the total amount given by
1987 month basic 1 month basic month basic petitioner would still exceed, or at least be equal to, one
However, in its Memorandum[27] filed before this Court, month basic salary and thus, may be considered as an
private respondent revised its claims as follows equivalent of the 13th month pay mandated by PD
851. Thus, petitioner is justified in crediting the mid-year
YEAR MID-YEAR 13th MONTH PAY CHRISTMAS BONUS
bonus and Christmas bonus as part of the 13th month
BONUS
pay.
1984 1 month None month basic
basic Wage Order No. 6
1985 month basic None month basic
Wage Order No. 6, which came into effect on 1
1986 month basic month basic 1 month basic
November 1984, increased the statutory minimum wage
1987 month basic month basic 1 month basic of workers, with different increases being specified for
1988 month basic month basic 1 month basic agricultural plantation and non-agricultural workers. The
Petitioner argues that it is not covered by PD 851 since bone of contention, however, involves Section 4 thereof
the mid-year and Christmas bonuses it has been giving which reads -
its employees from 1984 to 1988 exceeds the basic
salary for one month (except for 1985 where a total of All wage increase in wage and/or allowance granted by
one month basic salary was given). Hence, this amount employers between June 17, 1984 and the effectivity of
should be applied towards the satisfaction of the this Order shall be credited as compliance with the
13th month pay, pursuant to Section 2 of PD 851.[28] minimum wage and allowance adjustments prescribed
herein provided that where the increases are less than

Banking 1st Set of Cases | 66


the applicable amount provided in this Order, the Petitioner argues that it complied with Wage Order
employer shall pay the difference. Such increases shall No. 6 because the first year salary and allowance
not include anniversary wage increases provided in increase provided for under the collective bargaining
collective bargaining agreements unless the agreement agreement can be credited against the wage and
expressly provide otherwise. allowance increase mandated by such wage order.Under
Wage Order No. 6, all increases in wages or allowances
On 16 November 1984, the parties entered into a
granted by the employer between 17 June 1984 and 1
collective bargaining agreement providing for the
November 1984 shall be credited as compliance with the
following salary adjustments
wage and allowance adjustments prescribed
therein. Petitioner asserts that although the collective
Article VIII. Section 1. Salary Adjustments. Cognizant of
bargaining agreement was signed by the parties on 16
the effects of, among others, price increases of oil and
November 1984, the first year salary and allowance
other commodities on the employees wages and
increase was made to take effect retroactively,
earnings, and the certainty of continued governmental
beginning from 1 March 1984 until 28 February
or statutory actions adjusting employees minimum
1985. Petitioner maintains that this period encompasses
wages, earnings, allowances, bonuses and other fringe
the period of creditability provided for under Wage
benefits, the parties have formulated and agreed on the
Order No. 6 and that, therefore, the balance remaining
following highly substantial packaged increases in salary
after applying the first year salary and allowance
and allowance which take into account and cover (a) any
increase in the collective bargaining agreement to the
deflation in income of employees because of such price
increase mandated by Wage Order No. 5, in the amount
increases and inflation and (b) the expected
of P125.00, should be made chargeable against the
governmental response thereto in the form of statutory
increase prescribed by Wage Order No. 6, and if not
adjustments in wages, allowances and benefits, during
sufficient, petitioner is willing to pay the difference.[33]
the next three (3) years of this Agreement:
On the other hand, private respondent contends
(i) Effective March 1, 1984 P225.00 per month as salary that the first year salary and allowance increases under
increase plus P100.00 per month as increase in the collective bargaining agreement cannot be applied
allowance to employees within the bargaining unit on towards the satisfaction of the increases prescribed by
March 1, 1984. Wage Order No. 6 because the former were not granted
within the period of creditability provided for in such
(ii) Effective March 1, 1985 P125.00 per month as salary wage order. According to private respondent, the
increase plus P100.00 per month as increase in significant dates with regard to the granting of the first
allowance to employees within the bargaining unit on year increases are 9 November 1984 the date of
March 1, 1985. issuance of the MOLE Resolution, 16 November 1984
the date when the collective bargaining agreement was
(iii) Effective March 1, 1986 P125.00 per month as salary signed by the parties and 1 March 1984 the retroactive
increase plus P100.00 per month as increase in date of effectivity of the first year increases. Private
allowance to employees within the bargaining unit on respondent points out that none of these dates fall
March 1, 1986. within the period of creditability under Wage Order No.
6 which is from 17 June 1984 to 1 November 1984. Thus,
In addition, the collective bargaining agreement of petitioner has not complied with Wage Order No. 6.[34]
the parties also included a provision on the chargeability
of such salary or allowance increases against The creditability provision in Wage Order No. 6 is
government-ordered or legislated income adjustments based on important public policy, that is, the
encouragement of employers to grant wage and
Section 2. Pursuant to the MOLE Decision dated October allowance increases to their employees higher than the
2, 1984 and Order dated October 24, 1984, the first-year minimum rates of increases prescribed by statute or
salary and allowance increases shall be chargeable administrative regulation. Thus, we held in Apex Mining
against adjustments under Wage Order No. 5, which Company, Inc. v. NLRC[35] that
took effect on June 16, 1984. The chargeability of the
foregoing salary increases against government-ordered [t]o obliterate the creditability provisions in the
or legislated income adjustments subsequent to Wage Wage Orders through interpretation or otherwise,
Order No. 5 shall be determined on the basis of the and to compel employers simply to add on
provisions of such government orders or legislation. legislated increases in salaries or allowances

Banking 1st Set of Cases | 67


without regard to what is already being paid, would disputed by the NLRC.[38] However, the divisor was
be to penalize employers who grant their workers reduced to 303 by virtue of an inter-office memorandum
more than the statutorily prescribed minimum issued on 13 August 1986, to wit -
rates of increases. Clearly, this would be counter-
productive so far as securing the interest of labor is To increase the rate of overtime pay for rank and filers,
concerned. The creditability provisions in the Wage we are pleased to inform that effective August 18, 1986,
Orders prevent the penalizing of employers who the acting Conservator approved the use of 303 days as
are industry leaders and who do not wait for divisor in the computation of Overtime pay. The present
statutorily prescribed increases in salary or Policy of 314 days as divisor used in the computation for
allowances and pay their workers more than what cash conversion and determination of daily rate, among
the law or regulations require. others, still remain, Saturdays, therefore, are still
considered paid rest days.
Section 1 of Article VIII of the collective bargaining
agreement of the parties states that the parties have
Corollarily, the Acting Convservator also approved the
formulated and agreed on the following highly
increase of meal allowance from P25.00 to P30.00 for a
substantial packaged increases in salary and allowance
minimum of four (4) hours of work for Saturdays.
which take into account and cover (a) any deflation in
income of employees because of such price increases Proceeding from the unambiguous terms of the
and inflation and (b) the expected governmental above quoted memorandum, the Labor Arbiter observed
response thereto in the form of statutory adjustments in that the reduction of the divisor to 303 was for the sole
wages, allowances and benefits, during the next three purpose of increasing the employees overtime pay and
(3) years of this Agreement The unequivocal wording of was not meant to replace the use of 314 as the divisor in
this provision manifests the clear intent of the parties to the computation of the daily rate for salary-related
apply the wage and allowance increases stipulated in the benefits.[39]
collective bargaining agreement to any statutory wage
and allowance adjustments issued during the effectivity Private respondent admits that, prior to 18 August
of such agreement - from 1 March 1984 to 28 February 1986, petitioner used a divisor of 314 in arriving at the
1987. Furthermore, contrary to private respondents daily wage rate of monthly-salaried employees. Private
contentions, there is nothing in the wording of Section 2 respondent also concedes that the divisor was changed
of Article VIII of the collective bargaining agreement that to 303 for purposes of computing overtime pay only. In
would prevent petitioner from crediting the first year its Memorandum, private respondent states that
salary and allowance increases against the increases
prescribed by Wage Order No. 6. 49. The facts germane to this issue are not
debatable. The Memorandum Circular issued by the
It would be inconsistent with the abovestated Acting Conservator is clear. Prior to August 18, 1986, the
rationale underlying the creditability provision of Wage petitioner bank used a divisor of 314 days in arriving at
Order No. 6 if, after applying the first year increase to the daily wage rate of the monthly-salaried
Wage Order No. 5, the balance was not made employees. Effective August 18, 1986, this was
chargeable to the increases under Wage Order No. 6 for changed. It adopted the following formula:
the fact remains that petitioner actually granted wage Basic salary x 12 months = Daily Wage Rate
and allowance increases sufficient to cover the increases 303 days
mandated by Wage Order No. 5 and part of the
increases mandated by Wage Order No. 6. 50. By utilizing this formula even up to the present, the
Holiday Pay conclusion is inescapable that the petitioner bank is not
actually paying its employees the regular holiday pay
Article 94 of the Labor Code provides that every mandated by law. Consequently, it is bound to pay the
worker shall be paid his regular daily wage during regular salary differential of its employees effective November
holidays[36] and that the employer may require an 1, 1974 up to the present.
employee to work on any holiday but such employee
shall be paid a compensation equivalent to twice his xxx xxx xxx
regular rate. In this case, the Labor Arbiter found that
the divisor used by petitioner in arriving at the 54. Since it is a question of fact, the Inter-office
employees daily rate for the purpose of computing Memorandum dated August 13, 1986 (Annex E) provides
salary-related benefits is 314.[37] This finding was not for a divisor of 303 days in computing overtime pay. The

Banking 1st Set of Cases | 68


clear import of this document is that from the 365 days As to private respondents claim for damages, the
in a year, we deduct 52 rest days which gives a total of NLRC was correct in ruling that there is no basis to
313 days. Now, if 313 days is the number of working support the same.
days of the employees then, there is a disputable
WHEREFORE, for the reasons above stated, the 30
presumption that the employees are paid their holiday
April 1991 Decision of public respondent in NLRC-NCR
pay. However, this is not so in the case at bar. The bank
Case No. 02-00753-88, entitled Producers Bank
uses 303 days as its divisor.Hence, it is not paying its
Employees Association v. Producers Bank of the
employees their corresponding holiday pay.[40]
Philippines, and its 18 June 1991 Resolution issued in the
In Union of Filipro Employees v. Vivar, Jr.[41] the same case are hereby SET ASIDE, with the exception of
Court held that [t]he divisor assumes an important role public respondents ruling on damages.
in determining whether or not holiday pay is already
SO ORDERED.
included in the monthly paid employees salary and in
Melo, (Chairman), Vitug,
the computation of his daily rate. This was also our
Panganiban, and Sandoval-Gutierrez, JJ., concur.
ruling in Chartered Bank Employees Association v.
Ople,[42] as follows

It is argued that even without the presumption found in


G.R. No. 76118 March 30, 1993
the rules and in the policy instruction, the company
practice indicates that the monthly salaries of the
THE CENTRAL BANK OF THE PHILIPPINES and RAMON V.
employees are so computed as to include the holiday
TIAOQUI, petitioners,
pay provided by law. The petitioner contends otherwise.
vs.
COURT OF APPEALS and TRIUMPH SAVINGS
One strong argument in favor of the petitioners stand is
BANK, respondents.
the fact that the Chartered Bank, in computing overtime
compensation for its employees, employs a divisor of
BELLOSILLO, J.:
251 days. The 251 working days divisor is the result of
subtracting all Saturdays, Sundays and the ten (10) legal
holidays form the total number of calendar days in a May a Monetary Board resolution placing a private bank
year. If the employees are already paid for all non- under receivership be annulled on the ground of lack of
working days, the divisor should be 365 and not 251. prior notice and hearing?

Apparently, the divisor of 314 is arrived at by This petition seeks review of the decision of the Court of
subtracting all Sundays from the total number of Appeals in CA G.R. S.P. No. 07867 entitled "The Central
calendar days in a year, since Saturdays are considered Bank of the Philippines and Ramon V. Tiaoqui vs. Hon.
paid rest days, as stated in the inter-office Jose C. de Guzman and Triumph Savings Bank,"
memorandum. Thus, the use of 314 as a divisor leads to promulgated 26 September 1986, which affirmed the
the inevitable conclusion that the ten legal holidays are twin orders of the Regional Trial Court of Quezon City
already included therein. issued 11 November 19851 denying herein petitioners'
We agree with the labor arbiter that the reduction motion to dismiss Civil Case No. Q-45139, and directing
petitioner Ramon V. Tiaoqui to restore the private
of the divisor to 303 was done for the sole purpose of
increasing the employees overtime pay, and was not management of Triumph Savings Bank (TSB) to its
meant to exclude holiday pay from the monthly salary of elected board of directors and officers, subject to
petitioners employees. In fact, it was expressly stated in Central Bank comptrollership.2
the inter-office memorandum - also referred to by
private respondent in its pleadings - that the divisor of The antecedent facts: Based on examination reports
314 will still be used in the computation for cash submitted by the Supervision and Examination Sector
conversion and in the determination of the daily rate. (SES), Department II, of the Central Bank (CB) "that the
Thus, based on the records of this case and the parties financial condition of TSB is one of insolvency and its
own admissions, the Court holds that petitioner has continuance in business would involve probable loss to
complied with the requirements of Article 94 of the its depositors and creditors,"3 the Monetary Board (MB)
Labor Code. issued on 31 May 1985 Resolution No. 596 ordering the
closure of TSB, forbidding it from doing business in the
Damages Philippines, placing it under receivership, and appointing

Banking 1st Set of Cases | 69


Ramon V. Tiaoqui as receiver. Tiaoqui assumed office on for the dismissal of G.R. No. 71465 which We granted on
3 June 1985.4 18 December 1985.8

On 11 June 1985, TSB filed a complaint with the Regional Instead of proceeding to trial, petitioners elevated the
Trial Court of Quezon City, docketed as Civil Case No. Q- twin orders of the RTC to the Court of Appeals on a
45139, against Central Bank and Ramon V. Tiaoqui to petition for certiorari and prohibition under Rule 65.9 On
annul MB Resolution No. 596, with prayer for injunction, 26 September 1986, the appellate court, upheld the
challenging in the process the constitutionality of Sec. 29 orders of the trial court thus
of R.A. 269, otherwise known as "The Central Bank Act,"
as amended, insofar as it authorizes the Central Bank to Petitioners' motion to dismiss was premised on two
take over a banking institution even if it is not charged grounds, namely, that the complaint failed to state
with violation of any law or regulation, much less found a cause of action and that the Triumph Savings
guilty thereof.5 Bank was without capacity to sue except through its
appointed receiver.
On 1 July 1985, the trial court temporarily restrained
petitioners from implementing MB Resolution No. 596 Concerning the first ground, petitioners themselves
"until further orders", thus prompting them to move for admit that the Monetary Board resolution placing
the quashal of the restraining order (TRO) on the ground the Triumph Savings Bank under the receivership of
that it did not comply with said Sec. 29, i.e., that TSB the officials of the Central Bank was done without
failed to show convincing proof of arbitrariness and bad prior hearing, that is, without first hearing the side
faith on the part of petitioners;' and, that TSB failed to of the bank. They further admit that said resolution
post the requisite bond in favor of Central Bank. can be the subject of judicial review and may be set
aside should it be found that the same was issued
On 19 July 1985, acting on the motion to quash the with arbitrariness and in bad faith.
restraining order, the trial court granted the relief
sought and denied the application of TSB for injunction. The charge of lack of due process in the complaint
Thereafter, Triumph Savings Bank filed with Us a petition may be taken as constitutive of allegations of
for certiorariunder Rule 65 of the Rules of Court6 dated arbitrariness and bad faith. This is not of course to
25 July 1985 seeking to enjoin the continued be taken as meaning that there must be previous
implementation of the questioned MB resolution. hearing before the Monetary Board may exercise
its powers under Section 29 of its Charter. Rather,
Meanwhile, on 9 August 1985; Central Bank and Ramon judicial review of such action not being foreclosed,
Tiaoqui filed a motion to dismiss the complaint before it would be best should private respondent be
the RTC for failure to state a cause of action, i.e., it did given the chance to show and prove arbitrariness
not allege ultimate facts showing that the action was and bad faith in the issuance of the questioned
plainly arbitrary and made in bad faith, which are the resolution, especially so in the light of the
only grounds for the annulment of Monetary Board statement of private respondent that neither the
resolutions placing a bank under conservatorship, and bank itself nor its officials were even informed of
that TSB was without legal capacity to sue except any charge of violating banking laws.
through its receiver.7
In regard to lack of capacity to sue on the part of
On 9 September 1985, TSB filed an urgent motion in the Triumph Savings Bank, we view such argument as
RTC to direct receiver Ramon V. Tiaoqui to restore TSB being specious, for if we get the drift of petitioners'
to its private management. On 11 November 1985, the argument, they mean to convey the impression
RTC in separate orders denied petitioners' motion to that only the CB appointed receiver himself may
dismiss and ordered receiver Tiaoqui to restore the question the CB resolution appointing him as such.
management of TSB to its elected board of directors and This may be asking for the impossible, for it cannot
officers, subject to CB comptrollership. be expected that the master, the CB, will allow the
receiver it has appointed to question that very
Since the orders of the trial court rendered moot the appointment. Should the argument of petitioners
petition for certiorari then pending before this Court, be given circulation, then judicial review of actions
Central Bank and Tiaoqui moved on 2 December 1985 of the CB would be effectively checked and
foreclosed to the very bank officials who may feel,

Banking 1st Set of Cases | 70


as in the case at bar, that the CB action ousting Petitioners claim that it is the essence of Sec. 29 of R.A.
them from the bank deserves to be set aside. 265 that prior notice and hearing in cases involving bank
closures should not be required since in all probability a
xxx xxx xxx hearing would not only cause unnecessary delay but also
provide bank "insiders" and stockholders the
On the questioned restoration order, this Court opportunity to further dissipate the bank's resources,
must say that it finds nothing whimsical, despotic, create liabilities for the bank up to the insured amount
capricious, or arbitrary in its issuance, said action of P40,000.00, and even destroy evidence of fraud or
only being in line and congruent to the action of irregularity in the bank's operations to the prejudice of
the Supreme Court in the Banco Filipino Case (G.R. its depositors and creditors. 14 Petitioners further argue
No. 70054) where management of the bank was that the legislative intent of Sec. 29 is to repose in the
restored to its duly elected directors and officers, Monetary Board exclusive power to determine the
but subject to the Central Bank comptrollership.10 existence of statutory grounds for the closure and
liquidation of banks, having the required expertise and
On 15 October 1986, Central Bank and its appointed specialized competence to do so.
receiver, Ramon V. Tiaoqui, filed this petition under Rule
45 of the Rules of Court praying that the decision of the The first issue raised before Us is whether absence of
Court of Appeals in CA-G.R. SP No. 07867 be set aside, prior notice and hearing may be considered acts of
and that the civil case pending before the RTC of Quezon arbitrariness and bad faith sufficient to annul a
City, Civil Case No. Monetary Board resolution enjoining a bank from doing
Q-45139, be dismissed. Petitioners allege that the Court business and placing it under receivership. Otherwise
of Appeals erred stated, is absence of prior notice and hearing
constitutive of acts of arbitrariness and bad faith?
(1) in affirming that an insolvent bank that had been
summarily closed by the Monetary Board should be Under Sec. 29 of R.A. 265,15 the Central Bank, through
restored to its private management supposedly the Monetary Board, is vested with exclusive authority
because such summary closure was "arbitrary and in to assess, evaluate and determine the condition of any
bad faith" and a denial of "due process"; bank, and finding such condition to be one of insolvency,
or that its continuance in business would involve
(2) in holding that the "charge of lack of due probable loss to its depositors or creditors, forbid the
process" for "want of prior hearing" in a complaint bank or non-bank financial institution to do business in
to annul a Monetary Board receivership resolution the Philippines; and shall designate an official of the CB
under Sec. 29 of R.A. 265 "may be taken as . . or other competent person as receiver to immediately
allegations of arbitrariness and bad faith"; and take charge of its assets and liabilities. The fourth
paragraph,16 which was then in effect at the time the
(3) in holding that the owners and former officers of action was commenced, allows the filing of a case to set
an insolvent bank may still act or sue in the name aside the actions of the Monetary Board which are
and corporate capacity of such bank, even after it tainted with arbitrariness and bad faith.
had been ordered closed and placed under
receivership.11 Contrary to the notion of private respondent, Sec. 29
does not contemplate prior notice and hearing before a
The respondents, on the other hand, allege inter bank may be directed to stop operations and placed
alia that in the Banco Filipino case,12 We held that CB under receivership. When par. 4 (now par. 5, as
violated the rule on administrative due process laid amended by E.O. 289) provides for the filing of a case
down in Ang Tibay vs. CIR (69 Phil. 635) and Eastern within ten (10) days after the receiver takes charge of
Telecom Corp. vs. Dans, Jr. (137 SCRA 628) which the assets of the bank, it is unmistakable that the
requires that prior notice and hearing be afforded to all assailed actions should precede the filing of the case.
parties in administrative proceedings. Since MB Plainly, the legislature could not have intended to
Resolution No. 596 was adopted without TSB being authorize "no prior notice and hearing" in the closure of
previously notified and heard, according to respondents, the bank and at the same time allow a suit to annul it on
the same is void for want of due process; consequently, the basis of absence thereof.
the bank's management should be restored to its board
of directors and officers.13

Banking 1st Set of Cases | 71


In the early case of Rural Bank of Lucena, Inc. v. Arca because they receive funds from the general public
[1965],17 We held that a previous hearing is nowhere in the form of deposits. Due to the nature of their
required in Sec. 29 nor does the constitutional transactions and functions, a fiduciary relationship is
requirement of due process demand that the created between the banking institutions and their
correctness of the Monetary Board's resolution to stop depositors. Therefore, banks are under the
operation and proceed to liquidation be first adjudged obligation to treat with meticulous care and utmost
before making the resolution effective. It is enough that fidelity the accounts of those who have reposed
a subsequent judicial review be provided. their trust and confidence in them (Simex
International [Manila], Inc., v. Court of Appeals, 183
Even in Banco Filipino, 18 We reiterated that Sec. 29 of SCRA 360 [1990]).
R.A. 265 does not require a previous hearing before the
Monetary Board can implement its resolution closing a It is then the Government's responsibility to see to it
bank, since its action is subject to judicial scrutiny as that the financial interests of those who deal with
provided by law. the banks and banking institutions, as depositors or
otherwise, are protected. In this country, that task is
It may be emphasized that Sec. 29 does not altogether delegated to the Central Bank which, pursuant to its
divest a bank or a non-bank financial institution placed Charter (R.A. 265, as amended), is authorized to
under receivership of the opportunity to be heard and administer the monetary, banking and credit system
present evidence on arbitrariness and bad faith because of the Philippines. Under both the 1973 and 1987
within ten (10) days from the date the receiver takes Constitutions, the Central Bank is tasked with
charge of the assets of the bank, resort to judicial review providing policy direction in the areas of money,
may be had by filing an appropriate pleading with the banking and credit; corollarily, it shall have
court. Respondent TSB did in fact avail of this remedy by supervision over the operations of banks (Sec. 14,
filing a complaint with the RTC of Quezon City on the 8th Art. XV, 1973 Constitution, and Sec. 20, Art. XII, 1987
day following the takeover by the receiver of the bank's Constitution). Under its charter, the CB is further
assets on 3 June 1985. authorized to take the necessary steps against any
banking institution if its continued operation would
This "close now and hear later" scheme is grounded on cause prejudice to its depositors, creditors and the
practical and legal considerations to prevent general public as well. This power has been
unwarranted dissipation of the bank's assets and as a expressly recognized by this Court. In Philippine
valid exercise of police power to protect the depositors, Veterans Bank Employees Union-NUBE v. Philippine
creditors, stockholders and the general public. Veterans Banks (189 SCRA 14 [1990], this Court held
that:
In Rural Bank of Buhi, Inc. v. Court of Appeals,19 We
stated that . . . [u]nless adequate and determined efforts
are taken by the government against distressed
. . . due process does not necessarily require a prior and mismanaged banks, public faith in the
hearing; a hearing or an opportunity to be heard may banking system is certain to deteriorate to the
be subsequent to the closure. One can just imagine the prejudice of the national economy itself, not to
dire consequences of a prior hearing: bank runs would mention the losses suffered by the bank
be the order of the day, resulting in panic and hysteria. depositors, creditors, and stockholders, who all
In the process, fortunes may be wiped out and deserve the protection of the government. The
disillusionment will run the gamut of the entire banking government cannot simply cross its arms while
community. the assets of a bank are being depleted through
mismanagement or irregularities. It is the duty
We stressed in Central Bank of the Philippines v. Court of of the Central Bank in such an event to step in
Appeals20 that and salvage the remaining resources of the bank
so that they may not continue to be dissipated
. . . the banking business is properly subject to or plundered by those entrusted with their
reasonable regulation under the police power of the management.
state because of its nature and relation to the fiscal
affairs of the people and the revenues of the state (9 Section 29 of R.A. 265 should be viewed in this light;
CJS 32). Banks are affected with public interest otherwise, We would be subscribing to a situation where

Banking 1st Set of Cases | 72


the procedural rights invoked by private respondent the arbitrariness which the conclusions of the
would take precedence over the substantive interests of Supervision and Examination Sector (SES), Department
depositors, creditors and stockholders over the assets of II, of the Central Bank were reached.
the bank.
Once again We refer to Rural Bank of Buhi, Inc. v. Court
Admittedly, the mere filing of a case for receivership by of Appeals,21 and reiterate Our pronouncement therein
the Central Bank can trigger a bank run and drain its that
assets in days or even hours leading to insolvency even if
the bank be actually solvent. The procedure prescribed . . . the law is explicit as to the conditions prerequisite
in Sec. 29 is truly designed to protect the interest of all to the action of the Monetary Board to forbid the
concerned, i.e., the depositors, creditors and institution to do business in the Philippines and to
stockholders, the bank itself, and the general public, and appoint a receiver to immediately take charge of the
the summary closure pales in comparison to the bank's assets and liabilities. They are: (a) an
protection afforded public interest. At any rate, the bank examination made by the examining department of
is given full opportunity to prove arbitrariness and bad the Central Bank; (b) report by said department to
faith in placing the bank under receivership, in which the Monetary Board; and (c) prima facie showing that
event, the resolution may be properly nullified and the its continuance in business would involve probable
receivership lifted as the trial court may determine. loss to its depositors or creditors.

The heavy reliance of respondents on the Banco In sum, appeal to procedural due process cannot just
Filipino case is misplaced in view of factual outweigh the evil sought to be prevented; hence, We
circumstances therein which are not attendant in the rule that Sec. 29 of R.A. 265 is a sound legislation
present case. We ruled in Banco Filipino that the closure promulgated in accordance with the Constitution in the
of the bank was arbitrary and attendant with grave exercise of police power of the state. Consequently, the
abuse of discretion, not because of the absence of prior absence of notice and hearing is not a valid ground to
notice and hearing, but that the Monetary Board had no annul a Monetary Board resolution placing a bank under
sufficient basis to arrive at a sound conclusion of receivership. The absence of prior notice and hearing
insolvency to justify the closure. In other words, the cannot be deemed acts of arbitrariness and bad faith.
arbitrariness, bad faith and abuse of discretion were Thus, an MB resolution placing a bank under
determined only after the bank was placed under receivership, or conservatorship for that matter, may
conservatorship and evidence thereon was received by only be annulled after a determination has been made
the trial court. As this Court found in that case, the by the trial court that its issuance was tainted with
Valenzuela, Aurellano and Tiaoqui Reports contained arbitrariness and bad faith. Until such determination is
unfounded assumptions and deductions which did not made, the status quo shall be maintained, i.e., the bank
reflect the true financial condition of the bank. For shall continue to be under receivership.
instance, the subtraction of an uncertain amount as
valuation reserve from the assets of the bank would As regards the second ground, to rule that only the
merely result in its net worth or the unimpaired capital receiver may bring suit in behalf of the bank is, to echo
and surplus; it did not reflect the total financial condition the respondent appellate court, "asking for the
of Banco Filipino. impossible, for it cannot be expected that the master,
the CB, will allow the receiver it has appointed to
Furthermore, the same reports showed that the total question that very appointment." Consequently, only
assets of Banco Filipino far exceeded its total liabilities. stockholders of a bank could file an action for annulment
Consequently, on the basis thereof, the Monetary Board of a Monetary Board resolution placing the bank under
had no valid reason to liquidate the bank; perhaps it receivership and prohibiting it from continuing
could have merely ordered its reorganization or operations.22 In Central Bank v. Court of Appeals, 23 We
rehabilitation, if need be. Clearly, there was in that case explained the purpose of the law
a manifest arbitrariness, abuse of discretion and bad
faith in the closure of Banco Filipino by the Monetary . . . in requiring that only the stockholders of record
Board. But, this is not the case before Us. For here, what representing the majority of the capital stock may
is being raised as arbitrary by private respondent is the bring the action to set aside a resolution to place a
denial of prior notice and hearing by the Monetary bank under conservatorship is to ensure that it be
Board, a matter long settled in this jurisdiction, and not not frustrated or defeated by the incumbent Board

Banking 1st Set of Cases | 73


of Directors or officers who may immediately resort
to court action to prevent its implementation or
enforcement. It is presumed that such a resolution is
directed principally against acts of said Directors and G.R. No. 114870 May 26, 1995
officers which place the bank in a state of continuing
inability to maintain a condition of liquidity adequate MIGUELA R. VILLANUEVA, RICHARD R. VILLANUEVA, and
to protect the interest of depositors and creditors. MERCEDITA VILLANUEVA-TIRADOS, petitioners,
Indirectly, it is likewise intended to protect and vs.
safeguard the rights and interests of the COURT OF APPEALS, CENTRAL BANK OF THE PHILIPPINES,
stockholders. Common sense and public policy ILDEFONSO C. ONG, and PHILIPPINE VETERANS
dictate then that the authority to decide on whether BANK, respondents.
to contest the resolution should be lodged with the
stockholders owning a majority of the shares for
they are expected to be more objective in Do petitioners have a better right than private
determining whether the resolution is plainly respondent Ildefonso Ong to purchase from the
arbitrary and issued in bad faith. Philippine Veterans Bank (PVB) the two parcels of land
described as Lot No. 210-D-1 and Lot No. 210-D-2
It is observed that the complaint in this case was filed on situated at Muntinglupa, Metro Manila, containing an
11 June 1985 or two (2) years prior to 25 July 1987 when area of 529 and 300 square meters, respectively? This is
E.O. 289 was issued, to be effective sixty (60) days after the principal legal issue raised in this petition.
its approval (Sec. 5). The implication is that before E.O
In its decision of 27 January 1994 in CA-G.R. CV No.
. 289, any party in interest could institute court 35890,1 the Court of Appeals held for Ong, while the trial
proceedings to question a Monetary Board resolution court, Branch 39 of the Regional Trial Court (RTC) of
placing a bank under receivership. Consequently, since Manila, ruled for the petitioners in its joint decision of 31
the instant complaint was filed by parties representing October 1991 in Civil Case No. 87-425502 and Sp. Proc.
themselves to be officers of respondent Bank (Officer-in- No. 85-32311.3
Charge and Vice President), the case before the trial
court should now take its natural course. However, after The operative antecedent facts are set forth in the
the effectivity of E.O. 289, the procedure stated therein challenged decision as follows:
should be followed and observed.
The disputed lots were originally owned by the
PREMISES considered, the Decision of the Court of spouses Celestino Villanueva and Miguela Villanueva,
Appeals in CA-G.R. SP No. 07867 is AFFIRMED, except acquired by the latter during her husband's sojourn in
insofar as it upholds the Order of the trial court of 11 the United States since 1968. Sometime in 1975,
November 1985 directing petitioner RAMON V. TIAOQUI Miguela Villanueva sought the help of one Jose
to restore the management of TRIUMPH SAVINGS BANK Viudez, the then Officer-in-Charge of the PVB branch
to its elected Board of Directors and Officers, which is in Makati if she could obtain a loan from said bank.
hereby SET ASIDE. Jose Viudez told Miguela Villanueva to surrender the
titles of said lots as collaterals. And to further
Let this case be remanded to the Regional Trial Court of facilitate a bigger loan, Viudez, in connivance with
Quezon City for further proceedings to determine one Andres Sebastian, swayed Miguela Villanueva to
whether the issuance of Resolution No. 596 of the execute a deed of sale covering the two (2) disputed
Monetary Board was tainted with arbitrariness and bad lots, which she did but without the signature of her
faith and to decide the case accordingly. husband Celestino. Miguela Villanueva, however,
never got the loan she was expecting. Subsequent
SO ORDERED. attempts to contact Jose Viudez proved futile, until
Miguela Villanueva thereafter found out that new
Narvasa, C.J., Cruz, Padilla, Bidin, Grio-Aquino, titles over the two (2) lots were already issued in the
Regalado, Davide, Jr., Romero, Nocon, Campos, Jr. and name of the PVB. It appeared upon inquiry from the
Quiason, JJ., concur. Registry of Deeds that the original titles of these lots
were canceled and new ones were issued to Jose
Feliciano and Melo, JJ., took no part. Viudez, which in turn were again canceled and new

Banking 1st Set of Cases | 74


titles issued in favor of Andres Sebastian, until finally bother to answer the same. Hence, the instant
new titles were issued in the name of PNB [should be case.
PVB] after the lots were foreclosed for failure to pay
the loan granted in the name of Andres Sebastian. While appellant's action for specific performance
against CB was pending, Miguela Villanueva and
Miguela Villanueva sought to repurchase the lots her children filed their claims with the Liquidation
from the PVB after being informed that the lots court. (Appellant's Brief, pp. 3-4).4
were about to be sold at auction. The PVB told
her that she can redeem the lots for the price of From the pleadings, the following additional or
P110,416.00. Negotiations for the repurchase of amplificatory facts are established:
the lots nevertheless were stalled by the filing of
liquidation proceedings against the PVB on The efforts of Miguela Villanueva to reacquire the
August of 1985. property began on 8 June 1983 when she offered to
purchase the lots for P60,000.00 with a 20%
Plaintiff-appellant [Ong] on the other hand downpayment and the balance payable in five years on a
expounds on his claim over the disputed lots in quarterly amortization basis.5
this manner:
Her offer not having been accepted,6 Miguela Villanueva
In October 1984, plaintiff-appellant offered to increased her bid to P70,000.00. It was only at this time
purchase two pieces of Land that had been that she disclosed to the bank her private transactions
acquired by PVB through foreclosure. To back-up with Jose Viudez.7
plaintiff-appellant's offer he deposited the sum of
P10,000.00. After this and her subsequent offers were
rejected,8 Miguela sent her sealed bid of P110,417.00
In 23 November 1984, while appellant was still pursuant to the written advice of the vice president of
abroad, PVB approved his subject offer under the PVB.9
Board Resolution No. 10901-84. Among the
conditions imposed by PVB is that: "The purchase The PVB was placed under receivership pursuant to
price shall be P110,000.00 (Less deposit of Monetary Board (MB) Resolution No. 334 dated 3 April
P10,000.00) payable in cash within fifteen (15) 1985 and later, under liquidation pursuant to MB
days from receipt of approval of the offer." Resolution No. 612 dated 7 June 1985. Afterwards, a
petition for liquidation was filed with the RTC of Manila,
In mid-April 1985, appellant returned to the which was docketed as Sp. Proc. No. 85-32311 and
country. He immediately verified the status of his assigned to Branch 39 of the said court.
offer with the PVB, now under the control of CB,
where he was informed that the same had already On 26 May 1987, Ong tendered the sum of P100,000.00
been approved. On 16 April 1985, appellant representing the balance of the purchase price of the
formally informed CB of his desire to pay the litigated lots. 10 An employee of the PVB received the
subject balance provided the bank should execute amount conditioned upon approval by the Central Bank
in his favor the corresponding deed of liquidator. 11 Ong's demand for a deed of conveyance
conveyance. The letter was not answered. having gone unheeded, he filed on 23 October 1987 with
the RTC of Manila an action for specific performance
Plaintiff-appellant sent follow-up Letters that went against the Central Bank.12 It was raffled to Branch 47
unheeded, the last of which was on 21 May 1987. thereof. Upon learning that the PVB had been placed
On 26 May 1987, appellant's payment for the under liquidation, the presiding judge of Branch 47
balance of the subject properties were accepted ordered the transfer of the case to Branch 39, the
by CB under Official Receipt #0816. liquidation court.13

On 17 September 1987, plaintiff-appellant through On 15 June 1989, then Presiding Judge Enrique B. Inting
his counsel, sent a letter to CB demanding for the issued an order allowing the purchase of the two lots at
latter to execute the corresponding deed of the price of P150,000.00. 14 The Central Bank liquidator
conveyance in favor of appellant. CB did not of the PVB moved for the reconsideration of the order

Banking 1st Set of Cases | 75


asserting that it is contrary to law as the disposal of the WHEREFORE, judgment is hereby rendered as
lots should be made through public auction. 15 follows:

On 26 July 1989, Miguela Villanueva filed her claim with 1. Setting aside the order of this court issued on
the liquidation court. She averred, among others, that June 15, 1989 under the caption Civil Case No. 87-
she is the lawful and registered owner of the subject lots 42550 entitled "Ildefonso Ong vs. Central Bank of
which were mortgaged in favor of the PVB thru the the Phils., et al.;
falsification committed by Jose Viudez, the manager of
the PVB Makati Branch, in collusion with Andres 2. Dismissing the claim of Ildefonso Ong over the
Sebastian; that upon discovering this fraudulent two parcels of land originally covered by TCT No.
transaction, she offered to purchase the property from 438073 and 366364 in the names of Miguela
the bank; and that she reported the matter to the Villanueva and Celestino Villanueva, respectively
PC/INP Criminal Investigation Service Command, Camp which are now covered by TCT No. 115631 and
Crame, and after investigation, the CIS officer 115632 in the name of the PVB;
recommended the filing of a complaint for estafa
through falsification of public documents against Jose 3. Declaring the Deed of Absolute Sale bearing the
Viudez and Andres Sebastian. She then asked that the signature of Miguela Villanueva and the falsified
lots be excluded from the assets of the PVB and be signature of Celestino [sic] Viudez under date May
conveyed back to her. 16 Later, in view of the death of 6, 1975 and all transactions and related
her husband, she amended her claim to include her documents executed thereafter referring to the
children, herein petitioners Mercedita Villanueva- two lots covered by the above stated titles as null
Tirados and Richard Villanueva. 17 and void;

On 31 October 1991, the trial court rendered 4. Ordering the Register of Deeds of Makati which
judgment 18 holding that while the board resolution has jurisdiction over the two parcels of land in
approving Ong's offer may have created in his favor a question to re-instate in his land records, TCT No.
vested right which may be enforced against the PVB at 438073 in the name of Miguela Villanueva and TCT
the time or against the liquidator after the bank was No. 366364 in the name of Celestino Villanueva
placed under liquidation proceedings, the said right was who were the registered owners thereof, and to
no longer enforceable, as he failed to exercise it within cancel all subsequent titles emanating therefrom;
the prescribed 15-day period. As to Miguela's claim, the and
court ruled that the principle of estoppel bars her from
questioning the transaction with Viudez and the 5. Ordering the Liquidator to reconvey the two lots
subsequent transactions because she was a co- described in TCT No. 115631 and 115632 and
participant thereto, though only with respect to her executing the corresponding deed of conveyance
undivided one-half (1/2) conjugal share in the disputed of the said lots upon the payment of One Hundred
lots and her one-third (1/3) hereditary share in the Ten Thousand Four Hundred Sixteen and 20/100
estate of her husband. (P110,416.20) Pesos without interest and less the
amount deposited by the claimant, Miguela
Nevertheless, the trial court allowed her to purchase the Villanueva in connection with the bidding where
lots if only to restore their status as conjugal properties. she had participated and conducted by the PVB on
It further held that by reason of estoppel, the August 29, 1984.
transactions having been perpetrated by a responsible
officer of the PVB, and for reasons of equity, the PVB Cost against Ildefonso Ong and the PVB.
should not be allowed to charge interest on the price of
the lots; hence, the purchase price should be the PVB's SO ORDERED. 19
claim as of 29 August 1984 when it considered the
sealed bids, i.e., P110,416.20, which should be borne by Only Ong appealed the decision to the Court of Appeals.
Miguela Villanueva alone. The appeal was docketed as CA-G.R. CV No. 35890. In its
decision of 27 January 1994, the Court of Appeals
The dispositive portion of the decision of the trial court reversed the decision of the trial court and ruled as
reads as follows: follows:

Banking 1st Set of Cases | 76


WHEREFORE, premises considered, the assailed from this case or at least be substituted by the PVB,
decision is hereby REVERSED and SET ASIDE, and a which is the real party in interest. 25
new one entered ordering the disputed-lots be
awarded in favor of plaintiff-appellant Ildefonso In its Manifestation and Entry of Appearance, the PVB
Ong upon defendant-appellee Central Bank's declared that it submits to the jurisdiction of this Court
execution of the corresponding deed of sale in his and that it has no objection to its inclusion as a party
favor. 20 respondent in this case in lieu of the Central Bank. 26 The
petitioners did not object to the substitution. 27
In support thereof, the Court of Appeals declared that
Ong's failure to pay the balance within the prescribed Later, in its Comment dated 10 October 1994, the PVB
period was excusable because the PVB neither notified stated that it "submits to and shall abide by whatever
him of the approval of his bid nor answered his letters judgment this Honorable Supreme Tribunal may
manifesting his readiness to pay the balance, for which announce as to whom said lands may be awarded
reason he could not have known when to reckon the 15- without any touch of preference in favor of one or the
day period prescribed under its resolution. It went other party litigant in the instant
further to suggest that the Central Bank was in estoppel 28
case."
because it accepted Ong's late-payment of the balance.
As to the petitioners' claim, the Court of Appeals stated: In support of their contention that the Court of Appeals
gravely erred in holding that Ong is better entitled to
The conclusion reached by the lower court favorable purchase the disputed lots, the petitioners maintain that
to Miguela Villanueva is, as aptly pointed out by Ong is a disqualified bidder, his bid of P110,000.00 being
plaintiff-appellant, indeed confusing. While the lower than the starting price of P110,417.00 and his
lower court's decision declared Miguela Villanueva deposit of P10,000.00 being less than the required 10%
as estopped from recovering her proportionate of the bid price; that Ong failed to pay the balance of the
share and interest in the two (2) disputed lots for price within the 15-day period from notice of the
being a "co-participant" in the fraudulent scheme approval of his bid; and that his offer of payment is
perpetrated by Jose Viudez and Andres Sebastian ineffective since it was conditioned on PVB's execution
a factual finding which We conform to and which of the deed of absolute sale in his favor.
Miguela Villanueva does not controvert in this
appeal by not filing her appellee's brief, yet it On the other hand, Ong submits that his offer, though
ordered the reconveyance of the disputed lots to lower than Miguela ViIlanueva's bid by P417.00, is much
Miguela Villanueva as the victorious party upon her better, as the same is payable in cash, while Villanueva's
payment of P110,416.20. Would not estoppel defeat bid is payable in installment; that his payment could not
the claim of the party estopped? If so, which in fact be said to have been made after the expiration of the
must be so, would it not then be absurd or even 15-day period because this period has not even started
defiant for the lower court to finally entitle Miguela to run, there being no notice yet of the approval of his
Villanueva to the disputed lots after having been offer; and that he has a legal right to compel the PVB or
precluded from assailing their subsequent its liquidator to execute the corresponding deed of
conveyance in favor of Jose Viudez by reason of her conveyance.
own negligence and/or complicity therein? The
intended punitive effect of estoppel would merely There is no doubt that the approval of Ong's offer
be a dud if this Court leaves the lower court's constitutes an acceptance, the effect of which is to
conclusion unrectified. 21 perfect the contract of sale upon notice thereof to
Ong. 29 The peculiar circumstances in this case, however,
Their motion for reconsideration 22 having been pose a legal obstacle to his claim of a better right and
denied, 23 the petitioners filed this petition for review deny support to the conclusion of the Court of Appeals.
on certiorari. 24
Ong did not receive any notice of the approval of his
Subsequently, the respondent Central Bank apprised this offer. It was only sometime in mid-April 1985 when he
Court that the PVB was no longer under receivership or returned from the United States and inquired about the
liquidation and that the PVB has been back in operation status of his bid that he came to know of the approval.
since 3 August 1992. It then prayed that it be dropped

Banking 1st Set of Cases | 77


It must be recalled that the PVB was placed under may, upon finding the statements of the department
receivership pursuant to the MB Resolution of 3 April head to be true, forbid the institution to do business
1985 after a finding that it was insolvent, illiquid, and in the Philippines and designate an official of the
could not operate profitably, and that its continuance in Central Bank or a person of recognized competence
business would involve probable loss to its depositors in banking or finance as receiver to immediately take
and creditors. The PVB was then prohibited from doing charge of its assets and liabilities, as expeditiously as
business in the Philippines, and the receiver appointed possible collect and gather all the assets and
was directed to "immediately take charge of its assets administer the same for the benefit of its creditors . .
and liabilities, as expeditiously as possible collect and . exercising all the powers necessary for these
gather all the assets and administer the same for the purposes. . . .
benefit of its creditors, exercising all the powers
necessary for these purposes." xxx xxx xxx

Under Article 1323 of the Civil Code, an offer becomes The assets of an institution under receivership or
ineffective upon the death, civil interdiction, insanity, or liquidation shall be deemed in custodia legis in the
insolvency of either party before acceptance is hands of the receiver or liquidator and shall, from
conveyed. The reason for this is that: the moment of such receivership or liquidation, be
exemp from any order of garnishment, levy,
[T]he contract is not perfected except by the attachment, or execution.
concurrence of two wills which exist and continue
until the moment that they occur. The contract is In a nutshell, the insolvency of a bank and the
not yet perfected at any time before acceptance is consequent appointment of a receiver restrict the bank's
conveyed; hence, the disappearance of either party capacity to act, especially in relation to its property,
or his loss of capacity before perfection prevents the Applying Article 1323 of the Civil Code, Ong's offer to
contractual tie from being formed. 30 purchase the subject lots became ineffective because
the PVB became insolvent before the bank's acceptance
It has been said that where upon the insolvency of a of the offer came to his knowledge. Hence, the
bank a receiver therefor is appointed, the assets of the purported contract of sale between them did not reach
bank pass beyond its control into the possession and the stage of perfection. Corollarily, he cannot invoke the
control of the receiver whose duty it is to administer the resolution of the bank approving his bid as basis for his
assets for the benefit of the creditors of the alleged right to buy the disputed properties.
bank.31 Thus, the appointment of a receiver operates to
suspend the authority of the bank and of its directors Nor may the acceptance by an employee of the PVB of
and officers over its property and effects, such authority Ong's payment of P100,000.00 benefit him since the
being reposed in the receiver, and in this respect, the receipt of the payment was made subject to the
receivership is equivalent to an injunction to restrain the approval by the Central Bank liquidator of the PVB thus:
bank officers from intermeddling with the property of
the bank in any way. 32 Payment for the purchase price of the former
property of Andres Sebastian per approved BR No.
Section 29 of the Central Bank Act, as amended, 10902-84 dated 11/13/84, subject to the approval
provides thus: of CB liquidator. 33

Sec. 29. Proceedings upon insolvency. Whenever, This payment was disapproved on the ground that
upon examination by the head of the appropriate the subject property was already in custodia legis,
supervising or examining department or his and hence, disposable only by public auction and
examiners or agents into the condition of any bank subject to the approval of the liquidation court. 34
or non-bank financial intermediary performing
quasi-banking functions, it shall be disclosed that the The Court of Appeals therefore erred when it held that
condition of the same is one of insolvency, or that its Ong had a better right than the petitioners to the
continuance in business would involve probable loss purchase of the disputed lots.
to its depositors or creditors, shall be the duty of the
department head concerned forthwith, in writing, to Considering then that only Ong appealed the decision of
inform the Monetary Board of the facts. The Board the trial court, the PVB and the Central Bank, as well as

Banking 1st Set of Cases | 78


the petitioners, are deemed to have fully and 132935 of the Registry of Deeds of Makati. Prior to 1984,
unqualifiedly accepted the judgment, which thus the bank began constructing on said land a 14-storey
became final as to them for their failure to appeal. building. Not long after, however, the bank encountered
financial difficulties that rendered it unable to finish
WHEREFORE, the instant petition is GRANTED and the construction of the building.
challenged decision of the Court of Appeals of 27
On May 22, 1987, the Central Bank of the
January 1994 in CA-G.R. CV No. 35890 is hereby SET
Philippines, now Bangko Sentral ng Pilipinas, ordered the
ASIDE. The decision of Branch 39 of the Regional Trial
closure of Manila Bank and placed it under receivership,
Court of Manila of 31 October 1991 in Civil Case No. 87-
with Feliciano Miranda, Jr. being initially appointed as
42550 and Sp. Proc. No. 85-32311 is hereby
Receiver. The legality of the closure was contested by
REINSTATED.
the bank before the proper court.
Respondent Philippine Veterans Bank is further directed On November 11, 1988, the Central Bank, by virtue
to return to private respondent Ildefonso C. Ong the of Monetary Board (MB) Resolution No. 505, ordered
amount of P100,000.00. the liquidation of Manila Bank and designated Atty.
Renan V. Santos as Liquidator. The liquidation, however,
No pronouncement as to costs. was held in abeyance pending the outcome of the earlier
suit filed by Manila Bank regarding the legality of its
SO ORDERED. closure. Consequently, the designation of Atty. Renan V.
Santos as Liquidator was amended by the Central Bank
Padilla, Bellosillo and Kapunan, JJ., concur. on December 22, 1988 to that of Statutory Receiver.
In the interim, Manila Banks then acting president,
Quiason, J., is on leave. the late Vicente G. Puyat, in a bid to save the banks
investment, started scouting for possible investors who
could finance the completion of the building earlier
THIRD DIVISION mentioned. On August 18, 1989, a group of investors,
G.R. No. 162270. April 06, 2005] represented by Calixto Y. Laureano (hereafter referred
ABACUS REAL ESTATE DEVELOPMENT CENTER, to as Laureano group), wrote Vicente G. Puyat offering to
INC., petitioner, vs. THE MANILA BANKING lease the building for ten (10) years and to advance the
CORPORATION, respondent. cost to complete the same, with the advanced cost to be
amortized and offset against rental payments during the
Thru this appeal by way of a petition for review term of the lease. Likewise, the letter-offer stated that in
on certiorari under Rule 45 of the Rules of Court, consideration of advancing the construction cost, the
petitioner Abacus Real Estate Development Center, group wanted to be given the exclusive option to
Inc. seeks to set aside the following issuances of the purchase the building and the lot on which it was
Court of Appeals in CA-G.R. CV No. 64877, to wit: constructed.
1. Decision dated May 26, 2003,[1] reversing an Since no disposition of assets could be made due to
earlier decision of the Regional Trial Court the litigation concerning Manila Banks closure, an
at Makati City, Branch 59, in an action for arrangement was thought of whereby the property
specific performance and damages thereat would first be leased to Manila Equities Corporation
commenced by the petitioner against the (MEQCO, for brevity), a wholly-owned subsidiary of
herein respondent Manila Banking Manila Bank, with MEQCO thereafter subleasing the
Corporation; and property to the Laureano group.
2. Resolution of February 17, 2004,[2] denying In a letter dated August 30, 1989, Vicente G. Puyat
petitioners motion for reconsideration. accepted the Laureano groups offer and granted it
The petition is casts against the following factual an exclusive option to purchase the lot and building for
backdrop: One Hundred Fifty Million Pesos (P150,000,000.00).
Later, or on October 31, 1989, the building was leased to
Respondent Manila Banking Corporation (Manila MEQCO for a period of ten (10) years pursuant to a
Bank, for brevity), owns a 1,435-square meter parcel of contract of lease bearing that date. On March 1, 1990,
land located along Gil Puyat Avenue Extension, Makati MEQCO subleased the property to petitioner Abacus
City and covered by Transfer Certificate of Title (TCT) No.

Banking 1st Set of Cases | 79


Real Estate Development Center, Inc. (Abacus, for short), opposed, Abacus would later join Manila Bank in
a corporation formed by the Laureano group for the submitting the case for summary judgment.
purpose, under identical provisions as that of the
Eventually, in a decision dated May 27, 1999,[4] the
October 31, 1989 lease contract between Manila Bank
trial court rendered judgment for Abacus in accordance
and MEQCO.
with the latters prayer in its complaint, thus:
The Laureano group was, however, unable to finish
the building due to the economic crisis brought about by WHEREFORE, premises considered, judgment is hereby
the failed December 1989 coup attempt. On account rendered in favor of the plaintiff as follows:
thereof, the Laureano group offered its rights in Abacus
and its exclusive option to purchase to Benjamin Bitanga 1. Ordering the defendant [Manila Bank] to immediately
(Bitanga hereinafter), for Twenty Million Five Hundred sell to plaintiff the parcel of land and building, with an
Thousand Pesos (P20,500,000.00). Bitanga would later area of 1,435 square meters and covered by TCT No.
allege that because of the substantial amount involved, 132935 of the Makati Registry of Deeds, situated along
he first had to talk with Atty. Renan Santos, the Receiver Sen. Gil J. Puyat Ave. in Makati City, at the price of One
appointed by the Central Bank, to discuss Abacus offer. Hundred Fifty Million (P150,000.000.00) Pesos in
Bitanga further alleged that, over lunch, Atty. Santos accordance with the said exclusive option to purchase,
then verbally approved his entry into Abacus and his and to execute the appropriate deed of sale therefor in
take-over of the sublease and option to purchase. favor of plaintiff;
On March 30, 1990, the Laureano group transferred
and assigned to Bitanga all of its rights in Abacus and the 2. Ordering the defendant [Manila Bank] to pay plaintiff
exclusive option to purchase the subject land and the amount of Two Million (P2,000,000.00) Pesos
representing reasonable attorneys fees;
building.
On September 16, 1994, Abacus sent a letter to 3. Ordering the DISMISSAL of defendants counterclaim,
Manila Bank informing the latter of its desire to exercise for lack of merit; and
its exclusive option to purchase. However, Manila Bank
refused to honor the same. 4. With costs against the defendant.
Such was the state of things when, on November
10, 1995, in the Regional Trial Court (RTC) at Makati, SO ORDERED.
Abacus Real Estate Development Center, Inc. filed a Its motion for reconsideration of the
complaint[3] for specific performance and damages aforementioned decision having been denied by the trial
against Manila Bank and/or the Estate of Vicente G. court in its Order of August 17, 1999,[5] Manila Bank then
Puyat. In its complaint, docketed as Civil Case No. 96- went on to the Court of Appeals whereat its appellate
1638 and raffled to Branch 59 of the court, plaintiff recourse was docketed as CA-G.R. CV No. 64877.
Abacus prayed for a judgment ordering Manila
Bank, inter alia, to sell, transfer and convey unto it As stated at the threshold hereof, the Court of
for P150,000,000.00 the land and building in dispute free Appeals, in a decision dated May 26, 2003,[6] reversed
from all liens and encumbrances, plus payment of and set aside the appealed decision of the trial court,
damages and attorneys fees. thus:

Subsequently, defendant Manila Bank, followed a WHEREFORE, finding serious reversible error, the appeal
month later by its co-defendant Estate of Vicente G. is GRANTED.
Puyat, filed separate motions to dismiss the complaint.
In an Order dated April 15, 1996, the trial court The Decision dated May 27, 1999 of the Regional Trial
granted the motion to dismiss filed by the Estate of Court of Makati City, Branch 59 is REVERSED and SET
Vicente G. Puyat, but denied that of Manila Bank and ASIDE.
directed the latter to file its answer.
Cost of the appeal to be paid by the appellee.
Before plaintiff Abacus could adduce evidence but
after pre-trial, defendant Manila Bank filed a Motion for SO ORDERED.
Partial Summary Judgment, followed by a Supplement to
Motion for Partial Summary Judgment. While initially On June 25, 2003, Abacus filed a Motion for
Reconsideration, followed, with leave of court, by an

Banking 1st Set of Cases | 80


Amended Motion for Reconsideration. Pending with still two (2) days left to appeal, respondent then
resolution of its motion for reconsideration, as claims that its filing of an appeal on August 25, 1999,
amended, Abacus filed a Motion to Dismiss two (2) days after receiving the Order of the trial court
Appeal,[7] therein praying for the dismissal of Manila denying its Motion for Reconsideration, was within the
Banks appeal from the RTC decision of May 27, 1999, reglementary period.
contending that said appeal was filed out of time.
Agreeing with respondent, the appellate court
In its Resolution of February 17, 2004,[8] the declared that respondents appeal was filed on time.
appellate court denied Abacus aforementioned motion Explained that court in its Resolution of February 17,
for reconsideration. 2004, denying petitioners motion for reconsideration:
Hence, this recourse by petitioner Abacus Real
Firstly, the file copy of the motion for
Estate Development Center, Inc.
reconsideration contains the written annotations
As we see it, two (2) issues commend themselves Registry Receipt No. 1633 Makati P.O. 7-6-99 in its page
for the resolution of the Court, namely: 13. The presence of the annotations proves that
the motion for reconsideration was truly filed by
WHETHER OR NOT RESPONDENT BANKS APPEAL TO THE registered mail on July 6, 1999 through registry receipt
COURT OF APPEALS WAS FILED ON TIME; and no. 1633.

WHETHER OR NOT PETITIONER ABACUS HAS ACQUIRED Secondly, the appellants manifestation filed in the RTC
THE RIGHT TO PURCHASE THE LOT AND BUILDING IN personally on July 7, 1999 contains the following self-
QUESTION. explanatory statements, to wit:
We rule for respondent Manila Bank on both issues.
2. Defendant [Manila Bank] also filed with this
Addressing the first issue, petitioner submits that Honorable Court a Motion for Reconsideration of the
respondent banks appeal to the Court of Appeals from Decision dated 27 May 1999 promulgated by this
the adverse decision of the trial court was belatedly Honorable Court in this case, and served a copy thereof
filed. Elaborating thereon, petitioner alleges that to the plaintiff, by registered mail yesterday, 6 July 1999,
respondent bank received a copy of the May 27, 1999 due to lack of material time and messenger to effect
RTC decision on June 22, 1999, hence, petitioner had 15 personal service and filing.
days, or only up to July 7, 1999 within which to take an
appeal from the same decision or move for a 3. In order for this Honorable Court to be able to review
reconsideration thereof. Petitioner alleges that defendant [Manila Banks] Motion for Reconsideration
respondent furnished the trial court with a copy of its without awaiting the mailed copy, defendant [Manila
Motion for Reconsideration only on July 7, 1999, the last Bank] is now furnishing this Honorable Court with a copy
day for filing an appeal. Under Section 3, Rule 41 of the of said motion, as well as the entry of appearance, by
1997 Rules of Civil Procedure, the period of appeal shall personal service.
be interrupted by a timely motion for new trial or
reconsideration. Since, according to petitioner, The aforecited reference in the manifestation to the
respondent filed its Motion for Reconsideration on the mailing of the motion for reconsideration on July 6, 1999,
last day of the period to appeal, it only had one (1) more in light of the handwritten annotations adverted to
day within which to file an appeal, so much so that when herein, renders beyond doubt the appellants insistence
it received on August 23, 1999 a copy of the trial courts of filing through registered mail on July 6, 1999.
order denying its Motion for Reconsideration,
respondent bank had only up to August 24, 1999 within Thirdly, the registry return cards attached to the
which to file the corresponding appeal. As respondent envelopes separately addressed and mailed to the RTC
bank appealed the decision of the trial court only on and the appellees counsel, found in pages 728 and 729
August 25, 1999, petitioner thus argues that of the rollo, indicate that the contents were the motion
respondents appeal was filed out of time. for reconsideration and the formal entry of appearance.
Although the appellee argues that the handwritten
As a counterpoint, respondent alleges that it sent
annotations of what were contained by the envelopes at
the trial court a copy of its Motion for Reconsideration
the time of mailing was easily self-serving, the fact
on July 6, 1999, through registered mail. Having sent a
remains that the envelope addressed to the appellees
copy of its Motion for Reconsideration to the trial court

Banking 1st Set of Cases | 81


counsel appears thereon to have been received on July granted to it by the late Vicente G. Puyat, then acting
6, 1999 (7/6/99), which enhances the probability of president of Manila Bank, was binding upon the latter.
the motion for reconsideration being mailed, hence filed, On the other hand, respondent has consistently
on July 6, 1999, as claimed by the appellant. maintained that the late Vicente G. Puyat had no
authority to act for and represent Manila Bank, the latter
Fourthly, the certification issued on October 2, 2003 by having been placed under receivership by the Central
Atty. Jayme M. Luy, Branch Clerk of Court, Branch 59, Bank at the time of the granting of the exclusive option
RTC in Makati City, has no consequence because Atty. to purchase.
Luy based his data only on page 3 of the 1995 Civil Case
There can be no quibbling that respondent Manila
Docket Book without reference to the original records
Bank was under receivership, pursuant to Central Banks
which were already with the Court of Appeals.
MB Resolution No. 505 dated May 22, 1987, at the time
the late Vicente G. Puyat granted the exclusive option to
Fifthly, since the appellant received the denial of
purchaseto the Laureano group of investors. Owing to
the motion for reconsideration on August 23, 1999, it
this defining reality, the appellate court was correct in
had until August 25, 1999 within which to perfect its
declaring that Vicente G. Puyat was without authority to
appeal from the decision of the RTC because 2 days
grant the exclusive option to purchase the lot and
remained in its reglementary period to appeal. It is not
building in question. The invocation by the appellate
disputed that the appellant filed its notice of appeal and
court of the following pronouncement in Villanueva vs.
paid the appellate court docket fees on August 25, 1999.
Court of Appeals[12] was apropos, to say the least:
These circumstances preponderantly demonstrate that
the assets of the bank pass beyond its control into the
the appellants appeal was not late by one day.
possession and control of the receiver whose duty it is to
(Emphasis in the original)
administer the assets for the benefit of the creditors of
Petitioner would, however, contest the above the bank. Thus, the appointment of a receiver operates
findings of the appellate court, stating, among other to suspend the authority of the bank and of its directors
things, that if it were true that respondent filed its and officers over its property and effects, such authority
Motion for Reconsideration by registered mail and then being reposed in the receiver, and in this respect, the
furnished the trial court with a copy of said Motion the receivership is equivalent to an injunction to restrain the
very next day, then the rollo should have had two copies bank officers from intermeddling with the property of
of the Motion for Reconsideration in question. the bank in any way.
Respondent, on the other hand, insists that it indeed
With respondent bank having been already placed
filed a Motion for Reconsideration on July 6, 1999
under receivership, its officers, inclusive of its acting
through registered mail.
president, Vicente G. Puyat, were no longer authorized
It is evident that the issue raised by petitioner to transact business in connection with the banks assets
relates to the correctness of the factual finding of the and property. Clearly then, the exclusive option to
Court of Appeals as to the precise date when respondent purchase granted by Vicente G. Puyat was and still is
filed its motion for reconsideration before the trial court. unenforceable against Manila Bank.[13]
Such issue, however, is beyond the province of this
Petitioner, however, asseverates that the exclusive
Court to review. It is not the function of the Court to
option to purchase was ratified by Manila Banks receiver,
analyze or weigh all over again the evidence or premises
Atty. Renan Santos, during a lunch meeting held with
supportive of such factual determination.[9] The Court
Benjamin Bitanga in March 1990.
has consistently held that the findings of the Court of
Appeals and other lower courts are, as a rule, accorded Petitioners argument is tenuous at best.
great weight, if not binding upon it,[10] save for the most Concededly, a contract unenforceable for lack of
compelling and cogent reasons.[11] As nothing in the authority by one of the parties may be ratified by the
record indicates any of such exceptions, the factual person in whose name the contract was executed.
conclusion of the appellate court that respondent filed However, even assuming, in gratiaargumenti, that Atty.
its appeal on time, supported as it is by substantial Renan Santos, Manila Banks receiver, approved
evidence, must be affirmed. the exclusive option to purchase granted by Vicente G.
Puyat, the same would still be of no force and effect.
Going to the second issue, petitioner insists that the
option to purchase the lot and building in question

Banking 1st Set of Cases | 82


Section 29 of the Central Bank Act, as WHEREFORE, the instant petition is DENIED and the
amended,[14] pertinently provides: challenged issuances of the Court of Appeals AFFIRMED.
Costs against petitioner.
Sec. 29. Proceedings upon insolvency. Whenever, upon
examination by the head of the appropriate supervising SO ORDERED.
and examining department or his examiners or agents Panganiban, (Chairman), Sandoval-Gutierrez,
into the condition of any banking institution, it shall be Corona, and Carpio-Morales, JJ., concur.
disclosed that the condition of the same is one of
insolvency, or that its continuance in business would
involve probable loss to its depositors or creditors, it [Syllabus]
shall be the duty of the department head concerned
FIRST DIVISION
forthwith, in writing, to inform the Monetary Board of
the facts, and the Board may, upon finding the
statements of the department head to be true, forbid
the institution to do business in the Philippines and shall [G.R. No. 112830. February 1, 1996]
designate an official of the Central Bank as receiver to
immediately take charge of its assets and liabilities, as JERRY ONG, petitioner, vs. COURT OF APPEALS and RURAL
expeditiously as possible collect and gather all the BANK OF OLONGAPO, INC., represented by its
assets and administer the same for the benefit of its Liquidator, GUILLERMO G. REYES, JR. and Deputy
creditors, exercising all the powers necessary for these Liquidator ABEL ALLANIGUE, respondents.
purposes including, but not limited to, bringing suits and The jurisdiction of a regular court over a bank
foreclosing mortgages in the name of the banking undergoing liquidation is the issue in this petition for
institution. (Emphasis supplied) review of the decision of the Court of Appeals.[1]
Clearly, the receiver appointed by the Central Bank On 5 February 1991 Jerry Ong filed with the
to take charge of the properties of Manila Bank only had Regional Trial Court of Quezon City a petition for the
authority to administer the same for the benefit of its surrender of TCT Nos. 13769 and 13770 pursuant to the
creditors. Granting or approving an exclusive option to provisions of Secs. 63(b) and 107 of P.D. 1529[2] against
purchase is not an act of administration, but an act of Rural Bank of Olongapo, Inc. (RBO), represented by its
strict ownership, involving, as it does, the disposition of liquidator Guillermo G. Reyes, Jr. and deputy liquidator
property of the bank. Not being an act of administration, Abel Allanigue.[3] The petition averred inter alia that -
the so-called approval by Atty. Renan Santos amounts to
no approval at all, a bank receiver not being authorized 2. The RBO was the owner in fee simple of two parcels of
to do so on his own. land including the improvements thereon situated
For sure, Congress itself has recognized that a bank in Tagaytay City x x x particularly described in TCT Nos.
receiver only has powers of administration. Section 30 of 13769 and 13770 x x x
the New Central Bank Act[15] expressly provides that [t]he
receiver shall immediately gather and take charge of all 3. Said parcels of land were duly mortgaged by RBO in
the assets and liabilities of the institution, administer the favor of petitioner on December 29, 1983 to guarantee
same for the benefit of its creditors, and exercise the the payment of Omnibus Finance, Inc., which is likewise
general powers of a receiver under the Revised Rules of now undergoing liquidation proceedings of its money
Court but shall not, with the exception of administrative market obligations to petitioner in the principal amount
expenditures, pay or commit any act that will involve the of P863,517.02 x x x
transfer or disposition of any asset of the institution
4. Omnibus Finance, Inc., not having seasonably settled
In all, respondent banks receiver was without any its obligations to petitioner, the latter proceeded to
power to approve or ratify the exclusive option to effect the extrajudicial foreclosure of said mortgages,
purchase granted by the late Vicente G. Puyat, who, in such that on March 23, 1984, the City Sheriff of Tagaytay
the first place, was himself bereft of any authority, to City issued a Certificate of Sale in favor of petitioner xxx
bind the bank under such exclusive option. Respondent
Manila Bank may not thus be compelled to sell the land
5. Said Certificate of Sale x x x was duly registered with
and building in question to petitioner Abacus under the the Registry of Deeds of Tagaytay City on July 16, 1985,
terms of the latters exclusive option to purchase.

Banking 1st Set of Cases | 83


as shown in the certified true copies of the Still unpersuaded by respondent RBOs arguments,
aforementioned titles x x x the trial court denied reconsideration in its order of 18
September 1991 prompting the bank to elevate the case
6. Respondents failed to seasonably redeem said parcels to respondent Court of Appeals by way of a petition for
of land, for which reason, petitioner has executed an certiorari and prohibition. On 12 February
Affidavit of Consolidation of Ownership which, to date, 1992 respondent court rendered a decision annulling
has not been submitted to the Registry of Deeds of the challenged order of the court a quo dated 19 June
Tagaytay City, in view of the fact that possession of the 1991 which sustained the jurisdiction of the trial court as
aforesaid titles or owners duplicate certificates of title well as the order of 18 September 1991denying
remains with the RBO. reconsideration thereof. Moreover, the trial judge was
ordered to dismiss Civil Case No. Q-91-8019 without
7. To date, petitioner has not been able to effect the prejudice to the right of petitioner to file his claim in the
registration of said parcels of land in his name in view of liquidation proceedings (Sp. Proc. No. 170-0-85) pending
the persistent refusal of respondents, despite demand, before Br. 73 of
to surrender RBOs copies of its owners certificates of the Regional Trial Court of Olongapo City.[5]
title for the parcels of land covered by TCT Nos. 13769
In reversing the trial court the appellate court
and 13770.[4]
noted that Sec. 29, par. 3, of R.A. 265 as amended by
Respondent RBO filed a motion to dismiss on the P.D. 1827[6] does not limit the jurisdiction of the
ground of res judicata alleging that petitioner had earlier liquidation court to claims against the assets of the
sought a similar relief from Br. 18 of insolvent bank. The provision is general in that it clearly
the Regional Trial Court of Tagaytay City, which case was and unqualifiedly states that the liquidation court shall
dismissed with finality on appeal before the Court of have jurisdiction to adjudicate disputed claims against
Appeals. the bank. Disputed claims refer to all claims, whether
they be against the assets of the insolvent bank, for
In a supplemental motion to dismiss, respondent specific performance, breach of contract, damages, or
RBO contended that it was undergoing liquidation and, whatever. To limit the jurisdiction of the liquidation
pursuant to prevailing jurisprudence, it is the liquidation court to those claims against the assets of the bank is to
court which has exclusive jurisdiction to take cognizance remove significantly and without basis the cases that
of petitioners claim. may be brought against a bank in case of insolvency.
On 7 May 1991 the trial court denied the motion to Respondent court also noted that the certificates of
dismiss because it found that the causes of action in the title are still in the name of respondent RBO. As far as
previous and present cases were different although it third persons are concerned (and these include
was silent on the jurisdictional issue. Accordingly, claimants in the liquidation court), registration is the
respondent RBO filed a motion for reconsideration but operative act which would convey title to the property.
the same was similarly rejected in the order of June 11,
1991 holding that: (a) subject parcels of land were sold Petitioner submits that Civil Case No. Q-91-8019
to petitioner through public bidding on 23 March 1984 may proceed independently of Sp. Proc. No. 170-0-
and, consequently, said pieces of realty were no longer 85. He argues that the disputed parcels of land have
part of the assets of respondent RBO; and, (b) in the been extrajudicially foreclosed and the corresponding
same token, subject lots were no longer considered certificate of sale issued in his favor; that considering
assets of respondent RBO when its liquidation was that respondent RBO failed to redeem said properties he
commenced by the Central Bank on 9 November 1984 should now be allowed to consolidate his title thereto;
and when the petition for assistance in its liquidation that respondent RBOs mortgage of TCT Nos. 13769 and
was approved by the Regional Trial Court of Olongapo 13770 in favor of petitioner and its subsequent
City on 30 May 1985. foreclosure are presumed valid and regular; and, that
the liquidation court has no jurisdiction over subject
On 5 July 1991 respondent RBO filed a parcels of land since they are no longer assets of
manifestation and urgent motion for reconsideration respondent RBO.
arguing that the validity of the certificate of sale issued
to petitioner was still at issue in another case between We find no merit in the petition. Section 29, par. 3,
them and therefore the properties covered by said of R.A. 265 as amended by P. D. 1827 provides
certificate were still part and parcel of its assets.

Banking 1st Set of Cases | 84


If the Monetary Board shall determine and confirm term disputed claim in the provision simply connotes
within (sixty days) that the bank x x x is insolvent or that
cannot resume business with safety to its depositors,
creditors and the general public, it shall, if the public [n] the course of the liquidation, contentious cases
interest requires, order its liquidation, indicate the might arise wherein a full-dress hearing would be
manner of its liquidation and approve a liquidation required and legal issues would have to be resolved.
plan. The Central Bank shall, by the Solicitor General, file Hence, it would be necessary injustice to all concerned
a petition in the Court of First Instance[7] reciting the that a Court of First Instance (now Regional Trial Court) x
proceedings which have been taken and praying the x x assist and supervise the liquidation and x x x act as
assistance of the court in the liquidation of such umpire or arbitrator in the allowance and disallowance
institution. The court shall have jurisdiction in the same of claims.
proceedings to adjudicate disputed claims against the
Petitioner must have overlooked the fact that since
bank x x x and enforce individual liabilities of the
respondent RBO is insolvent other claimants not privy to
stockholders and do all that is necessary to preserve the
their transaction may be involved. As far as those
assets of such institution and to implement the
claimants are concerned, in the absence of certificates
liquidation plan approved by the Monetary Board (italics
of title in the name of petitioner, subject lots still form
supplied).
part of the assets of the insolvent bank.
Applying the aforequoted provision in Hernandez v.
On the basis of the Hernandez case as well as Sec.
Rural Bank of Lucena, Inc.,[8] this Court ruled
29, par. 3, of R.A. 265 as amended by P.D. 1827,
respondent Court of Appeals was correct in holding that
The fact that the insolvent bank is forbidden to do
the Regional Trial Court of Quezon City, Br. 79, did not
business, that its assets are turned over to the
have jurisdiction over the petition, much less in ordering
Superintendent of Banks, as a receiver, for conversion
the dismissal of Civil Case No. Q-91-8019, without
into cash, and that its liquidation is undertaken with
prejudice to petitioners right to file his claim in Sp. Proc.
judicial intervention means that, as far as lawful and
No. 170-0-85 before the Regional Trial Court of
practicable, all claims against the insolvent bank should
Olongapo City, Br. 73.
be filed in the liquidation proceeding (italics supplied).
WHEREFORE, the petition is DENIED. The decision of
We explained therein the rationale behind the provision,
respondent Court of Appeals dated 12 February 1992 is
i.e., the judicial liquidation is intended to prevent
AFFIRMED. Costs against petitioner.
multiplicity of actions against the insolvent bank. It is a
pragmatic arrangement designed to establish due SO ORDERED.
process and orderliness in the liquidation of the bank, to Padilla (Chairman), Vitug.
obviate the proliferation of litigations and to avoid Kapunan, and Hermosisima, Jr., JJ., concur.
injustice and arbitrariness. The lawmaking body
contemplated that for convenience only one court, if
possible, should pass upon the claims against the
insolvent bank and that the liquidation court should
assist the Superintendent of Banks and regulate his FIRST DIVISION
operations.
The phrase (T)he court shall have jurisdiction in the
same proceedings to adjudicate disputed claims against [G.R. No. 141297. October 8, 2001]
the bank appears to have misled petitioner. He argues DOMINGO R. MANALO, petitioner, vs. COURT OF APPEALS
that to the best of his personal knowledge there is no (Special Twelfth Division) and PAIC SAVINGS AND
pending action filed before any court or agency which MORTGAGE BANK, respondents.
contests his right over subject properties. Thus his
petition before the Regional Trial Court of Quezon City This petition for certiorari seeks the review of the
cannot be considered a disputed claim as contemplated Decision of the Court of Appeals in C.A.-G.R. SP. No.
by law. 50341 promulgated December 23, 1999, which affirmed
an Order issued by the Regional Trial Court, Branch 112,
It is not necessary that a claim be initially disputed Pasay City, in Civil Case No. 9011 dated December 9,
in a court or agency before it is filed with the liquidation 1998.
court. As may be gleaned in the Hernandez case, the

Banking 1st Set of Cases | 85


On July 19, 1983, S. Villanueva Enterprises, decision of the Court of Appeals subsequently became
represented by its president, Therese Villanueva Vargas, final and executory when we summarily dismissed
obtained a loan of three million pesos (P3,000,000.00) Vargass Petition for Review on Certiorari for having been
and one million pesos (P1,000,000.00) from the filed beyond the reglementary period.[8]
respondent PAIC Savings and Mortgage Bank and the
In the meantime, on June 22, 1992, respondent
Philippine American Investments Corporation (PAIC),
petitioned the Regional Trial Court, Branch 112, of Pasay
respectively. To secure payment of both debts, Vargas
City, herein court a quo, for the issuance of a writ of
executed in favor of the respondent and PAIC a Joint
possession for the subject property in Civil Case No.
First Mortgage[1] over two parcels of land registered
9011. This is in view of the consolidation of its ownership
under her name. One of the lots, located in Pasay City
over the same as mentioned earlier. Vargas and S.
with an area of nine hundred nineteen square meters
Villanueva Enterprises, Inc. filed their opposition
(919 sq.m.) and covered by TCT No. 6076, is the subject
thereto. After which, trial ensued.
of the present case. Section 2 of the mortgage contract
states that the properties mortgaged therein shall During the pendency of Civil Case No. 9011 (for the
include all buildings and improvements existing on the issuance of a writ of possession), Vargas, on December
mortgaged property at the time of the execution of the 23, 1992, executed a Deed of Absolute Sale[9] selling,
mortgage contract and thereafter.[2] transferring, and conveying ownership of the disputed
lot in favor of a certain Armando
S. Villanueva Enterprises defaulted in paying the
Angsico. Notwithstanding this sale, Vargas, still
amortizations due. Despite repeated demands from the
representing herself to be the lawful owner of the
respondent, it failed to settle its loan
property, leased the same to petitioner Domingo R.
obligation. Accordingly, respondent instituted
Manalo on August 25, 1994. Pertinent provisions of the
extrajudicial foreclosure proceedings over the
lease agreement[10] state:
mortgaged lots. On August 22, 1984, the Pasay City
property was sold at a public auction to the respondent
3. (a) The lease is for a period of ten year lease (sic),
itself, after tendering the highest bid. The respondent
involving 450 square meters, a portion of the above 919
then caused the annotation of the corresponding
square meter property.
Sheriffs Certificate of Sale[3] on the title of the land on
December 4, 1984. After the lapse of one year, or the
statutory period extended by law to a mortgagor to x x x (d) The LESSEE has to introduce into the said 450
exercise his/her right of redemption, title was square meter premises improvements thereon (sic)
consolidated in respondents name for failure of Vargas consisting of one story building to house a Karaoke
to redeem. Music Restaurant Business, which improvements
constructed therof (sic), upon the termination of the
On October 29, 1986, the Central Bank of the lease contract, by said LESSEE be surrendered in favor of
Philippines filed a Petition[4] for assistance in the the LESSOR (sic).[11]
liquidation of the respondent with the Regional Trial
Court. The petition was given due course in an Later, on June 29, 1997, Armando Angsico, as buyer of
Order[5] dated May 19, 1987. the property, assigned his rights therein to petitioner.[12]

It appears that from the years 1986 to 1991, Vargas On April 21, 1998, the court a quo granted the
negotiated with the respondent (through its then petition for the issuance of the Writ of
liquidator, the Central Bank) for the repurchase of the Possession.[13] The writ was subsequently issued on April
foreclosed property. The negotiations, however, fizzled 24, 1998, the pertinent portion of which reads:[14]
out as Vargas cannot afford the repurchase price fixed
by the respondent based on the appraised value of the NOW THEREFORE you are hereby commanded that you
land at that time. On October 4, 1991, Vargas filed a cause oppositors THERESE VILLANUEVA VARGAS and S.
case for annulment of mortgage and extra-judicial VILLANUEVA ENTERPRISES, INC. and any and all persons
foreclosure sale before Branch 116 of the Pasay City claiming rights or title under them, to forthwith vacate
Regional Trial Court. On July 22, 1993, the court and surrender the possession of subject premises in
rendered a decision[6] dismissing the complaint and question known as that parcel of land and
upholding the validity of the mortgage and foreclosure improvements covered by TCT No. 6076 of the Registry
sale. On appeal, the appellate court upheld the assailed of Deeds of Pasay City; you are hereby further ordered
judgment and declared the said mortgage and to take possession and deliver to the petitioner PAIC
foreclosure proceedings to be in accord with law.[7] This

Banking 1st Set of Cases | 86


SAVINGS AND MORTGAGE BANK the subject parcel of has a legal interest, being a lessee and an assignee
land and improvements. of the property subject matter of this case.
Shortly, on May 8, 1998, S. Villanueva Enterprises and
II. Whether or not the public respondent
Vargas moved for its quashal.[15] Thereafter on June 25,
committed grave abuse of discretion when it held
1998, petitioner, on the strength of the lease contract
that what are required to be instituted before the
and Deed of Assignment made in his favor, submitted a
liquidation court are those claims against the
Permission to File an Ex-parte Motion to Intervene.[16] It
insolvent banks only considering that the private
bears mentioning, however, that before petitioner
respondent bank is legally dead due to insolvency
sought intervention in the present case, he had
and considering further that there is already a
separately instituted a Complaint for Mandamus,
liquidation court (Regional Trial Court of Makati,
docketed as Civil Case No. 98-0868 before another
Branch 57, docketed as Spec. Pro. No. M-1280)
branch[17] of the Pasay City RTC to compel PAIC Bank to
which is exclusively vested with jurisdiction to hear
allow him to repurchase the subject property.
all matters and incidents on liquidation pursuant to
On October 7, 1998, the court a quo denied the Section 29, Republic Act No. 265, otherwise known
Motion to Quash and Motion to Intervene filed as The Central Bank Act, as amended.
respectively by Vargas and petitioner.[18] A Motion for
Reconsideration and a Supplemental Motion for III. Whether or not the public respondent
Reconsideration were filed by the petitioner which, committed grave abuse of discretion and/or was
however, were similarly denied on December 9, 1998. patently in error in affirming the ruling of the trial
court, totally disregarding the arguments raised in
Petitioner then sought relief with the Court of
petitioners supplemental motion for
Appeals, filing therein a Petition for Certiorari. While this
reconsideration only through a minute order and
was awaiting resolution, he entered into another lease
without taking into consideration the fact that
agreement,[19] this time with the respondent,
there is a pending action in another court (RTC,
represented by its liquidator, over the same 450
Pasay City, Branch 231) which presents a prejudicial
sq.m. portion of the lot. The contract fixed a period of
question to the case at bar.
one month beginning January 28, 1999, renewable for
another month at the exclusive option of the lessor,
IV. Whether or not the petitioner is estopped from
respondent PAIC Bank.
questioning private respondents ownership when it
On December 23, 1999, the appellate court entered into a contract of lease involving the
rendered the impugned Decision, dismissing the property in question.[21]
petition, thus:
We will first resolve the jurisdictional and
procedural questions raised by the petitioner.
All told, WE find the Order, subject of the instant
Petition for Certiorari and Prohibition, to be not without
rational bases and we observe that the court a quo, in
issuing its questioned Order, committed no grave abuse I.
of discretion amounting to lack of jurisdiction. Petitioner postulates that the lower court should
have dismissed respondents Ex-Parte Petition for
WHEREFORE, the Petition for Certiorari and Prohibition Issuance of Writ of Possession in Civil Case No. P-9011
is hereby DISMISSED and the assailed December 9, 1998 for want of jurisdiction over the subject matter of the
Order is AFFIRMED in all respects. claim. The power to hear the same, he insists, exclusively
vests with the Liquidation Court pursuant to Section 29
SO ORDERED.[20] of Republic Act No. 265, otherwise known as The Central
Bank Act.[22] He then cites our decision in Valenzuela v.
Hence, this appeal, where petitioner raises and
Court of Appeals,[23] where we held that if there is a
argues the following legal issues:
judicial liquidation of an insolvent bank, all claims against
the bank should be filed in the liquidation
I. Whether or not public respondent acted without
proceeding. For going to another court, the respondent,
or in excess of its jurisdiction and/or was patently in
he accuses, is guilty of forum shopping.
error when it affirmed the denial of petitioners
motion for intervention, despite the fact that he

Banking 1st Set of Cases | 87


These contentions can not pass judicial muster. The To Real Estate Mortgages, mandates that jurisdiction
pertinent portion of Section 29 states: over a Petition for Writ of Possession lies with the court
of the province, city, or municipality where the property
x x x The liquidator designated as hereunder provided subject thereof is situated. This is sanctioned by Section
shall, by the Solicitor General, file a petition in the 7 of the said Act, thus:
Regional Trial Court reciting the proceedings which have
been taken and praying the assistance of the court in the Section 7. In any sale made under the provisions of this
liquidation of such institution. The court shall have Act, the purchaser may petition the Court of First
jurisdiction in the same proceedings to assist in the Instance of the province or place where the property or
adjudication of disputed claims against the bank or non- any part thereof is situated, to give him possession
bank financial intermediary performing quasi-banking thereof during the redemption period, furnishing bond
functions and the enforcement of individual liabilites of in an amount equivalent to the use of the property for a
the stockholders and do all that is necessary to preserve period of twelve months, to indemnify the debtor in
the assets of such institution and to implement the case it be shown that the sale was made without
liquidation plan approved by the Monetary Board. x x violating the mortgage or without complying with the
x[24] (emphasis supplied.) requirements of this Act. x x x[28] (emphasis supplied)
Petitioner apparently failed to appreciate the Since the land subject of this controversy is located in
correct meaning and import of the above-quoted Pasay City, then the citys RTC should rightly take
law. The legal provision only finds operation in cases cognizance of the case, to the exclusion of other courts.
where there are claims against an insolvent bank. In fine,
Anent petitioners auxiliary contention that
the exclusive jurisdiction of the liquidation court pertains
respondent should be held guilty of forum shopping for
only to the adjudication of claims against the bank. It
not filing the case in the liquidation court, suffice it to
does not cover the reverse situation where it is the bank
state here that the doctrine only ponders situations
which files a claim against another person or legal entity.
where two (or more) cases are pending before different
This interpretation of Section 29 becomes more tribunals.[29] Well to point, we have laid down the
obvious in the light of its intent. The requirement that all yardstick to determine whether a party violated the rule
claims against the bank be pursued in the liquidation against forum shopping as where the elements of litis
proceedings filed by the Central Bank is intended to pendentia are present or where a final judgment in one
prevent multiplicity of actions against the insolvent bank case will amount to res judicata in the
and designed to establish due process and orderliness in other.[30] Inasmuch as the case at bar is the only one filed
the liquidation of the bank, to obviate the proliferation by the respondent for the issuance of a writ of
of litigations and to avoid injustice and possession over the subject property, there is no
arbitrariness.[25] The lawmaking body contemplated that occasion for the doctrine to apply.
for convenience, only one court, if possible, should pass
Petitioner next casts doubt on the capacity of the
upon the claims against the insolvent bank and that the
respondent to continue litigating the petition for the
liquidation court should assist the Superintendents of
issuance of the writ. He asserts that, being under
Banks and regulate his operations.[26]
liquidation, respondent bank is already a dead
It then ought to follow that petitioners reliance on corporation that cannot maintain the suit in the RTC.
Section 29 and the Valenzuela case is misplaced. The Hence, no writ may be issued in its favor.
Petition for the Issuance of a Writ of Possession in Civil
The argument is devoid of merit. A bank which had
Case No. 9011 is not in the nature of a disputed claim
been ordered closed by the monetary board retains its
against the bank. On the contrary, it is an action
juridical personality which can sue and be sued through
instituted by the respondent bank itself for the
its liquidator. The only limitation being that the
preservation of its asset and protection of its property. It
prosecution or defense of the action must be done
was filed upon the instance of the respondents
through the liquidator.[31] Otherwise, no suit for or
liquidator in order to take possession of a tract of land
against an insolvent entity would prosper. In such
over which it has ownership claims.
situation, banks in liquidation would lose what justly
To be sure, the liquidator took the proper course of belongs to them through a mere technicality.[32]
action when it applied for a writ in the Pasay City RTC.
That the law allows a bank under liquidation to
Act 3135,[27] entitled An Act to Regulate the Sale of
participate in an action can be clearly inferred from the
Property Under Special Powers Inserted In or Annexed

Banking 1st Set of Cases | 88


third paragraph of the same Section 29 of The Central judgment adverse to his interests. It bears stressing that
Bank Act earlier quoted, which authorizes or empowers the complaint for mandamus was filed only on May 7,
a liquidator to institute actions, thus: 1998, sixteen days after the lower court granted
respondents petition and thirteen days after it issued
x x x and he (liquidator) may in the name of the bank or the writ. It cannot then possibly prejudice a decided
non-bank financial intermediary performing quasi- case.
banking functions and with the assistance of counsel as
At any rate, it taxes our imagination why the
he may retain, institute such actions as may be
questions raised in Case No. 98-0868 must be
necessary in the appropriate court to collect and recover
considered determinative of Case No. 9011. The basic
accounts and assests of such institution or defend any
issue in the former is whether the respondent, as the
action filed against the institution.[33] (emphasis
purchaser in the extra-judicial foreclosure proceedings,
supplied.)
may be compelled to have the property repurchased or
It is therefore beyond dispute that respondent was resold to a mortgagors successor-in-interest (petitioner);
legally capacitated to petition the court a quo for the while that in the latter is merely whether the
issuance of the writ. respondent, as the purchaser in the extra-judicial
foreclosure proceedings, is entitled to a writ of
possession after the statutory period for redemption has
II. expired. The two cases, assuming both are pending, can
proceed separately and take their own direction
Petitioner likewise proffers one other procedural independent of each other.
obstacle, which is the pendency of Civil Case No. 98-
0868 in Branch 231 of Pasay City RTC. The said action is
the complaint he filed against the respondent for the
III.
latter to receive and accept the redemption price of
eighteen million pesos for the subject property. He Having disposed of the jurisdictional and procedural
argues that the primary issue therein constitutes a issues, we now come to the merits of the
prejudicial question in relation to the present case in case. Petitioner seeks intervention in this case by virtue
that if the Court therein will grant petitioners prayer, of the lease agreement and the deed of assignment
then this will necessarily negate the possessory writ executed in his favor by the mortgagor (Vargas) and an
issued by the court a quo. alleged buyer (Angsico) of the land, respectively. He
posits that as a lessee and assignee in possession of the
Again, we are not persuaded. A prejudicial question
foreclosed real estate, he automatically acquires interest
is one which arises in a case the resolution of which is a
over the subject matter of the litigation. This interest is
logical antecedent of the issue involved therein, and the
coupled with the fact that he introduced improvements
cognizance of which pertains to another tribunal.[34] It
thereon, consisting of a one-storey building which
generally comes into play in a situation where a civil
houses a karaoke-music restaurant, allegedly to the tune
action and a criminal action are both pending and there
of fifteen million pesos (P15,000,000.00). Enforcing the
exists in the former an issue which must be preemptively
writ, he adds, without hearing his side would be an
resolved before the criminal action may proceed,
injustice to him.
because howsoever the issue raised in the civil action is
resolved would be determinative juris et de jure of the Intervention is a remedy by which a third party, not
guilt or innocence of the accused in the criminal originally impleaded in the proceeding, becomes a
case. The rationale behind the principle of prejudicial litigant therein to enable him to protect or preserve a
question is to avoid two conflicting decisions.[35] right or interest which may be affected by such
proceeding.[37] The pertinent provision is stated in
Here, aside from the fact that Civil Case No. 98-
Section 1, Rule 19 of the 1997 Rules of Civil
0868 and the present one are both civil in nature and
Procedure, thus:
therefore no prejudicial question can arise from the
existence of the two actions,[36] it is apparent that the
Section 1. Who may intervene. - A person who has a
former action was instituted merely to frustrate the
legal interest in the matter in litigation, or in the
Courts ruling in the case at bar granting the respondent
success of either of the parties, or an interest
the right to possess the subject property. It is but a
against both, or is so situated as to be adversely
canny and preemptive maneuver on the part of the
affected by a distribution or other disposition of
petitioner to delay, if not prevent, the execution of a

Banking 1st Set of Cases | 89


property in the custody of the court or of an officer consequence of denial. While it is true that on May 8,
thereof may, with leave of court, be allowed to 1998, Vargas and S. Villanueva Enterprises moved to
intervene in the action. The court shall consider quash the writ, that did not in any way affect the nature
whether or not the intervention will unduly delay or of the RTCs Order as an adjudication on the merits. The
prejudice the adjudication of the rights of the issuance of the Order is in essence a rendition of
original parties, and whether or not the intervenors judgment within the purview of Section 2, Rule 19.
rights may be fully protected in a separate
Allowing petitioner to intervene, furthermore, will
proceeding.[38]
serve no other purpose but to unduly delay the
Intervention is not a matter of right but may be execution of the writ, to the prejudice of the
permitted by the courts only when the statutory respondent. This cannot be countenanced considering
conditions for the right to intervene is shown.[39] Thus, that after the consolidation of title in the buyers name,
the allowance or disallowance of a motion to intervene for failure of the mortgagor to redeem, the writ of
is addressed to the sound discretion of the court.[40] In possession becomes a matter of right.[44] Its issuance to
determining the propriety of letting a party intervene in a purchaser in an extra-judicial foreclosure is merely a
a case, the tribunal should not limit itself to inquiring ministerial function.[45] As such, the court neither
whether a person (1) has a legal interest in the matter in exercises its official discretion nor judgment.[46] If only to
litigation; (2) or in the success of either of the parties; (3) stress the writs ministerial character, we have, in
or an interest against both; (4) or when is so situated as previous cases, disallowed injunction to prohibit its
to be adversely affected by a distribution or other issuance,[47] just as we have held that issuance of the
disposition of property in the custody of the court or of same may not be stayed by a pending action for
an officer thereof.[41] Just as important, as we have annulment of mortgage or the foreclosure itself.[48]
stated in Big Country Ranch Corporation v. Court of
Even if he anchors his intervention on the
Appeals,[42] is the function to consider whether or not
purported interest he has over the land and the
the intervention will unduly delay or prejudice the
improvements thereon, petitioner, still, should not be
adjudication of the rights of the original parties, and
allowed to do so. He admits that he is a mere lessee and
whether or not the intervenors rights may be fully
assignee. Whatever possessory rights he holds only
protected in a separate proceeding.
emanate from that of Vargas, from whom he leased the
The period within which a person may intervene is lot, and from whom his assignor/predecessor-in-interest
also restricted. Section 2, Rule 19 of the 1997 Rules of bought it. Therein lies the precariousness of his
Civil Procedure requires: title. Petitioner cannot validly predicate his supposed
interest over the property in litigation on that of Vargas,
Section 2. Time to intervene. - The motion to intervene for the simple reason that as early as December 4, 1985,
may be filed at any time before the rendition of the latter has already been stripped of all her rights over
judgment by the trial court. x x x the land when she, as mortgagor, failed to redeem it. A
mortgagor has only one year within which to redeem her
After the lapse of this period, it will not be warranted
foreclosed real estate.[49] After that period, she loses all
anymore. This is because, basically, intervention is not
her interests over it. This is in consonance with Section
an independent action but is ancillary and supplemental
78 of the General Banking Act,[50] viz.:
to an existing litigation.[43]
Taking into account these fundamental precepts, x x x In the event of foreclosure, whether judicially
we rule that the petitioner may not properly intervene in or extrajudicially, of any mortgage on real estate
the case at bar. His insistence to participate in the which is security for any loan granted before the
proceeding is an unfortunate case of too little, too late. passage of this Act or the provisions of this Act, the
mortgagor or debtor whose real property has been
In the first place, petitioners Ex-parte Permission to sold at public auction, judicially or extrajudicially,
File a Motion to Intervene was submitted to the RTC for the full or partial payment of an obligation to
only on June 25, 1998. At that stage, the lower court had any bank, banking or credit institution, within the
already granted respondents petition for the writ in an purview of this Act shall have the right, within one
Order dated April 21, 1998. It had issued the Writ of year after the sale of the real estate mortgage as a
Possession on April 24, 1998. Petitioners motion then result of the foreclosure of the respective mortgage,
was clearly out of time, having been filed only at the to redeem the property by paying the amount fixed
execution stage. For that reason alone, it must meet the

Banking 1st Set of Cases | 90


by the court in the order or execution x x [G.R. No. 135706. October 1, 2004]
x.[51] (emphasis supplied.)
SPS. CESAR A. LARROBIS, JR. and VIRGINIA S.
Being herself bereft of valid title and rights, Vargas LARROBIS, petitioners, vs. PHILIPPINE VETERANS
can not legitimately convey any to some other BANK, respondent.
person. She could not have lawfully sold the land to
Angsico nor leased it to petitioner for her own
account. It is axiomatic that one can not transmit what Before us is a petition for review of the decision of
one does not have.[52] It ought to follow that petitioner the Regional Trial Court (RTC), Cebu City, Branch 24,
could not have acquired any right or interest from dated April 17, 1998,[1] and the order denying petitioners
Vargas. motion for reconsideration dated August 25, 1998,
raising pure questions of law.[2]
Withal, all is not lost for the petitioner. He can still
fully protect his rights in Civil Case No. 98-0868 or the The following facts are uncontroverted:
complaint for mandamus he filed before Branch 231 of
the Pasay City RTC. There, he can ventilate his side to a On March 3, 1980, petitioner spouses contracted a
fuller extent as that would be the more appropriate monetary loan with respondent Philippine Veterans
venue for elucidating whatever legal basis he alleges in Bank in the amount of P135,000.00, evidenced by a
compelling the respondent to sell to him the currently promissory note, due and demandable on February 27,
disputed land. 1981, and secured by a Real Estate Mortgage executed
on their lot together with the improvements thereon.
On March 23, 1985, the respondent bank went
IV. bankrupt and was placed under receivership/liquidation
by the Central Bank from April 25, 1985 until August
This brings us to petitioners final point. He briefly
1992.[3]
asserts that his act of entering into a lease contract with
the respondent should not affect his right to redeem the On August 23, 1985, the bank, through Francisco
subject property. Go, sent the spouses a demand letter for accounts
receivable in the total amount of P6,345.00 as of August
The possible legal implication of the lease on the
15, 1984,[4] which pertains to the insurance premiums
petitioners act of trying to redeem the disputed lot is a
advanced by respondent bank over the mortgaged
question which, in our opinion, can best be resolved in
property of petitioners.[5]
the mandamus complaint. Whether the agreement must
be construed as a waiver on his part of exercising his On August 23, 1995, more than fourteen years from
purported right of redemption is an issue best left for the time the loan became due and demandable,
the court therein to decide. Whether by acknowledging respondent bank filed a petition for extrajudicial
the legality of the respondents claim and title over the foreclosure of mortgage of petitioners property.[6] On
land at the time of the execution of the contract, he October 18, 1995, the property was sold in a public
likewise perpetually barred himself from redeeming the auction by Sheriff Arthur Cabigon with Philippine
same is a matter which can be addressed most aptly in Veterans Bank as the lone bidder.
that pending action. Hence, there is presently no need
On April 26, 1996, petitioners filed a complaint with
for us to squarely rule on this ultimate point.
the RTC, Cebu City, to declare the extra-judicial
IN VIEW WHEREOF, finding no cogent reason to foreclosure and the subsequent sale thereof to
disturb the assailed Decision, the instant petition is respondent bank null and void.[7]
hereby DENIED.
In the pre-trial conference, the parties agreed to
SO ORDERED. limit the issue to whether or not the period within which
Davide, Jr., C.J., (Chairman), Pardo, and Ynares- the bank was placed under receivership and liquidation
Santiago, JJ., concur. was a fortuitous event which suspended the running of
Kapunan, J., on official leave. the ten-year prescriptive period in bringing actions.[8]
On April 17, 1998, the RTC rendered its decision,
SECOND DIVISION the fallo of which reads:

Banking 1st Set of Cases | 91


WHEREFORE, premises considered judgment is hereby and Jurisprudence on the Civil Code of the Philippines
rendered dismissing the complaint for lack of merit. 1991 ed. pp. 18-19), consequently, when the closure of
Likewise the compulsory counterclaim of defendant is the petitioner was set aside in 1981, the period of ten
dismissed for being unmeritorious.[9] years within which to foreclose under Art. 1142 of the
N.C.C. began to run and, therefore, the action filed on
It reasoned that:
August 21, 1986 to compel petitioner to release the
mortgage carried with it the mistaken notion that
defendant bank was placed under receivership by the
petitioners own suit for foreclosure has prescribed.
Central Bank from April 1985 until 1992. The defendant
bank was given authority by the Central Bank to operate
Even assuming that the liquidation of defendant bank
as a private commercial bank and became fully
did not affect its right to foreclose the plaintiffs
operational only on August 3, 1992. From April 1985
mortgaged property, the questioned extrajudicial
until July 1992, defendant bank was restrained from
foreclosure was well within the ten (10) year prescriptive
doing its business. Doing business as construed by
period. It is noteworthy to mention at this point in time,
Justice Laurel in 222 SCRA 131 refers to:
that defendant bank through authorized Deputy
Francisco Go made the first extrajudicial demand to the
.a continuity of commercial dealings and arrangements
plaintiffs on August 1985. Then on March 24, 1995
and contemplates to that extent, the performance of
defendant bank through its officer-in-charge Llanto
acts or words or the exercise of some of the functions
made the second extrajudicial demand. And we all know
normally incident to and in progressive prosecution of
that a written extrajudicial demand wipes out the period
the purpose and object of its organization.
that has already elapsed and starts anew the
prescriptive period. (Ledesma vs. C.A., 224 SCRA 175.)[10]
The defendant banks right to foreclose the mortgaged
property prescribes in ten (10) years but such period Petitioners filed a motion for reconsideration which
was interrupted when it was placed under receivership. the RTC denied on August 25, 1998.[11] Thus, the present
Article 1154 of the New Civil Code to this effect petition for review where petitioners claim that the RTC
provides: erred:
I
The period during which the obligee was prevented by a
fortuitous event from enforcing his right is not reckoned
IN RULING THAT THE PERIOD WITHIN WHICH
against him.
RESPONDENT BANK WAS PUT UNDER RECEIVERSHIP
AND LIQUIDATION WAS A FORTUITOUS EVENT THAT
In the case of Provident Savings Bank vs. Court of INTERRUPTED THE RUNNING OF THE PRESCRIPTIVE
Appeals, 222 SCRA 131, the Supreme Court said. PERIOD.
Having arrived at the conclusion that a foreclosure is II
part of a banks activity which could not have been
pursued by the receiver then because of the IN RULING THAT THE WRITTEN EXTRA-JUDICIAL
circumstances discussed in the Central Bank case, we are DEMAND MADE BY RESPONDENT ON PETITIONERS
thus convinced that the prescriptive period was legally WIPED OUT THE PERIOD THAT HAD ALREADY ELAPSED.
interrupted by fuerza mayor in 1972 on account of the
III
prohibition imposed by the Monetary Board against
petitioner from transacting business, until the directive
IN DENYING PETITIONERS MOTION FOR
of the Board was nullified in 1981. Indeed, the period
RECONSIDERATION OF ITS HEREIN ASSAILED
during which the obligee was prevented by a caso
DECISION.[12]
fortuito from enforcing his right is not reckoned against
him. (Art. 1154, NCC) When prescription is interrupted, Petitioners argue that: since the extra-judicial
all the benefits acquired so far from the possession foreclosure of the real estate mortgage was effected by
cease and when prescription starts anew, it will be the bank on October 18, 1995, which was fourteen years
entirely a new one. This concept should not be equated from the date the obligation became due on February
with suspension where the past period is included in the 27, 1981, said foreclosure and the subsequent sale at
computation being added to the period after the public auction should be set aside and declared null and
prescription is presumed (4 Tolentino, Commentaries void ab initio since they are already barred by

Banking 1st Set of Cases | 92


prescription; the court a quo erred in sustaining the Petitioners further contend that: the demand letter,
respondents theory that its having been placed under dated March 24, 1995, was sent after the ten-year
receivership by the Central Bank between April 1985 and prescriptive period, thus it cannot be deemed to have
August 1992 was a fortuitous event that interrupted the revived a period that has already elapsed; it is also not
running of the prescriptive period;[13] the court a one of the instances enumerated by Art. 1115 of the
quos reliance on the case of Provident Savings Bank vs. Civil Code when prescription is interrupted;[17] and the
Court of Appeals[14] is misplaced since they have August 23, 1985 letter by Francisco Go
different sets of facts; in the present case, a liquidator demanding P6,345.00, refers to the insurance premium
was duly appointed for respondent bank and there was on the house of petitioners, advanced by respondent
no judgment or court order that would legally or bank, thus such demand letter referred to another
physically hinder or prohibit it from foreclosing obligation and could not have the effect of interrupting
petitioners property; despite the absence of such legal the running of the prescriptive period in favor of herein
or physical hindrance, respondent banks receiver or petitioners insofar as foreclosure of the mortgage is
liquidator failed to foreclose petitioners property and concerned.[18]
therefore such inaction should bind respondent
Petitioners then prayed that respondent bank be
bank;[15]foreclosure of mortgages is part of the
ordered to pay them P100,000.00 as moral
receivers/liquidators duty of administering the banks
damages, P50,000.00 as exemplary damages
assets for the benefit of its depositors and creditors,
and P100,000.00 as attorneys fees.[19]
thus, the ten-year prescriptive period which started on
February 27, 1981, was not interrupted by the time Respondent for its part asserts that: the period
during which the respondent bank was placed under within which it was placed under receivership and
receivership; and the Monetary Boards prohibition from liquidation was a fortuitous event that interrupted the
doing business should not be construed as barring any running of the prescriptive period for the foreclosure of
and all business dealings and transactions by the bank, petitioners mortgaged property; within such period, it
otherwise, the specific mandate to foreclose mortgages was specifically restrained and immobilized from doing
under Sec. 29 of R.A. No. 265 as amended by Executive business which includes foreclosure proceedings; the
Order No. 65 would be rendered nugatory.[16] Said extra-judicial demand it made on March 24, 1995 wiped
provision reads: out the period that has already lapsed and started anew
the prescriptive period; respondent through its
Section 29. Proceedings upon Insolvency Whenever, authorized deputy Francisco Go made the first extra-
upon examination by the head of the appropriate judicial demand on the petitioners on August 23, 1985;
supervising or examining department or his examiners or while it is true that the first demand letter of August
agents into the condition of any bank or non-bank 1985 pertained to the insurance premium advanced by it
financial intermediary performing quasi-banking over the mortgaged property of petitioners, the same
functions, it shall be disclosed that the condition of the however formed part of the latters total loan obligation
same is one of insolvency, or that its continuance in with respondent under the mortgage instrument and
business would involve probable loss to its depositors or therefore constitutes a valid extra-judicial demand made
creditors, it shall be the duty of the department head within the prescriptive period.[20]
concerned forthwith, in writing, to inform the Monetary
In their Reply, petitioners reiterate their earlier
Board of the facts. The Board may, upon finding the
arguments and add that it was respondent that insured
statements of the department head to be true, forbid
the mortgaged property thus it should not pass the
the institution to do business in the Philippines and
obligation to petitioners through the letter dated August
designate the official of the Central Bank or a person of
1985.[21]
recognized competence in banking or finance, as
receiver to immediately take charge its assets and To resolve this petition, two questions need to be
liabilities, as expeditiously as possible, collect and gather answered: (1) Whether or not the period within which
all the assets and administer the same for the benefit of the respondent bank was placed under receivership and
its creditors, and represent the bank personally or liquidation proceedings may be considered a fortuitous
through counsel as he may retain in all actions or event which interrupted the running of the prescriptive
proceedings for or against the institution, exercising all period in bringing actions; and (2) Whether or not the
the powers necessary for these purposes including, but demand letter sent by respondent banks representative
not limited to, bringing and foreclosing mortgages in the on August 23, 1985 is sufficient to interrupt the running
name of the bank. of the prescriptive period.

Banking 1st Set of Cases | 93


Anent the first issue, we answer in the negative. When a bank is declared insolvent and placed
under receivership, the Central Bank, through the
One characteristic of a fortuitous event, in a legal
Monetary Board, determines whether to proceed with
sense and consequently in relations to contract, is that
the liquidation or reorganization of the financially
its occurrence must be such as to render it impossible
distressed bank. A receiver, who concurrently represents
for a party to fulfill his obligation in a normal manner.[22]
the bank, then takes control and possession of its assets
Respondents claims that because of a fortuitous for the benefit of the banks creditors. A liquidator
event, it was not able to exercise its right to foreclose meanwhile assumes the role of the receiver upon the
the mortgage on petitioners property; and that since it determination by the Monetary Board that the bank can
was banned from pursuing its business and was placed no longer resume business. His task is to dispose of all
under receivership from April 25, 1985 until August the assets of the bank and effect partial payments of the
1992, it could not foreclose the mortgage on petitioners banks obligations in accordance with legal priority. In
property within such period since foreclosure is both receivership and liquidation proceedings, the bank
embraced in the phrase doing business, are without retains its juridical personality notwithstanding the
merit. closure of its business and may even be sued as its
corporate existence is assumed by the receiver or
While it is true that foreclosure falls within the liquidator. The receiver or liquidator meanwhile acts not
broad definition of doing business, that is: only for the benefit of the bank, but for its creditors as
well.[27]
a continuity of commercial dealings and arrangements
and contemplates to that extent, the performance of In Provident Savings Bank vs. Court of
acts or words or the exercise of some of the functions Appeals,[28] we further stated that:
normally incident to and in progressive prosecution of
the purpose and object of its organization.[23] When a bank is prohibited from continuing to do
business by the Central Bank and a receiver is appointed
it should not be considered included, however, in the for such bank, that bank would not be able to do new
acts prohibited whenever banks are prohibited from business, i.e., to grant new loans or to
doing business during receivership and liquidation accept new deposits. However, the receiver of the bank
proceedings. is in fact obliged to collect debts owing to the bank, which
This we made clear in Banco Filipino Savings & debts form part of the assets of the bank. The receiver
Mortgage Bank vs. Monetary Board, Central Bank of the must assemble the assets and pay the obligation of the
Philippines[24] where we explained that: bank under receivership, and take steps to prevent
dissipation of such assets. Accordingly, the receiver of the
Section 29 of the Republic Act No. 265, as amended bank is obliged to collect pre-existing debts due to the
known as the Central Bank Act, provides that when a bank, and in connection therewith, to foreclose
bank is forbidden to do business in the Philippines and mortgages securing such debts.[29](Emphasis supplied.)
placed under receivership, the person designated as It is true that we also held in said case that the
receiver shall immediately take charge of the banks period during which the bank was placed under
assets and liabilities, as expeditiously as possible, collect receivership was deemed fuerza mayor which validly
and gather all the assets and administer the same for the interrupted the prescriptive period.[30] This is being
benefit of its creditors, and represent the bank personally invoked by the respondent and was used as basis by the
or through counsel as he may retain in all actions or trial court in its decision. Contrary to the position of the
proceedings for or against the institution, exercising all respondent and court a quo however, such ruling does
the powers necessary for these purposes including, but not find application in the case at bar.
not limited to, bringing and foreclosing mortgages in the
name of the bank.[25] A close scrutiny of the Provident case, shows that
the Court arrived at said conclusion, which is an
This is consistent with the purpose of receivership exception to the general rule, due to the peculiar
proceedings, i.e., to receive collectibles and preserve the circumstances of Provident Savings Bank at the time. In
assets of the bank in substitution of its former said case, we stated that:
management, and prevent the dissipation of its assets to
the detriment of the creditors of the bank.[26] Having arrived at the conclusion that a foreclosure is
part of a banks business activity which could not have

Banking 1st Set of Cases | 94


been pursued by the receiver then because of the Settled is the principle that a bank is bound by the
circumstances discussed in the Central Bank case, we are acts, or failure to act of its receiver.[34] As we held
thus convinced that the prescriptive period was legally in Philippine Veterans Bank vs. NLRC,[35] a labor case
interrupted by fuerza mayor in 1972 on account of the which also involved respondent bank,
prohibition imposed by the Monetary Board against
petitioner from transacting business, until the directive all the acts of the receiver and liquidator pertain to
of the Board was nullified in 1981.[31] (Emphasis petitioner, both having assumed petitioners corporate
supplied.) existence. Petitioner cannot disclaim liability by arguing
that the non-payment of MOLINAs just wages was
Further examination of the Central Bank case
committed by the liquidators during the liquidation
reveals that the circumstances of Provident Savings Bank
period.[36]
at the time were peculiar because after the Monetary
Board issued MB Resolution No. 1766 on September 15, However, the bank may go after the receiver who is
1972, prohibiting it from doing business in the liable to it for any culpable or negligent failure to collect
Philippines, the banks majority stockholders immediately the assets of such bank and to safeguard its assets.[37]
went to the Court of First Instance of Manila, which
Having reached the conclusion that the period
prompted the trial court to issue its judgment dated
within which respondent bank was placed under
February 20, 1974, declaring null and void the resolution
receivership and liquidation proceedings does not
and ordering the Central Bank to desist from liquidating
constitute a fortuitous event which interrupted the
Provident. The decision was appealed to and affirmed by
prescriptive period in bringing actions, we now turn to
this Court in 1981. Thus, the Superintendent of Banks,
the second issue on whether or not the extra-judicial
which was instructed to take charge of the assets of the
demand made by respondent bank, through Francisco
bank in the name of the Monetary Board, had no power
Go, on August 23, 1985 for the amount of P6,345.00,
to act as a receiver of the bank and carry out the
which pertained to the insurance premiums advanced by
obligations specified in Sec. 29 of the Central Bank
the bank over the mortgaged property, constitutes a
Act.[32]
valid extra-judicial demand which interrupted the
In this case, it is not disputed that Philippine running of the prescriptive period. Again, we answer this
Veterans Bank was placed under receivership by the question in the negative.
Monetary Board of the Central Bank by virtue of
Prescription of actions is interrupted when they are
Resolution No. 364 on April 25, 1985, pursuant to
filed before the court, when there is a written extra-
Section 29 of the Central Bank Act on insolvency of
judicial demand by the creditors, and when there is any
banks. [33]
written acknowledgment of the debt by the debtor.[38]
Unlike Provident Savings Bank, there was no legal
Respondents claim that while its first demand letter
prohibition imposed upon herein respondent to deter its
dated August 23, 1985 pertained to the insurance
receiver and liquidator from performing their obligations
premium it advanced over the mortgaged property of
under the law. Thus, the ruling laid down in
petitioners, the same formed part of the latters total
the Provident case cannot apply in the case at bar.
loan obligation with respondent under the mortgage
There is also no truth to respondents claim that it instrument, and therefore, constitutes a valid extra-
could not continue doing business from the period of judicial demand which interrupted the running of the
April 1985 to August 1992, the time it was under prescriptive period, is not plausible.
receivership. As correctly pointed out by petitioner,
The real estate mortgage signed by the petitioners
respondent was even able to send petitioners a demand
expressly states that:
letter, through Francisco Go, on August 23, 1985 for
accounts receivable in the total amount of P6,345.00 as
of August 15, 1984 for the insurance premiums This mortgage is constituted by the Mortgagor to secure
advanced by respondent bank over the mortgaged the payment of the loan and/or credit accommodation
property of petitioners. How it could send a demand granted to the spouses Cesar A. Larrobis, Jr. and Virginia
letter on unpaid insurance premiums and not foreclose S. Larrobis in the amount of ONE HUNDRED THIRTY FIVE
the mortgage during the time it was prohibited from THOUSAND (P135,000.00) PESOS ONLY Philippine
doing business was not adequately explained by Currency in favor of the herein Mortgagee.[39]
respondent. The promissory note, executed by the petitioners,
also states that:

Banking 1st Set of Cases | 95


FOR VALUE RECEIVED, I/WE, JOINTLY AND SEVERALLY, and void and respondent is ordered to return to
PROMISE TO PAY THE PHILIPPINE VETERANS BANK, OR petitioners their owners duplicate certificate of title.
ORDER, AT ITS OFFICE AT CEBU CITY THE SUM OF ONE
Costs against respondent.
HUNDRED THIRTY FIVE THOUSAND PESOS
(P135,000.00), PHILIPPINE CURRENCY WITH INTEREST AT SO ORDERED.
THE RATE OF FOURTEEN PER CENT (14%) PER ANNUM Puno, (Chairman), Callejo, Sr., and Tinga, JJ., concur.
FROM THIS DATE UNTIL FULLY PAID.[40] Chico-Nazario, J., on leave.
Considering that the mortgage contract and the
FIRST DIVISION
promissory note refer only to the loan of petitioners in
the amount of P135,000.00, we have no reason to hold
ATTY. RESTITUTO G. CUDIAMAT, ERLINDA P.
that the insurance premiums, in the amount
CUDIAMAT[1] and CORAZON D. CUDIAMAT,
of P6,345.00, which was the subject of the August 1985
Petitioners,
demand letter, should be considered as pertaining to the
- versus -
entire obligation of petitioners.
BATANGAS SAVINGS AND LOAN BANK, INC., and THE
In Quirino Gonzales Logging Concessionaire vs. REGISTER OF DEEDS, NASUGBU, BATANGAS,
Court of Appeals,[41] we held that the notices of
foreclosure sent by the mortgagee to the mortgagor
cannot be considered tantamount to written Petitioner Atty. Restituto Cudiamat and his brother
extrajudicial demands, which may validly interrupt the Perfecto were the registered co-owners of a 320 square
running of the prescriptive period, where it does not meter parcel of land (the property) in Balayan, Batangas,
appear from the records that the notes are covered by covered by TCT No. T-37889 of the Register of Deeds of
the mortgage contract.[42] Nasugbu, Batangas. Restituto, who resided in Ozamiz
City with his wife, entrusted the custody of the title to
In this case, it is clear that the advanced payment of
who was residing in Balayan.
the insurance premiums is not part of the mortgage
contract and the promissory note signed by petitioners.
They pertain only to the amount of P135,000.00 which is
In 1979, Perfecto, without the knowledge and
the principal loan of petitioners plus interest. The
consent of Restituto, obtained a loan from respondent
arguments of respondent bank on this point must
Batangas Savings and Loan Bank, Inc. (the bank). To
therefore fail.
secure the payment of the loan, Perfecto mortgaged the
As to petitioners claim for damages, however, we property for the purpose of which he presented a
find no sufficient basis to award the same. For moral Special Power of Attorney (SPA) purportedly executed by
damages to be awarded, the claimant must satisfactorily Restituto, with the marital consent of his wife-herein co-
prove the existence of the factual basis of the damage petitioner Erlinda Cudiamat.
and its causal relation to defendants acts.[43] Exemplary
damages meanwhile, which are imposed as a deterrent On June 19, 1991, Restituto was informed, via
[2]
against or as a negative incentive to curb socially letter dated June 7, 1991 from the bank, that the
deleterious actions, may be awarded only after the property was foreclosed. He thus, by letter[3] dated June
claimant has proven that he is entitled to moral, 25, 1991, informed the bank that he had no participation
temperate or compensatory damages.[44] Finally, as to in the execution of the mortgage and that he never
attorneys fees, it is demanded that there be factual, authorized Perfecto for the purpose.
legal and equitable justification for its award.[45] Since
the bases for these claims were not adequately proven In the meantime, Perfecto died in 1990. In 1998,
by the petitioners, we find no reason to grant the same. as Perfectos widow petitioner Corazon was being evicted
from the property, she and her co-petitioner-spouses
WHEREFORE, the decision of the Regional Trial Restituto and Erlinda filed on August 9, 1999 before the
Court, Cebu City, Branch 24, dated April 17, 1998, and Regional Trial Court (RTC) of Balayan a complaint[4] for
the order denying petitioners motion for reconsideration quieting of title with damages against the bank and the
dated August 25, 1998 are hereby REVERSED and SET Register of Deeds of Nasugbu, docketed as Civil Case No.
ASIDE. The extra-judicial foreclosure of the real estate 3618, assailing the mortgage as being null and void as
mortgage on October 18, 1995, is hereby declared null they did not authorize the encumbrance of the property.

Banking 1st Set of Cases | 96


In its Answer to the complaint, the bank, jurisdiction of the Balayan RTC because it actively
maintaining the validity of the mortgage, alleged that it participated in the proceedings thereat.
had in fact secured a title in its name, TCT No. T-48405,
after Perfecto failed to redeem the mortgage; that the The petition is impressed with merit.
Balayan RTC had no jurisdiction over the case as the
bank had been placed under receivership and under Estoppel bars the bank from raising the issue of
liquidation by the Philippine Deposit Insurance lack of jurisdiction of the Balayan RTC.
Corporation (PDIC); that PDIC filed before the RTC of
Nasugbu a petition for assistance in the liquidation of In Lozon v. NLRC,[7] the Court came up with a
the bank which was docketed as SP No. 576; and that clear rule on when jurisdiction by estoppel applies and
jurisdiction to adjudicate disputed claims against it is when it does not:
lodged with the liquidation court-RTC Nasugbu.
The operation of estoppel on the
[5]
By Decision of January 17, 2006, Branch 9 of the question of jurisdiction seemingly
Balayan RTC rendered judgment, in the complaint for depends on whether the lower court
quieting of title, in favor of the plaintiffs-herein actually had jurisdiction or not. If it had
petitioners. It ordered respondent Register of Deeds of no jurisdiction, but the case was tried
Nasugbu to cancel the encumbrance annotated on TCT and decided upon the theory that it
No. T-37889, and to cancel TCT No. T-48405 issued in had jurisdiction, the parties are not
the name of the bank and reinstate the former title. It barred, on appeal, from assailing
also directed the bank to return the property to such jurisdiction, for the same must
petitioner spouses Restituto and Erlinda and to exist as a matter of law, and may not be
pay P20,000 to all the petitioners to defray the costs of conferred by the consent of the parties
suit. or by estoppel. However, if the lower
court had jurisdiction, and the case was
The bank appealed to the Court of Appeals, heard and decided upon a given theory,
contending, inter alia, that the Balayan RTC had no such, for instance, as that the court had
jurisdiction over petitioners complaint for quieting of no jurisdiction, the party who induced it
title. to adopt such theory will not be
permitted, on appeal, to assume an
By the assailed Decision of December 21, 2007,[6] the inconsistent position that the lower
appellate court, ruling in favor of the bank, dismissed court had jurisdiction (underscoring
petitioners complaint for quieting of title, without supplied)
prejudice to the right of petitioners to take up their
claims with the Nasugbu RTC sitting as a liquidation
court. The ruling was echoed in Metromedia Times Corporation
v. Pastorin.[8]
To the appellate court, the Balayan RTC, as a
court of general jurisdiction, should have deferred to the In the present case, the Balayan RTC, sitting as a
Nasugbu RTC which sits as a liquidation court, given that court of general jurisdiction, had jurisdiction over the
the bank was already under receivership when complaint for quieting of title filed by petitioners on
petitioners filed the complaint for quieting of title. August 9, 1999. The Nasugbu RTC, as a liquidation court,
assumed jurisdiction over the claims against the bank
Petitioners Motion for Reconsideration having only on May 25, 2000, when PDICs petition for
been denied by the appellate court by Resolution of assistance in the liquidation was raffled thereat and
March 27, 2008, they filed the present petition for given due course.
review on certiorari. While it is well-settled that lack of jurisdiction on
the subject matter can be raised at any time and is not
Assailing the appellate courts ruling that the lost by estoppel by laches, the present case is an
Balayan RTC had no jurisdiction over their complaint, exception. To compel petitioners to re-file and relitigate
petitioners argue that their complaint was filed earlier their claims before the Nasugbu RTC when the parties
than PDICs petition for assistance in the liquidation; and had already been given the opportunity to present their
that the bank is now estopped from questioning the respective evidence in a full-blown trial before the

Banking 1st Set of Cases | 97


Balayan RTC which had, in fact, decided petitioners In Resolution No. 1056 dated October 26, 1994, the
complaint (about two years before the appellate court Monetary Board of the Bangko Sentral ng Pilipinas (BSP)
rendered the assailed decision) would be an exercise in prohibited the Rural Bank of Tuba (Benguet), Inc. (RBTI)
futility and would unjustly burden petitioners. from doing business in the Philippines, placed it under
receivership in accordance with Section 30 of Republic
The Court, in Valenzuela v. Court of Act No. 7653, otherwise known as the "New Central
Appeals,[9] held that as a general rule, if there is a judicial Bank Act," and designated the Philippine Deposit
liquidation of an insolvent bank, all claims against the Insurance Corporation (PDIC) as receiver.4
bank should be filed in the liquidation proceeding. The
Court in Valenzuela, however, after considering the Subsequently, PDIC conducted an evaluation of RBTIs
circumstances attendant to the case, held that the financial condition and determined that RBTI remained
general rule should not be applied if to order the insolvent. Thus, the Monetary Board issued Resolution
aggrieved party to refile or relitigate its case before the No. 675 dated June 6, 1997 directing PDIC to proceed
litigation court would be an exercise in futility. Among with the liquidation of RBTI. Accordingly and pursuant to
the circumstances the Court considered in that case is Section 30 of the New Central Bank Act, PDIC filed in the
the fact that the claimants were poor and the disputed Regional Trial Court (RTC) of La Trinidad, Benguet a
parcel of land was their only property, and the parties petition for assistance in the liquidation of RBTI. The
claims and defenses were properly ventilated in and petition was docketed as Special Proceeding Case No.
considered by the judicial court. 97-SP-0100 and raffled to Branch 8.5

In the present case, the Court finds that In an Order6 dated September 4, 1997, the trial court
analogous considerations exist to warrant the gave the petition due course and approved it.
application of Valenzuela. Petitioner Restituto was 78
years old at the time the petition was filed in this Court, As an incident of the proceedings, the Bureau of Internal
and his co-petitioner-wife Erlinda died[10] during the Revenue (BIR) intervened as one of the creditors of RBTI.
pendency of the case. And, except for co-petitioner The BIR prayed that the proceedings be suspended until
Corazon, Restituto is a resident of Ozamis City. To PDIC has secured a tax clearance required under Section
compel him to appear and relitigate the case in the 52(C) of Republic Act No. 8424, otherwise known as the
liquidation court-Nasugbu RTC when the issues to be "Tax Reform Act of 1997" or the "Tax Code of 1997,"
raised before it are the same as those already which provides:
exhaustively passed upon and decided by the Balayan
RTC would be superfluous. SEC. 52. Corporation Returns.

WHEREFORE, the petition is GRANTED. xxxx


The Decision of December 21, 2007 and Resolution
dated March 27, 2008 of the Court of Appeals (C) Return of Corporation Contemplating Dissolution or
are SET ASIDE. The Decision dated January 17, 2006 of Reorganization. Every corporation shall, within thirty
the Regional Trial Court of Balayan, Batangas, Branch 9 (30) days after the adoption by the corporation of a
is REINSTATED. resolution or plan for its dissolution, or for the
liquidation of the whole or any part of its capital stock,
SO ORDERED. including a corporation which has been notified of
possible involuntary dissolution by the Securities and
G.R. No. 172892 June 13, 2013 Exchange Commission, or for its reorganization, render a
PHILIPPINE DEPOSIT INSURANCE correct return to the Commissioner, verified under oath,
CORPORATION, Petitioner, setting forth the terms of such resolution or plan and
vs. such other information as the Secretary of Finance, upon
BUREAU OF INTERNAL REVENUE, Respondent. recommendation of the commissioner, shall, by rules
and regulations, prescribe.
This is a petition for review on Certiorari1 of the
Decision2 and Resolution3 dated December 29, 2005 and The dissolving or reorganizing corporation shall, prior to
May 5, 2006, respectively, of the Court of Appeals in CA- the issuance by the Securities and Exchange Commission
G.R. SP No. 80816. of the Certificate of Dissolution or Reorganization, as
may be defined by rules and regulations prescribed by

Banking 1st Set of Cases | 98


the Secretary of Finance, upon recommendation of the In its Decision dated December 29, 2005, the appellate
Commissioner, secure a certificate of tax clearance from court agreed with the trial court that banks under
the Bureau of Internal Revenue which certificate shall be liquidation by PDIC are covered by Section 52(C) of the
submitted to the Securities and Exchange Commission. Tax Code of 1997. Thus, the Court of Appeals affirmed
the Orders dated February 14, 2003 and September 16,
In an Order7 dated February 14, 2003, the trial court 2003 and dismissed PDICs petition.11
found merit in the BIRs motion and granted it:
PDIC sought reconsideration but it was denied.12
WHEREFORE, petitioner PDIC is directed to secure the
necessary tax clearance provided for under Section 45(C) Hence, this petition.
of the 1993 National Internal Revenue Code and now
Section 52(C) of the 1997 National Internal Revenue PDIC insists that Section 52(C) of the Tax Code of 1997 is
Code and to secure the same from the BIR District Office not applicable to banks ordered placed under liquidation
No. 9, La Trinidad, Benguet. by the Monetary Board of the BSP. It argues that closed
banks placed under liquidation pursuant to Section 30 of
Further, petitioner PDIC is directed to submit a the New Central Bank Act are not "corporations
comprehensive liquidation report addressed to creditor contemplating liquidation" within the purview of Section
Bangko Sentral and to remit the accounts already 52(C) of the Tax Code of 1997. As opposed to the
collected from the pledged assets to said Bangko liquidation of all other corporations, the Monetary
Sentral. Board, not the Securities and Exchange Commission
(SEC), has the power to order or approve the closure and
Claimant Bangko Sentral may now initiate collection liquidation of banks. Section 52(C) of the Tax Code of
suits directly against the individual borrowers. 1997 applies only to corporations under the supervision
of the SEC.13
In the event that the collection efforts of Bangko Sentral
against individual borrowers may fail, Bangko Sentral For its part, the BIR counters that the requirement of a
shall proceed against the general assets of the Rural tax clearance under Section 52(C) of the Tax Code of
Bank of Tuba Benguet. 1997 is applicable to rural banks undergoing liquidation
proceedings under Section 30 of the New Central Bank
Finally, Annex "A" attached to the manifestation and Act. For the BIR, the authority given to the BSP to
motion dated November 29, 2002 [of PDIC] is supervise banks does not mean that all matters
considered as partial satisfaction of the obligation of the regarding banks are exclusively under the power of the
Rural Bank of Tuba (Benguet) Inc., to Bangko Sentral.8 BSP. Thus, banking corporations are still subject to
reasonable regulations imposed by the SEC on
PDIC moved for partial reconsideration of the Order corporations. The purpose of a tax clearance
dated February 14, 2003 with respect to the directive for requirement under Section 52(C) of the Tax Code of
it to secure a tax clearance. It argued that Section 52(C) 1997 is to ensure the collection of income taxes due to
of the Tax Code of 1997 does not cover closed banking the government by imposing upon a corporation
institutions as the liquidation of closed banks is undergoing liquidation the obligation of reporting the
governed by Section 30 of the New Central Bank Act. income it earned, if any, for the purpose of determining
The motion was, however, denied in an Order9 dated the amount of imposable tax.14
September 16, 2003.
The petition succeeds.
PDIC thereafter brought the matter to the Court of
Appeals by way of a petition for Certiorari under Rule 65 This Court has already resolved the issue of whether
of the Rules of Court. In its petition, docketed as CA-G.R. Section 52(C) of the Tax Code of 1997 applies to banks
SP No. 80816, PDIC asserted that the trial court acted ordered placed under liquidation by the Monetary
with grave abuse of discretion amounting to lack or Board, that is, whether a bank placed under liquidation
excess of jurisdiction in applying Section 52(C) of the Tax has to secure a tax clearance from the BIR before the
Code of 1997 to a bank ordered closed, placed under project of distribution of the assets of the bank can be
receivership and, subsequently, under liquidation by the approved by the liquidation court.
Monetary Board.10

Banking 1st Set of Cases | 99


In Re: Petition for Assistance in the Liquidation of the BIR-SEC Regulations No. 1 to the "SEC" with the "BSP."
Rural Bank of Bokod (Benguet), Inc., Philippine Deposit To do so would be to read into the law and the
Insurance Corporation v. Bureau of Internal regulations something that is simply not there, and
Revenue15 ruled that Section 52(C) of the Tax Code of would be tantamount to judicial legislation.21
1997 is not applicable to banks ordered placed under
liquidation by the Monetary Board,16 and a tax clearance Second, only a final tax return is required to satisfy the
is not a prerequisite to the approval of the project of interest of the BIR in the liquidation of a closed bank,
distribution of the assets of a bank under liquidation by which is the determination of the tax liabilities of a bank
the PDIC.17 under liquidation by the PDIC. In view of the timeline of
the liquidation proceedings under Section 30 of the New
Thus, this Court has held that the RTC, acting as Central Bank Act, it is unreasonable for the liquidation
liquidation court under Section 30 of the New Central court to require that a tax clearance be first secured as a
Bank Act, commits grave abuse of discretion in ordering condition for the approval of project of distribution of a
the PDIC, as liquidator of a bank ordered closed by the bank under liquidation.22 This point has been elucidated
Monetary Board, to first secure a tax clearance from the thus:
appropriate BIR Regional Office, and holding in abeyance
the approval of the project of distribution of the assets [T]he alleged purpose of the BIR in requiring the
of the closed bank by virtue thereof.18 Three reasons liquidator PDIC to secure a tax clearance is to enable it
have been given. to determine the tax liabilities of the closed bank. It
raised the point that since the PDIC, as receiver and
First, Section 52(C) of the Tax Code of 1997 pertains only liquidator, failed to file the final return of RBBI for the
to a regulation of the relationship between the SEC and year its operations were stopped, the BIR had no way of
the BIR with respect to corporations contemplating determining whether the bank still had outstanding tax
dissolution or reorganization. On the other hand, banks liabilities.
under liquidation by the PDIC as ordered by the
Monetary Board constitute a special case governed by To our mind, what the BIR should have requested from
the special rules and procedures provided under Section the RTC, and what was within the discretion of the RTC
30 of the New Central Bank Act, which does not require to grant, is not an order for PDIC, as liquidator of RBBI,
that a tax clearance be secured from the BIR.19 As to secure a tax clearance; but, rather, for it to submit the
explained in In Re: Petition for Assistance for Assistance final return of RBBI. The first paragraph of Section 30(C)
in the Liquidation of the Rural Bank of Bokod (Benguet), of the Tax Code of 1997, read in conjunction with
Inc.: Section 54 of the same Code, clearly imposes upon PDIC,
as the receiver and liquidator of RBBI, the duty to file
Section 52(C) of the Tax Code of 1997 and the BIR-SEC such a return. x x x.
Regulations No. 120 regulate the relations only as
between the SEC and the BIR, making a certificate of tax xxxx
clearance a prior requirement before the SEC could
approve the dissolution of a corporation. x x x. Section 54 of the Tax Code of 1997 imposes a general
duty on all receivers, trustees in bankruptcy, and
xxxx assignees, who operate and preserve the assets of a
corporation, regardless of the circumstances or the law
Section 30 of the New Central Bank Act lays down the by which they came to hold their positions, to file the
proceedings for receivership and liquidation of a bank. necessary returns on behalf of the corporation under
The said provision is silent as regards the securing of a their care.
tax clearance from the BIR. The omission, nonetheless,
cannot compel this Court to apply by analogy the tax The filing by PDIC of a final tax return, on behalf of RBBI,
clearance requirement of the SEC, as stated in Section should already address the supposed concern of the BIR
52(C) of the Tax Code of 1997 and BIR-SEC Regulations and would already enable the latter to determine if RBBI
No. 1, since, again, the dissolution of a corporation by still had outstanding tax liabilities.
the SEC is a totally different proceeding from the
receivership and liquidation of a bank by the BSP. This The unreasonableness and impossibility of requiring a
Court cannot simply replace any reference by Section tax clearance before the approval by the RTC of the
52(C) of the Tax Code of 1997 and the provisions of the Project of Distribution of the assets of the RBBI becomes

Banking 1st Set of Cases | 100


apparent when the timeline of the proceedings is or any other action, a petition for assistance in
considered. the liquidation of the institution pursuant to a
liquidation plan adopted by the Philippine
The BIR can only issue a certificate of tax clearance when Deposit Insurance Corporation for general
the taxpayer had completely paid off his tax application to all closed banks. In case of quasi-
liabilities.1wphi1The certificate of tax clearance attests banks, the liquidation plan shall be adopted by
that the taxpayer no longer has any outstanding tax the Monetary Board. Upon acquiring
obligations to the Government. jurisdiction, the court shall, upon motion by the
receiver after due notice, adjudicate disputed
Should the BIR find that RBBI still had outstanding tax claims against the institution, assist the
liabilities, PDIC will not be able to pay the same because enforcement of individual liabilities of the
the Project of Distribution of the assets of RBBI remains stockholders, directors and officers, and decide
unapproved by the RTC; and, if RBBI still had outstanding on other issues as may be material to implement
tax liabilities, the BIR will not issue a tax clearance; but, the liquidation plan adopted. The receiver shall
without the tax clearance, the Project of Distribution of pay the cost of the proceedings from the assets
assets, which allocates the payment for the tax liabilities, of the institution.
will not be approved by the RTC.1wphi1 It will be a
chicken-and-egg dilemma.23 (2) convert the assets of the institution to
money, dispose of the same to creditors and
Third, it is not for this Court to fill in any gap, whether other parties, for the purpose of paying the
perceived or evident, in current statutes and regulations debts of such institution in accordance with the
as to the relations among the BIR, as tax collector of the rules on concurrence and preference of credit
National Government; the BSP, as regulator of the under the Civil Code of the Philippines and he
banks; and the PDIC, as the receiver and liquidator of may, in the name of the institution, and with the
banks ordered closed by the BSP. It is up to the assistance of counsel as he may retain, institute
legislature to address the matter through appropriate such actions as may be necessary to collect and
legislation, and to the executive to provide the recover accounts and assets of, or defend any
regulations for its implementation.24 action against, the institution. The assets of an
institution under receivership or liquidation shall
There is another reason. The position of the BIR, insisting be deemed in custodia legis in the hands of the
on prior compliance with the tax clearance requirement receiver and shall, from the moment the
as a condition for the approval of the project of institution was placed under such receivership
distribution of the assets of a bank under liquidation, is or liquidation, be exempt from any order of
contrary to both the letter and intent of the law on garnishment, levy, attachment, or
liquidation of banks by the PDIC. In this connection, the execution.25 (Emphasis supplied.)
relevant portion of Section 30 of the New Central Bank
Act provides: The law expressly provides that debts and liabilities of
the bank under liquidation are to be paid in accordance
Section 30. Proceedings in Receivership and Liquidation. with the rules on concurrence and preference of credit
x x x. under the Civil Code. Duties, taxes, and fees due the
Government enjoy priority only when they are with
xxxx reference to a specific movable property, under Article
2241(1) of the Civil Code, or immovable property, under
If the receiver determines that the institution cannot be Article 2242(1) of the same Code. However, with
rehabilitated or permitted to resume business in reference to the other real and personal property of the
accordance with the next preceding paragraph, the debtor, sometimes referred to as "free property," the
Monetary Board shall notify in writing the board of taxes and assessments due the National Government,
directors of its findings and direct the receiver to other than those in Articles 2241(1) and 2242(1) of the
proceed with the liquidation of the institution. The Civil Code, such as the corporate income tax, will come
receiver shall: only in ninth place in the order of preference.26 On the
other hand, if the BIRs contention that a tax clearance
(1) file ex parte with the proper regional trial be secured first before the project of distribution of the
court, and without requirement of prior notice assets of a bank under liquidation may be approved,

Banking 1st Set of Cases | 101


then the tax liabilities will be given absolute preference approve the project of distribution of the assets
in all instances, including those that do not fall under of RBTI.
Articles 2241(1) and 2242(1) of the Civil Code. In order
to secure a tax clearance which will serve as proof that SO ORDERED.
the taxpayer had completely paid off his tax liabilities,
PDIC will be compelled to settle and pay first all tax [G.R. No. 59957. November 12, 1990.]
liabilities and deficiencies of the bank, regardless of the
order of preference under the pertinent provisions of CENTRAL BANK OF THE PHILIPPINES, MEMBERS OF THE
the Civil Code. Following the BIRs stance, therefore, only MONETARY BOARD, CONSOLACION V. ODRA, MARIO
then may the project of distribution of the banks assets VICENTE, DRBSLA, RAMIL PARAISO, DANTE L. REYES,
be approved and the other debts and claims thereafter DISIMULACION KING and NORA G.
settled, even though under Article 2244 of the Civil Code SARMIENTO, Petitioners, v. THE HONORABLE RAFAEL DE
such debts and claims enjoy preference over taxes and LA CRUZ and the RURAL BANK OF LIBMANAN,
assessments due the National Government. The BIR INC., Respondents.
effectively wants this Court to ignore Section 30 of the
New Central Bank Act and disregard Article 2244 of the
Civil Code. However, as a court of law, this Court has the
solemn duty to apply the law. It cannot and will not give 1. COMMERCIAL LAW; BANKING; MONETARY BOARD;
its imprimatur to a violation of the laws. ACTIONS THEREOF IN PROCEEDINGS ON INSOLVENCY,
FINAL AND EXECUTORY. It is noteworthy that the
WHEREFORE, the petition is hereby GRANTED. The Court actions of the Monetary Board in proceedings on
further rules as follows: insolvency are explicitly declared by law to be "final and
executory." They may not be set aside, or restrained, or
(a) the Decision dated December 29, 2005 and enjoined by the courts, except upon "convincing proof
Resolution dated May 5, 2006 of the Court of that the action is plainly arbitrary and made in bad faith"
Appeals in CA-G.R. SP No. 80816 are REVERSED (Salud v. Central Bank of the Philippines, 143 SCRA 590).
and SET ASIDE; Respondent Judge acted in plain disregard of the fourth
paragraph of Section 29 of the Central Bank Act, when
(b) the Orders dated February 14, 2003 and he restrained the petitioners from closing and liquidating
September 16, 2003 of the Regional Trial Court the Rural Bank of Libmanan, prevented them from
of La Trinidad, Benguet sitting as liquidation performing their functions, and ordered them to return
court of the closed RBTI, in Special Proceeding the management and control of the rural bank to its
Case No. 97-SP-0100 are NULLIFIED and SET board of directors (p. 51, Rollo) without receiving
ASIDE, insofar as they direct the Philippine convincing proof that the action of the CB was plainly
Deposit Insurance Corporation to secure a tax arbitrary and made in bad faith.
clearance, for having been rendered with grave
abuse of discretion; 2. ID.; ID.; ID.; RULE WHEN A RESOLUTION THEREOF IS
CLAIMED TO BE ARBITRARY AND DONE IN BAD FAITH.
(c) the PDIC, as liquidator, is ORDERED to submit Respondent Judge erred in denying the Central Banks
to the BIR the final tax return of RBTI, in motion to dismiss the complaint for prohibition and
accordance with the first paragraph of Section mandamus (Civil Case No. 1309) filed by Libmanan Bank
52(C), in connection with Section 54, of the Tax (Annex C, p. 71, Rollo). This Court in the case of Rural
Code of 1997; and Bank of Buhi, Inc. v. Court of Appeals (162 SCRA 288) and
Salud v. Central Bank of the Phils. 143 SCRA 590), ruled
(d) the Regional Trial Court of La Trinidad, that a banks claim that the resolution of the Monetary
Benguet is ORDERED to resume the liquidation Board under Section 29 is plainly arbitrary and done in
proceedings in Special Proceeding Case No. 97- bad faith should be asserted as an affirmative defense or
SP-0100 in order to determine all the claims of counter-claim in the proceedings for assistance in
the creditors, including that of the National liquidation. It may be filed as a separate action if no
Government, as determined and presented by petition for assistance in liquidation has been instituted
the BIR; and, pursuant to such determination, yet.
and guided accordingly by the provisions of the
Civil Code on preference of credit, to review and 3. ID.; ID.; REMAINING ASSETS OF INSOLVENT BANK,

Banking 1st Set of Cases | 102


SHOULD BE CONSERVED TO PAY ITS CREDITORS. not pleaded either in a motion to dismiss or in the
Respondent Judge abused his discretion in authorizing answer are (generally) deemed waived," or the
the Libmanan Bank to withdraw funds from its deposits "Omnibus Motion Rule," providing that "a motion
in other banks (Annex E, p. 26, Rollo). The Rural Bank attacking a pleading or a proceeding shall include all
had become insolvent as a result of mismanagement, objections then available, and all objections not so
frauds, irregularities and violations of banking laws, included shall be deemed waived" (Salud v. Central Bank
rules, and regulations by its officers (p. 62, Rollo). Its of the Phils., 143 SCRA 590).
remaining assets should therefore be conserved to pay
its creditors. Allowing the Rural Bank to withdraw its
deposits in other banks would result in the further DECISION
diminution and dissipation of its assets to the prejudice GRIO-AQUINO, J.:
of its depositors and creditors, and to the unlawful
advantage of the very officers who brought about the This petition for certiorari, prohibition and mandamus
banks insolvency. was filed by the Central Bank of the Philippines, the
members of the Monetary Board, Consolacion V. Odra,
4. REMEDIAL LAW; PROVISIONAL REMEDIES; Mario Vicente, Ramil Paraiso, Dante L. Reyes,
PRELIMINARY INJUNCTION; FUNCTION THEREOF. Disimulacion King and Nora G. Sarmiento, through the
Respondent Judge acted with grave abuse of discretion Solicitor General, praying this Court:chanrobles.com :
in issuing the contested order dated January 15, 1982 virtual law library
enjoining the CB liquidator from closing the rural bank
and requiring it to restore the management and control 1. to annul the orders dated January 15, 1982, January
of the bank to its board of directors. It is a basic 29, 1982, March 1, 1982, March 31, 1982 and April 20,
procedural postulate that a preliminary injunction 1982 (Annexes A, B, C, D and E) of the then Court of First
should never be used to transfer the possession or Instance of Camarines Sur, Branch III;
control of a thing to a party who did not have such
possession or control at the inception of the case (Lasala 2. to restrain respondent Judge Rafael De la Cruz, his
v. Fernandez, 5 SCRA 79; Emilia v. Bado, 28 SCRA 183). agents, and representatives, from enforcing the
Its proper function is simply to maintain the status quo aforesaid orders and from continuing to assume
at the commencement of the action. The status quo at jurisdiction over Civil Case No. 1309, a proceeding for
the time of filing Civil Case No. 1309 was that Libmanan prohibition, mandamus, and injunction filed by herein
Bank was under the control of the DRBSLA Director, with private respondent Rural Bank of Libmanan, Inc., to stop
Consolacion V. Odra, as liquidator appointed by the its liquidation by the petitioners (defendants in the
Central Bank. lower court) and to compel respondent Judge to dismiss
Civil Case No. 1309 (pp. 24-26, Rollo); andchanrobles
5. ID.; PLEADINGS; RULE OF "WAIVER OF DEFENSE" OR virtual lawlibrary
"OMNIBUS MOTION RULE", APPLICABLE IN THE CASE AT
BAR. Since the Central Banks petition for assistance 3. to restore to petitioner Consolacion V. Odra, as the
in liquidation had been filed on August 3, 1981 (Civil duly appointed liquidator of the Central Bank, the
Case No. SP-111, Court of First Instance of Camarines control of the respondent Rural Bank of Libmanan (p. 27,
Sur, Branch III), the Libmanan Banks filing on September Rollo).
23, 1981 of a complaint for prohibition and mandamus
attacking the Central Banks resolution appointing a The Rural Bank of Libmanan (hereinafter referred to as
receiver and liquidator for the bank should have been Libmanan Bank) started operations in 1965 under and by
asserted as a counterclaim in SP-111 (p. 39-40, Rollo), virtue of Republic Act No. 720, otherwise known as the
instead of as a separate special civil action for Rural Banks Act (p. 331, Rollo). Originally owned and
prohibition against the Central Bank. The separate action managed by the Albas family, Libmanan Bank was later
should have been either dismissed or consolidated with sold to Manuel M. Villar and respondent Alex G.
SP-111 for the law abhors multiplicity of suits. Failure of Durante, who commenced banking operations in
Libmanan Bank to assert in SP-111 the defense that the January 1979 (p. 331, Rollo).
Monetary Boards receivership and liquidation resolution
was "arbitrary and made in bad faith," constitutes a In 1979, the Department of Rural Banks and Savings and
waiver of that defense conformably with the rule of Loan Associations (DRBSLA) of the Central Bank of the
"Waiver of Defense," i.e., that "defenses and objections Philippines (or CB) conducted examinations of the books

Banking 1st Set of Cases | 103


and affairs of Libmanan Bank (pp. 28-32, Rollo) DRBSLA abused its discretion in ordering the liquidation of said
director, Consolacion V. Odra, found serious rural Bank.chanroblesvirtualawlibrary
irregularities in its lending and deposit operations,
including false entries and false statements in the banks On December 24, 1981, the Central Bank, through its
records to give it the appearance of solidity and house counsel, filed a motion for extension of time to
soundness which it did not possess (p 28, Rollo). As a file its responsive pleading in Civil Case No. 1309 (Annex
result of its questionable transactions, the bank became G, p. 42, Rollo). On January 12, 1982, the Solicitor
insolvent. General entered his appearance in the case as counsel
for the Central Bank, and asked for a second extension
In her Memorandum dated May 2, 1980 to the of time to file a responsive pleading (Annex I, p. 42,-
Monetary Board, Director Odra recommended, among Rollo).
other things, that: (1) Libmanan Bank be prohibited from
doing business; (2) that it be placed under receivership On January 15, 1982, respondent Judge issued the
in accordance with Section 29 of Republic Act No. 265, questioned order in Civil Case No. 1309, restraining the
as amended; and (3) that the Director of DRBSLA be respondent Central Bank from "closing the petitioner
designated as receiver (p. 36, Rollo). (rural) bank and from performing its customary banking
business; to restore the control and management of the
Finding the report to be true, the Monetary Board, on bank to its Board of Directors; and to desist from
May 23, 1980, adopted Resolution No. 929 placing liquidating its assets until ordered otherwise by this
Libmanan Bank under statutory receivership and Court" (p. 42, Rollo). On January 29, 1982, respondent
designating Director Consolacion V. Odra, as Receiver, Judge modified this order by requiring the parties in Civil
pursuant to Section 29, of Republic Act No. 265, as Case No. 1309 to "refrain from any act or acts which will
amended (p. 39, Rollo). tend to disturb the state in which the parties were found
before the complaint was filed" (p. 25, Rollo).
Libmanan Bank was informed of the Monetary Board
Resolution No. 929, and advised to submit to the On January 25, 1982, Libmanan Bank filed an ex parte
Monetary Board an acceptable reorganization and motion to declare the CB in default (Annex J, p. 42,
rehabilitation program (p. 39, Rollo). Meanwhile, Rollo).
Director Odra, as receiver, took possession and control
of the assets and records of the rural bank (p. 39, Rollo). On February 11, 1982, the Solicitor General filed a third
motion for extension (up to March 1, 1982) of the period
As Libmanan Bank failed to submit the required to file a responsive pleading in Civil Case No. 1309
acceptable reorganization and rehabilitation plan, the (Annex K, p. 43, Rollo).
Monetary Board issued on October 3, 1980 Resolution
No. 1852 ordering its liquidation (p. 39, Rollo). On February 15, 1982, he filed a Motion to Dismiss Civil
Case No. 1309 on the ground that respondent Judge had
On August 3, 1981, the Solicitor General, in accordance no jurisdiction over a special civil action for prohibition,
with Republic Act No. 265, Section 29, filed in the then mandamus and injunction against the Central Bank and
Court of First Instance of Camarines Sur, Branch III, that the petition was defective in form because it was
presided over by respondent Judge Rafael De la Cruz, a not properly verified (Annex L, p. 43, Rollo). On March 1,
petition for Assistance in the Liquidation of Libmanan 1982, Judge De la Cruz denied the motion to dismiss and
Bank. The petition was docketed as SP-111 (pp. 39-40, gave the Central Bank ten (10) days to file its answer
Rollo). Libmanan Bank, through its resident-Manager (Annex C, p. 44, Rollo).
and the members of its Board of Directors opposed the
Central Banks petition. On March 19, 1982, the Central Bank filed in the
Supreme Court a Motion for Extension to file a petition
On September 23, 1981, Libmanan Bank filed in the for certiorari, prohibition and mandamus, and a separate
same Court of First Instance of Camarines Sur, Branch III, manifestation in the lower court notifying Judge De la
a separate complaint for prohibition, mandamus and Cruz of the CBs intention to elevate the case to this
injunction (Civil Case No. 1309), against the Central Court and requesting Judge De la Cruz to desist from
Bank, Et. Al. (herein petitioners), praying the Court to taking any further action in Civil Case No. 1309.
enjoin and dismiss the liquidation proceeding (Sp. Proc.
No. 111) on the ground that the Central Bank gravely On March 31, 1982, Judge De la Cruz declared the CB, Et

Banking 1st Set of Cases | 104


Al., in default for failure to file a responsive pleading to or creditors, it shall be the duty of the department head
the petition in Civil Case No. 1309. He pointed out that concerned forthwith, in writing, to inform the Monetary
"the projected move to bring the courts denial of the Board of the facts, and the Board may, upon finding the
motion to dismiss to the Supreme Court on certiorari did statements of the department head to be true forbid the
not stop the period given to the respondents to answer" institution to do business in the Philippines and shall
(Annex D, p. 72, Rollo). designate an official of the Central Bank or a person of
recognized competence in banking or finance as receiver
On April 20, 1982, respondent Judge granted Libmanan to immediately take charge of its assets and liabilities, as
Banks ex parte motion dated March 29, 1982 for expeditiously as possible collect and gather all the assets
authority to withdraw money from its bank deposits and administer the same for the benefit of its creditors,
(Annex E, p. 45, Rollo).chanrobles.com : virtual law exercising all the powers necessary for these purposes
library including, but not limited to, bringing suits and
foreclosing mortgages in the name of the bank or non-
Hence, the present recourse. bank financial intermediary performing quasi-banking
functions.
The main issue raised by the petition is whether or not
respondent Judge acted with grave abuse of discretion The Monetary Board shall thereupon determine within
or without or in excess of his jurisdiction in issuing the sixty days whether the institution may be reorganized or
questioned orders, namely:chanrob1es virtual 1aw otherwise placed in such a condition so that it may be
library permitted to resume business with safety to its
depositors and creditors and the general public and shall
Annex A order of January 15, 1982 restraining the prescribe the conditions under which such resumption
Central Bank from closing the rural bank and ordering of business shall take place as well as the time for
return of management and control to the Board of fulfillment of such conditions. In such case, the expenses
Directors. and fees in the collection and administration of the
assets of the institution shall be determined by the
Annex B order of January 29, 1982 restraining the board and shall be paid to the Central Bank out of the
Central Bank from disturbing status quo before the assets of such banking institution.
complaint was filed.
"If the Monetary Board shall determine and confirm
Annex C order of March 1, 1982 denying Central within the said period that the bank or non-bank
Banks motion to dismiss. financial intermediary performing quasi-banking
functions is insolvent or cannot resume business with
Annex D order of March 31, 1982 declaring Central safety to its depositors, creditors and the general public,
Bank in default. it shall, if the public interest requires, order its
liquidation, indicate the manner of its liquidation and
Annex E order of April 20, 1982 authorizing Libmanan approve a liquidation plan. The Central Bank shall, by the
Bank to withdraw money from its bank deposits. Solicitor General, file a petition in the Court of First
Instance reciting the proceeding which have been taken
The answer is yes. and praying the assistance of the court in the liquidation
of such institution. The court shall have jurisdiction in
The authority for the receivership of Libmanan Bank is the same proceedings to adjudicate disputed claims
found in Section 29 of the Central Bank Act (P.D. 1827), against the bank or non-bank financial intermediary
which provides:jgc:chanrobles.com.ph performing quasi-banking functions and enforce
individual liabilities of the stockholders and do all that is
"SECTION 29. Proceedings upon insolvency necessary to preserve the assets of such institution and
Whenever, upon examination by the head of the to implement the liquidation plan approved by the
appropriate supervising or examining department or his Monetary Board. The Monetary Board shall designate an
examiners or agents into the condition of any bank or official of the Central Bank, or a person of recognized
non-bank financial intermediary performing quasi- competence in banking or finance, as liquidator who
banking functions, it shall be disclosed that the condition shall take over the functions of the receiver previously
of the same is one of insolvency, or that its continuance appointed by the Monetary Board under this Section.
in business would involve probable loss to its depositors The liquidator shall, with all convenient speed, convert

Banking 1st Set of Cases | 105


the assets of the bank or non-bank financial of this Act or the appointment of a receiver under this
intermediary performing quasi-banking functions to Section shall be vested exclusively with the Monetary
money or sell, assign or otherwise dispose of the same Board, the provision of any law, general or special, to the
to creditors and other parties for the purpose of paying contrary notwithstanding." (Emphasis supplied.)
the debts of such institution and he may, in the name of
the bank or non-bank financial intermediary performing It is noteworthy that the actions of the Monetary Board
quasi-banking functions, institute such actions as may be in proceedings on insolvency are explicitly declared by
necessary in the appropriate court to collect and recover law to be "final and executory." They may not be set
accounts and assets of such institution."cralaw aside, or restrained, or enjoined by the courts, except
virtua1aw library upon "convincing proof that the action is plainly
arbitrary and made in bad faith" (Salud v. Central Bank of
"The provisions of any law to the contrary the Philippines, 143 SCRA 590).
notwithstanding the actions of the Monetary Board
under this Section and the second paragraph of Section Respondent Judge acted in plain disregard of the fourth
34 of this Act shall be final and executory, and can be set paragraph of Section 29 of the Central Bank Act, when
aside by the court only if there is convincing proof that he restrained the petitioners from closing and liquidating
the action is plainly arbitrary and made in bad faith. No the Rural Bank of Libmanan, prevented them from
restraining order or injunction shall be issued by the performing their functions, and ordered them to return
court enjoining the Central Bank from implementing its the management and control of the rural bank to its
actions under this Section and the second paragraph of board of directors (p. 51, Rollo) without receiving
Section 34 of this Act, unless there is convincing proof convincing proof that the action of the CB was plainly
that the action of the Monetary Board is plainly arbitrary arbitrary and made in bad faith. As stated therein, the
and made in bad faith and the petitioner or plaintiff files basis of the questioned order dated January 15, 1982,
with the clerk or judge of the court in which the action is were:chanrob1es virtual 1aw library
pending a bond executed in favor of the Central Bank, in
an amount to be fixed by the Court. The restraining 1. that he did not receive any of petitioners formal
order or injunctions shall be refused or, if granted, shall motions for extension of time to file their responsive
be dissolved upon filing by the Central Bank of a bond, pleading;
which shall be in the form of cash or Central Bank
cashiers check, in an amount twice the amount of the 2. that he had read the petition filed in Civil Case No.
bond of the petitioner or plaintiff conditioned that it will 1309; and
pay the damages which the petitioner or plaintiff may
suffer by the refusal or the dissolution of the injunction. 3. that there were good reasons shown in said petition
The provisions of Rule 58 of the New Rules of Court (p. 52, Rollo).
insofar as they are applicable and not inconsistent with
the provisions of this Section shall govern the issuance By using his own standards, instead of the standards set
and dissolution of the restraining order or injunction forth in Section 29 of the law, as basis for issuing a
contemplated in this Section. restraining order against the CB, respondent Judge
committed a grave abuse of discretion tantamount to
"Insolvency under this Act, shall be understood to mean excess, or lack of jurisdiction. We held in Rural Bank of
the inability of a bank or non-bank financial intermediary Buhi, Inc. v. Court of Appeals (162 SCRA 288,
performing quasi-banking functions to pay its liabilities 291):jgc:chanrobles.com.ph
as they fall due in the usual and ordinary course of
business: Provided, however, That this shall not include "Evidently, the trial court acted merely on an incident
the inability to pay of an otherwise non-insolvent bank and has acted merely on an incident and has not as yet
or non-bank financial intermediary performing quasi- inquired, as mandated by Section 29 of the Central Bank
banking functions caused by extraordinary demands Act, into the merits of the claim that the Monetary
induced by financial panic commonly evidenced by a run Boards action is plainly arbitrary and made in bad faith.
on the bank or non-bank financial intermediary It has not appreciated certain facts which would render
performing quasi-banking functions in the banking the remedy of liquidation proper and rehabilitation
community. improper, involving as it does an examination of the
probative value of the evidence presented by the parties
"The appointment of a conservator under Section 28-A properly belonging to the trial court and not properly

Banking 1st Set of Cases | 106


cognizable on appeal."cralaw virtua1aw library instead of as a separate special civil action for
prohibition against the Central Bank. The separate action
Respondent Judge acted with grave abuse of discretion should have been either dismissed or consolidated with
in issuing the contested order dated January 15, 1982 SP-111 for the law abhors multiplicity of suits. Failure of
enjoining the CB liquidator from closing the rural bank Libmanan Bank to assert in SP-111 the defense that the
and requiring it to restore the management and control Monetary Boards receivership and liquidation resolution
of the bank to its board of directors. It is a basic was "arbitrary and made in bad faith," constitutes a
procedural postulate that a preliminary injunction waiver of that defense conformably with the rule of
should never be used to transfer the possession or "Waiver of Defense," i.e., that "defenses and objections
control of a thing to a party who did not have such not pleaded either in a motion to dismiss or in the
possession or control at the inception of the case (Lasala answer are (generally) deemed waived," or the
v. Fernandez, 5 SCRA 79; Emilia v. Bado, 28 SCRA 183). "Omnibus Motion Rule," providing that "a motion
Its proper function is simply to maintain the status quo attacking a pleading or a proceeding shall include all
at the commencement of the action. The status quo at objections then available, and all objections not so
the time of filing Civil Case No. 1309 was that Libmanan included shall be deemed waived" (Salud v. Central Bank
Bank was under the control of the DRBSLA Director, with of the Phils., 143 SCRA 590).chanrobles virtual lawlibrary
Consolacion V. Odra, as liquidator appointed by the
Central Bank.chanrobles.com:cralaw:red Respondent Judge abused his discretion in authorizing
the Libmanan Bank to withdraw funds from its deposits
Respondent Judge erred in denying the Central Banks in other banks (Annex E, p. 26, Rollo). The Rural Bank
motion to dismiss the complaint for prohibition and had become insolvent as a result of mismanagement,
mandamus (Civil Case No. 1309) filed by Libmanan Bank frauds, irregularities and violations of banking laws,
(Annex C, p. 71, Rollo). This Court in the case of Rural rules, and regulations by its officers (p. 62, Rollo). Its
Bank of Buhi, Inc. v. Court of Appeals (162 SCRA 288) and remaining assets should therefore be conserved to pay
Salud v. Central Bank of the Phils. 143 SCRA 590), ruled its creditors. Allowing the Rural Bank to withdraw its
that a banks claim that the resolution of the Monetary deposits in other banks would result in the further
Board under Section 29 is plainly arbitrary and done in diminution and dissipation of its assets to the prejudice
bad faith should be asserted as an affirmative defense or of its depositors and creditors, and to the unlawful
counter-claim in the proceedings for assistance in advantage of the very officers who brought about the
liquidation. It may be filed as a separate action if no banks insolvency.
petition for assistance in liquidation has been instituted
yet. WHEREFORE, the petition for certiorari is GRANTED. The
questioned orders dated January 15, 1982, January 29,
". . . a banking institutions claim that a resolution of the 1982, March 1, 1982, March 31, 1982 and April 20, 1982
Monetary Board under Section 29 of the Central Bank (Annexes A, B, C, D & E, respectively) of respondent
Act should be set aside as plainly arbitrary and made in Judge Rafael De la Cruz of the then Court of First
bad faith, may be asserted as an affirmative defense Instance of Camarines Sur, Branch III, in Civil Case No.
(Sections 1 and 4[b], Rule 6, Rules of Court) or a 1309 are REVERSED AND SET ASIDE. The temporary
counterclaim (Section 6, Rule 6; Section 2, Rule 72 of the restraining order issued by this Court on July 19, 1982 is
Rules of Court) in the proceedings for assistance in hereby made permanent. Respondent Court is ordered
liquidation or as a cause of action in a separate and to dismiss Civil Case No. 1309. This order is immediately
distinct action where the latter was filed ahead of the executory. Costs against respondent Rural Bank of
petition for assistance in liquidation (Central Bank v. Libmanan.
Court of Appeals, 106 SCRA 143).
SO ORDERED.
Since the Central Banks petition for assistance in
liquidation had been filed on August 3, 1981 (Civil Case Narvasa, Cruz, Gancayco and Medialdea, JJ., concur.
No. SP-111, Court of First Instance of Camarines Sur,
Branch III), the Libmanan Banks filing on September 23,
1981 of a complaint for prohibition and mandamus
attacking the Central Banks resolution appointing a
receiver and liquidator for the bank should have been
asserted as a counterclaim in SP-111 (p. 39-40, Rollo),

Banking 1st Set of Cases | 107


THIRD DIVISION Resolution dated 7 July 2005 of the Court of Appeals in
CA-G.R. SP No. 81385, and to order the appellate court
to (1) act on its findings in the case instead of remanding
UNITED COCONUT PLANTERS BANK, the same to the BSP Monetary Board for further
JERONIMO U. KILAYKO, LORENZO V. TAN, proceedings; (2) direct the BSP Monetary Board to
ENRIQUE L. GANA, JAIME W. JACINTO and impose the applicable administrative sanctions upon
EMILY R. LAZARO, UCPB, et al.; and (3) to amend its assailed Decision and
Petitioners, Resolution by deleting therefrom the statements
- versus - requiring the BSP Monetary Board to scrutinize and dig
E. GANZON, INC., deeper into the acts of UCPB, et al., and to determine if,
Respondent. indeed, there were irregular and unsound practices in its
x---------------------x business dealings with EGI.
E. GANZON, INC.,
Petitioner, The factual antecedents of these consolidated petitions
- versus - are as follows:
UNITED COCONUT PLANTERS
BANK, JAIME W. JACINTO and EMILY R. Beginning 1995 to 1998, EGI availed itself of credit
LAZARO, facilities from UCPB to finance its business expansion. To
Respondents. secure said credit facilities, EGI mortgaged to UCPB its
x- - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x condominium unit inventories in EGI Rufino Plaza,
located at the intersection of Buendia and Taft
Avenues, Manila.
DECISION
CHICO-NAZARIO, J.: Initially, EGI was able to make periodic
amortization payments of its loans to UCPB. When the
These are two consolidated[1] Petitions for Review negative effects of the Asian economic crisis on the
on Certiorari under Rule 45 of the 1997 Revised Rules of property development sector finally caught up with the
Civil Procedure. corporation in the middle of 1998, EGI started defaulting
in its payment of amortizations, thus, making all of its
United Coconut Planters Bank (UCPB) is a obligations due and demandable. Subsequently, EGI was
universal bank duly organized and existing under declared in default by UCPB in its letters dated 2
Philippine Laws. In G.R. No. 168859, UCPB and its October 1998[5] and 16 February 1999.[6] Thereafter,
corporate officers, i.e., Jeronimo U. Kilayko, Lorenzo V. UCPB stopped sending EGI monthly statements of its
Tan, Enrique L. Gana, Jaime W. Jacinto and Emily R. accounts.
Lazaro (UCPB, et al.) seek the reversal and setting aside
of the Decision[2] dated 14 October 2004 and In 1999, EGI and UCPB explored the possibility of using
Resolution[3] dated 7 July 2005 of the Court of Appeals in the mortgaged condominium unit inventories of EGI
CA-G.R. SP No. 81385 and the affirmation, instead, of in EGI Rufino Plaza as payment for the loans of EGI to
the letter-decision[4] dated 16 September 2003 of the UCPB. Upon agreeing on the valuation of said mortgaged
Monetary Board of the Bangko Sentral ng properties, EGI and UCPB entered into a Memorandum
Pilipinas (BSP). The Court of Appeals, in its assailed of Agreement (MOA)[7] on 28 December 1998 in
Decision, set aside the aforesaid letter-decision of the settlement of the loans of EGI from UCPB. Based on this
BSP Monetary Board and remanded the case to the MOA, the outstanding loan obligations of EGI with UCPB
latter for further proceedings; and in its questioned amounted to P915,838,822.50, inclusive of all interest,
Resolution, denied for lack of merit the Motion for charges and fees. UCPB, through its corporate officers,
Reconsideration of UCPB, et al., as well as the Partial assured EGI that the said amount already represented
Motion for Reconsideration of E. Ganzon, Inc. (EGI). the total loan obligations of EGI to UCPB.

On the other hand, EGI is a corporation duly On 18 January 2000, EGI and UCPB executed an
organized and existing under Philippine laws and Amendment of Agreement[8] to reflect the true and
engaged in real estate construction and development correct valuation of the properties of EGI listed in the
business. In G.R. No. 168897, EGI prays for this Court to MOA that would be transferred to UCPB in settlement of
review the same Decision dated 14 October 2004 and the total loan obligations of the former with the

Banking 1st Set of Cases | 108


latter. The properties of EGI to be used in paying for its the ACTUAL column calculated the remaining loan
debt with UCPB were valued at P904,491,052.00. obligations of EGI to be only P146,849,412.58.

According to the MOA and its amendments, titles to the Consequently, EGI wrote UCPB a letter dated 21 May
properties of EGI shall be transferred to UCPB by the 2001,[12] which included, among other demands, the
following modes: (1) foreclosure of mortgage; (2) dacion refund by UCPB to EGI of the over-payment
en pago; (3) creation of a holding company; and (4) use of P83,000,000.00;[13] return to EGI of all the remaining
of other alternatives as may be deemed appropriate by Transfer Certificates of Title (TCTs)/Condominium
UCPB. Certificates of Title (CCTs) in the possession of UCPB;
and cost of damage to EGI for the delay in the release of
UCPB proceeded to foreclose some of the properties of its certificates of title.
EGI listed in the MOA. Per the Certificate of
Sale[9] dated 13 April 2000, the foreclosure proceeds of In response, UCPB explained[14] that the ACTUAL column
said properties amounted only to P723,592,000.00, less in its Internal Memorandum dated 22 February
than the value of the properties of EGI stipulated in its 2001 contained the same amounts reflected or recorded
amended MOA with UCPB. in its financial statements, in accordance with the
Manual of Accounts for Banks, Manual of Regulations for
UCPB applied the entire foreclosure proceeds Banks[15] and BSP Circular No. 202,[16] Series of 1999. In
of P723,592,000.00 to the principal amount of the loan contrast, the DISCLOSED TO EGI column showed the
obligations of EGI, pursuant to BSP Circular No. total amount still due from EGI, including the total
239,[10] which provided that partial property payments principal, interests, transaction and other costs after the
shall first be applied to the principal. After deducting the foreclosure, whether reflected in the financial books of
said amount from the total loan obligations of EGI, there UCPB or not. Further, UCPB maintained that the
was still an unpaid balance of P192,246,822.50. difference in the figures in the two columns was because
BSP Circular No. 202 and Section X305.4 of the Manual
On 8 May 2001, some of the other properties of EGI of Regulations for Bank disallowed banks from accruing
at EGI Rufino Plaza, valued at P166,127,369.50, were in its books interest on loans which had become non-
transferred by way of dacion en pago to UCPB. However, performing.
during the signing of the transaction papers for Despite the explanation of UCPB, EGI insisted that the
the dacion en pago, EGI Senior Vice-President, Architect figures appearing in the ACTUAL column of the formers
Grace S. Layug (Layug), noticed that said papers stated Internal Memorandum dated 22 February 2001 revealed
that the remaining loan balance of EGI in the amount the true and actual amount of its loan obligations to
of P192,246,822.50 had increased UCPB, P146,849,412.58.
to P226,963,905.50.The increase was allegedly due to
the addition of the transaction costs amounting EGI Senior Vice-President Layug met with UCPB
to P34,717,083.00. EGI complained to UCPB about the Vice-President, Jaime W. Jacinto (Jacinto) to discuss the
increase, yet UCPB did not take any action on the demand of EGI for the return of its overpayment. UCPB
matter. Vice-President Jacinto, however, refused to concede
that UCPB had any obligation to make a refund to EGI
This prompted EGI President Engineer Eulalio Ganzon and, instead, insisted that EGI Senior Vice-President
(Ganzon) and Senior Vice-President Layug to review their Layug disclose who gave her a copy of the UCPB Internal
files to verify the figures on the loan obligations of EGI as Memorandum dated 22 February 2001.
computed by UCPB. In the process, they discovered the
UCPB Internal Memorandum dated 22 February Based on the possession by EGI of the UCPB Internal
2001,[11] signed by UCPB corporate officers. The said Memorandum dated 22 February 2001, UCPB filed a
Internal Memorandum presented two columns, one with criminal case for theft and/or discovery of secrets
the heading ACTUAL and the other DISCLOSED TO against EGI President Ganzon and Senior Vice-President
EGI. The figures in the two columns were conflicting. The Layug, but the said case was dismissed.[17]
figures in the DISCLOSED TO EGI column computed the
unpaid balance of the loan obligations of EGI to On 5 November 2002, EGI, also on the basis of
be P226,967,194.80, the amount which UCPB actually the UCPB Internal Memorandum dated 22 February
made known to and demanded from EGI. The figures in 2001, EGI filed with the BSP an administrative
complaint[18] against UCPB, et al., for violation of

Banking 1st Set of Cases | 109


Sections 36[19]and 37,[20] Article IV of Republic Act No. complaint filed by EGI against UCPB, et al. The case was
7653,[21] in relation to Section 55.1(a)[22] of Republic Act docketed as CA-G.R. SP No. 81385.
No. 8791;[23] and for the commission of irregularities and
conducting business in an unsafe or unsound manner. On 14 October 2004, the Court of Appeals rendered its
assailed Decision granting the Petition for Review of EGI,
In a letter-decision[24] dated 16 September 2003, the BSP thus, setting aside the BSP letter-decision dated 16
Monetary Board dismissed the administrative complaint September 2003 and remanding the case to the BSP
of EGI, holding as follows: Monetary Board for further proceedings.

Please be informed that the Monetary Board UCPB, et al., moved for the reconsideration of the 14
decided to dismiss the complaint based October 2004 Decision of the appellate court, praying
on the evaluation conducted by the for a new judgment dismissing the appeal of EGI for lack
Supervision and Examination of jurisdiction and/or lack of merit. EGI also filed a Partial
Department I and the Office of the Motion for Reconsideration of the same Court of
General Counsel and Legal Services to Appeals Decision, with the prayer that the appellate
the effect that: court, instead of still remanding the case to the BSP
Monetary Board for further proceedings, already direct
1. UCPB computed interest on the loans based the latter to impose the applicable administrative
on BSP rules and regulations which sanctions upon UCPB, et al.,.
prohibit banks from accruing interest on
loans that have become non-performing In a Resolution dated 7 July 2005, the Court of Appeals
(BSP Circular No. 202). This is different denied for lack of merit both the Motion for
from interest which may have run and Reconsideration of UCPB, et al. and the Motion for
accrued based on the promissory Partial Reconsideration of EGI.
notes/loan documents from the date of
default up to settlement date. G.R. No. 168859
2. Fair market value of assets to be foreclosed is
different from the bid price submitted during Aggrieved by the 14 October 2004 Decision and 7 July
foreclosure and there is no statutory obligation 2005 Resolution of the Court of Appeals, UCPB, et al.
for the latter to be equivalent to the former. comes before this Court, via a Petition for Review
3. Regarding the alleged P145,163,000.00 on Certiorari under Rule 45 of the 1997 Revised Rules of
fabricated loan, the documents showed that Civil Procedure, based on the following assignment of
there were the EGI Board Resolution to errors:
borrow, promissory note signed by Mr. Eulalio
Ganzon, and Loan Agreement stating that the I. THE HONORABLE COURT OF
proceeds shall be used to pay outstanding APPEALS ACTED WITHOUT JURISDICTION
availments and interest servicing. AND GRAVELY ERRED IN HOLDING THAT IT
HAS APPELLATE JURISDICTION OVER
4. There is no finding by Supervision and DECISIONS OF THE BSP/MONETARY
Examination Department I on the alleged double BOARD.
charging and/or padding of transaction costs.[25]
II. THE HONORABLE COURT OF
APPEALS GRAVELY ERRED IN HOLDING
EGI filed a Motion for Reconsideration and a THAT THE BANGKO SENTRAL SUMMARILY
Supplemental Motion for Reconsideration of the DISMISSED THE COMPLAINT OF [EGI].
aforequoted letter-decision of the BSP Monetary
Board. The BSP Monetary Board denied both motions in III. THE HONORABLE COURT OF
its letter[26] dated 8 December 2003 as there was no APPEALS GRAVELY ERRED IN
sufficient basis to grant the same. DISREGARDING THE FINDINGS OF FACT OF
EGI then filed a Petition for Review under Rule 43 of the THE BANGKO SENTRAL AND IN HOLDING
1997 Revised Rules of Civil Procedure with the Court of THAT [UCPB, et al.] COMMITTED
Appeals raising the sole issue of whether the Bangko IRREGULAR AND UNSOUND BANKING
Sentral ng Pilipinas erred in dismissing the administrative

Banking 1st Set of Cases | 110


PRACTICES IN THE SUBJECT of the concerned administrative agency in view of the
TRANSACTIONS.[27] expertise and specialized knowledge acquired by it on
matters falling within its areas of concern. UCPB, et al.
insist that it is the BSP which has the necessary expertise
The Petition is docketed as G.R. No. 168859. to draft guidelines for the evaluation of the performance
and conduct of banks. Thus, the Court of Appeals
UCPB, et al., aver that the Court of Appeals has no committed grave error in disregarding the findings of
appellate jurisdiction over decisions, orders and/or fact of the BSP Monetary Board which justified the
resolutions of the BSP Monetary Board on administrative latters dismissal of the administrative complaint of EGI
matters. The BSP Monetary Board is not among the against UCPB, et al.
quasi-judicial agencies enumerated under Rule 43 of the
1997 Revised Rules of Civil Procedure, over which the The issue of jurisdiction of the Court of Appeals over
Court of Appeals has appellate jurisdiction. Further, appeals of decisions, orders and/or resolutions of the
there is nothing in Republic Act No. 7653 or in Republic BSP Monetary Board on administrative matters must
Act No. 8791 which explicitly allows an appeal of the first be resolved, before the other issues raised herein by
decisions or orders of the BSP Monetary Board to the UCPB, et al.
Court of Appeals. Resultantly, the Court of Appeals has Truly, there is nothing in Republic Act No. 7653
no power to review, much less set aside, the findings of or in Republic Act No. 8791 which explicitly allows an
fact of the BSP Monetary Board as contained in its letter- appeal of the decisions of the BSP Monetary Board to
decision dated 16 September 2003. the Court of Appeals. However, this shall not mean that
said decisions are beyond judicial review.
UCPB, et al. also claim that, contrary to the ruling of the Section 9(3) of Batas Pambansa Blg. 129,
Court of Appeals, the letter-decision dated 16 otherwise known as The Judiciary Reorganization Act of
September 2003 of the BSP Monetary Board plainly 1980, as amended, reads:
reveals that the administrative complaint of EGI against
UCPB, et al. was not summarily dismissed. The charges SEC. 9. Jurisdiction. The Court of
of EGI against UCPB, et al. was resolved only after the Appeals shall exercise:
BSP Monetary Board thoroughly reviewed pertinent
bank records and studied the arguments raised by EGI in xxxx
its complaint and Motion for Partial Reconsideration. In
its letter-decision dated 16 September 2003, the BSP (3) Exclusive appellate jurisdiction over
Monetary Board stated in no uncertain terms that the all final judgments, decisions, resolutions,
dismissal of the complaint of EGI was based on the orders or awards of Regional Trial Courts
evaluation conducted by its Supervision and Examination and quasi-judicial agencies, instrumentalities,
Department I and the Office of the General Counsel and boards or commissions, including the
Legal Services. Also, in its letter dated 8 December 2003, Securities and Exchange Commission, the
the BSP Monetary Board denied the Motion for Social Security Commission, the Employees
Reconsideration and Supplemental Motion for Compensation Commission and the Civil
Reconsideration of EGI because the latter did not Service Commission, except those falling
present any new evidence in support of its within the appellate jurisdiction of the
motions. Hence, there is no basis for the claim of EGI Supreme Court in accordance with the
that the BSP Monetary Board overlooked and Constitution, the Labor Code of the Philippines
completely ignored its accusations of irregular and under Presidential Decree No. 442, as
unsound banking practice against UCPB, et al. amended, the provisions of this Act, and of
subparagraph (1) of the third paragraph and
Finally, UCPB, et al., maintain that the findings of fact of subparagraph 4 of the fourth paragraph of
administrative bodies like the BSP Monetary Board are Section 17 of the Judiciary Act of
accorded great respect, if not finality, especially if 1948. (Emphasis ours.)
supported by substantial evidence. Such findings are to
be respected by the courts, especially in the absence of
grave abuse of discretion or grave errors by the BSP In accordance with the afore-quoted provision,
Monetary Board. No other office, much less an appellate Rule 43 of the 1997 Revised Rules of Civil Procedure, on
tribunal, can substitute its own findings of fact over that Appeals from the Court of Tax Appeals and Quasi-Judicial

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Agencies to the Court of Appeals, defines its scope as circumstances indicate that the enumeration was not
follows: intended to be exclusive, or where the enumeration is
by way of example only.[28]
SECTION 1. Scope. - This Rule shall apply to Similarly, Section 1, Rule 43 of the 1997 Revised
appeals from judgments or final orders Rules of Civil Procedure merely mentions several quasi-
of the Court of Tax Appeals and from judicial agencies without exclusivity in its
awards, judgments, final orders or phraseology.[29] The enumeration of the agencies therein
resolutions of or authorized by any quasi- mentioned is not exclusive.[30] The introductory phrase
judicial agency in the exercise of its [a]mong these agencies are preceding the enumeration
quasi-judicial functions. Among these of specific quasi-judicial agencies only highlights the fact
agencies are the Civil Service that the list is not meant to be exclusive or
Commission, Central Board of conclusive. Further, the overture stresses and
Assessment Appeals, Securities and acknowledges the existence of other quasi-judicial
Exchange Commission, Office of the agencies not included in the enumeration but should be
President, Land Registration Authority, deemed included.[31]
Social Security Commission, Civil
Aeronautics Board, Bureau of Patents, A quasi-judicial agency or body is an organ of
Trademarks and Technology Transfer, government other than a court and other than a
National Electrification Administration, legislature, which affects the rights of private parties
Energy Regulatory Board, National through either adjudication or rule-making.[32] The very
Telecommunications Commission, definition of an administrative agency includes its being
Department of Agrarian Reform under vested with quasi-judicial powers. The ever increasing
Republic Act No. 6657, Government variety of powers and functions given to administrative
Service Insurance System, Employees agencies recognizes the need for the active intervention
Compensation Commission, Agricultural of administrative agencies in matters calling for technical
Inventions Board, Insurance knowledge and speed in countless controversies which
Commission, Philippine Atomic Energy cannot possibly be handled by regular courts.[33] A
Commission, Board of Investments, "quasi-judicial function" is a term which applies to the
Construction Industry Arbitration action, discretion, etc., of public administrative officers
Commission, and voluntary arbitrators or bodies, who are required to investigate facts, or
authorized by law. (Emphasis ours.) ascertain the existence of facts, hold hearings, and draw
conclusions from them, as a basis for their official action
and to exercise discretion of a judicial nature.[34]
A perusal of Section 9(3) of Batas Pambansa Blg. 129, as
amended, and Section 1, Rule 43 of the 1997 Revised Undoubtedly, the BSP Monetary Board is a
Rules of Civil Procedure reveals that the BSP Monetary quasi-judicial agency exercising quasi-judicial powers or
Board is not included among the quasi-judicial agencies functions. As aptly observed by the Court of Appeals, the
explicitly named therein, whose final judgments, orders, BSP Monetary Board is an independent central monetary
resolutions or awards are appealable to the Court of authority and a body corporate with fiscal and
Appeals. Such omission, however, does not necessarily administrative autonomy, mandated to provide policy
mean that the Court of Appeals has no appellate directions in the areas of money, banking and
jurisdiction over the judgments, orders, resolutions or credit.[35] It has power to issue subpoena, to sue for
awards of the BSP Monetary Board. contempt those refusing to obey the subpoena without
justifiable reason,[36] to administer oaths and compel
It bears stressing that Section 9(3) of Batas presentation of books, records and others, needed in its
Pambansa Blg. 129, as amended, on the appellate examination,[37] to impose fines and other sanctions and
jurisdiction of the Court of Appeals, generally refers to to issue cease and desist order.[38] Section 37 of Republic
quasi-judicial agencies, instrumentalities, boards, or Act No. 7653,[39] in particular, explicitly provides that the
commissions.The use of the word including in the said BSP Monetary Board shall exercise its discretion in
provision, prior to the naming of several quasi-judicial determining whether administrative sanctions should be
agencies, necessarily conveys the very idea of non- imposed on banks and quasi-banks, which necessarily
exclusivity of the enumeration. The principle of expressio implies that the BSP Monetary Board must conduct
unius est exclusio alterius does not apply where other

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some form of investigation or hearing regarding the totally different from the one presently before
same. us. Salud involved a resolution issued by the
Monetary Board, pursuant to Section 29 of Republic
Having established that the BSP Monetary Board Act No. 265, otherwise known as the old Central Bank
is indeed a quasi-judicial body exercising quasi-judicial Act, forbidding banking institutions to do business
functions; then as such, it is one of those quasi-judicial on account of a "condition of insolvency" or because
agencies, though not specifically mentioned in Section "its continuance in business would involve probable
9(3) of Batas Pambansa Blg. 129, as amended, and loss to depositors or creditors;" or appointing a
Section 1, Rule 43 of the 1997 Revised Rules of Civil receiver to take charge of the assets and liabilities of
Procedure, are deemed included therein. Therefore, the the bank; or determining whether the banking
Court of Appeals has appellate jurisdiction over final institutions should be rehabilitated or liquidated,
judgments, orders, resolutions or awards of the BSP and if in the latter case, appointing a liquidator
Monetary Board on administrative complaints against towards this end. The said Section 29 of the old
banks and quasi-banks, which the former acquires Central Bank Act was explicit that the determination
through the filing by the aggrieved party of a Petition for by the Monetary Board of whether a banking
Review under Rule 43 of the 1997 Revised Rules of Civil institution is insolvent, or should
Procedure. be rehabilitated or liquidated, is final and
executory. However, said determination could be set
As a futile effort of UCPB, et al. to convince this aside by the trial court if there was convincing proof
Court that the Court of Appeals has no appellate that the Monetary Board acted arbitrarily or in bad
jurisdiction over the final judgments, orders, resolutions faith. Under the circumstances obtaining in Salud, it is
or awards of the BSP Monetary Board, it cited Salud v. apparent that our ruling therein is limited to cases of
Central Bank of the Philippines.[40] insolvency, and not to all cases cognizable by the
Monetary Board.
The invocation of UCPB, et al. of Salud is evidently
misplaced. At any rate, under the new law, i.e., Section 30
of Republic Act No. 7653, otherwise known as The New
The present case involves a decision of the BSP Central Bank Act, which took effect on 3 July 1993, the
Monetary Board as regards an administrative complaint order of the BSP Monetary Board, even regarding the
against a bank and its corporate officers for the alleged liquidation of a bank, can be questioned via a Petition
violation of Sections 36 and 37, Article IV of Republic Act for Certiorari before a court when the same was issued
No. 7653, in relation to Section 55.1(a) of Republic Act in excess of jurisdiction or with such grave abuse of
No. 8791, and for the commission of irregularity and discretion as to amount to lack or excess of
unsafe or unsound banking practice. There is nothing in jurisdiction. The court referred to therein can be
the aforesaid laws which state that the final judgments, construed to mean the Court of Appeals because it is in
orders, resolutions or awards of the BSP Monetary Board the said court where a Petition for Certiorari can be filed
on administrative complaints against banks or quasi- following the hierarchy of courts.
banks shall be final and executory and beyond the Moreover, the appellate jurisdiction of the
subject of judicial review. Without being explicitly Court of Appeals over the final judgments, orders,
excepted or exempted, the final judgments, orders, resolutions or awards of the BSP Monetary Board in
resolutions or awards of the BSP Monetary Board are administrative cases involving directors and officers
among those appealable to the Court of Appeals by way of banks, quasi-banks, and trust entities, is affirmed
of Petition for Review, as provided in Section 9(3) of in BSP Circular No. 477, Series of 2005. The said BSP
Batas Pambansa Blg. 129, as amended, and Section 1, Circular expressly provides that the resolution
Rule 43 of the 1997 Revised Rules of Civil Procedure. rendered by the BSP Monetary Board in
administrative cases may be appealed to the Court
Although in Salud, this Court declared that of Appeals within the period and the manner
the Intermediate Appellate Court (now Court of provided under Rule 43 of the 1997 Revised Rules of
Appeals) has no appellate jurisdiction over Civil Procedure.
resolutions or orders of the Monetary Board of the
Central Bank of the Philippines (CBP, now BSP), With all the foregoing, it cannot now be
because no law prescribes any mode of appeal questioned that the Court of Appeals has appellate
therefrom, the factual settings of the said case are jurisdiction over the final judgments, orders, resolutions

Banking 1st Set of Cases | 113


or awards rendered by the BSP Monetary Board in obligations with two different sets of figures, one higher
administrative cases against banks and their directors than the other; and to disclose to the borrower only the
and officers, such as UCPB, et al. higher figures. The explanation of UCPB, et al., adopted
by the BSP Monetary Board that the figures in the
The Court then proceeds to resolve the issue of whether ACTUAL column were lower than those in the
the Court of Appeals erred in holding that the BSP DISCLOSED TO EGI column because the former was
Monetary Board summarily dismissed the administrative computed in accordance with BSP rules and regulations
complaint of EGI against UCPB, et al. prohibiting the accrual of interest on loans that have
become non-performing gives rise to more questions
After a meticulous scrutiny of the 16 September 2003 than answers.Examples of some of these questions
letter-decision of the BSP Monetary Board, this Court would be whether the loan obligations of EGI have
rules in the negative and affirms the finding of the Court become non-performing; whether the differences
of Appeals that the BSP Monetary Board did, indeed, between the figures in the ACTUAL and DISCLOSED TO
summarily dismiss administrative complaint of EGI EGI columns indeed corresponded to the interest that
against UCPB, et al., for violation of Sections 36 and 37, should be excluded from the figures in the first column
Article IV of Republic Act No. 7653, in relation to Section per BSP rules and regulations; and whether the
55.1(a) of Republic Act No. 8791, and for the computations of the figures in both columns should have
commission of irregularity and unsafe or unsound been freely disclosed and sufficiently explained to EGI in
banking practice. the name of transparency.

Given the gravity and seriousness of the charges of EGI The BSP Monetary Board similarly failed to
against UCPB, et al., the sweeping statement of the BSP clarify whether UCPB can foreclose the mortgaged
Monetary Board that it was inclined to dismiss the properties of EGI in amounts that were less than the
complaint of EGI based on the evaluation made by its values of the said properties as determined and
Supervision and Examination Department I and Office of stipulated by EGI and UCPB in their amended MOA. The
the General Counsel and Legal Services, is simply Court once more agrees in the ruling of the Court of
insufficient and unsatisfactory. Worse, the BSP Monetary Appeals that the MOA entered into by EGI and UCPB
Board merely presented the following conclusions serves as a contract between them, and it is the law that
without bothering to explain its bases for the same: (1) should govern their relationship, which neither of the
UCPB computed interest on loans based on BSP rules parties can simply abrogate, violate, or
and regulations which prohibit banks from accruing disregard. Unfortunately, the BSP Monetary Board never
interest on loans that have become non-performing (BSP even referred to the MOA executed by the parties in its
Circular No. 202); (2) fair market value of assets to be letter-decision dated 16 September 2003.
foreclosed is different from the bid price submitted
during foreclosure and there is no statutory obligation Moreover, the BSP Monetary Board found that
for the latter to be equivalent to the former; (3) the P145,163,000.00 loan of EGI from UCPB was not
regarding the alleged P145,163,000.00 fabricated loan, fabricated based on several documents. However, there
the documents showed that there were the EGI Board is absolute lack of explanation by the BSP Monetary
resolution to borrow, promissory note signed by Mr. Board as to why said documents deserved more
Eulalio Ganzon, and Loan Agreement stating the weight vis--vis evidence of EGI of suspicious
proceeds shall be used to pay outstanding availments circumstances surrounding the said loan, such as UCPB
and interest servicing; and (4) there is no finding by granting EGI said loan even when the latter was already
Supervision and Examination Department I on the in default on its prior loan obligations, and without
alleged double charging and/or padding of transaction requiring additional security, detailed business plan, and
costs. financial projections from EGI.

Further, in resolving the matter before it, the BSP The disregard by BSP Monetary Board of all the
Monetary Board never considered the UCPB Internal foregoing facts and issues in its letter-decision dated 16
Memorandum dated 22 February 2001, which was the September 2003 leads this Court to declare that it
heart of the administrative complaint of EGI against summarily dismissed the administrative complaint of EGI
UCPB, et al. The BSP Monetary Board did not even against UCPB, et al. There can be no complete resolution
attempt to establish whether it was regular or sound of the administrative complaint of EGI without
practice for a bank to keep a record of its borrowers loan

Banking 1st Set of Cases | 114


consideration of these facts and judgment on said Appeals clearly remanded the case to the BSP for further
issues. proceedings since the BSP, with its specialized
knowledge and expertise on banking matters, is more up
Finally, there is no merit in the assertion of UCPB, et al. to task to receive evidence, hold hearings, and
that the Court of Appeals erred in disregarding the thereafter resolve the issues based on its findings of fact
findings of fact of the BSP Monetary Board in the and law.
absence of grave abuse of discretion or lack of basis for G.R. No. 168897
the same. Also unsatisfied with the Decision dated 14 October
2004 and Resolution dated 7 July 2005 of the Court of
Although, as a general rule, findings of facts of an Appeals, EGI filed with this Court its own Petition for
administrative agency, which has acquired expertise in Review on Certiorari under Rule 45 of the 1997 Revised
the particular field of its endeavor, are accorded great Rules of Civil Procedure, raising the following issues:
weight on appeal, such rule cannot be applied with
respect to the assailed findings of the BSP Monetary I. The Honorable Court of
Board in this case. Rather, what applies is the recognized Appeals does have appellate jurisdiction over
exception that if such findings are not supported by decisions, orders, and resolutions of the
substantial evidence, the Court can make its own BSP/Monetary Board.
independent evaluation of the facts.[41]
II. The Honorable Court of
The standard of substantial evidence required in Appeals was correct in FINDING that the
administrative proceedings is more than a mere [BSP] summarily dismissed the complaint of
scintilla. It means such relevant evidence as a reasonable EGI.
mind might accept as adequate to support a
conclusion. While rules of evidence prevailing in courts III. Whether or not the
of law and equity shall not be controlling, the obvious Honorable Court of Appeals committed
purpose being to free administrative boards from the patent, grave, and reversible error when it
compulsion of technical rules so that the mere remanded the case to the [BSP] for further
admission of matter which would be deemed proceedings instead of acting upon its
incompetent in judicial proceedings would not invalidate findings as narrated in its Decision.
the administrative order, this assurance of a desirable
flexibility in administrative procedure does not go so far IV. Whether or not the
as to justify orders without basis in evidence having Honorable Court of Appeals committed
rational probative force.[42] patent, grave, and reversible error in not
directing the [BSP] to impose the appropriate
It cannot be convincingly said herein that the penalties against [UCPB, et al.].[43]
factual findings of the BSP Monetary Board in its letter-
decision dated 16 September 2003 was supported by
substantial evidence since (1) most of the findings were The Petition is docketed as G.R. No. 168897.
not supported by references to specific evidence; and Since the first two issues have already been addressed
(2) the findings were made without consideration of the by this Court in its previous discussion herein on G.R. No.
primary evidence presented by EGI (i.e., the MOA and its 168859, we now proceed to resolve the next two issues
amendments and the UCPB Internal Memorandum raised by EGI in its Petition in G.R. No. 168897.
dated 22 February 2001). EGI avers that the Court of Appeals committed
reversible error when it remanded the case to the BSP
Even then, the Court of Appeals stopped short of for further proceedings instead of directing the BSP to
categorically ruling that UCPB, et al. committed impose the applicable sanctions on UCPB, et al. EGI
irregularities, or unsound or unsafe banking practice in reasons that the appellate court, in its Decision dated 14
its transactions with EGI. What the Court of Appeals October 2004, already found that UCPB had committed
positively pronounced was that the BSP Monetary Board several acts of serious irregularity and conducted
failed to give the necessary consideration to the business in an unsafe and unsound manner. By reason
administrative complaint of EGI, summarily dismissing thereof, there was no more need for the Court of
the same in its 16 September 2003 letter- Appeals to remand this case to the BSP for a further
decision. The 14 October 2004Decision of the Court of determination of whether there were irregular and

Banking 1st Set of Cases | 115


unsound practices by UCPB, et al. in its dealings with evidence. While the speedy disposition of cases is a
EGI. Should this case be remanded to the BSP, there constitutionally mandated right, the paramount duty of
would be nothing to prevent the BSP from ruling again the courts, as well as quasi-judicial bodies, is to render
that UCPB, et al., did not commit any irregularity and justice by following the basic rules and principles of due
unsafe or unsound business practice. To require that this process and fair play.
case be reviewed by the BSP would only lead to WHEREFORE, premises considered, the Petition for
multiplicity of suits, promote unnecessary delay and Review on Certiorari of United Coconut Planters Bank,
negate the constitutional rights of all persons to a Jeronimo U. Kilayko, Lorenzo V. Tan, Enrique L. Gana,
speedy disposition of their cases before all judicial, Jaime W. Jacinto and Emily R. Lazaro, in G.R. No. 168859;
quasi-judicial or administrative bodies. as well as the Petition for Review on Certiorari of E.
Ganzon, Inc. in G.R. No. 168897, are hereby DENIED. The
The Court reiterates that the Court of Appeals did not Decision dated 14 October 2004 and Resolution dated 7
yet make conclusive findings in its Decision dated 14 July 2005 of the Court of Appeals in CA-G.R. SP No.
October 2004, that UCPB, et al., committed irregularities 81385 are hereby AFFIRMED in toto. No costs.
and unsound or unsafe banking practices in their SO ORDERED.
business dealings with EGI. The appellate court only
adjudged that the BSP Monetary Board summarily G.R. No. 168644 February 16, 2010
dismissed the administrative complaint of EGI, without BSB GROUP, INC., represented by its President, Mr.
fully appreciating the facts and evidence presented by RICARDO BANGAYAN, Petitioner,
the latter. Given the seriousness of the charges of EGI vs.
against UCPB, et al., the BSP Monetary Board should SALLY GO a.k.a. SALLY GO-BANGAYAN, Respondent.
have conducted a more intensive inquiry and rendered a DECISION
more comprehensive decision. PERALTA, J.:

By remanding the case to the BSP Monetary Board, the This is a Petition for Review under Rule 45 of the Rules of
Court of Appeals only acted in accordance with Republic Court assailing the Decision of the Court of Appeals in
Act No. 7653 and Republic Act No. 8791, which tasked CA-G.R. SP No. 876001 dated April 20, 2005, which
the BSP, through the Monetary Board, to determine reversed and set aside the September 13, 20042 and
whether a particular act or omission, which is not November 5, 20043 Orders issued by the Regional Trial
otherwise prohibited by any law, rule or regulation Court of Manila, Branch 364 in Criminal Case No. 02-
affecting banks, quasi-banks or trust entities, may be 202158 for qualified theft. The said orders, in turn,
deemed as conducting business in an unsafe or unsound respectively denied the motion filed by herein
manner.Also, the BSP Monetary Board is the proper respondent Sally Go for the suppression of the
body to impose the necessary administrative sanctions testimonial and documentary evidence relative to a
for the erring bank and its directors or officers. Security Bank account, and denied reconsideration.

The basic antecedents are no longer disputed.

The Court of Appeals did not deem it appropriate, on Petitioner, the BSB Group, Inc., is a duly organized
appeal, to outright reverse the judgment of the BSP domestic corporation presided by its herein
Monetary Board. The Court of Appeals held that the BSP representative, Ricardo Bangayan (Bangayan).
Monetary Board did not have sufficient basis for Respondent Sally Go, alternatively referred to as Sally Sia
dismissing the administrative complaint of EGI in its 16 Go and Sally Go-Bangayan, is Bangayans wife, who was
September 2003 letter-decision; yet, the appellate court employed in the company as a cashier, and was
likewise did not find enough evidence on record to engaged, among others, to receive and account for the
already resolve the administrative complaint in favor of payments made by the various customers of the
EGI and against UCPB, et al., precisely the reason why it company.
still remanded the case to the BSP Monetary Board for
further proceedings. The Court of Appeals never meant In 2002, Bangayan filed with the Manila Prosecutors
to give EGI an assurance of a favorable judgment; it only Office a complaint for estafa and/or qualified
ensured that the BSP Monetary Board shall accord all theft5 against respondent, alleging that several
parties concerned to equal opportunity for presentation checks6 representing the aggregate amount of
and consideration of their allegations, arguments, and 1,534,135.50 issued by the companys customers in

Banking 1st Set of Cases | 116


payment of their obligation were, instead of being allegedly deposited the proceeds of the supposed
turned over to the companys coffers, indorsed by checks. Interestingly, while respondent characterized
respondent who deposited the same to her personal the Metrobank account as irrelevant to the case, she, in
banking account maintained at Security Bank and Trust the same motion, nevertheless waived her objection to
Company (Security Bank) in Divisoria, Manila the irrelevancy of the Security Bank account mentioned
Branch.7 Upon a finding that the evidence adduced was in the same complaint-affidavit, inasmuch as she was
uncontroverted, the assistant city prosecutor admittedly willing to address the allegations with respect
recommended the filing of the Information for qualified thereto.13
theft against respondent.8
Petitioner, opposing respondents move, argued for the
Accordingly, respondent was charged before the relevancy of the Metrobank account on the ground that
Regional Trial Court of Manila, Branch 36, in an the complaint-affidavit showed that there were two
Information, the inculpatory portion of which reads: checks which respondent allegedly deposited in an
account with the said bank.14 To this, respondent filed a
That in or about or sometime during the period supplemental motion to quash, invoking the absolutely
comprised (sic) between January 1988 [and] October confidential nature of the Metrobank account under the
1989, inclusive, in the City of Manila, Philippines, the provisions of Republic Act (R.A.) No. 1405.15 The trial
said accused did then and there willfully, unlawfully and court did not sustain respondent; hence, it denied the
feloniously with intent [to] gain and without the motion to quash for lack of merit.16
knowledge and consent of the owner thereof, take, steal
and carry away cash money in the total amount of Meanwhile, the prosecution was able to present in court
1,534,135.50 belonging to BSB GROUP OF COMPANIES the testimony of Elenita Marasigan (Marasigan), the
represented by RICARDO BANGAYAN, to the damage representative of Security Bank. In a nutshell,
and prejudice of said owner in the aforesaid amount of Marasigans testimony sought to prove that between
1,534,135.50, Philippine currency. 1988 and 1989, respondent, while engaged as cashier at
the BSB Group, Inc., was able to run away with the
That in the commission of the said offense, said accused checks issued to the company by its customers, endorse
acted with grave abuse of confidence, being then the same, and credit the corresponding amounts to her
employed as cashier by said complainant at the time of personal deposit account with Security Bank. In the
the commission of the said offense and as such she was course of the testimony, the subject checks were
entrusted with the said amount of money. presented to Marasigan for identification and marking as
the same checks received by respondent, endorsed, and
Contrary to law.9 then deposited in her personal account with Security
Bank.17 But before the testimony could be completed,
Respondent entered a negative plea when respondent filed a Motion to Suppress,18 seeking the
arraigned.10 The trial ensued. On the premise that exclusion of Marasigans testimony and accompanying
respondent had allegedly encashed the subject checks documents thus far received, bearing on the subject
and deposited the corresponding amounts thereof to Security Bank account. This time respondent invokes, in
her personal banking account, the prosecution moved addition to irrelevancy, the privilege of confidentiality
for the issuance of subpoena duces tecum /ad under R.A. No. 1405.
testificandum against the respective managers or
records custodians of Security Banks Divisoria Branch, The trial court, nevertheless, denied the motion in its
as well as of the Asian Savings Bank (now Metropolitan September 13, 2004 Order.19 A motion for
Bank & Trust Co. [Metrobank]), in Jose Abad Santos, reconsideration was subsequently filed, but it was also
Tondo, Manila Branch.11 The trial court granted the denied in the Order dated November 5, 2004.20 These
motion and issued the corresponding subpoena.12 two orders are the subject of the instant case.

Respondent filed a motion to quash the subpoena dated Aggrieved, and believing that the trial court gravely
November 4, 2003, addressed to Metrobank, noting to abused its discretion in acting the way it did, respondent
the court that in the complaint-affidavit filed with the elevated the matter to the Court of Appeals via a
prosecutor, there was no mention made of the said bank petition for certiorari under Rule 65. Finding merit in the
account, to which respondent, in addition to the Security petition, the Court of Appeals reversed and set aside the
Bank account identified as Account No. 01-14-006,

Banking 1st Set of Cases | 117


assailed orders of the trial court in its April 20, 2005 In its reply, petitioner asserted the sufficiency of the
Decision.21The decision reads: allegations in the criminal Information for qualified theft,
as the same has sufficiently alleged the elements of the
WHEREFORE, the petition is hereby GRANTED. The offense charged. It posits that through Marasigans
assailed orders dated September 13, 2004 and testimony, the Court would be able to establish that the
November 5, 2004 are REVERSED and SET ASIDE. The checks involved, copies of which were attached to the
testimony of the SBTC representative is ordered stricken complaint-affidavit filed with the prosecutor, had indeed
from the records. been received by respondent as cashier, but were,
thereafter, deposited by the latter to her personal
SO ORDERED.22 account with Security Bank. Petitioner held that the
checks represented the cash money stolen by
With the denial of its motion for respondent and, hence, the subject matter in this case is
23
reconsideration, petitioner is now before the Court not only the cash amount represented by the checks
pleading the same issues as those raised before the supposedly stolen by respondent, but also the checks
lower courts. themselves.30

In this Petition24 under Rule 45, petitioner averred in the We derive from the conflicting advocacies of the parties
main that the Court of Appeals had seriously erred in that the issue for resolution is whether the testimony of
reversing the assailed orders of the trial court, and in Marasigan and the accompanying documents are
effect striking out Marasigans testimony dealing with irrelevant to the case, and whether they are also
respondents deposit account with Security Bank.25 It violative of the absolutely confidential nature of bank
asserted that apart from the fact that the said evidence deposits and, hence, excluded by operation of R.A. No.
had a direct relation to the subject matter of the case for 1405. The question of admissibility of the evidence thus
qualified theft and, hence, brings the case under one of comes to the fore. And the Court, after deliberative
the exceptions to the coverage of confidentiality under estimation, finds the subject evidence to be indeed
R.A. 1405.26 Petitioner believed that what constituted inadmissible.
the subject matter in litigation was to be determined by
the allegations in the information and, in this respect, it Prefatorily, fundamental is the precept in all criminal
alluded to the assailed November 5, 2004 Order of the prosecutions, that the constitutive acts of the offense
trial court, which declared to be erroneous the limitation must be established with unwavering exactitude and
of the present inquiry merely to what was contained in moral certainty because this is the critical and only
the information.27 requisite to a finding of guilt. 31 Theft is present when a
person, with intent to gain but without violence against
For her part, respondent claimed that the money or intimidation of persons or force upon things, takes
represented by the Security Bank account was neither the personal property of another without the latters
relevant nor material to the case, because nothing in the consent. It is qualified when, among others, and as
criminal information suggested that the money therein alleged in the instant case, it is committed with abuse of
deposited was the subject matter of the case. She confidence.32 The prosecution of this offense necessarily
invited particular attention to that portion of the focuses on the existence of the following elements: (a)
criminal Information which averred that she has stolen there was taking of personal property belonging to
and carried away cash money in the total amount of another; (b) the taking was done with intent to gain; (c)
1,534,135.50. She advanced the notion that the term the taking was done without the consent of the owner;
"cash money" stated in the Information was not (d) the taking was done without violence against or
synonymous with the checks she was purported to have intimidation of persons or force upon things; and (e) it
stolen from petitioner and deposited in her personal was done with abuse of confidence.33 In turn, whether
banking account. Thus, the checks which the these elements concur in a way that overcomes the
prosecution had Marasigan identify, as well as the presumption of guiltlessness, is a question that must
testimony itself of Marasigan, should be suppressed by pass the test of relevancy and competency in
the trial court at least for violating respondents right to accordance with Section 334 Rule 128 of the Rules of
due process.28 More in point, respondent opined that Court.
admitting the testimony of Marasigan, as well as the
evidence pertaining to the Security Bank account, would Thus, whether these pieces of evidence sought to be
violate the secrecy rule under R.A. No. 1405.29 suppressed in this case the testimony of Marasigan, as

Banking 1st Set of Cases | 118


well as the checks purported to have been stolen and capable of appropriation. And it is in this respect that
deposited in respondents Security Bank account are what the offender does with the check subsequent to
relevant, is to be addressed by considering whether they the act of unlawfully taking it becomes material
have such direct relation to the fact in issue as to induce inasmuch as this offense is a continuing one.37 In other
belief in its existence or non-existence; or whether they words, in pursuing a case for this offense, the
relate collaterally to a fact from which, by process of prosecution may establish its cause by the presentation
logic, an inference may be made as to the existence or of the checks involved. These checks would then
non-existence of the fact in issue.35 constitute the best evidence to establish their contents
and to prove the elemental act of conversion in support
The fact in issue appears to be that respondent has of the proposition that the offender has indeed indorsed
taken away cash in the amount of 1,534,135.50 from the same in his own name.38
the coffers of petitioner. In support of this allegation,
petitioner seeks to establish the existence of the Theft, however, is not of such character. Thus, for our
elemental act of taking by adducing evidence that purposes, as the Information in this case accuses
respondent, at several times between 1988 and 1989, respondent of having stolen cash, proof tending to
deposited some of its checks to her personal account establish that respondent has actualized her criminal
with Security Bank. Petitioner addresses the intent by indorsing the checks and depositing the
incongruence between the allegation of theft of cash in proceeds thereof in her personal account, becomes not
the Information, on the one hand, and the evidence that only irrelevant but also immaterial and, on that score,
respondent had first stolen the checks and deposited the inadmissible in evidence.
same in her banking account, on the other hand, by
impressing upon the Court that there obtains no We now address the issue of whether the admission of
difference between cash and check for purposes of Marasigans testimony on the particulars of
prosecuting respondent for theft of cash. Petitioner is respondents account with Security Bank, as well as of
mistaken. the corresponding evidence of the checks allegedly
deposited in said account, constitutes an unallowable
In theft, the act of unlawful taking connotes deprivation inquiry under R.A. 1405.
of personal property of one by another with intent to
gain, and it is immaterial that the offender is able or It is conceded that while the fundamental law has not
unable to freely dispose of the property stolen because bothered with the triviality of specifically addressing
the deprivation relative to the offended party has privacy rights relative to banking accounts, there,
already ensued from such act of execution.36 The nevertheless, exists in our jurisdiction a legitimate
allegation of theft of money, hence, necessitates that expectation of privacy governing such accounts. The
evidence presented must have a tendency to prove that source of this right of expectation is statutory, and it is
the offender has unlawfully taken money belonging to found in R.A. No. 1405,39otherwise known as the Bank
another. Interestingly, petitioner has taken pains in Secrecy Act of 1955. 40
attempting to draw a connection between the evidence
subject of the instant review, and the allegation of theft R.A. No. 1405 has two allied purposes. It hopes to
in the Information by claiming that respondent had discourage private hoarding and at the same time
fraudulently deposited the checks in her own name. But encourage the people to deposit their money in banking
this line of argument works more prejudice than favor, institutions, so that it may be utilized by way of
because it in effect, seeks to establish the commission, authorized loans and thereby assist in economic
not of theft, but rather of some other crime probably development.41 Owing to this piece of legislation, the
estafa. confidentiality of bank deposits remains to be a basic
state policy in the Philippines.42 Section 2 of the law
Moreover, that there is no difference between cash and institutionalized this policy by characterizing as
check is true in other instances. In estafa by conversion, absolutely confidential in general all deposits of
for instance, whether the thing converted is cash or whatever nature with banks and other financial
check, is immaterial in relation to the formal allegation institutions in the country. It declares:
in an information for that offense; a check, after all,
while not regarded as legal tender, is normally accepted Section 2. All deposits of whatever nature with banks or
under commercial usage as a substitute for cash, and the banking institutions in the Philippines including
credit it represents in stated monetary value is properly investments in bonds issued by the Government of the

Banking 1st Set of Cases | 119


Philippines, its political subdivisions and its beyond the reach of execution to satisfy a final
instrumentalities, are hereby considered as of an judgmentThus:
absolutely confidential nature and may not be
examined, inquired or looked into by any person, x x x Mr. Marcos: Now, for purposes of the record, I
government official, bureau or office, except upon should like the Chairman of the Committee on Ways and
written permission of the depositor, or in cases of Means to clarify this further. Suppose an individual has a
impeachment, or upon order of a competent court in tax case. He is being held liable by the Bureau of Internal
cases of bribery or dereliction of duty of public officials, Revenue [(BIR)] or, say, 1,000.00 worth of tax liability,
or in cases where the money deposited or invested is and because of this the deposit of this individual [has
the subject matter of the litigation.1avvphi1 been] attached by the [BIR].

Subsequent statutory enactments43 have expanded the Mr. Ramos: The attachment will only apply after the
list of exceptions to this policy yet the secrecy of bank court has pronounced sentence declaring the liability of
deposits still lies as the general rule, falling as it does such person. But where the primary aim is to determine
within the legally recognized zones of privacy.44 There is, whether he has a bank deposit in order to bring about a
in fact, much disfavor to construing these primary and proper assessment by the [BIR], such inquiry is not
supplemental exceptions in a manner that would allowed by this proposed law.
authorize unbridled discretion, whether governmental
or otherwise, in utilizing these exceptions as authority Mr. Marcos: But under our rules of procedure and under
for unwarranted inquiry into bank accounts. It is then the Civil Code, the attachment or garnishment of money
perceivable that the present legal order is obliged to deposited is allowed. Let us assume for instance that
conserve the absolutely confidential nature of bank there is a preliminary attachment which is for
deposits.45 garnishment or for holding liable all moneys deposited
belonging to a certain individual, but such attachment or
The measure of protection afforded by the law has been garnishment will bring out into the open the value of
explained in China Banking Corporation v. Ortega.46 That such deposit. Is that prohibited by... the law?
case principally addressed the issue of whether the
prohibition against an examination of bank deposits Mr. Ramos: It is only prohibited to the extent that the
precludes garnishment in satisfaction of a judgment. inquiry... is made only for the purpose of satisfying a tax
Ruling on that issue in the negative, the Court found liability already declared for the protection of the right in
guidance in the relevant portions of the legislative favor of the government; but when the object is merely
deliberations on Senate Bill No. 351 and House Bill No. to inquire whether he has a deposit or not for purposes
3977, which later became the Bank Secrecy Act, and it of taxation, then this is fully covered by the law. x x x
held that the absolute confidentiality rule in R.A. No.
1405 actually aims at protection from unwarranted Mr. Marcos: The law prohibits a mere investigation into
inquiry or investigation if the purpose of such inquiry or the existence and the amount of the deposit.
investigation is merely to determine the existence and
nature, as well as the amount of the deposit in any given Mr. Ramos: Into the very nature of such deposit. x x x47
bank account. Thus,
In taking exclusion from the coverage of the
x x x The lower court did not order an examination of or confidentiality rule, petitioner in the instant case posits
inquiry into the deposit of B&B Forest Development that the account maintained by respondent with
Corporation, as contemplated in the law. It merely Security Bank contains the proceeds of the checks that
required Tan Kim Liong to inform the court whether or she has fraudulently appropriated to herself and, thus,
not the defendant B&B Forest Development Corporation falls under one of the exceptions in Section 2 of R.A. No.
had a deposit in the China Banking Corporation only for 1405 that the money kept in said account is the
purposes of the garnishment issued by it, so that the subject matter in litigation. To highlight this thesis,
bank would hold the same intact and not allow any petitioner avers, citing Mathay v. Consolidated Bank and
withdrawal until further order. It will be noted from the Trust Co.,48 that the subject matter of the action refers
discussion of the conference committee report on to the physical facts; the things real or personal; the
Senate Bill No. 351 and House Bill No. 3977which later money, lands, chattels and the like, in relation to which
became Republic Act No. 1405, that it was not the the suit is prosecuted, which in the instant case should
intention of the lawmakers to place banks deposits refer to the money deposited in the Security Bank

Banking 1st Set of Cases | 120


account.49 On the surface, however, it seems that end to the controversy at the very first instance it was
petitioners theory is valid to a point, yet a deeper raised before the trial court.
treatment tends to show that it has argued quite off-
tangentially. This, because, while Mathay did explain In sum, we hold that the testimony of Marasigan on the
what the subject matter of an action is, it nevertheless particulars of respondents supposed bank account with
did so only to determine whether the class suit in that Security Bank and the documentary evidence
case was properly brought to the court. represented by the checks adduced in support thereof,
are not only incompetent for being excluded by
What indeed constitutes the subject matter in litigation operation of R.A. No. 1405. They are likewise irrelevant
in relation to Section 2 of R.A. No. 1405 has been to the case, inasmuch as they do not appear to have any
pointedly and amply addressed in Union Bank of the logical and reasonable connection to the prosecution of
Philippines v. Court of Appeals,50 in which the Court respondent for qualified theft. We find full merit in and
noted that the inquiry into bank deposits allowable affirm respondents objection to the evidence of the
under R.A. No. 1405 must be premised on the fact that prosecution. The Court of Appeals was, therefore,
the money deposited in the account is itself the subject correct in reversing the assailed orders of the trial court.
of the action.51 Given this perspective, we deduce that
the subject matter of the action in the case at bar is to A final note. In any given jurisdiction where the right of
be determined from the indictment that charges privacy extends its scope to include an individuals
respondent with the offense, and not from the evidence financial privacy rights and personal financial matters,
sought by the prosecution to be admitted into the there is an intermediate or heightened scrutiny given by
records. In the criminal Information filed with the trial courts and legislators to laws infringing such
court, respondent, unqualifiedly and in plain language, is rights.52 Should there be doubts in upholding the
charged with qualified theft by abusing petitioners trust absolutely confidential nature of bank deposits against
and confidence and stealing cash in the amount of affirming the authority to inquire into such accounts,
1,534,135.50. The said Information makes no factual then such doubts must be resolved in favor of the
allegation that in some material way involves the checks former. This attitude persists unless congress lifts its
subject of the testimonial and documentary evidence finger to reverse the general state policy respecting the
sought to be suppressed. Neither do the allegations in absolutely confidential nature of bank deposits.53
said Information make mention of the supposed bank
account in which the funds represented by the checks WHEREFORE, the petition is DENIED. The Decision of the
have allegedly been kept. Court of Appeals in CA-G.R. SP No. 87600 dated April 20,
2005, reversing the September 13, 2004 and November
In other words, it can hardly be inferred from the 5, 2004 Orders of the Regional Trial Court of Manila,
indictment itself that the Security Bank account is the Branch 36 in Criminal Case No. 02-202158, is AFFIRMED.
ostensible subject of the prosecutions inquiry. Without
needlessly expanding the scope of what is plainly alleged SO ORDERED.
in the Information, the subject matter of the action in
this case is the money amounting to 1,534,135.50 DIOSDADO M. PERALTA
alleged to have been stolen by respondent, and not the Associate Justice
money equivalent of the checks which are sought to be
admitted in evidence. Thus, it is that, which the G.R. No. L-34964 January 31, 1973
prosecution is bound to prove with its evidence, and no CHINA BANKING CORPORATION and TAN KIM LIONG,
other. petitioners-appellants,
vs.
It comes clear that the admission of testimonial and HON. WENCESLAO ORTEGA, as Presiding Judge of the
documentary evidence relative to respondents Security Court of First Instance of Manila, Branch VIII, and VICENTE
Bank account serves no other purpose than to establish G. ACABAN, respondents-appellees.
the existence of such account, its nature and the amount
kept in it. It constitutes an attempt by the prosecution at MAKALINTAL, J.
an impermissible inquiry into a bank deposit account the
privacy and confidentiality of which is protected by law. The only issue in this petition for certiorari to review the
On this score alone, the objection posed by respondent orders dated March 4, 1972 and March 27, 1972,
in her motion to suppress should have indeed put an respectively, of the Court of First Instance of Manila in

Banking 1st Set of Cases | 121


its Civil Case No. 75138, is whether or not a banking instrumentalities, are hereby considered as of
institution may validly refuse to comply with a court absolutely confidential nature and may not be
process garnishing the bank deposit of a judgment examined, inquired or looked into by any person,
debtor, by invoking the provisions of Republic Act No. government official, bureau or office, except upon
1405. * written permission of the depositor, or in cases of
impeachment, or upon order of a competent court
On December 17, 1968 Vicente Acaban filed a complaint in cases of bribery or dereliction of duty of public
in the court a quo against Bautista Logging Co., Inc., B & officials, or in cases where the money deposited or
B Forest Development Corporation and Marino Bautista invested is the subject matter of the litigation.
for the collection of a sum of money. Upon motion of
the plaintiff the trial court declared the defendants in Sec 3. It shall be unlawful for any official or
default for failure to answer within the reglementary employee of a banking institution to disclose to any
period, and authorized the Branch Clerk of Court and/or person other than those mentioned in Section two
Deputy Clerk to receive the plaintiff's evidence. On hereof any information concerning said deposits.
January 20, 1970 judgment by default was rendered
against the defendants. Sec. 5. Any violation of this law will subject offender
upon conviction, to an imprisonment of not more
To satisfy the judgment, the plaintiff sought the than five years or a fine of not more than twenty
garnishment of the bank deposit of the defendant B & B thousand pesos or both, in the discretion of the
Forest Development Corporation with the China Banking court.
Corporation. Accordingly, a notice of garnishment was
issued by the Deputy Sheriff of the trial court and served The petitioners argue that the disclosure of the
on said bank through its cashier, Tan Kim Liong. In reply, information required by the court does not fall within
the bank' cashier invited the attention of the Deputy any of the four (4) exceptions enumerated in Section 2,
Sheriff to the provisions of Republic Act No. 1405 which, and that if the questioned orders are complied with Tan
it was alleged, prohibit the disclosure of any information Kim Liong may be criminally liable under Section 5 and
relative to bank deposits. Thereupon the plaintiff filed a the bank exposed to a possible damage suit by B & B
motion to cite Tan Kim Liong for contempt of court. Forest Development Corporation. Specifically referring
to this case, the position of the petitioners is that the
In an order dated March 4, 1972 the trial court denied bank deposit of judgment debtor B & B Forest
the plaintiff's motion. However, Tan Kim Liong was Development Corporation cannot be subject to
ordered "to inform the Court within five days from garnishment to satisfy a final judgment against it in view
receipt of this order whether or not there is a deposit in of the aforequoted provisions of law.
the China Banking Corporation of defendant B & B
Forest Development Corporation, and if there is any We do not view the situation in that light. The lower
deposit, to hold the same intact and not allow any court did not order an examination of or inquiry into the
withdrawal until further order from this Court." Tan Kim deposit of B & B Forest Development Corporation, as
Liong moved to reconsider but was turned down by contemplated in the law. It merely required Tan Kim
order of March 27, 1972. In the same order he was Liong to inform the court whether or not the defendant
directed "to comply with the order of this Court dated B & B Forest Development Corporation had a deposit in
March 4, 1972 within ten (10) days from the receipt of the China Banking Corporation only for purposes of the
copy of this order, otherwise his arrest and confinement garnishment issued by it, so that the bank would hold
will be ordered by the Court." Resisting the two orders, the same intact and not allow any withdrawal until
the China Banking Corporation and Tan Kim Liong further order. It will be noted from the discussion of the
instituted the instant petition. conference committee report on Senate Bill No. 351 and
House Bill No. 3977, which later became Republic Act
The pertinent provisions of Republic Act No. 1405 relied 1405, that it was not the intention of the lawmakers to
upon by the petitioners reads: place bank deposits beyond the reach of execution to
satisfy a final judgment. Thus:
Sec. 2. All deposits of whatever nature with banks or
banking institutions in the Philippines including Mr. MARCOS. Now, for purposes of the record, I
investments in bonds issued by the Government of should like the Chairman of the Committee on
the Philippines, its political subdivisions and its Ways and Means to clarify this further. Suppose an

Banking 1st Set of Cases | 122


individual has a tax case. He is being held liable by Mr. MARCOS. I am glad that is clarified. So that the
the Bureau of Internal Revenue for, say, P1,000.00 established rule of procedure as well as the
worth of tax liability, and because of this the substantive law on the matter is amended?
deposit of this individual is attached by the Bureau
of Internal Revenue. Mr. RAMOS. Yes. That is the effect.

Mr. RAMOS. The attachment will only apply after Mr. MARCOS. I see. Suppose there has been a
the court has pronounced sentence declaring the decision, definitely establishing the liability of an
liability of such person. But where the primary aim individual for taxation purposes and this judgment
is to determine whether he has a bank deposit in is sought to be executed ... in the execution of that
order to bring about a proper assessment by the judgment, does this bill, or this proposed law, if
Bureau of Internal Revenue, such inquiry is not approved, allow the investigation or scrutiny of
authorized by this proposed law. the bank deposit in order to execute the
judgment?
Mr. MARCOS. But under our rules of procedure
and under the Civil Code, the attachment or Mr. RAMOS. To satisfy a judgment which has
garnishment of money deposited is allowed. Let us become executory.
assume, for instance, that there is a preliminary
attachment which is for garnishment or for Mr. MARCOS. Yes, but, as I said before, suppose
holding liable all moneys deposited belonging to a the tax liability is P1,000,000 and the deposit is
certain individual, but such attachment or half a million, will this bill allow scrutiny into the
garnishment will bring out into the open the value deposit in order that the judgment may be
of such deposit. Is that prohibited by this executed?
amendment or by this law?
Mr. RAMOS. Merely to determine the amount of
Mr. RAMOS. It is only prohibited to the extent that such money to satisfy that obligation to the
the inquiry is limited, or rather, the inquiry is made Government, but not to determine whether a
only for the purpose of satisfying a tax liability deposit has been made in evasion of taxes.
already declared for the protection of the right in
favor of the government; but when the object is xxx xxx xxx
merely to inquire whether he has a deposit or not
for purposes of taxation, then this is fully covered Mr. MACAPAGAL. But let us suppose that in an
by the law. ordinary civil action for the recovery of a sum of
money the plaintiff wishes to attach the properties
Mr. MARCOS. And it protects the depositor, does of the defendant to insure the satisfaction of the
it not? judgment. Once the judgment is rendered, does
the gentleman mean that the plaintiff cannot
Mr. RAMOS. Yes, it protects the depositor. attach the bank deposit of the defendant?

Mr. MARCOS. The law prohibits a mere Mr. RAMOS. That was the question raised by the
investigation into the existence and the amount of gentleman from Pangasinan to which I replied that
the deposit. outside the very purpose of this law it could be
reached by attachment.
Mr. RAMOS. Into the very nature of such deposit.
Mr. MACAPAGAL. Therefore, in such ordinary civil
Mr. MARCOS. So I come to my original question. cases it can be attached?
Therefore, preliminary garnishment or attachment
of the deposit is not allowed? Mr. RAMOS. That is so.

Mr. RAMOS. No, without judicial authorization. (Vol. II, Congressional Record, House of
Representatives, No. 12, pp. 3839-3840, July 27,
1955).

Banking 1st Set of Cases | 123


It is sufficiently clear from the foregoing discussion of raffled to Branch 150 of the RTC Makati, presided over
the conference committee report of the two houses of by respondent Judge. The following day, December 24,
Congress that the prohibition against examination of or 1991, respondent Judge issued an order granting the
inquiry into a bank deposit under Republic Act 1405 issuance of a writ of attachment, and the writ was
does not preclude its being garnished to insure actually issued on December 27, 1991.
satisfaction of a judgment. Indeed there is no real
inquiry in such a case, and if the existence of the deposit On January 3, 1992, upon Sun Life's ex-parte motion, the
is disclosed the disclosure is purely incidental to the trial court amended the writ of attachment to reflect the
execution process. It is hard to conceive that it was ever alleged amount of the indebtedness. That same day,
within the intention of Congress to enable debtors to Deputy Sheriff Arturo C. Flores, accompanied by a
evade payment of their just debts, even if ordered by representative of Sun Life, attempted to serve summons
the Court, through the expedient of converting their and a copy of the amended writ of attachment upon
assets into cash and depositing the same in a bank. petitioners at their known office address at 108 Aguirre
St., Makati but was not able to do so since there was no
WHEREFORE, the orders of the lower court dated March responsible officer to receive the same.1 Nonetheless,
4 and 27, 1972, respectively, are hereby affirmed, with Sheriff Flores proceeded, over a period of several days,
costs against the petitioners-appellants. to serve notices of garnishment upon several
commercial banks and financial institutions, and levied
Zaldivar, Castro, Fernando, Barredo, Makasiar, Antonio on attachment a condominium unit and a real property
and Esguerra, JJ., concur. belonging to petitioner Oate.

Concepcion, C.J. and Teehankee, J., took no part. Summons was eventually served upon petitioners on
January 9, 1992, while defendant Dio was served with
G.R. No. 107303 February 21, 1994 summons on January 16, 1992.
EMMANUEL C. OATE and ECON HOLDINGS
CORPORATION, petitioners, On January 21, 1992, petitioners filed an "Urgent Motion
vs. to Discharge/Dissolve Writ of Attachment." That same
HON. ZUES C. ABROGAR, as Presiding Judge of Branch 150 day, Sun Life filed an ex-parte motion to examine the
of the Regional Trial Court of Makati, and SUN LIFE books of accounts and ledgers of petitioner Brunner
ASSURANCE COMPANY OF CANADA, respondents. Development Corporation (Brunner, for brevity) at the
G.R. No. 107491 February 21, 1994 Urban Bank, Legaspi Village Branch, and to obtain copies
BRUNNER DEVELOPMENT CORPORATION, petitioner, thereof, which motion was granted by respondent
vs. Judge. The examination of said account took place on
HON. ZUES C. ABROGAR, as Presiding Judge of Branch 150 January 23, 1992. Petitioners filed a motion to nullify the
of the Regional Trial Court of Makati, and SUN LIFE proceedings taken thereat since they were not present.
ASSURANCE COMPANY OF CANADA, respondents.
On January 30, 1992, petitioners and their co-
NOCON, J.: defendants filed a memorandum in support of the
motion to discharge attachment. Also on that same day,
These are separate petitions for certiorari with a prayer Sun Life filed another motion for examination of bank
for temporary restraining order filed by Emmanuel C. accounts, this time seeking the examination of Account
Oate and Econ Holdings Corporation (in G.R. No. No. 0041-0277-03 with the Bank of Philippine Islands
107303), and Brunner Development Corporation (in G.R. (BPI) which, incidentally, petitioners claim not to be
No. 107491), both of which assail several orders issued owned by them and the records of Philippine National
by respondent Judge Zues C. Abrogar in Civil Case No. Bank (PNB) with regard to checks payable to Brunner.
91-3506. Sun Life asked the court to order both banks to comply
with the notice of garnishment.
The pertinent facts are as follows: On December 23,
1991, respondent Sun Life Assurance Company of On February 6, 1992, respondent Judge issued an order
Canada (Sun Life, for brevity) filed a complaint for a sum (1) denying petitioners' and the co-defendants' motion
of money with a prayer for the immediate issuance of a to discharge the amended writ of attachment, (2)
writ of attachment against petitioners, and Noel L. Dio, approving Sun Life's additional attachment, (3) granting
which was docketed as Civil Case No. 91-3506 and Sun Life's motion to examine the BPI account, and (4)

Banking 1st Set of Cases | 124


denying petitioners' motion to nullify the proceedings of the defendant or even before summons issues.
January 23, 1992. What the rule is saying quite clearly is that after an
action is properly
On March 12, 1992, petitioners filed a motion for commenced by the filing of the complaint and
reconsideration of the February 6, 1992 order. On the payment of all requisite docket and other fees
September 6, 1992, respondent Judge denied the the plaintiff may apply for and obtain a writ of
motion for reconsideration. preliminary attachment upon fulfillment of the
pertinent requisites laid down by law, and that he
Hence, the instant petitions. Petitioners' basic argument may do so at any time, either before or after
is that respondent Judge had acted with grave abuse of service of summons on the defendant. And this
discretion amounting to lack or in excess of jurisdiction indeed, has been the immemorial practice
in (1) issuing ex parte the original and amended writs of sanctioned by the courts: for the plaintiff or other
preliminary attachment and the corresponding notices proper party to incorporate the application for
of garnishment and levy on attachment since the trial attachment in the complaint or other appropriate
court had not yet acquired jurisdiction over them; and pleading (counterclaim, cross-claim, third-party
(2) allowing the examination of the bank records though claim) and for the Trial Court to issue the writ ex-
no notice was given to them. parte at the commencement of the action if it
finds the application otherwise sufficient in form
We find both petitions unmeritorious. and substance.3

Petitioners initially argue that respondent Judge erred in Petitioners then contended that the writ should have
granting Sun Life's prayer for a writ of preliminary been discharged since the ground on which it was issued
attachment on the ground that the trial court had not fraud in contracting the obligation was not
acquired jurisdiction over them. This argument is clearly present. This cannot be considered a ground for lifting
unavailing since it is well-settled that a writ of the writ since this delves into the very complaint of the
preliminary attachment may be validly applied for and Sun Life. As this Court stated in Cuatro v. Court of
granted even before the defendant is summoned or is Appeals:4
heard from.2 The rationale behind this rule was stated by
the Court in this wise: Moreover, an attachment may not be dissolved by
a showing of its irregular or improper issuance if it
A preliminary attachment may be defined, is upon a ground which is at the same time the
paraphrasing the Rules of Court, as the provisional applicant's cause of action in the main case since an
remedy in virtue of which a plaintiff or other anomalous situation would result if the issues of
proper party may, at the commencement of the the main case would be ventilated and resolved in a
action or any time thereafter, have the property of mere hearing of the motion (Davao Light and
the adverse party taken into the custody of the Power Co., Inc. vs. Court of Appeals, supra, The
court as security for the satisfaction of any Consolidated Bank and Trust Corp. (Solidbank) vs.
judgment that may be recovered. It is a remedy Court of Appeals, 197 SCRA 663 [1991]).
which is purely statutory in respect of which the
law requires a strict construction of the provisions In the present case, one of the allegation in
granting it. Withal no principle, statutory or petitioner's complaint below is that the defendant
jurisprudential, prohibits its issuance by any court spouses induced the plaintiff to grant the loan by
before acquisition of jurisdiction over the person issuing postdated checks to cover the installment
of the defendant. payments and a separate set of postdated checks
for payment of the stipulated interest (Annex "B").
Rule 57 in fact speaks of the grant of the remedy The issue of fraud, then, is clearly within the
"at the commencement of the action or at any competence of the lower court in the main action.5
time thereafter." The phrase "at the
commencement of the action," obviously refers to The fact that a criminal complaint for estafa filed by Sun
the date of the filing of the complaint which, as Life against the petitioners was dismissed by the
abovepointed out, its the date that marks "the Provincial Prosecutor of Rizal for Makati on April 21,
commencement of the action;" and the reference 1992 and was upheld by the Provincial Prosecutor on
plainly is to a time before summons is served on July 13, 1992 is of no moment since the same can be

Banking 1st Set of Cases | 125


indicative only of the absence of criminal liability, but properties beyond the reach of the plaintiff while the
not of civil liability. Besides, Sun Life had elevated the latter is trying to serve the summons and the writ anew.
case for review to the Department of Justice, where the By the time the plaintiff may have caused the service of
case is presently pending. summons and the writ, there might not be any property
of the defendant left to attach.
Finally, petitioners argue that the enforcement of the
writ was invalid since it undisputedly preceded the Second, the court eventually acquired jurisdiction over
actual service of summons by six days at most. the petitioners six days later. To nullify the notices of
Petitioners cite the decisions in Sievert vs. Court of garnishment issued prior thereto would again open the
Appeals, et al.6 and BAC Manufacturing and Sales possibility that petitioners would transfer the garnished
Corp. vs. Court of Appeals, et al.,7 wherein this Court monies while Sun Life applied for new notices of
held that enforcement of the writ of attachment can not garnishment.
bind the defendant in view of the failure of the trial
court to acquire jurisdiction over the defendant through Third, the ease by which a writ of attachment can be
either summons or his voluntary appearance. obtained is counter-balanced by the ease by which the
same can be discharged: the defendant can either make
We do not agree entirely with petitioners. True, this a cash deposit or post a counter-bond equivalent to the
Court had held in a recent decision that the enforcement value of the property attached. 10 The petitioners herein
of writ of attachment may not validly be effected until tried to have the writ of attachment discharged by
and unless proceeded or contemporaneously posting a counter-bond, the same was denied by
accompanied by service of summons.8 respondent Judge on the ground that the amount of the
counter-bond was less than that of Sun Life's bond.
But we must distinguish the case at bar from
the Sievert and BAC Manufacturing cases. In those two II.
cases, summons was never served upon the defendants.
The plaintiffs therein did not even attempt to cause Petitioners' second ground assail the acts of respondent
service of summons upon the defendants, right up to the Judge in allowing the examination of Urban Banks'
time the cases went up to this Court. This is not true in records and in ordering that the examination of the bank
the case at bar. The records reveal that Sheriff Flores records of BPI and PNB as invalid since no notice of said
and Sun Life did attempt a contemporaneous service of examinations were ever given them. Sun Life grounded
both summons and the writ of attachment on January 3, its requests for the examination of the bank accounts on
1992, but we stymied by the absence of a responsible Section 10, Rule 57 of the Rules of Court, which
officer in petitioners' offices. Note is taken of the fact provided, to wit:
that petitioners Oate and Econ Holdings admitted in
their answer9 that the offices of both Brunner Sec. 10. Examination of party whose property is
Development Corporation and Econ Holdings were attached and persons indebted to him or controlling
located at the same address and that petitioner Oate is his property; delivery of property to officer. Any
the President of Econ Holdings while petitioner Dio is person owing debts to the party whose property is
the President of Brunner Development Corporation as attached or having in his possession or under his
well as a stockholder and director of Econ Holdings. control any credit or other personal property
belonging to such party, may be required to attend
Thus, an exception to the established rule on the before the court in which the action is pending, or
enforcement of the writ of attachment can be made before a commissioner appointed by the court and be
where a previous attempt to serve the summons and the examined on oath respecting the same. The party
writ of attachment failed due to factors beyond the whose property is attached may also be required to
control of either the plaintiff or the process server, attend for the purpose of giving information
provided that such service is effected within a respecting his property, and may be examined on
reasonable period thereafter. oath. The court may, after such examination, order
personal property capable of manual delivery
Several reasons can be given for the exception. First, belonging to him, in the possession of the person so
there is a possibility that a defendant, having been required to attend before the court, to be delivered
alerted of plaintiffs action by the attempted service of to the clerk or court, sheriff, or other proper officer
summons and the writ of attachment, would put his on such terms as may be just, having reference to any

Banking 1st Set of Cases | 126


lien thereon or claim against the same, to await the On September 21, 1993, Citibank filed a complaint
judgment in the action. for violation of section 31,[4] in relation to section
144[5] of the Corporation Code against two (2) of its
It is clear from the foregoing provision that notice need officers, Dante L. Santos and Marilou Genuino. Attached
only be given to the garnishee, but the person who is to the complaint was an affidavit[6] executed by private
holding property or credits belonging to the defendant. respondent Vic Lim, a vice-president of Citibank.
The provision does not require that notice be furnished Pertinent portions of his affidavit are quoted hereunder:
the defendant himself, except when there is a need to
examine said defendant "for the purpose of giving 2.1 Sometime this year, the higher management of
information respecting his property. Citibank, N.A. assigned me to assist in the investigation
of certain anomalous/highly irregular activities of the
Furthermore, Section 10 Rule 57 is not incompatible Treasurer of the Global Consumer Group of the bank,
with Republic Act No. 1405, as amended, "An Act namely, Dante L. Santos and the Asst. Vice President in
Prohibiting Disclosure or Inquiry Into, Deposits With Any the office of Mr. Dante L. Santos, namely Ms. Marilou
Banking Institution and Providing Penalty Therefore," for (also called Malou) Genuino. Ms. Marilou Genuino apart
Section 2 therefore provides an exception "in cases from being an Assistant Vice President in the office of
where the money deposited or invested is the subject Mr. Dante L. Santos also performed the duties of an
matter of the litigation." Account Officer. An Account Officer in the office of Mr.
Dante L. Santos personally attends to clients of the bank
The examination of the bank records is not a fishing in the effort to persuade clients to place and keep their
expedition, but rather a method by which Sun Life could monies in the products of Citibank, NA., such as peso
trace the proceeds of the check it paid to petitioners. and dollar deposits, mortgage backed securities and
money placements, among others.
WHEREFORE, the instant petitions are hereby
DISMISSED. The temporary restraining order issued on xxx xxx xxx
June 28, 1993 is hereby lifted.
4.1 The investigation in which I was asked to participate
SO ORDERED. was undertaken because the bank had found
records/evidence showing that Mr. Dante L. Santos and
Narvasa, C.J., Padilla, Regalado and Puno, JJ., concur. Ms. Malou Genuino, contrary to their disclosures and
the aforementioned bank policy, appeared to have been
actively engaged in business endeavors that were in
[G.R. No. 128996. February 15, 2002] conflict with the business of the bank. It was found that
CARMEN LL. INTENGAN, ROSARIO LL. NERI, and RITA P. with the use of two (2) companies in which they have
BRAWNER, petitioners, vs. COURT OF APPEALS, personal financial interest, namely Torrance
DEPARTMENT OF JUSTICE, AZIZ RAJKOTWALA, Development Corporation and Global Pacific
WILLIAM FERGUSON, JOVEN REYES, and VIC Corporation, they managed or caused existing bank
LIM, respondents. clients/depositors to divert their money from Citibank,
N.A., such as those placed in peso and dollar deposits
Before us is a petition for review on certiorari, and money placements, to products offered by other
seeking the reversal of the Decision[1] dated July 8, companies that were commanding higher rate of yields.
1996 of the former Fifteenth Division[2] of the Court of This was done by first transferring bank clients monies to
Appeals in CA-G.R. SP No. 37577 as well as its Torrance and Global which in turn placed the monies of
Resolution[3] dated April 16, 1997 denying petitioners the bank clients in securities, shares of stock and other
motion for reconsideration. The appellate court, in its certificates of third parties. It also appeared that out of
Decision, sustained a resolution of the Department of these transactions, Mr. Dante L. Santos and Ms. Marilou
Justice ordering the withdrawal of informations for Genuino derived substantial financial gains.
violation of Republic Act No. 1405 against private
respondents. 5.1 In the course of the investigation, I was able to
determine that the bank clients which Mr. Santos and
Ms. Genuino helped/caused to divert their
deposits/money placements with Citibank, NA.
The facts are: to Torrance and Global (their family corporations) for

Banking 1st Set of Cases | 127


subsequent investment in securities, shares of stocks First step: Santos and/or Genuino would tell the bank
and debt papers in other companies were as follows: client that they knew of financial products of other
companies that were yielding higher rates of interests in
xxx which the bank client can place his money. Acting on this
b) Carmen Intengan information, the bank client would then authorize the
xxx transfer of his funds from his Citibank account to the
d) Rosario Neri Citibank account of either Torrance or Global.
xxx
i) Rita Brawner The transfer of the Citibank clients deposits was done
through the accomplishment of either an Application For
All the above persons/parties have long standing Managers Checks or a Term Investment Application in
accounts with Citibank, N.A. in savings/dollar deposits favor of Global or Torrance that was prepared/filed by
and/or in trust accounts and/or money placements. Genuino herself.

As evidence, Lim annexed bank records purporting Upon approval of the Application for Managers
to establish the deception practiced by Santos and Checks or Term Investment Application, the funds of the
Genuino. Some of the documents pertained to the dollar bank client covered thereof were then deposited in the
deposits of petitioners Carmen Ll. Intengan, Rosario Ll. Citibank accounts of Torrance and/or Global.
Neri, and Rita P. Brawner, as follows:
Second step: Once the said fund transfers had been
a) Annex A-6[7] - an Application for Money
effected, Global and/or Torrance would then issue its/
Transfer in the amount of US $140,000.00,
their checks drawn against its/their Citibank accounts in
executed by Intengan in favor of Citibank $
favor of the other companies whose financial products,
S/A No. 24367796, to be debited from her
such as securities, shares of stocks and other certificates,
Account No. 22543341;
were offering higher yields.
b) Annex A-7[8] - a Money Transfer Slip in the
amount of US $45,996.30, executed by Third step: On maturity date(s) of the placements made
Brawner in favor of Citibank $ S/A No. by Torrance and/or Global in the other companies, using
24367796, to be debited from her Account the monies of the Citibank client, the other companies
No. 22543236; and would then. return the placements to Global
and/or Torrance with the corresponding interests
c) Annex A-9[9] - an Application for Money
earned.
Transfer in the amount of US $100,000.00,
executed by Neri in favor of Citibank $ S/A
Fourth step: Upon receipt by Global and/or Torrance of
No. 24367796, to be debited from her
the remittances from the other companies, Global
Account No. 24501018.
and/or Torrance would then issue its/their own checks
In turn, private respondent Joven Reyes, vice- drawn against their Citibank accounts in favor
president/business manager of the Global Consumer of Santos and Genuino.
Banking Group of Citibank, admits to having authorized
Lim to state the names of the clients involved and to The amounts covered by the checks represent the
attach the pertinent bank records, including those of shares of Santos and Genuino in the margins Global
petitioners.[10] He states that private respondents Aziz and/or Torrance had realized out of the placements
Rajkotwala and William Ferguson, Citibank, N.A. Global [using the diverted monies of the Citibank clients] made
Consumer Banking Country Business Manager and with the other companies.
Country Corporate Officer, respectively, had no hand in
the disclosure, and that he did so upon the advice of Fifth step: At the same time, Global
counsel. and/or Torrance would also issue its/their check(s)
drawn against its/their Citibank accounts in favor of the
In his memorandum, the Solicitor General
bank client.
described the scheme as having been conducted in this
manner:
The check(s) cover the principal amount (or parts
thereof) which the Citibank client had previously
transferred, with the help of Santos and/or Genuino,

Banking 1st Set of Cases | 128


from his Citibank account to the Citibank account(s) of Code in acquiring any interest adverse to the
Global and/or Torrance for placement in the other corporation in respect of any matter which has been
companies, plus the interests or earnings his placements reposed in him in confidence. To substantiate the
in other companies had made less the spreads made by alleged scheme of Santos and Genuino, private
Global, Torrance, Santos and Genuino. respondents had to present the records of the monies
which were manipulated by the two officers which
The complaints which were docketed as I.S. Nos. included the bank records of herein petitioners.
93-9969, 93-10058 and 94-1215 were subsequently
amended to include a charge of estafa under Article 315, Although petitioners were not the parties involved in IS.
paragraph 1(b)[11] of the Revised Penal Code. No. 93-8469, their accounts were relevant to the
complete prosecution of the case against Santos and
As an incident to the foregoing, petitioners filed
Genuino and the respondent DOJ properly ruled that the
respective motions for the exclusion and physical
disclosure of the same falls under the last exception of
withdrawal of their bank records that were attached to
R.A. No. 1405. That ruling is consistent with the principle
Lims affidavit.
laid down in the case of Mellon Bank, N.A. vs. Magsino
In due time, Lim and Reyes filed their respective (190 SCRA 633) where the Supreme Court allowed the
counter-affidavits.[12] In separate Memoranda testimonies on the bank deposits of someone not a
dated March 8, 1994 and March 15, 1994 2nd Assistant party to the case as it found that said bank deposits
Provincial Prosecutor Hermino T. Ubana, Sr. were material or relevant to the allegations in the
recommended the dismissal of petitioners complaints. complaint. Significantly, therefore, as long as the bank
The recommendation was overruled by Provincial deposits are material to the case, although not
Prosecutor Mauro M. Castro who, in a Resolution necessarily the direct subject matter thereof, a
dated August 18, 1994,[13] directed the filing of disclosure of the same is proper and falls within the
informations against private respondents for alleged scope of the exceptions provided for by R.A. No. 1405.
violation of Republic Act No. 1405, otherwise known as
the Bank Secrecy Law. xxx xxx xxx
Private respondents counsel then filed an appeal
Moreover, the language of the law itself is clear and
before the Department of Justice (DOJ). On November
cannot be subject to different interpretations. A reading
17, 1994, then DOJ Secretary Franklin M. Drilon issued a
of the provision itself would readily reveal that the
Resolution[14] ordering, inter alia, the withdrawal of the
exception or in cases where the money deposited or
aforesaid informations against private respondents.
invested is the subject matter of the litigation is not
Petitioners motion for reconsideration[15] was denied by
qualified by the phrase upon order of competent Court
DOJ Acting Secretary Demetrio G. Demetria in a
which refers only to cases of bribery or dereliction of
Resolution dated March 6, 1995.[16]
duty of public officials.
Initially, petitioners sought the reversal of the DOJ
resolutions via a petition Petitioners motion for reconsideration was similarly
for certiorari and mandamus filed with this Court, denied in a Resolution dated April 16, 1997. Appeal was
docketed as G.R. No. 119999-120001. However, the made in due time to this Court.
former First Division of this Court, in a Resolution
The instant petition was actually denied by the
dated June 5, 1995,[17] referred the matter to the Court
former Third Division of this Court in a
of the Appeals, on the basis of the latter tribunals
Resolution[18] dated July 16, 1997, on the ground that
concurrent jurisdiction to issue the extraordinary writs
petitioners had failed to show that a reversible error had
therein prayed for. The petition was docketed as CA-G.R.
been committed. On motion, however, the petition was
SP No. 37577 in the Court of Appeals.
reinstated[19] and eventually given due course.[20]
On July 8, 1996, the Court of Appeals rendered
In assailing the appellate courts findings, petitioners
judgment dismissing the petition in CA-G.R. SP No.
assert that the disclosure of their bank records was
37577 and declared therein, as follows:
unwarranted and illegal for the following reasons:
Clearly, the disclosure of petitioners deposits was I.
necessary to establish the allegation that Santos and
Genuino had violated Section 31 of the Corporation

Banking 1st Set of Cases | 129


IN BLATANT VIOLATION OF R.A. NO. 1405, PRIVATE country - from the parties respective counsel, the
RESPONDENTS ILLEGALLY MADE DISCLOSURES OF Provincial Prosecutor, the Department of Justice, the
PETITIONERS CONFIDENTIAL BANK DEPOSITS FOR Solicitor General, and the Court of Appeals - all appear
THEIR SELFISH ENDS IN PROSECUTING THEIR to have overlooked a single fact which dictates the
COMPLAINT IN IS. NO. 93-8469 THAT DID NOT outcome of the entire controversy. A circumspect review
INVOLVE PETITIONERS. of the record shows us the reason. The accounts in
question are U.S. dollar deposits; consequently, the
II. applicable law is not Republic Act No. 1405 but Republic
Act (RA) No. 6426, known as the Foreign Currency
PRIVATE RESPONDENTS DISCLOSURES DO NOT FALL Deposit Act of the Philippines, section 8 of which
UNDER THE FOURTH EXCEPTION OF R.A. NO. 1405 provides:
(i.e., in cases where the money deposited or
invested is the subject matter of the litigation), Sec. 8. Secrecy of Foreign Currency Deposits.- All foreign
NOR UNDER ANY OTHER EXCEPTION: currency deposits authorized under this Act, as amended
by Presidential Decree No. 1035, as well as foreign
(1) currency deposits authorized under Presidential Decree
No. 1034, are hereby declared as and considered of an
PETITIONERS DEPOSITS ARE NOT INVOLVED IN absolutely confidential nature and, except upon the
ANY LITIGATION BETWEEN PETITIONERS AND written permission of the depositor, in no instance shall
RESPONDENTS. THERE IS NO LITIGATION such foreign currency deposits be examined, inquired or
BETWEEN THE PARTIES, MUCH LESS ONE looked into by any person, government official bureau or
INVOLVING PETITIONERS DEPOSITS AS THE office whether judicial or administrative or legislative or
SUBJECT MATTER THEREOF. any other entity whether public or private: Provided,
however, that said foreign currency deposits shall be
(2) exempt from attachment, garnishment, or any other
order or process of any court, legislative body,
EVEN ASSUMING ARGUENDO THAT THERE IS A government agency or any administrative body
LITIGATION INVOLVING PETITIONERS whatsoever.[21] (italics supplied)
DEPOSITS AS THE SUBJECT MATTER THEREOF,
PRIVATE RESPONDENTS DISCLOSURES OF Thus, under R.A. No. 6426 there is only
PETITIONERS DEPOSITS ARE NEVERTHELESS a single exception to the secrecy of foreign currency
ILLEGAL FOR WANT OF THE REQUISITE COURT deposits, that is, disclosure is allowed only upon the
ORDER, IN VIOLATION OF R.A. NO. 1405. written permission of the depositor. Incidentally, the
acts of private respondents complained of happened
III. before the enactment on September 29, 2001 of R.A.
No. 9160 otherwise known as the Anti-Money
THEREFORE, PETITIONERS ARE ENTITLED TO Laundering Act of 2001.
PROSECUTE PRIVATE RESPONDENTS FOR A case for violation of Republic Act No. 6426 should
VIOLATIONS OF R.A. NO. 1405 FOR HAVING have been the proper case brought against private
ILLEGALLY DISCLOSED PETITIONERS CONFIDENTIAL respondents. Private respondents Lim and Reyes
BANK DEPOSITS AND RECORDS IN IS. NO. 93-8469. admitted that they had disclosed details of petitioners
dollar deposits without the latters written permission. It
Apart from the reversal of the decision and does not matter if that such disclosure was necessary to
resolution of the appellate court as well as the establish Citibanks case against Dante L. Santos and
resolutions of the Department of Justice, petitioners Marilou Genuino. Lims act of disclosing details of
pray that the latter agency be directed to issue a petitioners bank records regarding their foreign currency
resolution ordering the Provincial Prosecutor of Rizal to deposits, with the authority of Reyes, would appear to
file the corresponding informations for violation of belong to that species of criminal acts punishable by
Republic Act No. 1405 against private respondents. special laws, called malum prohibitum. In this regard, it
The petition is not meritorious. has been held that:

Actually, this case should have been studied more


carefully by all concerned. The finest legal minds in the

Banking 1st Set of Cases | 130


While it is true that, as a rule and on principles of after twenty years: Provided, however, That all offences
abstract justice, men are not and should not be held against any law or part of law administered by the
criminally responsible for acts committed by them Bureau of Internal Revenue shall prescribe after five
without guilty knowledge and criminal or at least evil years. Violations penalized by municipal ordinances shall
intent xxx, the courts have always recognized the power prescribe after two months.
of the legislature, on grounds of public policy and
compelled by necessity, the great master of things, to Violations of the regulations or conditions of certificates
forbid in a limited class of cases the doing of certain acts, of public convenience issued by the Public Service
and to make their commission criminal without regard to Commission shall prescribe after two months.
the intent of the doer. xxx In such cases no judicial
authority has the power to require, in the enforcement SEC. 2. Prescription shall begin to run from the day of
of the law, such knowledge or motive to be shown. As the commission of the violation of the law, and if the
was said in the case of State vs. McBrayer xxx: same be not known at the time, from the discovery
thereof and the institution of judicial proceedings for its
It is a mistaken notion that positive, willful intent, as investigation and punishment.
distinguished from a mere intent, to violate the criminal
law, is an essential ingredient in every criminal offense, The prescription shall be interrupted when proceedings
and that where there is the absence of such intent there are instituted against the guilty person, and shall begin
is no offense; this is especially so as to statutory to run again if the proceedings are dismissed for reasons
offenses. When the statute plainly forbids an act to be not constituting jeopardy.
done, and it is done by some person, the law implies
conclusively the guilty intent, although the offender was A violation of Republic Act No. 6426 shall subject
honestly mistaken as to the meaning of the law he the offender to imprisonment of not less than one year
violates. When the language is plain and positive, and nor more than five years, or by a fine of not less than
the offense is not made to depend upon the positive, five thousand pesos nor more than twenty-five thousand
willful intent and purpose, nothing is left to pesos, or both.[24] Applying Act No. 3326, the offense
interpretation.[22] prescribes in eight years.[25] Per available records, private
respondents may no longer be haled before the courts
Ordinarily, the dismissal of the instant petition for violation of Republic Act No. 6426. Private
would have been without prejudice to the filing of the respondent Vic Lim made the disclosure in September of
proper charges against private respondents. The matter 1993 in his affidavit submitted before the Provincial
would have ended here were it not for the intervention Fiscal.[26] In her complaint-affidavit,[27] Intengan stated
of time, specifically the lapse thereof. So as not to that she learned of the revelation of the details of her
unduly prolong the settlement of the case, we are foreign currency bank account on October 14, 1993. On
constrained to rule on a material issue even though it the other hand, Neri asserts that she discovered the
was not raised by the parties. We refer to the issue of disclosure on October 24, 1993.[28] As to Brawner, the
prescription. material date is January 5, 1994.[29] Based on any of
these dates, prescription has set in.[30]
Republic Act No. 6426 being a special law, the
provisions of Act No. 3326,[23] as amended by Act No. The filing of the complaint or information in the
3763, are applicable: case at bar for alleged violation of Republic Act No. 1405
did not have the effect of tolling the prescriptive period.
SECTION 1. Violations penalized by special acts shall, For it is the filing of the complaint or information
unless otherwise provided in such acts, prescribe in corresponding to the correct offense which produces
accordance with the following rules: (a) after a year for that effect.[31]
offences punished only by a fine or by imprisonment for
It may well be argued that the foregoing
not more than one month, or both: (b) after four years
disquisition would leave petitioners with no remedy in
for those punished by imprisonment for more than one
law. We point out, however, that the confidentiality of
month, but less than two years; (c) after eight years for
foreign currency deposits mandated by Republic Act No.
those punished by imprisonment for two years or more,
6426, as amended by Presidential Decree No. 1246,
but less than six years; and (d) after twelve years for any
came into effect as far back as 1977. Hence, ignorance
other offence punished by imprisonment for six years or
thereof cannot be pretended. On one hand, the
more, except the crime of treason, which shall prescribe
existence of laws is a matter of mandatory judicial

Banking 1st Set of Cases | 131


notice;[32] on the other, ignorantia legis non of the benefits properly accruing to the petitioner and
excusat.[33] Even during the pendency of this appeal, award such benefits to her.
nothing prevented the petitioners from filing a
complaint charging the correct offense against private SO ORDERED.
respondents. This was not done, as everyone involved
was content to submit the case on the basis of an The undisputed facts as found by the Court of
alleged violation of Republic Act No. 1405 (Bank Secrecy Appeals are as follows:
Law), however, incorrectly invoked.[34]
Records show that Efrenia D. Celoso was a
WHEREFORE, the petition is hereby DENIED. No classroom teacher assigned by the Department of
pronouncement as to costs. Education, Culture and Sports (DECS) in Panit-an,
Capiz. She had been in the government teaching service
SO ORDERED.
since 1951 up to November, 1985 when she retired (at
Bellosillo, (Chairman), Mendoza, 55) due to poor health.
Quisumbing, and Buena, JJ., concur.
Sometime in March 1982, while she was teaching her
Grade I pupils the proper way of scrubbing and sweeping
the floor, she accidentally slipped. Her back hit the edge
of a desk. She later complained of weak lower
extremities and difficulty in walking.
[G.R. No. 116015.* July 31, 1996]
On March 20, 1982, she underwent an x-ray examination
at the St. Anthonys Hospital In Roxas City. Results of the
GOVERNMENT SERVICE INSURANCE SYSTEM examination revealed that she had pulmonary
(GSIS), petitioner, vs. COURT OF APPEALS and tuberculosis and a compression fracture in the spine
EFRENIA D. CELOSO, respondents. with sclerosis. After a second x-ray examination, she was
found to be suffering from Potts disease[2] and was
DECISION advised to undergo an operation.

TORRES, JR., J.: On August 22, 1985, she filed with the GSIS a claim for
disability benefits under P.D. 626, as amended.[3] The
A teacher is likened to that of a candle which GSIS denied the claim by reason of prescription, holding
consumes itself in the process of giving light. The good that the petitioner should have filed her claim within
teacher not only gives the light of knowledge but also one year from the occurrence of the contingency in
touches the heart serving not only the lowly and the March 1982.
least, but even the lost.
This case is about such a teacher who was disabled The petitioner appealed to the ECC. In its resolution
in the process of giving light. dated January 11, 1989, the ECC reversed the decision of
the GSIS and ruled that the application for leave of
Dissatisfied with the decision[1] of the Court of absence of herein petitioner with the Department of
Appeals in CA-G.R. SP No. 29930 promulgated on May Education on July 19, 1982 is considered a constructive
17, 1994, the Government Service Insurance System filing of the compensation claim under our rules.
(GSIS) comes to this court by way of a petition for review Pursuant to the ECC resolution, the GSIS awarded
on certiorariimpugning the aforesaid decision the petitioner permanent partial disability
dispositive portion of which reads: benefits corresponding to 45 months.

WHEREFORE, the petition is hereby given due course In November, 1985, the petitioner underwent a surgical
and is GRANTED. The assailed decision of respondent operation on her spine. Her condition worsened.
ECC affirming the decision of the GSIS is
REVERSED. Petitioners permanent partial disability is On June 28, 1989, the petitioner filed with the GSIS a
converted into permanent total disability. The ECC and petition for conversion praying that her disability status
GSIS are ordered to make the corresponding adjustment be changed from permanent partial disability to

Banking 1st Set of Cases | 132


permanent total disability, with the corresponding Minimal and later on she was found to be suffering from
adjustment of her disability benefits.[4] Potts Disease (Tuberculosis Spondylitis); that these
ailments were the basis for ECC in awarding her the 45
However, the GSIS did not give the petition due months permanent partial disability benefits; that she
course, thus: cannot further be entitled to her claim for conversion to
permanent total disability; that for any progression of a
A re-evaluation of your claim was undertaken by our retired employees condition after the date of her
Medical Evaluation and Underwriter Group. However, retirement is no longer within the compensatory
based on the extent of your disability and per decision of coverage of P.D. 626, since severance of an employee-
the Employees Compensation Commission, the employer relationship result to the release of the State
Permanent Partial Disability granted you for forty-five Insurance Fund from any liability in the event of sickness
months from July 5, 1982 to April 30, 1986 constitutes and resulting disability or death after such retirement or
the maximum benefits due you based on ECC Rating separation from the service; and that having been
Schedule for non-scheduled diseases. granted the maximum benefits commensurate to the
degree of her disability at retirement date, she is no
Efrenia Celoso then filed a petition with the Court longer entitled to additional compensation benefits.
of Appeals which decided the case in her favor. We are not persuaded by petitioners contentions.
Hence, this petition. Petitioners contention that an injury or an illness
Petitioner GSIS ascribes to the respondent court the that goes beyond the period of 120 days may still be
following assignment of errors: considered permanent partial disability does not find
support in the provision (Sec. 2, Rule X of the Rules on
1. That the respondent Honorable Court of Employees Compensation) it cites, and which we quote:
Appeals gravely erred in giving due course
to the petition of respondent Efrenia and The income benefit shall be paid beginning with the first
reversing the decision of herein petitioner day of disability. If caused by an injury, it shall not be
GSIS. paid longer than 120 consecutive days except where
2. That the Honorable Court of Appeals erred such injury still require medical attendance beyond 120
in granting the request for conversion of days, in which case benefit for temporary total disability
petitioners disability from permanent shall be paid.
partial disability to permanent total
disability. Disability should not be understood more on its
medical significance but on the loss of earning
3. That the decision of the respondent Court of capacity.[5] Permanent total disability means disablement
Appeals is contrary to law and applicable of an employee to earn wages in the same kind of work,
jurisprudence. or work of a similar nature that she was trained for or
Being interrelated, the assignment of errors will be accustomed to perform, or any kind of work which a
discussed jointly. person of her mentality and attainment could do. It does
not mean absolute helplessness.[6] In the case at bar,
The question to be resolved in this case is whether with more reason private respondent should be granted
or not private respondent Efrenia Celosos request for permanent total disability benefits. Attached with
the conversion of her permanent partial disability to petitioners petition for conversion of her permanent
permanent total disability should be granted. disability status is the affidavit dated January 9, 1989 of
We rule for private respondent. Elito L. Lobereza, M.D., Chief Hospital II, Bailan District
Hospital, Bailan, Pontevedra, Capiz, declaring:
Petitioner GSIS contends: that the period of 120
days is not the determining factor for an injury or an 1. That I had examined Mrs. Efrenia D. Celoso, a retired
illness to be pronounced as permanent total disability; Permanent Elementary Grades Teacher of the District of
that an injury or an illness that goes beyond the said Panit-an, Division of Capiz in her residence this January
period of 120 days may still be considered permanent 4, 1989.
partial disability pursuant to Sec. 2, Rule X of the Rules
on Employees Compensation, as amended; that the 2. That Mrs. Celoso is incapable of standing and sitting
ailment of herein respondent was found to be PTB, without any assistance.

Banking 1st Set of Cases | 133


3. That her present health situation is very poor being more liberal in the interpretation and enforcement of
pale and undernourished. laws intended for the benefit of government employees.
As stated earlier in Bejerano, we held with unfailing
4. That due to the compression fracture of her body T12
clarity that
with anterior sclerosis of the involve vertebrae and
minimal compression deformity of the body L1 which
It is also of importance to note that petitioner was
was caused by a fall hitting her back on the side of the
forced to retire at the age of 62 because of his physical
desk inside her classroom demonstrating to her pupils
condition. This, again, is another indication that
the correct way of scrubbing and sweeping the floor last
petitioners disability is permanent and total. As held by
1982 became worse and progressive in nature that an
this Court, the fact of an employees disability is placed
operation was necessary as advised by her
beyond question with the approval of the employees
physician. Operation was performed at the National
optional retirement, for such is authorized only when
Orthopedic Hospital, Manila.
the employee is physically incapable to render sound
and efficient service x x x Finally, denying petitioners
5. That severe pain in the lumbar area and affected parts
permanent total disability benefit, who for more than
of her body incapacitates her to do any work nor help
twenty (20) years had rendered his best service
herself as she is bedridden.
unblemished and only because his ailments forced him
to retire, would subvert the very essence of the
6. Weakness of both lower extremities had kept her to
Workmens Compensation Act to implement the social
stay on bed for several years.
justice provision of the Constitution.[11]
7. That Mrs. Efrenia D. Celosos serious ailment will keep
In the case at bar, denying private respondents
her totally and permanently disabled and the remaining
permanent total disability benefit, who from 1951 to
days of her life is not certain as presently diagnosed.
1985 had been in the government teaching service, or
for more than 34 years had rendered dedicated and
8. That by virtue of this presents, I hereby affirm that
unselfish service and only because her ailments forced
Mrs. Efrenia D. Celoso, is totally and permanently her to retire, would be contrary to the spirit of the Labor
disabled.
Code[12] in line with the social justice principle enshrined
in the Constitution.
A persons disability might not emerge at one
precise moment in time but rather over a period of While petitioner posits the view that it cannot allow
time.[7] It is possible that an injury which at first was its fund to be imperiled by reason of pity or
considered to be temporary may later on become mercy,[13] a fortiori, this court is also aware that a
permanent or one who suffers a partial disability miscarriage of mercy is as much to be guarded against as
becomes totally and permanently disabled from the a miscarriage of justice.
same cause.[8] While private respondent was awarded
ACCORDINGLY, the instant petition is hereby
the benefits commensurate to the degree of her physical
DENIED for lack of merit and the assailed decision of the
condition at the time of her retirement, it is however not
Court of Appeals AFFIRMED in toto.
disputed by petitioner GSIS that private respondent later
on became permanently and totally disabled. SO ORDERED.
Where an employee is constrained to retire at an Regalado (Chairman), Romero, Puno, and Mendoza,
early age due to his illness and the illness persists even JJ., concur.
after retirement, resulting in his continued
unemployment, such a condition amounts to total
disability, which should entitle him to the maximum G.R. No. L-18343 September 30, 1965
benefits allowed by law.[9]
PHILIPPINE NATIONAL BANK and EDUARDO Z.
It is interesting to note that the Solicitor General
ROMUALDEZ, in his capacity as President of the Philippine
filed a manifestation for both the GSIS and the ECC, in
National Bank, plaintiffs-appellants,
the proceedings before the Court of Appeals,[10] stating
vs.
that Efrenia Celoso is in fact permanently and totally
EMILIO A. GANCAYCO and FLORENTINO FLOR, Special
disabled and that the ECC and GSIS should have been

Banking 1st Set of Cases | 134


Prosecutors of the Dept. of Justice, defendants- that plaintiff Eduardo Z. Romualdez, as bank president,
appellees. produce the records or he would be prosecuted for
contempt. The law invoked by the defendant states:
Ramon B. de los Reyes and Zoilo P. Perlas for plaintiffs-
appellants. SEC. 8. Dismissal due to unexplained wealth. If
Villamor & Gancayco for defendants-appellees. in accordance with the provisions of Republic
Act Numbered One thousand three hundred
REGALA, J.: seventy-nine, a public official has been found to
have acquired during his incumbency, whether
The principal question presented in this case is whether in his name or in the name of other persons, an
a bank can be compelled to disclose the records of amount of property and/or money manifestly
accounts of a depositor who is under investigation for out of proportion to his salary and to his other
unexplained wealth. lawful income, that fact shall be a ground for
dismissal or removal. Properties in the name of
This question arose when defendants Emilio A. Gancayco the spouse and unmarried children of such
and Florentino Flor, as special prosecutors of the public official may be taken into consideration,
Department of Justice, required the plaintiff Philippine when their acquisition through legitimate means
National Bank to produce at a hearing to be held at 10 cannot be satisfactorily shown. Bank deposits
a.m. on February 20, 1961 the records of the bank shall be taken into consideration in the
deposits of Ernesto T. Jimenez, former administrator of enforcement of this section, notwithstanding
the Agricultural Credit and Cooperative Administration, any provision of law to the contrary.
who was then under investigation for unexplained
wealth. In declining to reveal its records, the plaintiff Because of the threat of prosecution, plaintiffs filed an
bank invoked Republic Act No. 1405 which provides: action for declaratory judgment in the Manila Court of
First Instance. After trial, during which Senator Arturo M.
SEC. 2. All deposits of whatever nature with Tolentino, author of the Anti-Graft and Corrupt Practices
banks or banking institutions in the Philippines Act testified, the court rendered judgment, sustaining
including investments in bonds issued by the the power of the defendants to compel the disclosure of
Government of the Philippines, its political bank accounts of ACCFA Administrator Jimenez. The
subdivisions and its instrumentalities, are hereby court said that, by enacting section 8 of, the Anti-Graft
considered as of an absolutely confidential and Corrupt Practices Act, Congress clearly intended to
nature and may not be examined, inquired or provide an additional ground for the examination of
looked into by any person, government official, bank deposits. Without such provision, the court added
bureau or office, except upon written prosecutors would be hampered if not altogether
permission of the depositor, or in cases of frustrated in the prosecution of those charged with
impeachment, or upon order of a competent having acquired unexplained wealth while in public
court in cases of bribery or dereliction of duty of office.1awphl.nt
public officials, or in cases where the money
deposited or invested is the subject matter of From that judgment, plaintiffs appealed to this Court. In
the litigation. brief, plaintiffs' position is that section 8 of the Anti-
Graft Law "simply means that such bank deposits may be
The plaintiff bank also called attention to the penal included or added to the assets of the Government
provision of the law which reads: official or employee for the purpose of computing his
unexplained wealth if and when the same are discovered
SEC. 5. Any violation of this law will subject the or revealed in the manner authorized by Section 2 of
offender upon conviction, to an imprisonment of Republic Act 1405, which are (1) Upon written
not more than five years or a fine of not more permission of the depositor; (2) In cases of
than twenty thousand pesos or both, in the impeachment; (3) Upon order of a competent court in
discretion of the court. cases of bribery or dereliction of duty of public officials;
and (4) In cases where the money deposited or invested
On the other hand, the defendants cited the Anti-Graft is the subject matter of the litigation."
and Corrupt Practices Act (Republic Act No. 3019) in
support of their claim of authority and demanded anew

Banking 1st Set of Cases | 135


In support of their position, plaintiffs contend, first, that The result is that although sec. 54 [Rev. Election
the Anti-Graft Law (which took effect on August 17, Code] prohibits a classified civil service
1960) is a general law which cannot be deemed to have employee from aiding any candidate, sec. 29
impliedly repealed section 2 of Republic Act No. 1405 [Civil Service Act of 1959] allows such classified
(which took effect on Sept. 9, 1955), because of the rule employee to express his views on current
that repeals by implication are not favored. Second, they political problems or issues, or to mention the
argue that to construe section 8 of the Anti-Graft Law as name of his candidate for public office, even if
allowing inquiry into bank deposits would be to negate such expression of views or mention of names
the policy expressed in section 1 of Republic Act No. may result in aiding one particular candidate. In
1405 which is "to give encouragement to the people to other words, the last paragraph of sec. 29 is an
deposit their money in banking institutions and to exception to sec. 54; at most, an amendment to
discourage private hoarding so that the same may be sec. 54.
utilized by banks in authorized loans to assist in the
economic development of the country." With regard to the claim that disclosure would be
contrary to the policy making bank deposits confidential,
Contrary to their claim that their position effects a it is enough to point out that while section 2 of Republic
reconciliation of the provisions of the two laws, plaintiffs Act 1405 declares bank deposits to be "absolutely
are actually making the provisions of Republic Act No. confidential," it nevertheless allows such disclosure in
1405 prevail over those of the Anti-Graft Law, because the following instances: (1) Upon written permission of
even without the latter law the balance standing to the the depositor; (2) In cases of impeachment; (3) Upon
depositor's credit can be considered provided its order of a competent court in cases of bribery or
disclosure is made in any of the cases provided in dereliction of duty of public officials; (4) In cases where
Republic Act No. 1405. the money deposited is the subject matter of the
litigation. Cases of unexplained wealth are similar to
The truth is that these laws are so repugnant to each cases of bribery or dereliction of duty and no reason is
other than no reconciliation is possible. Thus, while seen why these two classes of cases cannot be excepted
Republic Act No. 1405 provides that bank deposits are from the rule making bank deposits confidential. The
"absolutely confidential ... and [therefore] may not be policy as to one cannot be different from the policy as to
examined, inquired or looked into," except in those the other. This policy express the motion that a public
cases enumerated therein, the Anti-Graft Law directs in office is a public trust and any person who enters upon
mandatory terms that bank deposits "shall be taken into its discharge does so with the full knowledge that his life,
consideration in the enforcement of this section, so far as relevant to his duty, is open to public scrutiny.
notwithstanding any provision of law to the contrary."
The only conclusion possible is that section 8 of the Anti- WHEREFORE, the decision appealed from is affirmed,
Graft Law is intended to amend section 2 of Republic Act without pronouncement as to costs.
No. 1405 by providing additional exception to the rule
against the disclosure of bank deposits. Concepcion, Reyes, J.B.L., Makalintal, Bengzon, and
Zaldivar, JJ., concur.
Indeed, it is said that if the new law is inconsistent with Bengzon, C.J., Bautista Angelo and Barrera, JJ., are on
or repugnant to the old law, the presumption against the leave.
intent to repeal by implication is overthrown because
the inconsistency or repugnancy reveals an intent to G.R. No. L-56429 May 28, 1988
repeal the existing law. And whether a statute, either in BANCO FILIPINO SAVINGS AND MORTGAGE
its entirety or in part, has been repealed by implication is BANK, petitioner,
ultimately a matter of legislative intent. (Crawford, The vs.
Construction of Statutes, Secs. 309-310. Cf. Iloilo Palay HON. FIDEL PURISIMA, etc., and HON. VICENTE ERICTA
and Corn Planters Ass'n v. Feliciano, G.R. No. L-24022, and JOSE DEL FIERO, etc., respondents.
March 3, 1965). NARVASA, J.:

The recent case of People v. De Venecia, G.R. No. L- The verdict in this special civil action of certiorari turns
20808, July 31, 1965 invites comparison with this case. upon the question of whether or not the "Law on
There it was held: Secrecy of Bank Deposits" 1 precludes production by
subpoena duces tecum of bank records of transactions

Banking 1st Set of Cases | 136


by or in the names of the wife, children and friends of a the Tanodbayan be provisionally restrained from
special agent of the Bureau of Customs, accused before exacting compliance with the subpoenae.
the Tanodbayan of having allegedly acquired property
manifestly out of proportion to his salary and other Respondent Judge Purisima issued an Order denying for
lawful income, in violation of the "Anti-Graft and Corrupt lack of merit the application by BF Bank for a preliminary
Practices Act." 2 injunction and/or restraining order. 10

The Customs special agent involved is Manuel Caturla, This Order is now impugned in the instant certiorari
and the accusation against him was filed by the Bureau action instituted by BF Bank before this Court, as having
of Internal Revenue. 3 In the course of the preliminary been issued with grave abuse of discretion, amounting
investigation thereof, the Tanodbayan issued a to lack of jurisdiction. It is the bank's theory that the
subpoena duces tecum to the Banco Filipino Savings & order declining to grant that remedy operated as a
Mortgage Bank, commanding its representative to premature adjudication of the very issue raised in the
appear at a specified time at the Office of declaratory suit, and as judicial sufferance of a
the Tanodbayan and furnish the latter with duly certified transgression of the bank deposits statute, and so
copies of the records in all its branches and extension constituted grievous error correctible by certiorari. It
offices, of the loans, savings and time deposits and other further argues that subpoenae in question are in the
banking transactions, dating back to 1969, appearing in nature of "fishing expeditions" or "general warrants"
the names of Caturla, his wife, Purita Caturla, their since they authorize indiscriminate inquiry into bank
children Manuel, Jr., Marilyn and Michael and/or records; that, assuming that such an inquiry is allowed as
Pedro Escuyos. 4 regards public officials under investigation for a violation
of the Anti-Graft & Corrupt Practices Act, it is
Caturla moved to quash the subpoena duces constitutionally impermissible with respect to private
5
tecum arguing that compliance therewith would result individuals or public officials not under investigation on a
in a violation of Sections 2 and 3 of the Law on Secrecy charge of violating said Act; and that while prosecution
of Bank Deposits. Then Tanodbayan Vicente Ericta not of offenses should not, as a rule, be enjoined, there are
only denied the motion for lack of merit, and directed recognized exceptions to the principle one of which is
compliance with the subpoena, 6 but also expanded its here present, i.e. to avoid multiplicity of suits, similar
scope through a second subpoena duces tecum,7 this subpoenae having been directed to other banks as well.
time requiring production by Banco Filipino of the bank
records in all its branches and extension offices, of It is difficult to see how the refusal by the Court a quo to
Siargao Agro-Industrial Corporation, Pedro Escuyos or issue the temporary restraining order applied for by the
his wife, Emeterio Escuyos, Purita Caturla, Lucia Escuyos petitioner in other words, its disagreement with the
or her husband, Romeo Escuyos, Emerson Escuyos, petitioner's advocated theory could be deemed so
Fraterno Caturla, Amparo Montilla, Cesar Caturla, whimsical, capricious, despotic or oppressive an act as to
Manuel Caturla or his children, Manuel Jr., Marilyn and constitute grave abuse of discretion. Obviously, the writ
Michael, LTD Pub/Restaurant, and Jose Buo or his wife, of certiorari cannot issue simply on a showing of
Evelyn. Two other subpoena of substantially the same disagreement between a party and the court upon some
tenor as the second were released by material factual or legal issue. There must be a
the Tanodbayan's Office. 8 The last required obedience reasonable demonstration that a party's contentions are
under sanction of contempt. so clearly correct, or the court's ruling thereon so clearly
wrong, to justify the issuance of a writ of certiorari. No
The Banco Filipino Savings & Mortgage Bank, hereafter such demonstration exists in this case. Indeed, for aught
referred to simply as BF Bank, took over from Caturla in that the record shows, the Court's refusal to grant the
the effort to nullify the subpoenae. It filed a complaint application for a restraining order was, in the premises,
for declaratory relief with the Court of First Instance of licit and proper, or its validity, fairly debatable, at the
Manila, 9which was assigned by raffle to the sala of very least. Be this as it may, on the merits the petitioner
respondent Judge Fidel Purisima. BF Bank prayed for a cannot succeed. Its declared theory is untenable.
judicial declaration as to whether its compliance with
the subpoenae duces tecum would constitute an The provisions of R.A. No. 1405 subject of BF's
infringement of the provisions of Sections 2 and 3 of R.A. declaratory action, read as follows:
No. 1405 in relation to Section 8 of R.A. No. 3019. It also
asked that pending final resolution of the question,

Banking 1st Set of Cases | 137


Sec. 2. All deposits of whatever nature with banks wealth while in public office. 12 We ourselves declared in
or banking institutions in the Philippines including said case that 13
investments in bonds issued by the Government of
the Philippines, its political subdivisions and its .. while Republic Act No. 1405 provides that bank
instrumentalities, are hereby considered as of an deposits are "absolutely confidential .. and
absolutely confidential nature and may not be [therefore] may not be examined, inquired or
examined, inquired or looked into by any person, looked into," except in those cases enumerated
government official, bureau or office, except upon therein, the Anti-Graft Law directs in mandatory
written permission of the depositor, or in cases of terms that bank deposits "shall be taken into
impeachment, or upon order of a competent court consideration in the enforcement of this
in cases of bribery or dereliction of duty of public section, notwithstanding any provision of law to the
officials, or in cases where the money deposited or contrary." The only conclusion possible is that
invested is the subject matter of litigation. section 8 of the Anti-Graft Law is intended to
amend section 2 of Republic Act No. 1405 by
Sec. 3. It shall be unlawful for any official or providing an additional exception to the rule
employee of a banking institution to disclose to any against the disclosure of bank desposits.
person other than those mentioned in Section two
hereof any information concerning said deposits xxx xxx xxx

The other provision involved in the declaratory action is ... Cases of unexplained wealth 14 are similar to
Section 8 of R.A. No. 3019. It reads: cases of bribery or dereliction of duty 15 and no
reason is seen why these two classes of cases
Sec. 8. Dismissal due to unexplained wealth. If in cannot be excepted from the rule making bank
accordance with the provisions of Republic Act deposits confidential. The policy as to one cannot
Numbered One thousand three hundred seventy- be different from the policy as to the other. This
nine, a public official has been found to have policy expresses the notion that a public office is a
acquired during his incumbency, whether in his public trust and any person who enters upon its
name or in the name of other persons, an amount discharge does so with the full knowledge that his
of property and/or money manifestly out of life, so far as relevant to his duty, is open to public
proportion to this salary and to his other lawful scrutiny.
income, that fact shall be a ground for dismissal or
removal. Properties in the name of the spouse and The inquiry into illegally acquired property or
unmarried children of such public official may be property NOT "legitimately acquired" extends to
taken into consideration, when their acquisition cases where such property is concealed by being held by
through legitimate means cannot be satisfactorily or recorded in the name of other persons. This
shown. Bank deposits shall be taken into proposition is made clear by R.A. No. 3019 which quite
consideration in the enforcement of this section, categorically states that the term, "legitimately acquired
notwithstanding any prohibition of law to the property of a public officer or employee shall not include
contrary. .. property unlawfully acquired by the respondent, but
its ownership is concealed by its being recorded in the
In our decision in Philippine National Bank v. Gancayco, name of, or held by, respondent's spouse, ascendants,
rendered on September 30, 1966, 11 we upheld the descendants, relatives or any other persons." 16
judgment of the Trial Court "sustaining the power of the
defendants (special prosecutors of the Department of To sustain the petitioner's theory, and restrict the
Justice) to compel the disclosure (by PNB) of bank inquiry only to property held by or in the name of the
accounts of ACCFA Administrator Jimenez (then under government official or employee, or his spouse and
investigation for unexplained wealth), .. (it being ruled) unmarried children is unwarranted in the light of the
that, by enacting section 8 of the Anti-Graft and Corrupt provisions of the statutes in question, and would make
Practices Act, Congress clearly intended to provide an available to persons in government who illegally acquire
additional ground for the examination of bank deposits .. property an easy and fool-proof means of evading
(for) without such provision, the .. prosecutors would be investigation and prosecution; all they would have to do
hampered if not altogether frustrated in the prosection would be to simply place the property in the possession
of those charged with having acquired unexplained or name of persons other than their spouse and

Banking 1st Set of Cases | 138


unmarried children. This is an absurdity that we will not Sometime in May 1998, petitioner Marquez
ascribe to the lawmakers. received an Order from the Ombudsman Aniano A.
Desierto dated April 29, 1998, to produce several bank
The power of the Tanodbayan to issue subpoenae ad documents for purposes of inspection in camera relative
testificandcum and subpoenae duces tecum at the time to various accounts maintained at Union Bank of the
in question is not disputed, and at any rate does not Philippines, Julia Vargas Branch, where petitioner is the
admit of doubt. 17 The subpoenae issued by him, will be branch manager. The accounts to be inspected are
sustained against the petitioner's impugnation. Account Nos. 011-37270, 240-020718, 245-30317-3 and
245-30318-1, involved in a case pending with the
WHEREFORE, the petition for certiorari is DISMISSED, Ombudsman entitled, Fact-Finding and Intelligence
with costs against petitioner. Bureau (FFIB) v. Amado Lagdameo, et. al. The order
further states:
Cruz, Gancayco, Grio-Aquino and Medialdea, JJ.,
concur. It is worth mentioning that the power of the
Ombudsman to investigate and to require the
production and inspection of records and documents is
sanctioned by the 1987 Philippine Constitution, Republic
[G.R. No. 135882. June 27, 2001] Act No. 6770, otherwise known as the Ombudsman Act
LOURDES T. MARQUEZ, in her capacity as Branch of 1989 and under existing jurisprudence on the matter.
Manager, Union Bank of the It must be noted that R. A. 6770 especially Section 15
Philippines, petitioners, vs. HON. ANIANO A. thereof provides, among others, the following powers,
DESIERTO, (in his capacity as OMBUDSMAN, functions and duties of the Ombudsman, to wit:
Evaluation and Preliminary Investigation Bureau,
Office of the Ombudsman, ANGEL C. MAYOR- xxx
ALGO, JR., MARY ANN CORPUZ-MANALAC and
JOSE T. DE JESUS, JR., in their capacities as (8) Administer oaths, issue subpoena and subpoena
Chairman and Members of the Panel, duces tecum and take testimony in any investigation or
respectively, respondents. inquiry, including the power to examine and have access
DECISION to bank accounts and records;
PARDO, J.:
(9) Punish for contempt in accordance with the Rules of
Court and under the same procedure and with the same
In the petition at bar, petitioner seeks to-- penalties provided therein.

a. Annul and set aside, for having been issued Clearly, the specific provision of R.A. 6770, a later
without or in excess of jurisdiction or with grave legislation, modifies the law on the Secrecy of Bank
abuse of discretion amounting to lack of Deposits (R.A. 1405) and places the office of the
jurisdiction, respondents order dated September 7, Ombudsman in the same footing as the courts of law in
1998 in OMB-0-97-0411, In Re: Motion to Cite this regard.[2]
Lourdes T. Marquez for indirect contempt, received
by counsel of September 9, 1998, and their order
The basis of the Ombudsman in ordering an in
dated October 14, 1998, denying Marquezs motion
camera inspection of the accounts is a trail of managers
for reconsideration dated September 10, 1998,
checks purchased by one George Trivinio, a respondent
received by counsel on October 20, 1998.
in OMB-0-97-0411, pending with the office of the
Ombudsman.
b. Prohibit respondents from implementing their
order dated October 14, 1998, in proceeding with It would appear that Mr. George Trivinio, purchased
the hearing of the motion to cite Marquez for fifty one (51) Managers Checks (MCs) for a total amount
indirect contempt, through the issuance by this of P272.1 Million at Traders Royal Bank, United Nations
Court of a temporary restraining order and/or Avenue branch, on May 2 and 3, 1995. Out of the 51
preliminary injunction.[1] MCs, eleven (11) MCs

The antecedent facts are as follows:

Banking 1st Set of Cases | 139


in the amount of P70.6 million, were deposited and documents relative to the accounts in issue. The order
credited to an account maintained at the Union Bank, states:
Julia Vargas Branch.[3]
Viewed from the foregoing, your persistent refusal to
On May 26, 1998, the FFIB panel met in conference
comply with Ombudsmans order is unjustified, and is
with petitioner Lourdes T. Marquez and Atty. Fe B.
merely intended to delay the investigation of the case.
Macalino at the banks main office, Ayala Avenue, Makati
Your act constitutes disobedience of or resistance to a
City. The meeting was for the purpose of allowing
lawful order issued by this office and is punishable as
petitioner and Atty. Macalino to view the checks
Indirect Contempt under Section 3(b) of R.A. 6770. The
furnished by Traders Royal Bank. After convincing
same may also constitute obstruction in the lawful
themselves of the veracity of the checks, Atty. Macalino
exercise of the functions of the Ombudsman which is
advised Ms. Marquez to comply with the order of the
punishable under Section 36 of R.A. 6770.[7]
Ombudsman. Petitioner agreed to an in
camera inspection set on June 3, 1998.[4]
On July 10, 1998, petitioner together with Union
However, on June 4, 1998, petitioner wrote the Bank of the Philippines, filed a petition for declaratory
Ombudsman explaining to him that the accounts in relief, prohibition and injunction[8] with the Regional Trial
question cannot readily be identified and asked for time Court, Makati City, against the Ombudsman.
to respond to the order. The reason forwarded by
The petition was intended to clear the rights and
petitioner was that despite diligent efforts and from the
duties of petitioner. Thus, petitioner sought a
account numbers presented, we can not identify these
declaration of her rights from the court due to the clear
accounts since the checks are issued in cash or bearer.
conflict between R. A. No. 6770, Section 15 and R. A. No.
We surmised that these accounts have long been
1405, Sections 2 and 3.
dormant, hence are not covered by the new account
number generated by the Union Bank system.We Petitioner prayed for a temporary restraining order
therefore have to verify from the Interbank records (TRO) because the Ombudsman and other persons
archives for the whereabouts of these accounts.[5] acting under his authority were continuously harassing
her to produce the bank documents relative to the
The Ombudsman, responding to the request of the
accounts in question. Moreover, on June 16, 1998, the
petitioner for time to comply with the order, stated:
Ombudsman issued another order stating that unless
firstly, it must be emphasized that Union Bank, Julia
petitioner appeared before the FFIB with the documents
Vargas Branch was the depositary bank of the subject
requested, petitioner manager would be charged with
Traders Royal Bank Managers Checks (MCs), as shown at
indirect contempt and obstruction of justice.
its dorsal portion and as cleared by the Philippine
Clearing House, not the International Corporate Bank. In the meantime,[9] on July 14, 1998, the lower
court denied petitioners prayer for a temporary
Notwithstanding the fact that the checks were
restraining order and stated thus:
payable to cash or bearer, nonetheless, the name of the
depositor(s) could easily be identified since the account
numbers x x x where said checks were deposited are After hearing the arguments of the parties, the court
identified in the order. finds the application for a Temporary Restraining Order
to be without merit.
Even assuming that the accounts xxx were already
classified as dormant accounts, the bank is still required Since the application prays for the restraint of the
to preserve the records pertaining to the accounts respondent, in the exercise of his contempt powers
within a certain period of time as required by existing under Section 15 (9) in relation to paragraph (8) of R.A.
banking rules and regulations. 6770, known as The Ombudsman Act of 1989, there is
no great or irreparable injury from which petitioners
And finally, the in camera inspection was already
may suffer, if respondent is not so restrained.
extended twice from May 13, 1998 to June 3, 1998,
Respondent should he decide to exercise his contempt
thereby giving the bank enough time within which to
powers would still have to apply with the court. x x
sufficiently comply with the order.[6]
x Anyone who, without lawful excuse x x x refuses to
Thus, on June 16, 1998, the Ombudsman issued an produce documents for inspection, when thereunto
order directing petitioner to produce the bank lawfully required shall be subject to discipline as in case
of contempt of Court and upon application of the

Banking 1st Set of Cases | 140


individual or body exercising the power in question shall On August 31, 1998, petitioner filed with the
be dealt with by the Judge of the First Instance (now Ombudsman an opposition to the motion to cite her in
RTC) having jurisdiction of the case in a manner provided contempt on the ground that the filing thereof was
by law (section 580 of the Revised Administrative Code). premature due to the petition pending in the lower
Under the present Constitution only judges may issue court.[17] Petitioner likewise reiterated that she had no
warrants, hence, respondent should apply with the intention to disobey the orders of the Ombudsman.
Court for the issuance of the warrant needed for the However, she wanted to be clarified as to how she
enforcement of his contempt orders. It is in these would comply with the orders without her breaking any
proceedings where petitioners may question the law, particularly R. A. No. 1405.[18]
propriety of respondents exercise of his contempt
Respondent Ombudsman panel set the incident for
powers. Petitioners are not therefore left without any
hearing on September 7, 1998.[19] After hearing, the
adequate remedy.
panel issued an order dated September 7, 1998,
ordering petitioner and counsel to appear for a
The questioned orders were issued with the
continuation of the hearing of the contempt charges
investigation of the case of Fact-Finding and Intelligence
against her.[20]
Bureau vs. Amado Lagdameo, et. el., OMB-0-97-0411,
for violation of R.A. 3019. Since petitioner failed to show On September 10, 1998, petitioner filed with the
prima facie evidence that the subject matter of the Ombudsman a motion for reconsideration of the above
investigation is outside the jurisdiction of the Office of order.[21] Her motion was premised on the fact that
the Ombudsman, no writ of injunction may be issued by there was a pending case with the Regional Trial Court,
this Court to delay this investigation pursuant to Section Makati City,[22] which would determine whether obeying
14 of the Ombudsman Act of 1989.[10] the orders of the Ombudsman to produce bank
documents would not violate any law.
On July 20, 1998, petitioner filed a motion for
The FFIB opposed the motion,[23] and on October
reconsideration based on the following grounds:
14, 1998, the Ombudsman denied the motion by order
a. Petitioners application for Temporary the dispositive portion of which reads:
Restraining Order is not only to restrain the
Ombudsman from exercising his contempt Wherefore, respondent Lourdes T. Marquezs motion for
powers, but to stop him from implementing reconsideration is hereby DENIED, for lack of merit. Let
his Orders dated April 29,1998 and June the hearing of the motion of the Fact Finding Intelligence
16,1998; and Bureau (FFIB) to cite her for indirect contempt be
intransferrably set to 29 October 1998 at 2:00 oclock
b. The subject matter of the investigation
p.m. at which date and time she should appear
being conducted by the Ombudsman at
personally to submit her additional evidence. Failure to
petitioners premises is outside his
do so shall be deemed a waiver thereof.[24]
jurisdiction.[11]
Hence, the present petition.[25]
On July 23, 1998, the Ombudsman filed a motion to
The issue is whether petitioner may be cited for
dismiss the petition for declaratory relief[12] on the
indirect contempt for her failure to produce the
ground that the Regional Trial Court has no jurisdiction
documents requested by the Ombudsman. And whether
to hear a petition for relief from the findings and orders
the order of the Ombudsman to have an in
of the Ombudsman, citing R. A. No. 6770, Sections 14
camera inspection of the questioned account is allowed
and 27. On August 7, 1998, the Ombudsman filed an
as an exception to the law on secrecy of bank deposits
opposition to petitioners motion for reconsideration
(R. A. No. 1405).
dated July 20, 1998.[13]
An examination of the secrecy of bank deposits law
On August 19, 1998, the lower court denied
(R. A. No. 1405) would reveal the following exceptions:
petitioners motion for reconsideration,[14] and also the
Ombudsmans motion to dismiss.[15] 1. Where the depositor consents in writing;
2. Impeachment case;
On August 21, 1998, petitioner received a copy of
3. By court order in bribery or dereliction of
the motion to cite her for contempt, filed with the Office
duty cases against public officials;
of the Ombudsman by Agapito B. Rosales, Director, Fact
4. Deposit is subject of litigation;
Finding and Intelligence Bureau (FFIB).[16]

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5. Sec. 8, R. A. No. 3019, in cases of Ombudsman. In short, what the Office of the
unexplained wealth as held in the case of Ombudsman would wish to do is to fish for additional
PNB vs. Gancayco[26] evidence to formally charge Amado Lagdameo, et. al.,
with the Sandiganbayan. Clearly, there was no pending
The order of the Ombudsman to produce for in
case in court which would warrant the opening of the
camera inspection the subject accounts with the Union
bank account for inspection.
Bank of the Philippines, Julia Vargas Branch, is based on
a pending investigation at the Office of the Ombudsman Zones of privacy are recognized and protected in
against Amado Lagdameo, et. al. for violation of R. A. No. our laws. The Civil Code provides that "[e]very person
3019, Sec. 3 (e) and (g) relative to the Joint Venture shall respect the dignity, personality, privacy and peace
Agreement between the Public Estates Authority and of mind of his neighbors and other persons" and
AMARI. punishes as actionable torts several acts for meddling
and prying into the privacy of another. It also holds a
We rule that before an in camera inspection may be
public officer or employee or any private individual liable
allowed, there must be a pending case before a court of
for damages for any violation of the rights and liberties
competent jurisdiction. Further, the account must be
of another person, and recognizes the privacy of letters
clearly identified, the inspection limited to the subject
and other private communications. The Revised Penal
matter of the pending case before the court of
Code makes a crime of the violation of secrets by an
competent jurisdiction. The bank personnel and the
officer, the revelation of trade and industrial secrets, and
account holder must be notified to be present during
trespass to dwelling. Invasion of privacy is an offense in
the inspection, and such inspection may cover only the
special laws like the Anti-Wiretapping Law, the Secrecy
account identified in the pending case.
of Bank Deposits Act, and the Intellectual Property
In Union Bank of the Philippines v. Court of Code.[28]
Appeals, we held that Section 2 of the
IN VIEW WHEREOF, we GRANT the petition. We
Law on Secrecy of Bank Deposits, as
order the Ombudsman to cease and desist from
amended, declares bank deposits to be
requiring Union Bank Manager Lourdes T. Marquez, or
absolutely confidential except:
anyone in her place to comply with the order dated
(1) In an examination made in the course of a
October 14, 1998, and similar orders. No costs.SO
special or general examination of a bank
ORDERED.
that 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,
(2) In an examination 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,
(3) Upon written permission of the depositor,
(4) In cases of impeachment,
(5) Upon order of a competent court in cases
of bribery or dereliction of duty of public
officials, or
(6) In cases where the money deposited or
invested is the subject matter of the
litigation[27]
In the case at bar, there is yet no pending litigation
before any court of competent authority. What is
existing is an investigation by the office of the

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