I.SHORT TITLE: NSBCI V.
PNB
II. FULL TITLE: New Sampaguita Builders Construction, Inc. (NSBCI)
and Sps. Eduardo R. Dee and Arcelita M. Dee vs.
Philippine National Bank.
III. PONENTE: J. Panganiban
IV. TOPIC: Truth in Lending
V. STATEMENT OF FACTS:
On February 11, 1989, Board Resolution No. 05, Series of 1989 was
approved by petitioner NSBCI authorizing the company to apply for or secure a
commercial loan with the respondent PNB in an aggregate amount of P8.0M, under
such terms agreed by the Bank and the NSBCI, using or mortgaging the real estate
properties registered in the name of its President and Chairman of the Board
petitioner Eduardo R. Dee as collateral; and authorizing defendants-spouses to
secure the loan and to sign any and all documents which may be required by PNB
and that defendants-spouses shall act as sureties or co-obligors who shall be jointly
and severally liable with NSBCI for the payment of any and all obligations.
On August 15, 1989, Resolution No. 77 was approved by granting the
request of respondent PNB thru its Board NSBCI for an P8 Million loan broken down
into a revolving credit line of P7.7M and an unadvised line of P0.3M for additional
operating and working capital to mobilize its various construction projects, namely:
1) MWSS Watermain; 2) NEA-Liberty farm; 3) Olongapo City Pag-Asa Public Market;
4) Renovation of COA-NCR Buildings 1, 2 and 9; 5) Dupels, Inc., Extensive prawn farm
development project; 6) Banawe Hotel Phase II; 7) Clark Air Base -- Barracks and
Buildings; and 8) Others: EDSA Lighting, Roxas Blvd. Painting NEA Sapang Palay and
Angeles City.
The loan of petitioner NSBCI was secured by a first mortgage on
the following:
a) three (3) parcels of residential land located at Mangaldan,
Pangasinan with total land area of 1,214 square meters[,]
including improvements thereon and registered under TCT Nos.
128449, 126071, and 126072 of the Registry of Deeds of
Pangasinan;
b) six (6) parcels of residential land situated at San Fabian,
Pangasinan with total area of 1,767 square meters[,] including
improvements thereon and covered by TCT Nos. 144006,
144005, 120458, 120890, 144161[,] and 121127 of the Registry
of Deeds of Pangasinan; and
c) a residential lot and improvements thereon located at
Mangaldan, Pangasinan with an area of 4,437 square meters and
covered by TCT No. 140378 of the Registry of Deeds of
Pangasinan.
The loan was further secured by the joint and several signatures of
petitioners-spouses Eduardo Dee and Arcelita Marquez Dee, who signed as
accommodation-mortgagors since all the collaterals were owned by them and
registered in their names.
Moreover petitioner NSBCI executed the following documents, viz: a)
promissory note dated June 29, 1989 in the amount of P5,000,000.00 with due date
on October 27, 1989; [b)] promissory note dated September 1, 1989 in the amount
of P2,700,000.00 with due date on December 30, 1989; and c) promissory note dated
September 6, 1989 in the amount of P300,000.00 with maturity date on January 4,
1990. In addition, NSBCI also signed the Credit Agreement dated August 31, 1989
relating to the revolving credit line of P7.7 Million x x x and the Credit Agreement
dated September 5, 1989 to support the unadvised line of P300,000.00.
On August 31, 1989, petitioners-spouses executed a Joint and Solidary
Agreement (JSA) in favor of PNB unconditionally and irrevocably binding themselves
to be jointly and severally liable with the borrower for the payment of all sums due
and payable to the Bank under the Credit Document. Later on, petitioner NSBCI failed
to comply with its obligations under the promissory notes.
1
 On June 18, 1991, petitioner Eduardo R. Dee on behalf of NSBCI sent a letter
to the Branch Manager of the PNB Dagupan Branch requesting for a 90-day extension
for the payment of interests and restructuring of its loan for another term.
Subsequently, NSBCI tendered payment to PNB three (3) checks
aggregating P1,000,000.00.
On August 22, 1991, PNB’s representative Crispin Carcamo wrote to
Eduardo Dee, informing him that NSBCI’s proposal was acceptable, provided the total
payment should be P4,128,968.29 that would cover the amount of P1,019,231.33 as
principal, P3,056,058.03 as interests and penalties, and P53,678.93 for insurance,
with the issuance of post-dated checks to be dated not later than November 29,
1991.On September 6, 1991, Eduardo Dee wrote the PNB Branch Manager reiterating
his proposals for the settlement of NSBCIs past due loan account amounting
to P7,019,231.33.
Petitioner Eduardo Dee later tendered four (4) post-dated Interbank checks
aggregating P1,111,306.67 in favor of PNB. However, upon presentment, the checks
dated September 29 and October 29, 1991 were dishonored by the drawee bank and
returned due to a stop payment order from NSBCI.
On November 12, 1991, PNB’s Mr. Carcamo wrote Eduardo Dee informing
him that unless the dishonored checks were made good, said PNB branch shall recall
its recommendation to the Head Office for the restructuring of the loan account and
refer the matter to its legal counsel for legal action. Unfortunately, petitioners did not
heed PNB’s warning and as a result, the PNB Dagupan Branch sent demand letters to
petitioner NSBCI asking it to settle its past due loan account.
Nevertheless, petitioners failed to pay their loan obligations within the
timeframe given them and as a result, PNB filed with the Provincial Sheriff of
Pangasinan at Lingayen a Petition for Sale under Act 3135. On February 26, 1992, the
Provincial Deputy Sheriff of Lingayen, Pangasinan foreclosed the real estate mortgage
and sold at public auction the mortgaged properties of petitioner-spouses, with PNB
being declared the highest bidder for the amount of P10,334,000.00. Petitioners
failed to redeem their properties within the one-year redemption period and so PNB
executed a Deed of Absolute Sale consolidating title to the properties in its name.
On August 4, 1992, PNB informed NSBCI that the proceeds of the sale
conducted on February 26, 1992 were not sufficient to cover its total claim amounting
to P12,506,476.43, and thus demanded from the latter the deficiency
of P2,172,476.43 plus interest and other charges, until the amount was fully paid.
VI. STATEMENT OF THE CASE:
The refusal of NSBCI to pay the above deficiency claim compelled
respondent PNB to institute the a Complaint for the collection of its deficiency claim.
Finding that the PNB debt relief package automatically granted to petitioner
NSBCI the benefits under the program, the court a quo ruled in favor of petitioners.
On appeal, CA reversed the trial court’s ruling and held that petitioner NSBCI did not
avail itself of PNB’s debt relief package (DRP) or take steps to comply with the
conditions for qualifying under the program.
VII. ISSUE:
(1) Whether the loan accounts of petitioner with PNB were bloated; and (2)
Whether PNB is entitled for deficiency claim after the extrajudicial
foreclosure of the properties of petitioners.
VIII. RULING:
(1) Yes. Petitioner NSBCIs loan accounts with respondent appear to be bloated
with some iniquitous imposition of interests, penalties, other charges and attorney’s
fees.
In each drawdown, the Promissory Notes specified the interest rate to be
charged: 19.5 percent in the first, and 21.5 percent in the second and again in the
third. However, a uniform clause therein permitted respondent to increase the rate
within the limits allowed by law at any time depending on whatever policy it may
adopt in the future, without even giving prior notice to petitioners.
The Court holds that petitioners’ accessory duty to pay interest did not
give respondent unrestrained freedom to charge any rate other than that which was
agreed upon. No interest shall be due, unless expressly stipulated in writing. It would
2
be the zenith of farcicality to specify and agree upon rates that could be
subsequently upgraded at whim by only one party to the agreement. The unilateral
determination and imposition of increased rates is violative of the principle of
mutuality of contracts ordained in Article 1308 of the Civil Code. One-sided
impositions do not have the force of law between the parties, because such
impositions are not based on the parties essential equality.
Although escalation clauses are valid in maintaining fiscal stability and
retaining the value of money on long-term contracts, giving respondent an unbridled
right to adjust the interest independently and upwardly would completely take away
from petitioners the right to assent to an important modification in their
agreement and would also negate the element of mutuality in their contracts. The
clause cited earlier made the fulfillment of the contracts dependent exclusively upon
the uncontrolled will of respondent and was therefore void. Besides, the pro forma
promissory notes have the character of a contract adhesion, where the parties do
not bargain on equal footing, the weaker partys [the debtors] participation being
reduced to the alternative to take it or leave it.
As to penalty charges, no penalty charges or increases thereof appear
either in the Disclosure Statements or in any of the clauses in the second and the
third Credit Agreements.While a standard penalty charge of 6 percent per annum
has been imposed on the amounts stated in all three Promissory Notes still
remaining unpaid or unrenewed when they fell due, there is no stipulation therein
that would justify any increase in that charges. The effect, therefore, when the
borrower is not clearly informed of the Disclosure Statements -- prior to the
consummation of the availment or drawdown -- is that the lender will have no right
to collect upon such charge or increases thereof, even if stipulated in the Notes. The
time is now ripe to give teeth to the often ignored forty-one-year old Truth in Lending
Act and thus transform it from a snivelling paper tiger to a growling financial
watchdog of hapless borrowers.
As earlier said, the Notes are contracts of adhesion; although not invalid
per se, any apparent ambiguity in the loan contracts -- taken as a whole -- shall be
strictly construed against respondent who caused it. Worse, in the statements of
account, the penalty rate has again been unilaterally increased by respondent to 36
percent without petitioners consent. As a result of its move, such
liquidated damages intended as a penalty shall be equitably reduced by the Court to
zilch for being iniquitous or unconscionable.
Although the first Disclosure Statement was furnished Petitioner NSBCI
prior to the execution of the transaction, it is not a contract that can be modified by
the related Promissory Note, but a mere statement in writing that reflects the true
and effective cost of loans from respondent. Novation can never be presumed, and
the animus novandi must appear by express agreement of the parties, or by their
acts that are too clear and unequivocal to be mistaken. To allow novation will surely
flout the policy of the State to protect its citizens from a lack of awareness of the
true cost of credit.
With greater reason should such penalty charges be indicated in the
second and third Disclosure Statements, yet none can be found therein. While the
charges are issued after the respective availment or drawdown, the disclosure
statements are given simultaneously therewith. Obviously, novation still does not
apply.
In like manner, the other charges imposed by respondent are not
warranted. No particular values or rates of service charge are indicated in the
Promissory Notes or Credit Agreements, and no total value or even the breakdown
figures of such non-finance charge are specified in the Disclosure
Statements. Moreover, the provision in the Mortgage that requires the payment of
insurance and other charges is neither made part of nor reflected in such Notes,
Agreements, or Statements.
(2) No. Although the extrajudicial sale and subsequent proceedings are valid,
the alleged deficiency claim cannot be recovered.
After the foreclosure and sale of the mortgaged property, the Real Estate
Mortgage is extinguished. Although the mortgagors, being third persons, are not
liable for any deficiency in the absence of a contrary
stipulation,http://sc.judiciary.gov.ph/jurisprudence/2004/jul2004/148753.htm -
_ftn153 the action for recovery of such amount -- being clearly sureties to the
principal obligation -- may still be directed against them. However, respondent may
impose only the stipulated interest rates of 19.5 percent and 21.5 percent on the
respective availments -- subject to the 12 percent legal rate revision upon automatic
3
conversion into medium-term loans -- plus 1 percent attorneys fees, without X. PREPARED BY: Nepomuceno, Marlo
additional charges on penalty, insurance or any increases thereof.
I. SHORT TITLE: SOLIDBANK v. CA

Accordingly, the excessive interest rates in the Statements of Account sent

II. FULL TITLE: The Consolidated Bank and Trust Corporation
to petitioners are reduced to 19.5 percent and 21.5 percent, as stipulated in the
(SOLIDBANK) vs. The Honorable Court of Appeals,
Promissory Notes; upon loan conversion, these rates are further reduced to the legal
George Trade, Inc., George King Tim Pua and Pua Ke
rate of 12 percent. Payments made by petitioners are pro-rated, the charges on
Seng. G.R. No. 91494. July 14, 1995.
penalty and insurance eliminated, and the resulting total unpaid principal and
interest of P6,582,077.70 as of the date of public auction is then subjected to 1
III. PONENTE: J. Quiason
percent attorneys fees. The total outstanding obligation is compared to the bid
price. On the basis of these rates and the comparison made, the deficiency claim
IV. TOPIC: Truth in Lending
receivable amounting to P2,172,476.43 in fact vanishes. Instead, there is an
overpayment by more than P3 million.
V. STATEMENT OF FACTS:

To summarize, to give full force to the Truth in Lending Act, only the
On the following dates, defendant George King Tim Pua, in his personal
interest rates of 19.5 percent and 21.5 percent stipulated in the Promissory Notes
capacity, applied for, and was granted, by plaintiff bank a loan:
may be imposed by respondent on the respective availments. After 730 days, the
portions remaining unpaid are automatically converted into medium-term loans at
April 22, 1977: P500,000.00 with promissory note payable on August 22,
the legal rate of 12 percent. In all instances, the simple method of interest
1977;
computation is followed. Payments made by petitioners are applied and pro-rated
April 29, 1977: P400,000.00 with promissory note payable on August 29,
according to basic legal principles. Charges on penalty and insurance are eliminated,
1979; and
and 1 percent attorneys fees imposed upon the total unpaid balance of the principal
May 6, 1977: P400,000.00 with promissory note payable on September 5,
and interest as of the date of public auction. The P2 million deficiency claim
1977.
therefore vanishes, and a refund of P3,686,101.52 arises.

On February 21, 1977, defendant George King Tim Pua, in his personal
IX. DISPOSITIVE PORTION:
capacity, applied for, and was granted, by the plaintiff bank three (3) separate loans
in the amounts of P220,000.00, P450,000.00 and P65,000.00, for which he executed
WHEREFORE, this Petition is hereby PARTLY GRANTED. The Decision of the
three separate promissory notes, payable on May 23, 1977.
Court of Appeals is AFFIRMED, with the MODIFICATION that PNB is ORDERED to
refund the sum of P3,686,101.52 representing the over collection computed above,
In the same vein, defendant George and George Trade Inc., through
plus interest thereon at the legal rate of six percent (6%) per annum from the filing
defendant George King Tim Pua, obtained the following loan from plaintiff with
of the Complaint until the finality of this Decision. After this Decision becomes final
promissory note on wherein defendants George King Tim Pua and Pua Se Keng are
and executory, the applicable rate shall be twelve percent (12%) per annum until its
co-makers:
satisfaction. No costs.

On January 23, 1979, P300,000.00, which loan bears an interest

SO ORDERED.
of 13.23% per annum and is payable on June 22, 1979;

4

On April 19, 1979, P200,000.00, which loan bears an interest of
14% per annum and is payable on May 21, 1979; and
On August 2, 1979, P150,000.00, which loan bears an interest of
14% per annum and is payable on September 17, 1979.
The foregoing three promissory notes covering loans in the corporate
account of defendant George and George Trade Inc. provide also that in case of
default of payment, the defendants agree to pay interest at an increased rate of 14%
per annum on the amount due, compounded monthly, until fully paid, as well as an
additional sum equivalent to 10% of the total amount due as and for attorney’s fees
in addition to expenses and costs of suit, such amount to bear interest at the rate of
1% per month until paid. Under the last two promissory notes the defendants further
bound themselves to pay a penalty at the rate of 3% per annum on the amount due
until fully paid.
In order to secure the payment of defendant George King Tim Pua’s
obligation with the plaintiff, he assigned unto the latter the proceeds of a fire
insurance policy issued by the Kerr Insurance Company in the amount of
P2,908,485.00. The proceeds of the insurance policy were subsequently paid to the
plaintiff which applied the same to the personal account of defendant George King
Tim Pua. The personal account of defendant George King Tim Pua was fully satisfied
through the remittances of the fire insurance proceeds.
According to petitioner bank, after it had deducted from the insurance
proceeds the entirety of respondent George King Tim Pua’s personal account, there
remained of the insurance proceeds the amount of P383,302.42. It then proceeded
to apply said amount to the unpaid loans of respondent George and George Trade,
Inc. which amounted to P671,772.22 as of September 7, 1979, thus leaving a balance
of P288,469.80 of the loans.
VI. STATEMENT OF THE CASE:
Petitioner instituted on April 7, 1980 an action (Civil Case No. 130915)
against private respondents before the then Court of First Instance of Manila for the
recovery of the unpaid balances on the three promissory notes, including attorney’s
fees equivalent to 10% of the amount recoverable.
No amicable settlement having been reached between the parties, trial ensued. On
November 4, 1982, the trial court rendered judgment, finding for petitioner. The
dispositive portion of the decision reads:
"PREMISES CONSIDERED, judgment is hereby rendered ordering
defendants George and George Trade, Inc., George King Tim Pua
and Pua Ke Seng, jointly and severally, to pay plaintiff, The
Consolidated Bank and Trust Corporation (Solidbank) the sum of
P228,469.80, with interest thereon at the legal rate from March
28, 1980, until the same is fully paid, and attorney’s fees in the
sum of P25,000.00, with costs of suit.
"For lack of merit, the counterclaim filed by the defendants is
dismissed".
On appeal by private respondents, the Court of Appeals reversed the decision of the
trial court, decreeing as follows:
"WHEREFORE, the decision appealed from herein is REVERSED,
and plaintiff-appellee Consolidated Bank and Trust Corporation
(Solidbank) is instead ordered to pay appellant George King Tim
Pua the amount of P466,182.39, with legal interest thereon per
annum from September 8, 1979 until said amount is fully paid,
plus P10,000.00 attorney’s fees and the costs, of this suit".
VII. ISSUE/S: Whether private respondents are indebted to petitioners in the amount
of P288,469.80, which includes in the computation – handling charges imposed by
Solidbank, as held by the then Court of First Instance of Manila; or whether said
private respondents are entitled to a reimbursement from petitioner in the amount
of P466,182.39 as decreed by the Court of Appeals.
VIII. RULING: No.
5
 The promissory notes signed by private respondents do not contain any
stipulation on the payment of handling charges. Petitioner bank cannot, therefore,
charge private respondents such handling charges.
As to handling charges, banks are authorized under Central Bank Circular
No. 504 to collect such charges on loans over P500,000.00 with a maturity of 730
days or less at the rate of 2 per annum, on the principal or the outstanding balance
thereof, whichever is lower; 1.75 on loans over P500,000.00 but not over
P1,000,000.00; 1.50 on loans over P1,000,000.00 but not over P2,000,000.00, etc.
Section 7 of the same Circular, however, provides that all banks and non-bank
financial intermediaries authorized to engage in quasi-banking functions are
required to strictly adhere to the provisions of Republic Act No. 3765 otherwise
known as the "Truth in Lending Act" and shall make the true and effective cost of
borrowing an integral part of every loan contract.
The records show that respondent George King Tim Pua had two sets of
accounts with petitioner bank: his personal account and his account for George and
George Trade, Inc. Under his personal account, respondent was able to obtain a loan
in the total amount of P2,035,000.00. As to the account of George and George Trade,
Inc., the total loan amount was P650,000.00. After applying the total payments made
by private respondents and the assigned insurance proceeds, the Supreme Court
found that respondent George King Tim Pua is entitled to be reimbursed in the
amount of P3,616.65.
Likewise, it held that The 14 interest rate charged by petitioner was within
the limits set by Section 3 of the Usury Law, as amended. As to the penalty, the
payment of the same was provided for under the terms and conditions of the
promissory notes for Loans B and C of George and George Trade, Inc. The penalty
actually imposed, being only 3% per annum of the unpaid balance of the principal of
said Loan B, is considered reasonable and proper.
However, as to the attorney’s fees, SC said that there was no need for
petitioner to litigate to protect its interest inasmuch as private respondents had fully
paid their obligations months before it filed the complaint for recovery of sum of
money. Neither has it been shown by competent proof that petitioner had to engage
the services of a lawyer or incur expenses in collecting the fire insurance proceeds
from Kerr and Company. Thus, the stipulation relative to attorney’s fees in the
promissory notes was disregarded.
IX. DISPOSITIVE PORTION:
WHEREFORE, the Decision of the Court of Appeals is AFFIRMED with the
MODIFICATION that the amount which petitioner is ordered to reimburse
respondent George King Tim Pua is reduced to THREE THOUSAND SIX HUNDRED
SIXTEEN & 65/100 PESOS (P3,616.65), with legal interest thereon from September 8,
1979 until said amount is fully paid.
SO ORDERED.
X. PREPARED BY: Nepomuceno, Marlo
SHORT TITLE: DBP V. ARCILLA, JR.
I) FULL TITLE: Development Bank Of The Philippines V. Felipe P. Arcilla, Jr.
II) PONENTE: JUSTICE CALLEJO, SR.
III) TOPIC: Disclosure requirement under RA 3765 and CB Circular No. 158
IV) STATEMENT OF THE FACTS:
Atty. Felipe P. Arcilla, Jr. (Arcilla), an employer of the Development Bank of the
Philippines (DBP),availed a loan under the Individual Housing Project of the bank. He
obliged himself to pay the loan in 25 years, with a monthly amortization of P1,
417.91, with 9% interest per annum, to be deducted from his monthly salary. It was
also agreed therein that if Arcilla availed of optional retirement, he could elect to
continue paying the loan, provided that the loan/amount would be converted into a
regular real estate loan account with the prevailing interest assigned on real estate
loans, payable within the remaining term of the loan account.
Thereafter, Arcilla opted to resign from the bank so he decided to issue three
Promissory Notes for the total amount of P186,364.15 for the balance and pay for
the service charge and interests. However, he failed to pay as of October 31, 1990
which amounted to P241,940.93. As a result, DBP rescinded the Deed of Conditional
6
Sale and the property was advertised for sale at public bidding.
V) STATEMENT OF THE CASE:
Arcilla to file a complaint against DBP with the RTC alleging that DBP failed to furnish
him with the disclosure statement required by R.A. No. 3765 and CB Circular No. 158
prior to the execution of the deed of conditional sale and the conversion of his loan
account with the bank into a regular housing loan account.
DBP, in its Answer, alleged that it substantially complied with the said provisions
since the details required in said statements were particularly disclosed in the
promissory notes, deed of conditional sale and the required notices sent to Arcilla.
DBP claimed that it any event, its failure to comply strictly with R.A. No. 3765 did not
affect the validity and enforceability of the subject contracts or transactions.
RTC rendered a decision in favor of Arcilla and nullified the rescission of the deeds
executed by the parties. DBP appealed the decision of the RTC before the Court of
Appeals. CA reversed and set aside the decision of the RTCruling that DBP
substantially complied with R.A. No. 3765 and CB Circular No. 158
VI) ISSUE/S: Whether or not DBP complied with the disclosure requirement of R.A.
No. 3765 and CB Circular No. 158, Series of 1978, in the execution of the deed
of conditional sale, the supplemental deed of conditional sale, as well as the
promissory notes
property, the latter maintained his silence. Arcilla filed his complaint only on
February 21, 1994, or four years after the said notarial rescission. It must be stressed
that the Truth in Lending Act (R.A. No. 3765), was enacted primarily to protect its
citizens from a lack of awareness of the true cost of credit to the user. Contrary to
appellees claim that he was not sufficiently informed of the details of the loan, the
records disclose that the required information were readily available in the three (3)
promissory notes he executed. Precisely, the said promissory notes were executed
to appraise appellee of the remaining balance on his loan when the same was
converted into a regular housing loan. And on its face, the promissory notes signed
by no less than the appellee readily shows all the data required by the Truth in
Lending Act.
VIII) DISPOSITIVE PORTION:
IN LIGHT OF ALL THE FOREGOING, the petition in G.R. No. 161426 is DENIED for
lack of merit. The petition in G.R. No. 161397 is
PARTIALLY GRANTED. The case is hereby REMANDED to the Regional Trial
Court of Antipolo, Rizal, Branch 73, for it to resolve the counterclaim of the
Development Bank of the Philippines for possession of the property, and for the
reasonable rentals for Felipe P. Arcilla, Jr.s occupancy thereof after the notarial
rescission of the Deed of Conditional Sale in 1990.
Costs against petitioner Felipe P. Arcilla, Jr.
X) PREPARED BY: Estember, Daniel John G.

VII) RULING:
YES. If the borrower is not duly informed of the data required by the law prior to the
consummation of the availment or drawdown, the lender will have no right to collect
such charge or increases thereof, even if stipulated in the promissory note. However,
such failure shall not affect the validity or enforceability of any contract or
transaction.

In the present case, DBP failed to disclose the requisite information in the disclosure
statement form authorized by the Central Bank, but did so in the loan transaction
documents between it and Arcilla. However, the Court is convinced that Arcillas
claim of not having been furnished the data/information required by R.A. No. 3765
and CB Circular No. 158 was but an afterthought. Despite the notarial rescission of
the conditional sale in 1990, and DBPs subsequent repeated offers to repurchase the

7
I) SHORT NAME: UCPB v. SPOUSES BELUSO
II) FULL NAME: UNITED COCONUT PLANTERS BANK v. SPOUSES SAMUEL and
ODETTE BELUSO
III) PONENTE: JUSTICECHICO-NAZARIO
IV) TOPIC: Full disclosure of the true cost of credit; Truth in Lending Act requires
full disclosure of the true cost of credit to the user.
V) STATEMENT OF THE FACTS:
United Coconut Planters Bank (UCPB) granted the spouses Samuel and Odette
Beluso (SpousesBeluso) a Promissory Notes Line under a P2.35 Million Credit
Agreement. To completely avail themselves of the credit line extended to them
by UCPB, the spouses Beluso executed two more promissory notes. UCPB
applied interest rates on the different promissory notes ranging from 18% to
34%. Unfortunately, Spouses Beluso failed to make any payment of the
foregoing amounts. This prompted UCPB to foreclose the properties mortgaged
by the spouses Beluso.
SpouseBeluso filed a Petition for Annulment, Accounting and Damages against
UCPB with the RTC. UCPB countered that while the interest rate was not
numerically quantified in the face of the promissory notes, it was nonetheless
categorically fixed, at the time of execution thereof, at the rate indicative of the
DBD retail rate. According to UCPB, the imposition of the questioned interest
rates did not infringe on the principle of mutuality of contracts, because the
spouses Beluso had the liberty to choose whether or not to renew their credit
line at the new interest rates pegged by petitioner.
VI) STATEMENT OF THE CASE:
Spouses Beluso filed a Petition for Annulment, Accounting, and Damages
against UCPB with the RTC. RTC ruled in favor of the spouses Beluso declaring
that the interest rate used by UCPB void and the foreclosure and Sheriffs
Certificate of Sale void. UCPB moved for reconsideration before the same court
but was denied. Thereafter, UCPB appealed the decision of the RTC to the Court
of Appeals. CA affirmed the RTC decision. UCPB moved for reconsideration but
was denied for lack of merit.
VII) ISSUE: Whether or not the imposition of interest in the following provision
found in the promissory notes of the spouses Beluso is void, as the interest rates
and the bases were determined solely by petitioner UCPB.
VIII) RULING:
YES.The provision in the loan stating that the interest shall be at the rate
indicative of DBD retail rateor as determined by the Branch Head is indeed
dependent solely on the will of petitioner UCPB. Under such provision,
petitioner UCPB has two choices on what the interest rate shall be: (1) a rate
indicative of the DBD retail rate; or (2) a rate as determined by the Branch Head.
As UCPB is given this choice, the rate should be categorically determinable in
both choices. If either of these two choices presents an opportunity for UCPB
to fix the rate at will, the bank can easily choose such an option, thus making
the entire interest rate provision violative of the principle of mutuality of
contracts. The interest rate provisions in the case at bar are illegal not only
because of the provisions of the Civil Code on mutuality of contracts, but also,
violate the Truth in Lending Act. Not disclosing the true finance charges in
connection with the extensions of credit is, furthermore, a form of deception
which the Court cannot countenance. Moreover, while the spouses Beluso
indeed agreed to renew the credit line, the offending provisions are found in
the promissory notes themselves, not in the credit line. In fixing the interest
rates in the promissory notes to cover the renewed credit line, UCPB still
reserved to itself the same two options (1) a rate indicative of the DBD retail
rate; or (2) a rate as determined by the Branch Head.
IX) DISPOSITIVE PORTION:
WHEREFORE, the Decision of the Court of Appeals is hereby AFFIRMED with the
following MODIFICATIONS:
1. In addition to the sum of P2,350,000.00 as determined by the courts a
quo, respondent spouses Samuel and Odette Beluso are also liable for the
following amounts:
a. Penalty of 12% per annum on the amount due from the date of demand;
and
b. Compounded legal interest of 12% per annum on the amount due from
date of demand;
2. The following amounts shall be deducted from the liability of the spouses
Samuel and Odette Beluso:
a.Payments made by the spouses in the amount of P763,692.00. These
payments shall be applied to the date of actual payment of the following
in the order that they are listed, to wit:
i.penalty charges due and demandable as of the time of payment;
ii.interest due and demandable as of the time of payment;
iii.principal amortization/payment in arrears as of the time of
payment;
iv. outstanding balance.
8
 b.Penalty under Republic Act No. 3765 in the amount of P26,000.00. This
amount shall be deducted from the liability of the spouses Samuel and
Odette Beluso on 9 February 1999 to the following in the order that they
are listed, to wit:
i. penalty charges due and demandable as of time of payment;
ii. interest due and demandable as of the time of payment;
iii. principal amortization/payment in arrears as of the time of
payment;
iv. outstanding balance.
3. The foreclosure of mortgage is hereby declared VALID. Consequently, the
amounts which the Regional Trial Court and the Court of Appeals ordered
respondents to pay, as modified in this Decision, shall be deducted from the
proceeds of the foreclosure sale.
X) PREPARED BY: Estember, Daniel John G.
I. SHORT TITLE: SPOUSES SILOS vs. PNB
II. FULL CASE TITLE: Spouses Eduardo And Lydia Silos, V. Philippine National Bank
III. PONENTE: JUSTICE DEL CASTILLO
IV. TOPIC: Truth in Lending Act requires the full disclosure of the true cost of credit
to the user.
V. STATEMENT OF FACTS:
Spouses Eduardo and Lydia Silos (Spouses Silos) secured a revolving credit line
obtained from Philippine National Bank (PNB), constituted a Real Estate Mortgage
over lot in Kalibo, Aklan as a security. The Credit Agreement contained a stipulation
on interest which provides that the Borrower shall agree that the Bank may modify
the interest rate in the Loan depending on whatever policy the Bank may adopt in
the future. The promissory note also provided that without need for notice or
demand, failure to pay or any installment thereon, when due, shall constitute default
shall be subject to a penalty charge of twenty four percent (24%) per annum based
on the defaulted principal amount. The credit became due but despite demand, the
spouses failed to pay. Thus, PNB foreclosed on the mortgage and sold the property.
Spouses Silos filed a case seeking annulment of the foreclosure sale on the ground
that the payment of interest in their loan agreements with PNB, which allegedly left
to the latter the sole will to determine the interest rate are null and void. In its
Answer, PNB denied that it unilaterally imposed or fixed interest rates and that
petitioners agreed that without prior notice, PNB may modify interest rates
depending on future policy adopted by it and that the imposition of penalties was
agreed upon in the Credit Agreement. It added that the imposition of penalties is
supported by the all-inclusive clause in the Real Estate Mortgage agreement which
provides that the mortgage shall stand as security for any and all other obligations
of whatever kind and nature owing to respondent.
VI. STATEMENT OF THE CASE:
PNB, due to the failure of the spouses to pay, foreclosed the property mortgaged.
Thereafter, spouses Silos filed a civil case seeking to annul the foreclosure sale and
the accounting of the PNB credit on the ground that the agreement to pay 19.5%
interest, the succeeding stipulations for the payment of interest in their loan
agreements with PNB – which allegedly left to the latter the sole will to determine
the interest rate – became null and void.
In its Answer, PNB denied that it unilaterally fixed and imposed interest rates as the
spouses agreed that without prior notice, the former may modify interest rates
depending on the future policy it adopted; while on the imposition of the penalties,
the same was agreed upon by the parties in the Credit Agreement
RTC ruled in favor of the PNB. The spouses appealed the RTC decision before the
Court of Appeals. CA declared the foreclosure sale to be valid, as well as the 24%
penalty as the same was covered by the phrase “and other obligations owing by the
mortgagor to the mortgagee” as expressed by the tenor of the Real Estate Mortgage
agreements. CA also increased the award for attorney’s fees from 1% to 10%. CA also
ruled that the spouses are entitled to the surplus of the foreclosure sale.
VII. ISSUE/S: Whether or not the interests and penalties imposed by the bank is
valid.
VIII. RULING:
NO. The element of consent or agreement by the borrower in the credit agreement
is completely lacking. It appears that by its acts, PNB violated the Truth in Lending
Act, or Republic Act No. 3765. The law states that any creditor shall furnish to each
person to whom credit is extended, prior to the consummation of the transaction, a
clear statement in writing setting forth, (1) the cash price or delivered price of the
property or service to be acquired; (2) the amounts, if any, to be credited as down
payment and/or trade-in; (3) the difference between the amounts set forth under
clauses (1) and (2);(4) the charges, individually itemized, which are paid or to be paid
by such person in connection with the transaction but which are not incident to the
9
extension of credit;(5) the total amount to be financed; (6) the finance charge
expressed in terms of pesos and centavos; and(7) the percentage that the finance
bears to the total amount to be financed expressed as a simple annual rate on the
outstanding unpaid balance of the obligation. By requiring the petitioners to sign the
credit documents and the promissory notes in blank, and then unilaterally filling
them up later on, respondent violated the Truth in Lending Act, and was remiss in its
disclosure obligations.
IX. COMPLETE DISPOSITIVE PORTION:
WHEREFORE, premises considered, the Petition is GRANTED. The May 8,
2007 Decision of the Court of Appeals in CA-G.R. CV No. 79650 is
ANNULLED and SET ASIDE. Judgment is hereby rendered as follows:
1. The interest rates imposed and indicated in the 2nd up to the 26th
Promissory Notes are DECLARED NULL AND VOID, and such notes shall
instead be subject to interest at the rate of twelve percent (12%) per
annum up to June 30, 2013, and starting July 1, 2013, six percent (6%) per
annum until full satisfaction;
2. The penalty charge imposed in Promissory Note No. 9707237 shall be
EXCLUDED from the amounts secured by the real estate mortgages;
3. The trial court’s award of one per cent (1%) attorney’s fees is
REINSTATED;
4. The case is ordered REMANDED to the Regional Trial Court, Branch 6 of
Kalibo, Aklan for the computation of overpayments made by petitioners
spouses Eduardo and Lydia Silos to respondent Philippine National Bank,
taking into consideration the foregoing dispositions, and applying the
procedure hereinabove set forth;
5. Thereafter, the trial court is ORDERED to make a determination as to
the validity of the extrajudicial foreclosure and sale, declaring the same
null and void in case of overpayment and ordering the release and return
of Transfer Certificates of Title Nos. T-14250 and TCT T-16208 to
petitioners, or ordering the delivery to the petitioners of the difference
between the bid price and the total remaining obligation of petitioners, if
any;
6. In the meantime, the respondent Philippine National Bank is ENJOINED
from consolidating title to Transfer Certificates of Title Nos. T-14250 and
T-16208 until all the steps in the procedure above set forth have been
taken and applied;
7. The reimbursement of the excess in the bid price of ₱377,505.99,
which respondent Philippine National Bank is ordered to reimburse
petitioners, should be HELD IN ABEYANCE until the true amount owing to
or owed by the parties as against each other is determined;
8. Considering that this case has been pending for such a long time and
that further proceedings, albeit uncomplicated, are required, the trial
court is ORDERED to proceed with dispatch.
X. PREPARED BY: Estember, Daniel John G.
I. SHORT TITLE: PNB vs. HON. SE, JR., et al.
II. FULL CASE TITLE: Philippine National Bank v. Hon. Pres. Judge Benito C. Se, Jr., Rtc,
Br. 45, Manila; Noah’sark Sugar Refinery; Alberto T. Looyuko, Jimmy T. Go And
Wilson T. Go
III. PONENTE: JUSTICE HERMOSISIMA, JR.
IV. TOPIC: Possessory nature of the lien on the goods possessed by the
warehouseman.
V. STATEMENT OF FACTS:
Noah's Ark Sugar Refinery issued on several dates warehouse receipts (quedans).
Being negotiable, the receipts covering sugar deposited by RNS Merchandising was
negotiated and indorsed to Luis Ramos. Those covering sugar deposited by St.
Therese Merchandising, RNS Merchandising and Rosa Sy were indorsed and
negotiated to CresensiaZoleta. The two indorsees used the quedans as security for
loans obtained by them from the PNB. Since both of them defaulted, PNB demanded
Noah’s Ark to deliver the sugar covered by the quedans. However, the latter refused
to comply. In G.R. No. 107243, Supreme Court ruled in favor of PNB declaring it as
10
the owner of the contended sugar stocks covered by five warehouse receipts. Upon
demand by the PNB of the sugar stocks in view of the favorable decision of the
Supreme Court, the respondents refused to deliver the same without the payment
of the warehouseman’s lien and sought for the deferment of the proceedings
through an Omnibus Motion and that they be heard on their claim on the
warehouseman’s lien or the storage fees. However, the PNB refused the payment of
the storage fees and moved for the issuance of a Writ of Execution and an Opposition
to the Omnibus Motion.
VI. STATEMENT OF THE CASE:
Supreme Court rendered judgment in favor of PNB in G.R. No. 107243 (PNB v. Noah’s
Ark). Noah’s Ark et al. moved for reconsideration of this decision. The
Supplemental/Second MR with leave of court filed by them was denied. They
likewise filed a Motion Seeking Clarification of the Decision, which was also denied.
They thereupon filed before the RTC an Omnibus Motion seeking among others the
deferment of the proceedings until they are heard on their claim for
warehouseman’s lien. PNB filed a Motion for the Issuance of a Writ of Execution and
an Opposition to the Omnibus Motion. The RTC granted the Omnibus Motion and
found that there exists in favor of the Noah’s Ark a valid warehouseman’s lien under
Section 27 of RA 2137. Consequently, the PNB filed the present petition to seek the
nullification of the assailed order of Judge Se.
VII. ISSUE/S:Whether or not the warehouseman may enforce his warehouseman’s
lien or storage fees before delivering the sugar stocks to PNB.
VIII. RULING:
Yes.
Even in the absence of such a provision, law and equity dictate the payment of the
warehouseman’s lienpursuant to Sections 27 and 31 of the Warehouse Receipts Law
(R.A. 2137), to wit:
SECTION 27. What claims are included in the warehouseman’s lien. –
Subject to the provisions of sectionthirty, a warehouseman shall have lien on
goods deposited or on the proceeds thereof in his hands, for all
lawfulcharges for storage and preservation of the goods; also for all lawful
claims for money advanced, interest,insurance, transportation, labor,
weighing coopering and other charges and expenses in relation to such
goods;also for all reasonable charges and expenses for notice, and
advertisement of sale, and for sale of the goodswheredefault has been made
in satisfying the warehouseman’s lien.
SECTION 31. Warehouseman need not deliver until lien is satisfied. –
A warehouseman having a lien validagainst the person demanding the goods
may refuse to deliver the goods to him until the lien is satisfied.After being
declared as the warehouseman, PRs cannot legally be deprived of their right
to enforce their claimfor warehouseman’s lien, for reasonable storage fees
and preservation expenses. Pursuant to Section 31, whichwe quote earlier,
the goods under storage may not be delivered until said lien is satisfied.
Considering that PNB does not deny the existence, validity and genuineness of
the Warehouse Receipts onwhich it anchors its claim for payment against PRs, it
cannot disclaim liability for the payment of the storagefees stipulated therein. PNB
is in estoppel in disclaiming liability for the payment of storage fees due the private
respondents as warehouseman while claiming to be entitled to the sugar stocks
covered by the subject Warehouse Receipts on the basis of which it anchors its claim
for payment or delivery of the sugar stocks. The unconditional presentment of the
receipts by PNB for payment against private respondents on the strength of the
provisions of the Warehouse Receipts Law (R.A. 2137) carried with it the admission
of the existence and validity of the terms, conditions and stipulations written on the
face of the Warehouse Receipts, including the unqualified recognition of the
payment of warehouseman’s lien for storage fees and preservation expenses. PNB
may not now retrieve the sugar stocks without paying the lien due private
respondents as warehouseman.
In view of the foregoing, the rule may be simplified thus: While the PNB is entitled
to the stocks of sugar as the endorsee of the quedans, delivery to it shall be effected
only upon payment of the storage fees. Imperative is the right of the warehouseman
to demand payment of his lien at this juncture, because, in accordance with Section
29 of the Warehouse Receipts Law, the warehouseman loses his lien upon goods by
surrendering possession thereof. In other words, the lien may be lost where the
warehouseman surrenders the possession of the goods without requiring payment
of his lien, because a warehouseman’s lien is possessory in nature.
IX. COMPLETE DISPOSITIVE PORTION:
WHEREFORE, the petition should be, as it is, hereby dismissed for lack of merit. The
questioned orders issued by public respondent judge are affirmed. Costs against the
petitioner.
X. PREPARED BY: Estember, Daniel John G.
11

I. SHORT TITLE: PNB vs. HON. SAYO, JR, ET AL.
II. FULL CASE TITLE: Philippine National Bank, vs. Hon. Marcelino L. Sayo, Jr., In His
Capacity As Presiding Judge Of The Regional Trial Court Of Manila (Branch 45),
Noahs Ark Sugar Refinery, Alberto T. Looyuko, Jimmy T. Go And Wilson T. Go
III. PONENTE: JUSTICE DAVIDE, JR.
IV. TOPIC:The loss of the warehouseman’s lien does not necessarily mean the
extinguishment of the obligation to pay the warehousing fees and charges which
continues to be a personal liability of the owners.
V. STATEMENT OF FACTS:
In accordance with the Warehouse Receipts Law, Noah's Ark Sugar Refinery issued
on several dates Warehouse Receipts (quedans) covering sugar deposited by Rosa
Sy, RNS Merchandising, and St. Therese Merchandising. The receipts are
substantially in the form, and contain the terms, prescribed for negotiable
warehouse receipts by Section 2 of the law.
Subsequently, Warehouse Receipts were negotiated and endorsed to Luis T. Ramos
and to Cresencia K. Zoleta. Ramos and Zoleta then used the quedans as security for
two loan agreements — one for P15.6 million and the other for P23.5 million —
obtained by them from the PNB. They endorsed the aforementioned quedans to
PNB.
VI. STATEMENT OF THE CASE:
After the decision in G.R. No. 119231 (PNB v. Se) became final and executory, various
incidents took place before the trial court. Noah’s Ark and its officers filed a Motion
for Execution of Defendants’ Lien as Warehouseman pursuant to SC’s decision which
was opposed by PNB. The RTC, this time presided Hon. Marcelino L. Sayo Jr., granted
the Motion for Execution. PNB was immediately served with a Writ of Execution for
the amount of P662,548,611.50. PNB thus filed an Urgent Motion seeking the
deferment of the enforcement of the Writ of Execution. Nevertheless, the Sheriff
levied on execution several properties of PNB. The said bank also filed a MR with
Urgent Prayer for Quashal of Writ of Execution. After several exchanges of motions,
Judge Sayo denied with finality for lack of merit the motions filed by PNB.
VII. ISSUE/S:Whether or not the loss of warehouseman’s lien extinguishes the
obligation of PNB to pay storage fees and charges.
VIII. RULING:
The warehouseman is entitled to the warehouseman’s lien that attaches to the
goods that may be invoked against anyone who claims a right of possession thereon.
In this case, the lien was lost when the respondents refused to deliver the goods,
which were not anchored to a valid excuse (i.e. non satisfaction of warehousemean’s
lien) but on an adverse claim of ownership. HOWEVER, the loss of Warehouseman’s
lien does not necessarily mean the extinguishment of the obligation to pay the
Warehouseman’s fees and charges, which continues to be a personal liability of the
owners, PNB in this case. However, such fees and charges have ceased to accrue
from the date of the rejection by Noah’s Ark to heed the lawful demand for the
release of the goods.While PNB is entitled to the stocks of sugar as the endorsee of
the quedans, delivery to it shall be effected only upon payment of the storage fees.
IX. COMPLETE DISPOSITIVE PORTION: WHEREFORE, the petition is GRANTED. The
challenged orders of 15 April and 14 July 1997, including the notices of levy and
garnishment, of the Regional Trial Court of Manila, Branch 45, in Civil Case No. 90-
53023 are REVERSED and SET ASIDE, and said court is DIRECTED to conduct further
proceedings in said case:
(1) To allow petitioner to present its evidence on the matter of
the warehouseman’s lien;
(2) To compute the petitioners warehouseman’s lien in light of the
foregoing observations; and
(3) To determine whether, for the relevant period, Noah’s Ark
maintained a sufficient inventory to cover the volume of sugar
specified in the quedans.
Costs against private respondents
X. PREPARED BY: Estember, Daniel John G.
12
 I. SHORT TITLE: PDIC v. COA
II. FULL TITLE: PHILIPPINE DEPOSIT INSURANCE CORPORATION, petitioner,
vs. COMMISSION ON AUDIT, respondent.
III. PONENTE: TINGA, J.:
IV. TOPIC: Philippine Deposit Insurance System under Other Banking Laws
V. STATEMENT OF FACTS
The former Finance Secretary, Roberto de Ocampo, the ex-officio Chairman of PDIC
Board received P440,068.62 representing Business Policy Development and
Enforcement Expenses (BPDEE) and Christmas gift checks. The Auditor issued Notice
of Disallowance disallowing in audit the payment of said expenses on the ground
that it is in the nature of additional compensation in violation of the rule on multiple
positions proscribed under Sec. 13, Art. VII of the Philippine Constitution and Sec.
2(9), R.A. 3591.
PDIC sought reconsideration of the subject disallowance but the same was denied in
a COA decision and resolution. It appealed to the Supreme Court En Banc whereby
the latter affirmed with finality said decision and resolution. The Final Order of
Adjudication was issued to PDIC. However, PDIC condoned the amount of
P413,866.62 invoking its power to condone under Sec. 8, par. 12 of its charter.
The COA Chairman referred the matter to the Office of the Solicitor General
requesting assistance in the filing of appropriate action agaist the PDIC officials.
In a letter, the PDIC seeks to have its right to appeal reinstated and sought
reconsideration of the action taken alleging that it did not receive any notice of
disallowance of the condonation and that its management was deprived of its right
to be heard as it was never provided a copy of the Resident Auditor's Memorandum.
COA denied PDIC's request. It ruled that PDIC cannot feign violation of its right to
due process because it fully participated in the appeals process. It cannot validly
invoke its authority under its charter because the same had already been affirmed
by the Supreme Court. To allow PDIC to condone the disallowance would be
tantamount to sanctioning the indirect violation of the prohibition against double
compensation and the final Supreme Court decision.
VI. STATEMENT OF THE CASE
The PDIC seeks succor from the Court against an alleged infringement of its right to
due process on account of the decision of the COA which denied its request to permit
the condonation of an audit disallowance.
In its Memorandum, PDIC claims that the COA Decision was an arbitrary exercise of
the Commission's discretion because it deprived PDIC of its right to be heard on the
validity of the exercise of its right to condone a settled liability. The COA resident
auditor allegedly failed to furnish it with notice of the memorandum disallowing the
condonation, and thereby deprived PDIC of its right to appeal from the disallowance
as provided under the COA Rules.
The OSG, on behalf of the Commission, asserts that PDIC's right to appeal from the
Memorandum dated is already barred by res judicata. Moreover, the resident
auditor was not under obligation to furnish PDIC with a copy of the Memorandum
because the same did not contain any ruling or order but merely informed COA that
PDIC condoned the disallowance and referred the matter to the Commission for
appropriate action.
VII. ISSUE: Whether or not the COA committed grave abuse of discretion when it
disallowed the condonation of an audit disallowance.
VIII. RULING:
DISALLOWANCE OF THE AMOUNTS DISBURSED HAD BEEN AFFIRMED WITH FINALITY
Being a final and executory judgment in the case of PDIC v. COA, there was nothing
left to be done but to execute the decision in accordance with its terms.
Under Rule XII of the COA Rules, execution shall issue upon a decision that finally
disposes of the case. The auditor is tasked to direct the persons liable to pay or
refund the amount disallowed, failing which, an auditor's order shall be issued
directing the cashier, treasurer or disbursing officer to withhold the payment of any
money due such persons. The final order of adjudication thus functions as the writ
of execution in audit proceedings.
The Memorandum of COA Supervising Auditor Paz came in the heels of the PDIC
Resolution and referred the condonation to COA's Legal and Administration Office
for appropriate action.
The COA Chairman ultimately referred the matter to the OSG for the filing of the
appropriate suit against responsible PDIC officials in accordance with the COA Rules.
Such action taken by the COA was merely an execution of the Court's final decision
upholding the audit disallowance.
PDIC HAS NO RIGHT TO APPEAL THE MEMORANDUM OF THE SUPERVISING AUDITOR
UNDER THE COA RULES
To be subject to appeal, such an order, decision or ruling must contain a disposition
of a case. A memorandum, which does not contain a disposition but merely informs
the Commission of the condonation carried out by PDIC and refers the matter to the
Commission for appropriate action, is not such an order, decision or ruling that may
be appealed under Rule V.
More importantly, Rule V cannot be presumed to apply when the question pertains
to an incident of execution of a final and executory judgment. To allow an appeal, as
PDIC insists, on the issue of the propriety of the condonation would also subject the
propriety of the audit disallowance to review.
13

THE AUDIT DISALLOWANCE IS NOT SUBJECT TO CONDONATION
Following the principle that what is prohibited directly is also prohibited indirectly.
The audit disallowance cannot be circumvented and legitimized by resorting to
condonation.
The authority of PDIC to condone applies only to ordinary receivables, penalties and
surcharges and must be submitted to the Commission before it is implemented.
PDIC's authority to condone under its charter is circumscribed by the phrase "to
protect the interest of the Corporation."This authority does not include the power
to condone a liability that arises from a violation of law. It is not in the interest of
PDIC to forego audit disallowances as it is neither its mandate nor its task to
perpetuate breaches of law.
PDIC WAS NOT DENIED DUE PROCESS
PDIC fully participated in the proceedings pertaining to the audit disallowance up
until the same was finally upheld by this Court. It was also given sufficient
opportunity to defend the validity of its exercise of its authority to condone.
In its letter to the COA, PDIC raised the issue of whether it had validly exercised its
authority under its charter to condone the disallowance of the BPDEE paid to
Secretary De Ocampo.
The Commission resolved the issue in the negative. The fact that PDIC was heard on
the issue of the validity of the condonation already suffices. Denial of due process is
the total lack of opportunity to be heard. Such a situation does not obtain in this
case.
IX. DISPOSITIVE PORTION
WHEREFORE, the petition is DISMISSED. No pronouncement as to costs.
X. PREPARED BY:
PERALTA, STEPHANIE T.
I. SHORT TITLE: PDIC vs. PCRB
II. FULL TITLE: PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC), Petitioner,
vs.
PHILIPPINE COUNTRYSIDE RURAL BANK, INC., RURAL BANK OF CARMEN (CEBU), INC.,
BANK OF EAST ASIA (MINGLANILLA, CEBU), INC., and PILIPINO RURAL BANK (CEBU),
INC., Respondents.
G.R. No. 176438, January 24, 2011,
III. PONENTE: MENDOZA, J.:
IV. TOPIC: PDIC
V. STATEMENT OF FACTS:
The Board of Directors of the PDIC (PDIC Board) adopted a resolution which
approved the conduct of an investigation, in accordance with Section 9(b-1) of
Republic Act (R.A.) No. 3591, as amended, on the basis of the Reports of Examination
of the BangkoSentralngPilipinas (BSP) on ten (10) banks, four (4) of which are
respondents in this petition for review.
Another resolution was adopted, this time approving the conduct of an investigation
on PCRBI based on a Complaint-Affidavit filed by a corporate depositor, the
Philippine School of Entrepreneurship and Management (PSEMI) through its
president, Jacinto L. Jamero.
According to PDIC, in the course of its investigation, PCRBI was found to have granted
loans to certain individuals, which were settled by way of dacion of properties. These
properties, however, had already been previously foreclosed and consolidated
under the names of PRBI, BEAI and RBCI.
The investigation was sought because the Banks were found to be among the ten
(10) banks collectively known as "Legacy Banks." The Reports of General and Special
Examinations of the BSP as of June 30, 2004, disclosed, among others, that the
Legacy Banks were commonly owned and/or controlled by Legacy Plans Inc. (now
Legacy Consolidated Plans, Inc.), and CelsoGancaycodelos Angles, Jr. and his family.
Subsequently, PRBI and BEAI refused entry to their bank premises and access to their
records and documents by the PDIC Investigation Team, upon advice of their
respective counsels.
14
On June 16 and 17, 2005, Atty. Victoria G. Noel (Atty. Noel) of the Tiongson&Antenor
Cruz Law Office sent letters to the PDIC informing it of her legal advice to PCRBI and
BEAI not to submit to PDIC investigation on the ground that its investigatory power
pursuant to Section 9(b-1) of R.A. No. 3591, as amended (An Act Establishing The
Philippine Deposit Insurance Corporation, Defining Its Powers And Duties And For
Other Purposes), cannot be differentiated from the examination powers accorded to
PDIC under Section 8, paragraph 8 of the same law, under which, prior approval from
the Monetary Board is required.
PDIC General Counsel Romeo M. Mendoza sent a reply to Atty. Noel stating that
"PDIC’s investigation power, as distinguished from the examination power of the
PDIC under Section 8 of the same law, does not need prior approval of the Monetary
Board."17 PDIC then urged PRBI and BEAI "not to impede the conduct of PDIC’s
investigation" as the same "constitutes a violation of the PDIC Charter for which PRBI
and BEAI may be held criminally and/or administratively liable."
Simultaneously, the Banks wrote to the Monetary Board requesting a clarification on
the parameters of PDIC’s power of investigation/examination over the Banks and for
an issuance of a directive to PDIC not to pursue the investigations pending the
requested clarification.
PRBI and BEAI again received letters from PDIC, dated June 24, 2005, which appeared
to be final demands on them to allow its investigation. PRBI and BEAI replied that
letters of clarification had been sent to PDIC and the Monetary Board. Pending action
on such requests, PDIC was requested to refrain from proceeding with the
investigation.
Notwithstanding, on July 11, 2005, the Banks received a letter, dated July 8, 2005,
from the PDIC General Counsel reiterating its position that prior Monetary Board
approval was not a pre-requisite to PDIC’s exercise of its investigative power.
VI. STATEMENT OF THE CASE:
The Banks filed a Petition for Declaratory Relief with a Prayer for the Issuance of a
TRO and/or Writ of Preliminary Injunction (RTC Petition) before the Regional Trial
Court of Makati
In the RTC Petition, the Banks prayed for a judgment interpreting Section 9(b-1) of
the PDIC Charter, as amended, to require prior Monetary Board approval before
PDIC could exercise its investigation/examination power over the Banks.
PDIC filed a motion to dismiss alleging that the RTC had no jurisdiction over the said
petition since a breach had already been committed by the Banks when they
received the notices of investigation, and because PDIC need not secure prior
Monetary Board approval since "examination" and "investigation" are two different
terms.
Later, the Banks withdrew their application for a temporary restraining
order (TRO) reasoning that lower courts cannot issue injunctions against PDIC. Thus,
the Banks instituted a petition for injunction with application for TRO and/or
Preliminary Injunction (CA-Manila petition) before the Court of Appeals-Manila (CA-
Manila).
Even before the CA-Manila could rule on the application for a TRO and/or writ of
preliminary injunction, the RTC-Makati dismissed the petition on the ground that
there already existed a breach of law that isolated the case from the jurisdiction of
the trial court.
The Banks filed a motion for reconsideration but it was denied by the RTC for lack of
merit. On February 10, 2006, the Banks filed a notice of appeal31 which they later
withdrew on February 28, 2006.
In view of the dismissal of the RTC-Makati petition, the CA-Manila dismissed the
petition for injunction for being moot and academic.
the Banks filed their Petition for Injunction with Prayer for Preliminary Injunction (CA-
Cebu Petition) with the CA-Cebu (CA-Cebu).
On March 15, 2006, the CA-Cebu issued a resolution granting the Bank’s application
for a TRO. This enjoined the PDIC, its representatives or agents or any other persons
or agency assisting them or acting for and in their behalf from conducting
examinations/investigations on the Banks’ head and branch offices without securing
the requisite approval from the Monetary Board of BSP.
During the pendency of the CA-Cebu petition, PDIC filed with this Court a Petition for
Certiorari, Prohibition and Mandamus with Prayer for Issuance of Temporary
Restraining Order and/or Writ of Preliminary Injunction under Rule 65 docketed as
G.R. No. 173370. It alleged that the CA-Cebu committed grave abuse of discretion
amounting to lack or excess of jurisdiction in taking cognizance of the Banks’ petition,
and in issuing a TRO and a writ of preliminary injunction.
15
On July 31, 2006, this Court issued a resolution dismissing the petition for certiorari.
It reasoned that the petition is premature since no motion for reconsideration of the
questioned resolution of the Court of Appeals was filed prior to the availment of this
special civil action and there are no sufficient allegations to bring the case within the
recognized exceptions to this rule.
[A]fter undergoing a series of amendments, the controlling law with respect to
PDIC’s power to conduct examination of banks is-prior approval of the Monetary
Board is a condition sine qua non for PDIC to exercise its power of examination. To
rule otherwise would disregard the amendatory law of the PDIC’s charter.
The Court is not also swayed by the contention of respondent that what it seeks to
conduct is an investigation and not an examination of petitioners’ transactions,
hence prior approval of the Monetary Board is a mere surplusage.
The ordinary definition of the words "examination" and "investigation" would lead
one to conclude that both pertain to the same thing and there seems to be no fine
line differentiating one from the other
In the realm of the PDIC rules, specifically under Section 3 of PDIC Regulatory
Issuance No. 2205-0242"investigation" is defined as: Investigation shall refer to fact-
finding examination, study, inquiry, for determining whether the allegations in a
complaint or findings in a final report of examination may properly be the subject of
an administrative, criminal or civil action.
From the foregoing definition alone, it can be easily deduced that investigation and
examination are synonymous terms. Simply stated, investigation encompasses a
fact-finding examination. Thus, it is inconsistent with the rules if respondent PDIC be
(sic) allowed to conduct an investigation without the approval of the Monetary
Board.
With the foregoing premises, this Court rules that a prior approval from the
Monetary Board is necessary before respondent PDIC can proceed with its
investigations on petitioners-banks.
PDIC moved for reconsideration but it was denied in a resolution dated January 25,
2007.
Hence, this petition.
VII. ISSUES:
1.) Whether or not prior approval of the monetary board is necessary to
conduct investigation
2.) Whether or not there is forum shopping
VIII. HELD:
1.) NO.
PDIC is of the position that in order for it to exercise its power of investigation, the
law requires that:
(a) The investigation is based on a complaint of a depositor or any other
government agency, or on the report of examination of the
BangkoSentralngPilipinas (BSP) and/or PDIC; and,
(b) The complaint alleges, or the BSP and/or PDIC Report of Examination
contains adverse findings of, fraud, irregularities or anomalies committed
by the Bank and/or its directors, officers, employees or agents; and,
(c) The investigation is upon the authority of the PDIC Board of Directors.
It argues that when it commenced its investigation on the Banks, all of the
aforementioned requirements were met. PDIC stresses that its power of
examination is different from its power of investigation, in such that the former
requires prior approval of the Monetary Board while the latter requires merely the
approval of the PDIC Board.
It further claims that the power of examination cannot be exercised within twelve
(12) months from the last examination conducted, whereas the power of
investigation is without limitation as to the frequency of its conduct. It states that
the purpose of the PDIC’s power of examination is merely to look into the condition
of the bank, whereas the power of investigation aims to address fraud, irregularities
and anomalies based on complaints from depositors and other government agencies
or upon reports of examinations conducted by the PDIC itself or by the BSP.67
16
The Banks, on the other hand, are of the opinion that a holistic reading of the PDIC
charter shows that petitioner’s power of examination is synonymous with its power
of investigation.
the Court is of the view that the Monetary Board approval is not required for PDIC
to conduct an investigation on the Banks.
The confusion can be attributed to the fact that although "investigation" and
"examination" are two separate and distinct procedures under the charter of the
PDIC and the BSP, the words seem to be used loosely and interchangeably.
Under its charter, the PDIC is empowered to conduct examination of banks with prior
approval of the Monetary Board:
To conduct examination of banks with prior approval of the Monetary
Board: Provided, That no examination can be conducted within twelve (12)
months from the last examination date: Provided, however, That the
Corporation may, in coordination with the BangkoSentral, conduct
a special examination as the Board of Directors, by an affirmative vote of a
majority of all its members, if there is a threatened or impending closure of
a bank;
As stated above, the charter empowers the PDIC to conduct an investigation of a
bank and to appoint examiners who shall have the power to examine any insured
bank. Such investigators are authorized to conduct investigations on frauds,
irregularities and anomalies committed in banks, based on an
examination conducted by the PDIC and the BSP or on complaints from depositors
or from other government agencies.
The distinction between the power to investigate and the power to examine is
emphasized by the existence of two separate sets of rules governing the procedure
in the conduct of investigation and examination.
In 2009, to clarify procedural matters, PDIC released RI No. 2009-05 or the Rules and
Regulations on Examination of Banks. Section 2 thereof differentiated between the
two types of examination as follows:
Section 2. Types of Examination
a. Regular Examination - An examination conducted independently or
jointly with the BSP. It requires the prior approval of the PDIC Board of
Directors and the Monetary Board (MB). It may be conducted only after an
interval of at least twelve (12) months from the closing date of the last
Regular Examination.
b. Special Examination – An examination conducted at any time in
coordination with the BSP, by an affirmative vote of a majority of all the
members of the PDIC Board of Directors, without need of prior MB
approval, if there is a threatened or impending bank closure as determined
by the PDIC Board of Directors. [Underscoring supplied]
Section 3 of RI No. 2009-05 provides for the general scope of the PDIC examination:
Section 3. Scope of Examination
The examination shall include, but need not be limited to, the following:
a. Determination of the bank’s solvency and liquidity position;
b. Evaluation of asset quality as well as determination of sufficiency of
valuation reserves on loans and other risk assets;
c. Review of all aspects of bank operations;
d. Assessment of risk management system, including the evaluation of the
effectiveness of the bank management’s oversight functions, policies,
procedures, internal control and audit;
e. Appraisal of overall management of the bank;
f. Review of compliance with applicable banking laws, and rules and
regulations, including PDIC issuances;
g. Follow-through of specific exceptions/ violations noted during a
previous examination; and
h. Any other activity relevant to the above.
17
Rule 2, Section 1 of PDIC RI No. 2005-02 or the PDIC Rules on Fact-Finding
Investigation of Fraud, Irregularities and Anomalies Committed in Banks provides for
the scope of fact-finding investigations as follows:
SECTION 1.Scope of the Investigation.
Fact-finding Investigations shall be limited to the particular acts or omissions subject
of a complaint or a Final Report of Examination.
From the above-cited provisions, it is clear that the process of examination covers a
wider scope than that of investigation.
Examination involves an evaluation of the current status of a bank and determines
its compliance with the set standards regarding solvency, liquidity, asset valuation,
operations, systems, management, and compliance with banking laws, rules and
regulations.
Investigation, on the other hand, is conducted based on specific findings of certain
acts or omissions which are subject of a complaint or a Final Report of Examination.
Clearly, investigation does not involve a general evaluation of the status of a
bank.1âwphi1 An investigation zeroes in on specific acts and omissions uncovered
via an examination, or which are cited in a complaint.
An examination entails a review of essentially all the functions and facets of a bank
and its operation. It necessitates poring through voluminous documents, and
requires a detailed evaluation thereof. Such a process then involves an intrusion into
a bank’s records.
In contrast, although it also involves a detailed evaluation, an investigation centers
on specific acts of omissions and, thus, requires a less invasive assessment.
The practical justification for not requiring the Monetary Board approval to conduct
an investigation of banks is the administrative hurdles and paperwork it entails, and
the correspondent time to complete those additional steps or requirements. As in
other types of investigation, time is always of essence, and it is prudent to expedite
the proceedings if an accurate conclusion is to be arrived at, as an investigation is
only as precise as the evidence on which it is based. The promptness with which such
evidence is gathered is always of utmost importance because evidence,
documentary evidence in particular, is remarkably fungible. A PDIC investigation is
conducted to "determine[e] whether the allegations in a complaint or findings in a
final report of examination may properly be the subject of an administrative, criminal
or civil action." In other words, an investigation is based on reports of examination
and an examination is conducted with prior Monetary Board approval. Therefore, it
would be unnecessary to secure a separate approval for the conduct of an
investigation. Such would merely prolong the process and provide unscrupulous
individuals the opportunity to cover their tracks.
Indeed, while in a literary sense, the two terms may be used interchangeably, under
the PDIC Charter, examination and investigation refer to two different processes. To
reiterate, an examination of banks requires the prior consent of the Monetary Board,
whereas an investigation based on an examination report, does not.
2.) NO.
Forum shopping is defined as an act of a party, against whom an adverse judgment
or order has been rendered in one forum, of seeking and possibly getting a favorable
opinion in another forum, other than by appeal or special civil action for certiorari.
It may also be the institution of two or more actions or proceedings grounded on the
same cause on the supposition that one or the other court would make a favorable
disposition. There is forum shopping where the elements of litispendentiaare
present, namely: (a) there is identity of parties, or at least such parties as represent
the same interest in both actions; (b) there is identity of rights asserted and relief
prayed for, the relief being founded on the same set of facts; and (c) the identity of
the two preceding particulars is such that any judgment rendered in the pending
case, regardless of which party is successful, would amount to res judicata in the
other. It is expressly prohibited by this Court because it trifles with and abuses court
processes, degrades the administration of justice, and congests court dockets. A
willful and deliberate violation of the rule against forum shopping is a ground for
summary dismissal of the case, and may also constitute direct contempt.
The first element is clearly present as between the RTC-Makati petition and the CA-
Cebu petition. Both involved the Banks on one hand, and the PDIC on the other.
The second and third elements of litispendentia, however, are patently wanting. The
rights asserted and reliefs prayed for were different, though founded on the same
set of facts. The RTC-Makati Petition was one for declaratory relief while the CA-
Manila Petition was one for injunction with a prayer for preliminary injunction.
18
As can be gleaned from the above-cited portions of the CA-Manila and CA-Cebu
petitions, the petitions seek different reliefs. Therefore, as between and among the
RTC Makati, and the CA-Manila and CA-Cebu petitions, there is no forum shopping.
In G.R. 173370, a petition for certiorari under Rule 65 of the Rules of Court, PDIC
alleged that the CA-Cebu committed grave abuse of discretion amounting to lack or
excess of jurisdiction in taking cognizance of the Bank’s petition, and in issuing a TRO
and a writ of preliminary injunction.
In the case at bench, a petition for review under Rule 45, PDIC’s core contention is
that the CA-Cebu erred in finding that prior approval of the Monetary Board of the
BSP is necessary before it may conduct an investigation of the Banks.
Clearly then, the two petitions were of different nature raising different issues.
G.R. 173370 challenged the CA-Cebu’s having taken cognizance of the Bank’s petition
and interlocutory orders on the issuance of a TRO and a writ of preliminary
injunction. This case, however, strikes at the core of the final decision on the merits
of the CA-Cebu, and not merely the interlocutory orders. While both G.R. 173370
and the present case may have been anchored on the same set of facts, that is, the
refusal of the Banks to allow PDIC to conduct an investigation without the prior
consent of the Monetary Board, the issues raised in the two petitions are not
identical. Moreover, the disposal of the first case does not amount to res judicata in
this case.
IX. DISPOSITIVE PORTION: WHEREFORE, the petition is GRANTED. The Decision and
Resolution of the Court of Appeals in CA G.R. CEB SP. No. 01550, dated September
18, 2006 and January 25, 2007 are REVERSED and SET ASIDE.
SO ORDERED.
X. PREPARED BY: Corpuz, Edwin
I. SHORT TITLE: PDIC vs. CA, Aqueroet. al
II. FULL TITLE: PHILIPPINE DEPOSIT INSURANCE CORPORATION, petitioner, vs.
COURT OF APPEALS, ROSA AQUERO, GERARD YU, ERIC YU, MINA YU, ELIZABETH
NGKAION, MERLY CUESCANO, LETICIA TAN, FELY RUMBANA, LORNA ACUB,
represented by their Attorney-in-Fact, JOHN FRANCIS COTAACO, respondents.
III. PONENTE: KAPUNAN, J.
IV. TOPIC: Other Banking Laws - Philippine Deposit Insurance System
V. STATEMENT OF FACTS
Aqueroet. al., plaintiffs-appellees, invested in money market placements
with the Premiere Financing Corporation (PFC) in the sum of P10,000.00 each for
which they were issued by the PFC corresponding promissory notes and checks. John
Francis Cotaoco, for and in behalf of plaintiffs-appellees, went to the PFC to encash
the promissory notes and checks, but the PFC referred him to the Regent Saving Bank
(RSB). Instead of paying the promissory notes and checks, the RSB, upon agreement
of Cotaoco, issued the subject 13 certificates of time deposit, inclusive, each stating,
among others, that the same certifies that the bearer thereof has deposited with the
RSB the sum of P10,000.00; that the certificate shall bear 14% interest per annum;
that the certificate is insured up to P15,000.00 with the PDIC.
On the maturity date, Cotaoco went to the RSB to encash the said
certificates. Thereat, RSB Executive Vice President requested Cotaoco for a
deferment or an extension of a few days to enable the RSB to raise the amount to
pay for the same to which Cotaoco agreed. Despite said extension, the RSB still failed
to pay the value of the certificates. Instead, RSB advised Cotaoco to file a claim with
the PDIC.
Meanwhile, the Monetary Board of the Central Bank issued a resolution
suspending the operations of the RSB. Eventually, the records of RSB were secured
and its deposit liabilities were eventually determined. Another resolution was then
issued by the Monetary Board liquidating the RSB. Subsequently, a masterlist or
inventory of the RSB assets and liabilities was prepared. However, the certificates of
time deposit of plaintiffs-appellees were not included in the list on the ground that
the certificates were not funded by the PFC or duly recorded as liabilities of RSB.
VI. STATEMENT OF CASE
19
 Plaintiffs-appellees filed with the PDIC their respective claims for the
amount of the certificates and others who have similar claims on their certificates of
time deposit with the RSB, likewise filed their claims with the PDIC. To their dismay,
PDIC refused the aforesaid claims on the ground that the Traders Royal Bank Check
No. 299255 dated September 22, 1983 for the amount of P125,846.07 (Exh. B) issued
by PFC for the aforementioned certificates was returned by the drawee bank for
having been drawn against insufficient funds; and said check was not replaced by the
PFC, resulting in the cancellation of the certificates as indebtedness or liabilities of
RSB.
Consequently, Aqueroet. al., filed an action for collection against PDIC, RSB
and the Central Bank. Trial court rendered its decision ordering the defendants
therein to pay plaintiffs, jointly and severally, the amount corresponding to the
latter’s certificates of time deposit.
Both PDIC and RSB appealed. The Central Bank, on the other hand, filed a
petition for certiorari, prohibition and mandamus before the CA praying that the writ
of execution issued by the trial court against it be set aside. CA granted Central
Bank’s petition but dismissed the appeals of PDIC and RSB. Hence, this petition.
VII. ISSUES
1. WON CA ERRED IN HOLDING THAT THE SUBJECT CTDS ARE NEGOTIABLE
INSTRUMENTS
2. WON CA ERRED INHOLDING THAT THE CTDS WERE ACQUIRED FOR VALUE AND
CONSIDERATION
3. WON CA ERRED WHEN IT HELD THAT BECAUSE THE CTDS STATE THAT THESE
WERE INSURED, PETITIONER SHOULD BE HELD LIABLE FOR THE SAME.
VIII. RULING
1. CA concluded that the subject CTDs are negotiable. Petitioner, on the other
hand, contends that the CTDs are non-negotiable since they do not contain
an unconditional promise or order to pay a sum in money are they made
payable to order or bearer, as required by Section 1 of the Negotiable
Instruments Law. Whether the CTDs in question are negotiable or not is,
however, immaterial in the present case. The Philippine Deposit Insurance
Corporation was created by law and, as such, is governed primarily by the
provisions of the special law creating it. The liability of the PDIC for insured
deposits therefore is statutory and, under Republic Act No. 3591,as
amended, such liability rests upon the existence of deposits with the
insured bank, not on the negotiability or non-negotiability of the
certificates evidencing these deposits.
2. YES. In order that a claim for deposit insurance with the PDIC may prosper,
the law requires that a corresponding deposit be placed in the insured
bank. This is implicit from a reading of the following provisions of R.A. 3519
that, whenever an insured bank shall have been closed on account of
insolvency, payment of the insured deposits in such bank shall be made
by the Corporation as soon as possible.
A deposit as defined in Section 3(f) of R.A. No. 3591, may be
constituted only if money or the equivalent of money is received by a
bank:
SEC. 3. As used in this Act-
(f) The term deposit means the unpaid balance of money or its
equivalent received by a bank in the usual course of business
and for which it has given or is obliged to give credit to a
commercial, checking, savings, time or thrift account or which
is evidence by passbook, check and/or certificate of deposit
printed or issued in accordance with Central Bank rules and
regulations and other applicable laws, together with such
other obligations of a bank which, consistent with banking
usage and practices, the Board of Directors shall determine
and prescribe by regulations to be deposit liabilities of the Bank
xxx.
Such finding totally ignores the evidence presented by defendants.
Cardola de Jesus, RSB Deputy Liquidator, testified that RSB received three
(3) checks in consideration for the issuance of several CTDs, including the
ones in dispute. In consideration of the third check, private respondents
received thirteen (13) certificates of deposit with a value of P10,000.00
each or a total of P130,000.00. The first two checks made good in the
clearing while the third was returned for being drawn against insufficient
funds. The check in question described in RSBs offer of evidence as
Traders Royal Bank Check issued by Premiere Financing Corporation. At
the back of said check are the words Refer to Drawer, indicating that the
drawee bank (Traders Royal Bank) refused to pay the value represented
by said check. By reason of the checks dishonor, RSB cancelled the
corresponding as evidenced by an RSB ticket. These pieces of evidence
convincingly show that the subject CTDs were indeed issued without RSB
receiving any money therefor. No deposit, as defined in Section 3 (f) of
R.A. No. 3591, therefore came into existence. Accordingly, petitioner PDIC
20
 cannot be held liable for value of the certificates of time deposit held by
private respondents.
3. YES. We disagree with respondent courts rationale. The fact that the
certificates state that the certificates are insured by PDIC does not ipso
facto make the latter liable for the same should the contingency insured
against arise. As stated earlier, the deposit liability of PDIC is determined
by the provisions of R.A. No. 3519, and statements in the certificates that
the same are insured by PDIC are not binding upon the latter
IX. DISPOSITIVE PORTION
ACCORDINGLY, the instant petition is hereby GRANTED and the decision of the Court
of Appeals REVERSED. Petitioner is absolved from any liability to private
respondents.
SO ORDERED.
X. PREPARED BY: Butalid, Claudelle
I. SHORT TITLE: PDIC vs CA and Abad
II. FULL TITLE: PHILIPPINE DEPOSIT INSURANCE CORPORATION VS. THE HONORABLE
COURT OF APPEALS AND JOSE ABAD, LEONOR ABAD, SABINA ABAD, JOSEPHINE JOSIE
BEATA ABAD-ORLINA, CECILIA ABAD, PIO ABAD, DOMINIC ABAD, TEODORA ABAD
III. PONENTE: CARPIO-MORALES, J.
IV. TOPIC: PHILIPPINE DEPOSIT INSURANCE SYSTEM
V. STATEMENT OF FACTS
The respondents had, individually or jointly with each other, 71 certificates
of time deposits denominated as Golden Time Deposits (GTD) with an aggregate face
value of P1,115,889.96 at the Manila Banking Corporation (MBC). Subsequently, the
Monetary Board (MB) of the Central Bank of the Philippines, now
BangkoSentralngPilipinas, issued Resolution 505 prohibiting MBC to do business in
the Philippines, and placing its assets and affairs under receivership. The Resolution,
however, was not served on MBC until Tuesday the following week, or on May 26,
1987, when the designated Receiver took over. Respondent Jose Abad went to MBC
for the purpose of pre-terminating the 71 aforementioned GTDs and re-depositing
the fund represented thereby into 28 new GTDs in denominations of P40,000.00 or
less under the names of herein respondents individually or jointly with each other.
Of the 28 new GTDs, Jose Abad pre-terminated 8 and withdrew the value thereof in
the total amount of P320,000.00.
Respondents thereafter filed their claims with the PDIC for the payment of
the remaining 20 insured GTDs. PDIC paid respondents the value of 3 claims in the
total amount of P120,000.00. PDIC, however, withheld payment of the 17 remaining
claims after Washington Solidum, Deputy Receiver of MBC-Iloilo, submitted a report
to the PDIC that there was massive conversion and substitution of trust and deposit
accounts on May 25, 1987 at MBC-Iloilo. Because of the report, PDIC entertained
serious reservation in recognizing respondents GTDs as deposit liabilities of MBC-
Iloilo. Afterwards, it filed a petition for declaratory relief against respondents with
the Regional Trial Court (RTC) of Iloilo City, for a judicial declaration determination
of the insurability of respondents GTDs at MBC-Iloilo. The respondents set up a
counterclaim against PDIC whereby they asked for payment of their insured
deposits.
VI. STATEMENT OF THE CASE
TheRTC declared the 20 GTDs of respondents to be deposit liabilities of
MBC, hence, are liabilities of PDIC as statutory insurer. It ordered PDIC to pay the
Abads the value of said 20 GTDs less the value of 3 GTDs it paid. On appeal, the Court
of Appeals affirmed the trial court’s decision except as to the award of legal interest
which it deleted.
PDIC (hereafter petitioner) contends it is liable only for deposits received
by a bank in the usual course of business. Being of the firm conviction that, as the
reported May 25, 1987 bank transactions were so massive, hence, irregular,
petitioner essentially seeks a judicial declaration that such transactions were not
made in the usual course of business and, therefore, it cannot be made liable for
deposits subject thereof. Petitioner points that as MBC was prohibited from doing
further business by MB Resolution 505 as of May 22, 1987, all transactions
subsequent to such date were not done in the usual course of business. Petitioner
further posits that there was no consideration for the 20 GTDs subject of
respondents claim. In support of this submission, it states that prior to March 25,
1987, when the 20 GTDs were made, MBC had been experiencing liquidity
problems, e.g., at the start of banking operations on March 25, 1987, it had
only P2,841,711.90 cash on hand and at the end of the day it was left
with P27,805.81 consisting mostly of mutilated bills and coins.Hence, even if
respondents had wanted to convert the face amounts of the GTDs to cash, MBC
21
could not have complied with it. Petitioner concludes that since no cash was given
by respondents and none was received by MBC when the new GTDs were transacted,
there was no consideration therefor and, thus, they were not validly transacted in
the usual course of business and no liability for deposit insurance was created.
VII. ISSUE
1. Whether or not PDIC is liable to pay the respondents claim for payment of
insured deposits.
2. Whether or not only relief that should have been granted by the trial court
is a declaration of the parties rights and duties.
3. Whether or not the respondents are in bad faith.
VIII. RULING
I. Yes, Petitioners position does not persuade. While the MB issued Resolution
505 on May 22, 1987, a copy thereof was served on MBC only on May 26, 1987. MBC
and its clients could be given the benefit of the doubt that they were not aware that
the MB resolution had been passed, given the necessity of confidentiality of placing
a banking institution under receivership. The evident implication of the law,
therefore, is that the appointment of a receiver may be made by the Monetary Board
without notice and hearing but its action is subject to judicial inquiry to insure the
protection of the banking institution. Stated otherwise, due process does not
necessarily require a prior hearing; a hearing or an opportunity to be heard may
be subsequent to the closure. Mere conjectures that MBC had actual knowledge of
its impending closure do not suffice. The MB resolution could not thus have nullified
respondents transactions which occurred prior to May 26, 1987.
II. No, petitioner posits that the trial court erred in ordering it to pay the
balance of the deposit insurance to respondents, maintaining that the instant
petition stemmed from a petition for declaratory relief which does not essentially
entail an executory process, and the only relief that should have been granted by the
trial court is a declaration of the parties rights and duties. As such, petitioner
continues, no order of payment may arise from the case as this is beyond the office
of declaratory relief proceedings. Without doubt, a petition for declaratory relief
does not essentially entail an executory process. There is nothing in its nature,
however, that prohibits a counterclaim from being set-up in the same action.
III. No, petitioner faults respondents for availing of the statutory limits of the
PDIC law, presupposing that, based on the conduct of respondent Jose Abad on
March 25, 1987, he and his co-respondents somehow knew of the impending closure
of MBC. Petitioner ascribes bad faith to respondent Jose Abad in transacting the
questioned deposits, and seeks to disqualify him from availing the benefits under the
law. Good faith is presumed. This, petitioner failed to overcome since it offered mere
presumptions as evidence of bad faith.
IX. COMPLETE DISPOSITIVE PORTION
WHEREFORE, the assailed decision of the Court of Appeals is hereby
AFFIRMED.
X. Prepared by: Pamela Nicole N. Manalo

That no actual money in bills and/or coins was handed by respondents to MBC
does not mean that the transactions on the new GTDs did not involve money and
that there was no consideration therefor. For the outstanding balance of
respondents 71 GTDs in MBC prior to May 26, 1987 in the amount of P1,115,889.15
as earlier mentioned was re-deposited by respondents under 28 new
GTDs. Admittedly, MBC had P2,841,711.90 cash on hand more than double the
outstanding balance of respondents 71 GTDs at the start of the banking day on May
25, 1987. Since respondent Jose Abad was at MBC soon after it opened at 9:00 a.m.
of that day, petitioner should not presume that MBC had no cash to cover the new
GTDs of respondents and conclude that there was no consideration for said GTDs.

Petitioner having failed to overcome the presumption that the ordinary course
of business was followed, this Court finds that the 28 new GTDs were deposited in
the usual course of business of MBC.

22
II. FULL TITLE: RET. LT. GEN. JACINTO C. LIGOT, ERLINDA Y. LIGOT, PAULO Y. LIGOT,
RIZA Y. LIGOT, and MIGUEL Y. LIGOT, Petitioners, vs. REPUBLIC OF THE PHILIPPINES,
represented by the ANTI-MONEY LAUNDERING COUNCIL, Respondent.
III. PONENTE: BRION, J.
IV. TOPIC: Anti-Money Laundering Act
V. STATEMENT OF THE FACTS:
Republic of the Philippines represented by Anti-Money Laundering Council (AMLC)
filed an Urgent Ex-Parte Application for the issuance of a freeze order with the Court
of Appeals against certain monetary and instruments and properties of the
petitioners, pursuant to Section 10 of Republic Act No. 9160, as amended otherwise
known as Anti-Money Laundering Act of 2001 based on the letter sent by the
Ombudsman to the AMLC recommending the latter to conduct investigation on Lt.
Gen. Ligot and his family for possible violation of RA. 9160.
Ombudsman’s complaint alleges that Lt. Ligot who served the Armed Forces of the
Philippines for 33 years and 2 months, declared in his Statement of Assets, Liabilities
and Net Worth (SALN) that as of December 31, 2003 he had assets in the total
amount of Three Million Eight Hundred Forty-Eight Thousand and Three Pesos
(₱3,848,003.00). In contrast, his declared assets in his 1982 SALN amounted only to
One Hundred Five Thousand Pesos (₱ 105,000.00). Aside from these, the
Ombudsman’s investigation found that the petitioner and his family have assets and
properties that were not declared in the SALN amounting to at least Fifty-Four
Million One Thousand Two Hundred Seventeen Pesos (₱54,001,217.00). Considering
the source of income of the petitioner and assets in the name of his wife and
children, the ombudsman declared the said assets to be illegally obtained and
unexplained wealth pursuant to RA 1379 (An Act Declaring Forfeiture in Favor of the
State Any Property Found to Have Been Unlawfully Acquired by Any Public Officer or
Employee and Providing for the Proceedings Therefor).
Ombudsman also investigated the records of the Social Security System of Yambao,
petitioner’s brother. It revealed that he had been employed in private sector. Based
on his contributions, he does not have a substantial salary. Also, they found that he
had an investment in Mabelline Food Inc. but the company only had a net income of
₱5,062.96 in 2002 and ₱693.67 in 2003. But despite Yambao’s lack of substantial
income, the records show that he has a real properties and vehicles registered in his
name amounting to Eight Million Seven Hundred Sixty Three Thousand Five Hundred
Fifty Pesos (₱8,763,550.00), which he acquired from 1993 onwards. The Office of the
Ombudsman further observed that in the documents it examined, Yambao declared
three of the Ligots’ addresses as his own. From these circumstances, the
Ombudsman concluded that Yambao acted as a dummy and/or nominee of the Ligot
spouses, and all the properties registered in Yambao’s name actually belong to the
Ligot family.
VI. STATEMENT OF THE CASE:
Because of the Ombudsman’s complaint, the Compliance and investigation staff of
AMLC conducted an investigation which revealed the various bank account of Lt
Ligot in different institutions. Ombudsman for the Military and Other Law
Enforcement Officers issued a resolution holding a probable cause exist that Lt. Gen.
Ligot violated the section 8, in relation to section 11 of RA No. 1673 as well as Article
183 of the Revised Penal Code. AMLC then issued a resolution directing the Executive
Director of AMLC Secretariat to file an application for a freeze order against the
properties of Lt. Ligot and his Family with the CA. Subsequently, Republic filed an
Urgent Ex-Parte Apllicaiton with the appellate court for the issuance of Freeze order
against the properties of Ligot and Yambao which the Apellate Court granted. The
Appellate Court ruled that there is a probablt cause that an unlawful activity and/or
money laundering offense had been committed. The CA issued a freeze order against
the various bank accounts, web accounts and vehicles of Ligot and Yambao. Republic,
thereafter, filed an Urgent Motion for Extension of the Effectivity of the Freeze order
arguing tha the previously mentioned accounts were not continuously frozen to
which the CA granted.
Petitioner filed a motion to lif the said Extended Freeze Order arguing that there is
no evidence to support the said extension, that they are deprived of their properties
without due of process of law and punished them before a guilt which is not proven.
Meanwhile, on November 15, 2005, the "Rule of Procedure in Cases of Civil
Forfeiture, Asset Preservation, and Freezing of Monetary Instrument, Property, or
Proceeds Representing, Involving, or Relating to an Unlawful Activity or Money
Laundering Offense under Republic Act No. 9160, as Amended"23 (Rule in Civil
Forfeiture Cases) took effect. Under this rule, a freeze order could be extended for a
maximum period of six months. Ligots Filed a motion for reconsideration but the
same was denied by the CA. hence this petition.
VII. ISSUES:
1. Whether or not the CA erred in finding that probable cause exists to support the
issuance of freeze order.
2. Whether or not CA erred in extending the freeze order for an indefinite period
VIII. RULING:
1. NO, Ca did not err in finding that there is a probable cause to support the issuance
of freeze order.
The legal basis for the issuance of a freeze order is Section 10 of RA No. 9160, as
amended by RA No. 9194, which states:
23
Section 10. Freezing of Monetary Instrument or Property. – The Court of Appeals,
upon application ex parte by the AMLC and after determination that probable cause
exists that any monetary instrument or property is in any way related to an unlawful
activity as defined in Section 3(i) hereof, may issue a freeze order which shall be
effective immediately. The freeze order shall be for a period of twenty (20) days
unless extended by the court.
Ligot’s claim that the CA erred in extending the effectivity period of the freeze order
because they have not yet been convicted of any of the offenses enumerated in RA
9160 that would support the AMLC’s accusation of money-laundering activity it not
tenable. Based o section 10, there are two requisites for the issuance of the freeze
order (1) the application ex parte by the AMLC and (2) the determination of probable
cause by CA. The probable cause required for the issuance of freeze order is different
from the probable cause required for the institution of a criminal action.As defined
in the law, the probable cause required for the issuance of a freeze order refers to
"such facts and circumstances which would lead a reasonably discreet, prudent or
cautious man to believe that an unlawful activity and/or a money laundering offense
is about to be, is being or has been committed and that the account or any monetary
instrument or property subject thereof sought to be frozen is in any way related to
said unlawful activity and/or money laundering offense. In other words, in resolving
the issue of whether probable cause exists, the CA’s statutorily-guided
determination’s focus is not on the probable commission of an unlawful activity (or
money laundering) that the Office of the Ombudsman has already determined to
exist, but on whether the bank accounts, assets, or other monetary instruments
sought to be frozen are in any way related to any of the illegal activities enumerated
under RA No. 9160, as amended. Thus, contrary to the Ligots’ claim, a freeze order
is not dependent on a separate criminal charge, much less does it depend on a
conviction.
It should be noted that the existence of an unlawful activity that would justify the
issuance and the extension of the freeze order has likewise been established in this
case. Lt. Ligot himself admitted that his income came from his salary as an officer of
AFP. Yet, the Ombudsman’s investigation revealed that the bank accounts,
investments and properties of Ligot amount to more than Fifty-Four Million Pesos
which are grossly disproportionate to Lt. Ligot’s income. For failure of the petitioner
to provide evidence showing that he has other sources of income, the CA properly
found a probable cause that these funds have been illegally acquired.
2. Yes. CA erred in issuing the freeze order for indefinite period.
The petitioners claim that the effectiveness of the freeze order ceased to be effective
six months after the original freeze order first expired, the claim is with merit.
The primary objective of a freeze order is to temporarily preserve monetary
instruments or property that are in any way related to an unlawful activity or money
laundering, by preventing the owner from utilizing them during the duration of the
freeze order. Upon examination of the Anti-Money Laundering Act of 2001, it was
found that the law is silent as to the maximum period of time that the freeze order
can be extended by the CA. The final sentence of Section 10 of the Anti-Money
Laundering Act of 2001 provides, "the freeze order shall be for a period of twenty
(20) days unless extended by the court." In contrast, Section 55 of the Rule in Civil
Forfeiture Cases qualifies the grant of extension "for a period not exceeding six
months" "for good cause" shown.
The court observed in this point that nothing in the law grants the owner of the
"frozen" property any substantive right to demand that the freeze order be lifted,
except by implication, i.e., if he can show that no probable cause exists or if the 20-
day period has already lapsed without any extension being requested from and
granted by the CA. The silence of the law, however, does not in any way affect the
Court’s own power under the Constitution to "promulgate rules concerning the
protection and enforcement of constitutional rights xxx and procedure in all courts."
Pursuant to this power, the Court issued A.M. No. 05-11-04-SC, limiting the
effectivity of an extended freeze order to six months – to otherwise leave the grant
of the extension to the sole discretion of the CA, which may extend a freeze order
indefinitely or to an unreasonable amount of time – carries serious implications on
an individual’s substantive right to due process. This right demands that no person
be denied his right to property or be subjected to any governmental action that
amounts to a denial.43 The right to due process, under these terms, requires a
limitation or at least an inquiry on whether sufficient justification for the
governmental action.
The Ligots’ case perfectly illustrates the inequity that would result from giving the
CA the power to extend freeze orders without limitations. As narrated above, the
CA, via its September 20, 2005 resolution, extended the freeze order over the Ligots’
various bank accounts and personal properties "until after all the appropriate
proceedings and/or investigations being conducted are terminated. These periods
of extension are way beyond the intent and purposes of a freeze order which is
intended solely as an interim relief. The term of the CA’s extension, too, borders on
inflicting a punishment to the Ligots, in violation of their constitutionally protected
right to be presumed innocent, because the unreasonable denial of their property
comes before final conviction.
In the court’s mind, the six-month extension period is ordinarily sufficient for the
government to act against the suspected money launderer and to file the
appropriate forfeiture case against him, and is a reasonable period as well that
recognizes the property owner’s right to due process. In this case, the period of
inaction of six years, under the circumstances, already far exceeded what is
reasonable.
Thus, as a rule, the effectivity of a freeze order may be extended by the CA for a
period not exceeding six months. Before or upon the lapse of this period, ideally, the
Republic should have already filed a case for civil forfeiture against the property
24
owner with the proper courts and accordingly secure an asset preservation order or
it should have filed the necessary information.
In the present case, we note that the Republic has not offered any explanation why
it took six years (from the time it secured a freeze order) before a civil forfeiture case
was filed in court, despite the clear tenor of the Rule in Civil Forfeiture Cases allowing
the extension of a freeze order for only a period of six months.
IX. DISPOSITIVE PORTION:
WHEREFORE, premises considered, we GRANT the petition and LIFT the freeze order
issued by the Court of Appeals in CA G.R. SP No. 90238. This lifting is without
prejudice to, and shall not affect, the preservation orders that the lower courts have
ordered on the same properties in the cases pending before them. Pursuant to
Section 56 of A.M. No. 05-11-04-SC, the Court of Appeals is hereby ordered to
remand the case and to transmit the records to the Regional Trial Court of Manila,
Branch 22, where the civil forfeiture proceeding is pending, for consolidation
therewith as may be appropriate.
X. PREPARED BY: FRANCE JACOB R. SAMSON
I. SHORT TITLE: REPUBLIC V. CABRINI GREEN ROSS, INC.
II. FULL TITLE: REPUBLIC OF THE PHILIPPINES, Represented by the ANTI-MONEY
LAUNDERING COUNCIL, Petitioner, vs. CABRINI GREEN & ROSS,
INC., MICHAEL J. FINDLAY and JANE GELBERG, Respondents,
x----------------------------------x
REPUBLIC OF THE PHILIPPINES, Represented by the ANTI-MONEY
LAUNDERING COUNCIL, Petitioner, vs. R.A.B. REALTY, INC.,
MULTINATIONAL TELECOM INVESTORS CORPORATION,
ROSARIO A. BALADJAY and SATURNINO M. BALADJAY,
Respondents.
x----------------------------------x
REPUBLIC OF THE PHILIPPINES, Represented by the ANTI-MONEY
LAUNDERING COUNCIL, Petitioner, vs. MARIO N. MISA, MICHAEL
Z. LAFUENTE, JESUS SILVERIO, REYNALDO NICHOLAS and REX D.
JAO, Respondents.
x----------------------------------x
REPUBLIC OF THE PHILIPPINES, Represented by the ANTI-MONEY
LAUNDERING COUNCIL, Petitioner, vs. ALBERTO DE LOS REYES,
LORENZO CASTRO, HERMIE DE VERA, EDUARDO LAZO and
DANILO LIWAG, Respondents.
III. PONENTE: CORONA, J.
IV. TOPIC: Anti-Money Laundering Act
V. STATEMENT OF THE FACTS:
Anti-Money Laundering Council issued a freeze order in various bank accounts found
to be related to the unlawful activities of the respondents. Under RA 9160, the freeze
order shall be effective for 15 days “unless extended by the court”. Before the
expiration of the said freeze order, AMCL filed a various petitions for the extension
of the freeze orders to the Court of Appeals with the belief that the power of the
Court of Appeals to issue Temporary Restraining Order (TRO) and Writ of Injunction
against freeze orders carries with it the power to extend the effectivity of the same.
The Court of appeals dismissed the said petitions. It uniformly ruled that it was not
vested by RA 9160 the authority to extend the effectivity of freeze orders.
VI. STATEMENT OF THE CASE:
Because of the said dismissal by the CA, consolidated petitions were filed by the
AMLC to the Supreme Court.
VII. ISSUES:
Whether or not the Court of Appeals has the authority to extend the effectivity of
freeze orders issued by the AMLC.
VIII. RULING:
Yes. During the pendency of the case a Congress enacted RA 9194 An Act Amending
Republic Act No. 9160, Otherwise Known as the "Anti-Money Laundering Act of
2001").6 It amended Section 10 of RA 9160 as follows:
SEC. 7. Section 10 of [RA 9160] is hereby amended to read as follows:
SEC. 10. Freezing of Monetary Instrument or Property. – The Court of Appeals, upon
application ex parte by the AMLC and after determination that probable cause exists
that any monetary instrument or property is in any way related to an unlawful
activity as defined in Sec. 3(i) hereof, may issue a freeze order which shall be
effective immediately. The freeze order shall be for a period of twenty (20) days
unless extended by the court.7 (emphasis supplied)
Section 12 of RA 9194 further provides:
SEC 12. Transitory Provision. – Existing freeze orders issued by the AMLC shall remain
in force for a period of thirty (30) days after the effectivity of this Act, unless
extended by the Court of Appeals. (emphasis supplied)
On April 3, 2003, the Office of the Solicitor General filed a Very Urgent Motion to
Remand the Cases to the Honorable Court of Appeals (with Prayer for Issuance of
Temporary Restraining Order and/or Writ of Preliminary Injunction). The OSG prayed
25
to remand the cases to CA pursuant to RA 9194. It also prayed for the issuance of
TRO on 29 pending cases in the CA involving the same issue. On April 21, 2003, the
CA issued TRO in the said cases. Respondents, the concerned banks, and all persons
acting in their behalf were directed to give full force and effect to existing freeze
orders until further orders from this Court. Furthermore, on May 5, 2003, OSG
informed the court that CA issued a resolution granting extension of freeze order
which is the subject of GR. No. 154694. Hence, the OSG prayed for the dismissal of
the said case and the remand of GR. Nos. G.R. Nos. 154522, 155554 and 155711 to
the CA.
The amendment by RA 9194 of RA 9160 erased any doubt on the jurisdiction of the
CA over the extension of freeze orders. As the law now stands, it is solely the CA
which has the authority to issue a freeze order as well as to extend its effectivity. It
also has the exclusive jurisdiction to extend existing freeze orders previously issued
by the AMLC vis-à-vis accounts and deposits related to money-laundering activities.
IX. DISPOSITIVE PORTION:
WHEREFORE, G.R. No. 154694 is hereby DISMISSED for being moot while G.R. Nos.
154522, 155554 and 155711 are REMANDED to the Court of Appeals for appropriate
action. Pending resolution by the Court of Appeals of these cases, the April 21, 2003
temporary restraining order is hereby MAINTAINED.
X. PREPARED BY: France Jacob R. Samson
I. SHORT TITLE: REPUBLIC v. EUGENIO
II. FULL TITLE: REPUBLIC OF THE PHILIPPINES, Represented by THE ANTI-MONEY
LAUNDERING COUNCIL (AMLC),petitioner, vs. HON. ANTONIO M. EUGENIO, JR., AS
PRESIDING JUDGE OF RTC, MANILA, BRANCH 34, PANTALEON ALVAREZ and LILIA
CHENG, respondents.
III. PONENTE: TINGA, J.:
IV. TOPIC: Anti-Money Laundering Act
V. STATEMENT OF THE FACTS:
A series of investigations concerning the award of the NAIA 3 contracts to PIATCO
were undertaken by the Ombudsman and the Compliance and Investigation Staff
(CIS) of petitioner Anti-Money Laundering Council (AMLC). The Office of the Solicitor
General (OSG) wrote the AMLC requesting the latter’s assistance "in obtaining more
evidence to completely reveal the financial trail of corruption surrounding the NAIA
3 Project.
The CIS conducted an intelligence database search on the financial transactions of
certain individuals involved in the award, including respondent Pantaleon Alvarez
(Alvarez) who had been the Chairman of the NAIA 3 Project. By this time, Alvarez had
already been charged by the Ombudsman with violation of Section 3(j) of R.A. No.
3019. The search revealed that Alvarez maintained eight (8) bank accounts with six
(6) different banks.
The AMLC issued a resolution whereby the Council authorized the Executive Director
of the AMLC to sign and verify an application to inquire into and/or examine the
deposits or investments of Pantaleon Alvarez, Wilfredo Trinidad, Alfredo Liongson,
and Cheng Yong. The rationale for the said resolution was founded on the cited
findings of the CIS that amounts were transferred from a Hong Kong bank account
owned by Jetstream Pacific Ltd. Account to bank accounts in the Philippines
maintained by Liongson and Cheng Yong.
Under the authority granted by the Resolution, the AMLC filed an application to
inquire into or examine the deposits or investments of Alvarez, Trinidad, Liongson
and Cheng Yong before the RTC of Makati. Thereafter, the Makati RTC rendered a
bank inquiry order granting the AMLC the authority to inquire and examine the
subject bank accounts of Alvarez, Trinidad, Liongson and Cheng Yong, the trial court
being satisfied that there existed "probable cause to believe that the deposits in
various bank accounts, details of which appear in paragraph 1 of the Application, are
related to the offense of violation of Anti-Graft and Corrupt Practices Act. Pursuant
to the Makati RTC bank inquiry order, the CIS proceeded to inquire and examine the
deposits, investments and related web accounts of the four.
VI. STATEMENT OF THE CASE:
The Republic, through the AMLC, filed an application before the Manila RTC to
inquire into and/or examine accounts of Alvarez and the Metrobank accounts of
Cheng Yong. The case was raffled to Manila RTC, Branch 24, presided by respondent
Judge Antonio Eugenio, Jr.
the Manila RTC issued an Order (Manila RTC bank inquiry order) granting the Ex Parte
Application expressing therein "[that] the allegations in said application to be
impressed with merit, and in conformity with Section 11 of R.A. No. 9160, as
amended, otherwise known as the Anti-Money Laundering Act (AMLA) of 2001.
Authority was thus granted to the AMLC to inquire into the bank accounts listed
therein.
26
Alvarez, through counsel, entered his appearance before the Manila RTC in SP Case
No. 06-114200 and filed an Urgent Motion to Stay Enforcement of Order of January
12, 2006. Alvarez alleged that he fortuitously learned of the bank inquiry order,
which was issued following an ex parte application, and he argued that nothing in
R.A. No. 9160 authorized the AMLC to seek the authority to inquire into bank
accounts ex parte. The day after Alvarez filed his motion, 26 January 2006, the
Manila RTC issued an Order staying the enforcement of its bank inquiry order and
giving the Republic five (5) days to respond to Alvarez’s motion.
The Republic filed an Omnibus Motion for Reconsideration. Thereafter, the Manila
RTC issued an Omnibus Order granting the Republic’s Motion for Reconsideration,
denying Alvarez’s motion to dismiss and reinstating "in full force and effect" the
Order dated 12 January 2006. In the omnibus order, the Manila RTC reiterated that
the material allegations in the application for bank inquiry order filed by the Republic
stood as "the probable cause for the investigation and examination of the bank
accounts and investments of the respondents."
Alvarez filed an Urgent Motion and Manifestation wherein he manifested having
received reliable information that the AMLC was about to implement the Manila RTC
bank inquiry order even though he was intending to appeal from it. On the premise
that only a final and executory judgment or order could be executed or
implemented, Alvarez sought that the AMLC be immediately ordered to refrain from
enforcing the Manila RTC bank inquiry order.
The Manila RTC, acting on Alvarez’s latest motion, issued an Order directing the
AMLC "to refrain from enforcing the order dated January 12, 2006 until the
expiration of the period to appeal, without any appeal having been filed." On the
same day, Alvarez filed a Notice of Appeal with the Manila RTC.
Alvarez filed an Urgent Ex Parte Motion for Clarification. Therein, he alleged having
learned that the AMLC had began to inquire into the bank accounts of the other
persons mentioned in the application for bank inquiry order filed by the
Republic. Considering that the Manila RTC bank inquiry order was issued ex parte,
without notice to those other persons, Alvarez prayed that the AMLC be ordered to
refrain from inquiring into any of the other bank deposits and alleged web of
accounts enumerated in AMLC’s application with the RTC;
One day after Alvarez filed his motion, the Manila RTC issued an Order wherein it
clarified that "the Ex Parte Order of this Court dated January 12, 2006 cannot be
implemented against the deposits or accounts of any of the persons enumerated in
the AMLC Application until the appeal of movant Alvarez is finally resolved,
otherwise, the appeal would be rendered moot and academic or even nugatory." In
addition, the AMLC was ordered "not to disclose or publish any information or
document found or obtained in [v]iolation of the May 11, 2006 Order of this
Court." The Manila RTC reasoned that the other persons mentioned in AMLC’s
application were not served with the court’s 12 January 2006 Order.
In response, the Republic filed an Urgent Omnibus Motion for Reconsideration dated
27 July 2006, urging that it be allowed to immediately enforce the bank inquiry order
against Alvarez and that Alvarez’s notice of appeal be expunged from the records
since appeal from an order of inquiry is disallowed under the Anti money Laundering
Act (AMLA).
Meanwhile, respondent Lilia Cheng filed with the Court of Appeals a Petition for
Certiorari, Prohibition and Mandamus with Application for TRO and/or Writ of
Preliminary Injunction directed against the Republic of the Philippines through the
AMLC, Manila RTC Judge Eugenio, Jr. and Makati RTC Judge Marella, Jr.. She
identified herself as the wife of Cheng Yongwith whom she jointly owns a conjugal
bank account with Citibank that is covered by the Makati RTC bank inquiry order,
and two conjugal bank accounts with Metrobank that are covered by the Manila RTC
bank inquiry order.
Lilia Cheng imputed grave abuse of discretion on the part of the Makati and Manila
RTCs in granting AMLC’s ex parte applications for a bank inquiry order, arguing
among others that the ex parte applications violated her constitutional right to due
process, that the bank inquiry order under the AMLA can only be granted in
connection with violations of the AMLA and that the AMLA can not apply to bank
accounts opened and transactions entered into prior to the effectivity of the AMLA
or to bank accounts located outside the Philippines.
The Court of Appeals issued a Temporary Restraining Order enjoining the Manila and
Makati trial courts from implementing, enforcing or executing the respective bank
inquiry orders previously issued, and the AMLC from enforcing and implementing
such orders.
VII. ISSUES:
1.) Whether or not the bank accounts of respondents can be examined.
2.) Whether or not the AMLA has retroactive effect
3.) Whether or not bank inquiry order can be issued upon ex parte application
VIII. RULING:
1.) NO.
R.A. No. 1405 otherwise known as the Bank Secrecy Act of 1955. The right to privacy
is enshrined in Section 2 of that law, to wit:
27
 SECTION 2. All deposits of whatever nature with banks or banking
institutions in the Philippines including investments in bonds issued by the
Government of the Philippines, its political subdivisions and its
instrumentalities, are hereby considered as of an absolutely confidential
nature
Because of the Bank Secrecy Act, the confidentiality of bank deposits
remains a basic state policy in the Philippines. Subsequent laws, including
the AMLA, may have added exceptions to the Bank Secrecy Act, yet the
secrecy of bank deposits still lies as the general rule.
Any exception to the rule of absolute confidentiality must be specifically legislated.
Section 2 of the Bank Secrecy Act itself prescribes exceptions whereby these bank
accounts may be examined by "any person, government official, bureau or office";
namely when: (1) upon written permission of the depositor; (2) in cases of
impeachment; (3) the examination of bank accounts is upon order of a competent
court in cases of bribery or dereliction of duty of public officials; and (4) the money
deposited or invested is the subject matter of the litigation. Section 8 of R.A. Act No.
3019, the Anti-Graft and Corrupt Practices Act, has been recognized by this Court as
constituting an additional exception to the rule of absolute confidentiality, and there
have been other similar recognitions as well.
The AMLA also provides exceptions to the Bank Secrecy Act. Under Section 11, the
AMLC may inquire into a bank account upon order of any competent court in cases
of violation of the AMLA, it having been established that there is probable cause that
the deposits or investments are related to unlawful activities as defined in Section
3(i) of the law, or a money laundering offense under Section 4 thereof. Further, in
instances where there is probable cause that the deposits or investments are related
to kidnapping for ransom, certain violations of the Comprehensive Dangerous Drugs
Act of 2002, hijacking and other violations under R.A. No. 6235, destructive arson
and murder, then there is no need for the AMLC to obtain a court order before it
could inquire into such accounts.
It cannot be successfully argued the proceedings relating to the bank inquiry order
under Section 11 of the AMLA is a "litigation" encompassed in one of the exceptions
to the Bank Secrecy Act which is when "the money deposited or invested is the
subject matter of the litigation." The orientation of the bank inquiry order is simply
to serve as a provisional relief or remedy. As earlier stated, the application for such
does not entail a full-blown trial.
Nevertheless, just because the AMLA establishes additional exceptions to the Bank
Secrecy Act it does not mean that the later law has dispensed with the general
principle established in the older law that "[a]ll deposits of whatever nature with
banks or banking institutions in the Philippines x x x are hereby considered as of an
absolutely confidential nature."
The presence of this statutory right to privacy addresses at least one of the
arguments raised by petitioner, that Lilia Cheng had no personality to assail the
inquiry orders before the Court of Appeals because she was not the subject of said
orders.
We are reasonably convinced that Lilia Cheng has sufficiently demonstrated her joint
ownership of the three accounts, and such conclusion leads us to acknowledge that
she has the standing to assail via certiorari the inquiry orders authorizing the
examination of her bank accounts as the orders interfere with her statutory right to
maintain the secrecy of said accounts.
While petitioner would premise that the inquiry into Lilia Cheng’s accounts finds root
in Section 11 of the AMLA, it cannot be denied that the authority to inquire under
Section 11 is only exceptional in character, contrary as it is to the general rule
preserving the secrecy of bank deposits. Even though she may not have been the
subject of the inquiry orders, her bank accounts nevertheless were, and she thus has
the standing to vindicate the right to secrecy that attaches to said accounts and their
owners. This statutory right to privacy will not prevent the courts from authorizing
the inquiry anyway upon the fulfillment of the requirements set forth under Section
11 of the AMLA or Section 2 of the Bank Secrecy Act; at the same time, the owner of
the accounts have the right to challenge whether the requirements were indeed
complied with.
2.) NO
There is a point of concern which needs to be addressed. Lilia Cheng argues that the
AMLA, being a substantive penal statute, has no retroactive effect and the bank
inquiry order could not apply to deposits or investments opened prior to the
effectivity of Rep. Act No. 9164, or on 17 October 2001. Thus, she concludes, her
subject bank accounts, opened between 1989 to 1990, could not be the subject of
the bank inquiry order lest there be a violation of the constitutional prohibition
against ex post facto laws.
28
No ex post facto law may be enacted, and no law may be construed in such fashion
as to permit a criminal prosecution offensive to the ex post facto clause. As applied
to the AMLA, it is plain that no person may be prosecuted under the penal provisions
of the AMLA for acts committed prior to the enactment of the law on 17 October
2001. As much was understood by the lawmakers since they deliberated upon the
AMLA, and indeed there is no serious dispute on that point.
3.) NO.
Money laundering has been generally defined as any act or attempted act to conceal
or disguise the identity of illegally obtained proceeds so that they appear to have
originated from legitimate sources.
Section 4 of the AMLA states that "[m]oney laundering is a crime whereby the
proceeds of an unlawful activity as [defined in the law] are transacted, thereby
making them appear to have originated from legitimate sources."
The AMLA also authorizes certain provisional remedies that would aid the AMLC in
the enforcement of the AMLA. These are the "freeze order" authorized under
Section 10, and the "bank inquiry order" authorized under Section 11
Respondents posit that a bank inquiry order under Section 11 may be obtained only
upon the pre-existence of a money laundering offense case already filed before the
courts.68 The conclusion is based on the phrase "upon order of any competent court
in cases of violation of this Act," the word "cases" generally understood as referring
to actual cases pending with the courts.
We are unconvinced by this proposition, and agree instead with the then Solicitor
General who conceded that the use of the phrase "in cases of" was unfortunate, yet
submitted that it should be interpreted to mean "in the event there are violations"
of the AMLA, and not that there are already cases pending in court concerning such
violations. If the contrary position is adopted, then the bank inquiry order would be
limited in purpose as a tool in aid of litigation of live cases, and wholly inutile as a
means for the government to ascertain whether there is sufficient evidence to
sustain an intended prosecution of the account holder for violation of the AMLA.
Should that be the situation, in all likelihood the AMLC would be virtually deprived
of its character as a discovery tool, and thus would become less circumspect in filing
complaints against suspect account holders
Still, even if the bank inquiry order may be availed of without need of a pre-existing
case under the AMLA, it does not follow that such order may be availed of ex
parte. There are several reasons why the AMLA does not generally sanction ex
parte applications and issuances of the bank inquiry order.
SEC. 11. Authority to Inquire into Bank Deposits - the AMLC may inquire into or
examine any particular deposit or investment with any banking institution or non
bank financial institution upon order of any competent court in cases of violation of
this Act, when it has been established that there is probable cause that the deposits
or investments are related to an unlawful activity as defined in Section 3(i) hereof or
a money laundering offense under Section 4 hereof, except that no court order shall
be required in cases involving unlawful activities defined in Sections 3(i)1, (2) and
(12).
Of course, Section 11 also allows the AMLC to inquire into bank accounts without
having to obtain a judicial order in cases where there is probable cause that the
deposits or investments are related to kidnapping for ransom, certain violations of
the Comprehensive Dangerous Drugs Act of 2002, hijacking and other violations
under R.A. No. 6235, destructive arson and murder. Since such special circumstances
do not apply in this case, there is no need for us to pass comment on this proviso.
In the instances where a court order is required for the issuance of the bank inquiry
order, nothing in Section 11 specifically authorizes that such court order may be
issued ex parte. Meanwhile in freeze orders:
SEC. 10. Freezing of Monetary Instrument or Property. ― The Court of Appeals,
upon application ex parte by the AMLC and after determination that probable
cause exists that any monetary instrument or property is in any way related to an
unlawful activity as defined in Section 3(i) hereof, may issue a freeze order which
shall be effective immediately. The freeze order shall be for a period of twenty (20)
days unless extended by the court.
Although oriented towards different purposes, the freeze order under Section 10
and the bank inquiry order under Section 11 are similar in that they are extraordinary
provisional reliefs which the AMLC may avail of to effectively combat and prosecute
money laundering offenses. Crucially, Section 10 uses specific language to authorize
an ex parte application for the provisional relief therein, a circumstance absent in
Section 11.
If indeed the legislature had intended to authorize ex parte proceedings for the
issuance of the bank inquiry order, then it could have easily expressed such intent in
the law, as it did with the freeze order under Section 10
The Court could divine the sense in allowing ex parte proceedings under Section 10
and in proscribing the same under Section 11. A freeze order under Section 10 on
the one hand is aimed at preserving monetary instruments or property in any way
deemed related to unlawful activities as defined in Section 3(i) of the AMLA. The
owner of such monetary instruments or property would thus be inhibited from
utilizing the same for the duration of the freeze order. To make such freeze order
anteceded by a judicial proceeding with notice to the account holder would allow for
or lead to the dissipation of such funds even before the order could be issued.
On the other hand, a bank inquiry order under Section 11 does not necessitate any
form of physical seizure of property of the account holder. What the bank inquiry
order authorizes is the examination of the particular deposits or investments in
banking institutions or non-bank financial institutions. The monetary instruments or
29
property deposited with such banks or financial institutions are not seized in a
physical sense, but are examined on particular details such as the account holder’s
record of deposits and transactions. Unlike the assets subject of the freeze order,
the records to be inspected under a bank inquiry order cannot be physically seized
or hidden by the account holder. Said records are in the possession of the bank and
therefore cannot be destroyed at the instance of the account holder alone as that
would require the extraordinary cooperation and devotion of the bank.
The necessary implication of this finding that Section 11 of the AMLA does not
generally authorize the issuance ex parte of the bank inquiry order would be that
such orders cannot be issued unless notice is given to the owners of the account,
allowing them the opportunity to contest the issuance of the order. Without such a
consequence, the legislated distinction between ex parte proceedings under Section
10 and those which are not ex parte under Section 11 would be lost and rendered
useless.
The court receiving the application for inquiry order cannot simply take the AMLC’s
word that probable cause exists that the deposits or investments are related to an
unlawful activity. It will have to exercise its own determinative function in order to
be convinced of such fact. The account holder would be certainly capable of
contesting such probable cause if given the opportunity to be apprised of the
pending application to inquire into his account; hence a notice requirement would
not be an empty spectacle. It may be so that the process of obtaining the inquiry
order may become more cumbersome or prolonged because of the notice
requirement, yet we fail to see any unreasonable burden cast by such circumstance.
After all, as earlier stated, requiring notice to the account holder should not, in any
way, compromise the integrity of the bank records subject of the inquiry which
remain in the possession and control of the bank.
IX. DISPOSITIVE PORTION:
WHEREFORE, the PETITION is DISMISSED. No pronouncement as to costs.
SO ORDERED.
X. PREPARED BY: Corpuz, Edwin
I. SHORT TITLE: REPUBLIC VS. GLASGLOW
II. FULL TITLE: REPUBLIC OF THE PHILIPPINES, represented by the ANTI-MONEY
LAUNDERING COUNCIL, petitioner, vs. GLASGOW CREDIT AND COLLECTION
SERVICES, INC. and CITYSTATE SAVINGS BANK, INC., respondents.
III. PONENTE: CORONA, J.
IV. TOPIC: Civil Forfeiture under The Anti-Money Laundering Act (RA 9160)
V. STATEMENT OF THE FACTS:
Glasgow has funds in the amount of P21,301,430.28 deposited with
Citystate Bank under Account No. CA 005-10-000121-5. The said bank account is
related to unlawful activities of Estafa and violation of Securities Regulation Code
committed by Glasglow. The deposit has been a subject of Suspicious Transaction
Reports and after appropriate investigation, the Anti- Money Laundering Council
issued Resolutions directing the issuance of freeze orders against the bank accounts
of Glasgow. Pursuant to said AMLC Resolutions, Freeze Orders were issued on
different dates addressed to the concerned bank.
On July 18, 2003, the Republic filed a complaint in the Regional Trial Court
of Manila for civil forfeiture of assets with urgent plea for issuance of temporary
restraining order and/or writ of preliminary injunction against the bank deposits in
the account number maintained by Glasgow in Citystate Savings Bank, Inc. (CBSI).
The case, filed pursuant to RA 9160 or Anti-Money Laundering Act of 2001, as
amended, was docketed as Civil Case No. 03-107319.
VI. STATEMENT OF THE CASE:
This is a petition for review of the order dated October 27, 2005 of the RTC
of Manila, Branch 47, dismissing the complaint for forfeiture filed by the Republic of
the Philippines, represented by the Anti-Money Laundering Council against
respondents Glasgow Credit and Collection Services, Inc. (Glasgow) and Citystate
Savings Bank, Inc. (CSBI).
Acting on the Republic’s urgent plea for the issuance of a TRO, the
executive judge of RTC Manila issued a 72-hour TRO. After hearing, the trial court
issued an order granting the issuance of a writ of preliminary injunction enjoining
30
Glasgow from removing, dissipating or disposing of the subject bank deposits and
CSBI from allowing any transaction on, withdrawal, transfer, removal, dissipation or
disposition thereof.
On October 8, 2003, the Republic filed a verified omnibus motion for (a)
issuance of alias summons and (b) leave of court to serve summons by publication.
The trial court directed the issuance of alias summons. However, no mention was
made of the motion for leave of court to serve summons by publication.
In January 2004, the trial court archived the case allegedly for failure of the
Republic to serve the alias summons. The Republic filed an ex parte omnibus motion
to (a) reinstate the case and (b) resolve its pending motion for leave of court to serve
summons by publication.
The trial court ordered the reinstatement of the case and directed the
Republic to serve the alias summons on Glasgow and CSBI within 15 days. However,
it did not resolve the Republic’s motion for leave of court to serve summons by
publication declaring that until and unless a return is made on the alias summons,
any action on Republic’s motion for leave of court to serve summons by publication
would be untenable if not premature.
In July 2004, the Republic, through the OSG, received a copy of the sheriff’s
return stating that the alias summons was returned "unserved" as Glasgow was no
longer holding office at the given address since July 2002 and left no forwarding
address.
Meanwhile, the Republic’s motion for leave of court to serve summons by
publication remained unresolved. Thus, the Republic filed a manifestation and ex
parte motion to resolve its motion for leave of court to serve summons by
publication.
On August 12, 2005, the OSG received a copy of Glasgow’s "Motion to
Dismiss (By Way of Special Appearance)" dated August 11, 2005. It alleged that (1)
the court had no jurisdiction over its person as summons had not yet been served
on it; (2) the complaint was premature and stated no cause of action as there was
still no conviction for estafa or other criminal violations implicating Glasgow and (3)
there was failure to prosecute on the part of the Republic.
The Republic opposed Glasgow’s motion to dismiss. It contended that its
suit was an action quasi in rem where jurisdiction over the person of the defendant
was not a prerequisite to confer jurisdiction on the court. It asserted that prior
conviction for unlawful activity was not a precondition to the filing of a civil forfeiture
case and that its complaint alleged ultimate facts sufficient to establish a cause of
action. It denied that it failed to prosecute the case.
On October 27, 2005, the trial court issued the assailed order. It dismissed
the case on the following grounds: (1) improper venue as it should have been filed
in the RTC of Pasig where CSBI, the depository bank of the account sought to be
forfeited, was located; (2) insufficiency of the complaint in form and substance and
(3) failure to prosecute. It lifted the writ of preliminary injunction and directed CSBI
to release to Glasgow or its authorized representative the funds in the bank account.
Raising questions of law, the Republic filed this petition.
On November 23, 2005, the Supreme Court issued a TRO restraining
Glasgow and CSBI from implementing the assailed RTC order. It restrained Glasgow
from removing, dissipating or disposing of the funds in the bank account and CSBI
from allowing any transaction on the said account.
VII. ISSUES:
WON the complaint for civil forfeiture was correctly dismissed on grounds of
improper venue, insufficiency in form and substance and failure to prosecute.
VIII. RULING:
I. NO. The Court agrees with the Republic.
The Complaint Was Filed in The Proper Venue
Under Section 3, Title II of the Rule of Procedure in Cases of Civil Forfeiture,
therefore, the venue of civil forfeiture cases is any RTC of the judicial region where
the monetary instrument, property or proceeds representing, involving, or relating
to an unlawful activity or to a money laundering offense are located. Pasig City,
where the account sought to be forfeited in this case is situated, is within the
National Capital Judicial Region (NCJR). Clearly, the complaint for civil forfeiture of
the account may be filed in any RTC of the NCJR. Since the RTC Manila is one of the
RTCs of the NCJR, it was a proper venue of the Republic’s complaint for civil
forfeiture of Glasgow’s account.
31
The Complaint Was Sufficient In Form And Substance
In a motion to dismiss a complaint based on lack of cause of action, the
question submitted to the court for determination is the sufficiency of the
allegations made in the complaint to constitute a cause of action and not whether
those allegations of fact are true, for said motion must hypothetically admit the truth
of the facts alleged in the complaint.
The test of the sufficiency of the facts alleged in the complaint is whether
or not, admitting the facts alleged, the court could render a valid judgment upon the
same in accordance with the prayer of the complaint.
In this connection, Section 4, Title II of the Rule of Procedure in Cases of
Civil Forfeiture provides that petition for civil forfeiture shall be verified and contain
the following allegations:
(a) The name and address of the respondent;
(b) A description with reasonable particularity of the monetary
instrument, property, or proceeds, and their location; and
(c) The acts or omissions prohibited by and the specific
provisions of the Anti-Money Laundering Act, as amended,
which are alleged to be the grounds relied upon for the forfeiture
of the monetary instrument, property, or proceeds; and
[(d)] The reliefs prayed for.
The form and substance of the Republic’s complaint substantially
conformed with Section 4, Title II of the Rule of Procedure in Cases of Civil Forfeiture.
The verified complaint of the Republic contained the following allegations:
(a) the name and address of the primary defendant therein, Glasgow;
(b) a description of the proceeds of Glasgow’s unlawful activities with
particularity, as well as the location thereof, account no. CA-005-10-
000121-5 in the amount of P21,301,430.28 maintained with CSBI;
(c) the acts prohibited by and the specific provisions of RA 9160, as
amended, constituting the grounds for the forfeiture of the said proceeds.
In particular, suspicious transaction reports showed that Glasgow engaged
in unlawful activities of estafa and violation of the Securities Regulation
Code; the proceeds of the unlawful activities were transacted and
deposited with CSBI account thereby making them appear to have
originated from legitimate sources; as such, Glasgow engaged in money
laundering; and the AMLC subjected the account to freeze order and
(d) the reliefs prayed for, namely, the issuance of a TRO or writ of
preliminary injunction and the forfeiture of the account in favor of the
government as well as other reliefs just and equitable under the premises.
Moreover, RA 9160, as amended, and its implementing rules and
regulations lay down two conditions when applying the rules for civil forfeiture:
(1) when there is a suspicious transaction report or a covered transaction
report deemed suspicious after investigation by the AMLC and
(2) the court has, in a petition filed for the purpose, ordered the seizure of
any monetary instrument or property, in whole or in part, directly or
indirectly, related to said report.
Since account no. CA-005-10-000121-5 of Glasgow in CSBI was (1) covered
by several suspicious transaction reports and (2) placed under the control of the trial
court upon the issuance of the writ of preliminary injunction, the conditions provided
in Section 12(a) of RA 9160, as amended, were satisfied. Hence, the Republic,
represented by the AMLC, properly instituted the complaint for civil forfeiture.
Whether or not there is truth in the allegation that account no. CA-005-10-
000121-5 contains the proceeds of unlawful activities is an evidentiary matter that
may be proven during trial. The complaint, however, did not even have to show or
allege that Glasgow had been implicated in a conviction for, or the commission of,
the unlawful activities of estafa and violation of the Securities Regulation Code.
A criminal conviction for an unlawful activity is not a prerequisite for the
institution of a civil forfeiture proceeding. Stated otherwise, a finding of guilt for an
unlawful activity is not an essential element of civil forfeiture.
Section 6 of RA 9160 and its IRR amended, states that:
32
 (a) Any person may be charged with and convicted of both the offense of
money laundering and the unlawful activity as defined under Rule 3(i) of
the AMLA.
(b) Any proceeding relating to the unlawful activity shall be given
precedence over the prosecution of any offense or violation under the
AMLA without prejudice to the application ex-parte by the AMLC for a
freeze order with respect to the monetary instrument or property involved
therein and resort to other remedies provided under the AMLA, the Rules
of Court and other pertinent laws and rules.
Finally, Section 27 of the Rule of Procedure in Cases of Civil Forfeiture provides:
Sec. 27. No prior charge, pendency or conviction necessary. – No prior
criminal charge, pendency of or conviction for an unlawful activity or
money laundering offense is necessary for the commencement or the
resolution of a petition for civil forfeiture. (emphasis supplied)
There Was No Failure To Prosecute
How could the Republic be faulted for failure to prosecute the complaint
for civil forfeiture? While there was admittedly a delay in the proceeding, it could
not be entirely or primarily ascribed to the Republic. That Glasgow’s whereabouts
could not be ascertained was not only beyond the Republic’s control, it was also
attributable to Glasgow which left its principal office address without informing the
Securities and Exchange Commission or any official regulatory body of its new
address. Moreover, as early as October 8, 2003, the Republic was already seeking
leave of court to serve summons by publication.
While a court can dismiss a case on the ground of non prosequitur, the real
test for the exercise of such power is whether, under the circumstances, plaintiff is
chargeable with want of due diligence in failing to proceed with reasonable
promptitude. In the absence of a pattern or scheme to delay the disposition of the
case or a wanton failure to observe the mandatory requirement of the rules on the
part of the plaintiff, as in the case at bar, courts should decide to dispense with rather
than wield their authority to dismiss (Marahay v. Melicor).
We see no pattern or scheme on the part of the Republic to delay the
disposition of the case or a wanton failure to observe the mandatory requirement of
the rules. The trial court should not have so eagerly wielded its power to dismiss the
Republic’s complaint.
Service Of Summons May Be By Publication
Civil Forfeiture under RA 9160 is an action in rem. In actions in rem or quasi
in rem, jurisdiction over the person of the defendant is not a prerequisite to
conferring jurisdiction on the court, provided that the court acquires jurisdiction
over the res. Nonetheless, summons must be served upon the defendant in order to
satisfy the requirements of due process. For this purpose, service may be made by
publication as such mode of service is allowed in actions in rem and quasi in rem.
In this connection, Section 8, Title II of the Rule of Procedure in Cases of
Civil Forfeiture provides that respondent shall be given notice of the petition in the
same manner as service of summons under Rule 14 of the Rules of Court and the
ROC provides:
(b) Where the respondent is designated as an unknown owner or whenever his
whereabouts are unknown and cannot be ascertained by diligent inquiry, service
may, by leave of court, be effected upon him by publication of the notice of the
petition in a newspaper of general circulation in such places and for such time as the
court may order. In the event that the cost of publication exceeds the value or
amount of the property to be forfeited by ten percent, publication shall not be
required.
IX. DISPOSITIVE PORTION:
WHEREFORE, the petition is hereby GRANTED. The October 27, 2005 order of the
Regional Trial Court of Manila, Branch 47, in Civil Case No. 03-107319 is SET
ASIDE. The August 11, 2005 motion to dismiss of Glasgow Credit and Collection
Services, Inc. is DENIED. And the complaint for forfeiture of the Republic of the
Philippines, represented by the Anti-Money Laundering Council, is REINSTATED.
The case is hereby REMANDED to the Regional Trial Court of Manila,
Branch 47 which shall forthwith proceed with the case pursuant to the provisions of
A.M. No. 05-11-04-SC. Pending final determination of the case, the November 23,
2005 temporary restraining order issued by this Court is hereby MAINTAINED.
X. PREPARED BY: Ascotia, Kimberly Ruth F.
33
I. SHORT TITLE: PHILIPPINE NATIONAL BANK V. PINEDA
II. FULL CASE TITLE: Philippine National Bank v. Hon. Gregorio G. Pineda in his
capacity as Presiding Judge of the Court of First Instance of Rizal, Branch XXI and
Tayabas Cement Company, Inc.
III. PONENTE: Chief Justice Fernan
IV. TOPIC: Trust Receipts Law
V. STATEMENT OF FACTS
In 1963, Ignacio Arroyo, married to Lourdes Tuason Arroyo (Spouses
Arroyo), obtained a loan from petitioner bank to purchase 60% of the subscribed
capital stock, and thereby acquire the controlling interest of private respondent
Tayabas Cement Company, Inc. (TCC). As security for said loan, the spouses Arroyo
executed a real estate mortgage over a parcel of land known as the La Vista property.
Thereafter, TCC filed with petitioner bank an application and agreement
for the establishment of an eight (8) year deferred letter of credit (L/C) in favor of
Toyo Menka Kaisha, Ltd., to cover the importation of a cement plant machinery and
equipment. Upon approval of said application and opening of an L/C by PNB
in favor of Toyo Menka Kaisha, Ltd. for the account of TCC, the Arroyo spouses
executed the following documents to secure this loan accommodation: Surety
Agreement dated August 5, 1964 and Covenant dated August 6, 1964.
The imported cement plant machinery and equipment arrived from Japan
and were released to TCC under a trust receipt agreement. Subsequently, Toyo
Menka Kaisha, Ltd. made the corresponding drawings against the L/C as scheduled.
TCC, however, failed to remit and/or pay the corresponding amount covered by the
drawings. Thus, pursuant to the trust receipt agreement, PNB notified TCC of its
intention to repossess, as it later did, the imported machinery and equipment for
failure of TCC to settle its obligations under the L/C.
In the meantime, the personal accounts of the spouses Arroyo, which
included another loan of P160,000.00 secured by a real estate mortgage over parcels
of agricultural land known as Hacienda Bacon had likewise become due. The spouses
Arroyo having failed to satisfy their obligations with PNB, the latter decided to
foreclose the real estate mortgages executed by the spouses Arroyo in its favor.
VI. STATEMENT OF THE CASE
In this petition for certiorari, petitioner Philippine National Bank (PNB)
seeks to annul and set aside the orders dated March 4, 1977 and May 31, 1977
rendered in Civil Case No. 244221 of the Court of First Instance of Rizal, Branch XXI,
respectively granting private respondent Tayabas Cement Company, Inc.'s
application for a writ of preliminary injunction to enjoin the foreclosure sale of
certain properties in Quezon City and Negros Occidental and denying petitioner's
motion for reconsideration thereof.
VII. ISSUE/S
.
Whether or not TCC's liability has been extinguished by the repossession
of PNB of the imported cement plant machinery and equipment?
VIII. RULING
No.
It must be remembered that PNB took possession of the imported cement
plant machinery and equipment pursuant to the trust receipt agreement executed
by and between PNB and TCC giving the former the unqualified right to the
possession and disposal of all property shipped under the Letter of Credit until such
time as all the liabilities and obligations under said letter had been discharged.
PNB's possession of the subject machinery and equipment being precisely
as a form of security for the advances given to TCC under the Letter of Credit, said
possession by itself cannot be considered payment of the loan secured thereby.
Payment would legally result only after PNB had foreclosed on said securities, sold
the same and applied the proceeds thereof to TCC's loan obligation. Mere possession
does not amount to foreclosure for foreclosure denotes the procedure adopted by
the mortgagee to terminate the rights of the mortgagor on the property and includes
the sale itself.
Neither can said repossession amount to dacion en pago. Dation in
payment takes place when property is alienated to the creditor in satisfaction of a
debt in money and the same is governed by sales. Dation in payment is the delivery
and transmission of ownership of a thing by the debtor to the creditor as an accepted
equivalent of the performance of the obligation. As aforesaid, the repossession of
the machinery and equipment in question was merely to secure the payment of
TCC's loan obligation and not for the purpose of transferring ownership thereof to
PNB in satisfaction of said loan. Thus, no dacion en pago was ever accomplished.
34
 Proceeding from this finding, PNB has the right to foreclose the mortgages
executed by the spouses Arroyo as sureties of TCC. A surety is considered in law as
being the same party as the debtor in relation to whatever is adjudged touching the
obligation of the latter, and their liabilities are interwoven as to be inseparable.
IX. COMPLETE DISPOSITIVE PORTION
WHEREFORE, the instant petition is hereby granted. The assailed orders
are hereby set aside. Costs against private respondent.
XI. PREPARED BY: Matsuyama, Futoshi Ivan T.
I. SHORT TITLE: RAMOS V. COURT OF APPEALS
II. FULL CASE TITLE: Trinidad Ramos v. The Honorable Court of Appeals and the
People of the Philippines
III. PONENTE: Justice Narvasa
IV. TOPIC: Trust Receipts Law
V. STATEMENT OF FACTS
The accused filed with the Philippine National Cooperative Bank four
applications of letters of credit. The applications were processed and approved.
Among the papers filed for the issuance of the domestic letters of credit
were commercial invoices of the different suppliers of the merchandise sought to be
purchased. The different suppliers then drew sight drafts against the applicant
payable to the order of the PNCB, also bearing the same dates as the respective
applications and for the same amounts. The PNCB then drew its own drafts against
the accused as the buyer of the merchandise and which drafts were accepted by the
accused also on the same dates of the respective applications. After such
acceptance, the corresponding trust receipts were signed by the accused also on the
same dates of the respective applications.
Trinidad Ramos pleads for acquittal on the proposition that the factual
predicate on which her conviction is laid is chiefly comprised of speculations,
conjectures and presumptions without substantial and actual support in the
evidence. She asserts that it behooved the prosecution, which had charged her with
estafa under Article 315, par. 1 (b) of the Revised Penal Code, to prove the essential
elements thereof, numbering four, to wit: (1) that the accused received the thing
subject of the offense; (2) that the thing received is personal property susceptible of
appropriation; (3) that the thing was received for safe-keeping, or on commission, or
for administration, or under any other obligation involving the duty to make delivery
of or return the same; and (4) that there was misappropriation or conversion by the
accused of the thing received to the prejudice of another. But, she contends, in her
case (1) that there is no adequate proof of her receipt of the goods subject of the
trust receipts in question or of her having paid anything on account thereof or in
connection therewith; (2) that complainant Bank had suffered no damage whatever,
since it had made no payment at all on account of the commercial invoices for which
the trust receipts were issued; and (3) that under the laws at the time, transactions
involving trust receipts could only give rise to purely civil liability.
VI. STATEMENT OF THE CASE
In the appeal at bar, Trinidad Ramos seeks reversal of the judgment of the
Court of Appeals, 1 affirming with modification, her conviction of four felonies of
estafa handed down by the Court of First Instance of Manila.
VII. ISSUE/S
Whether or not the accused is guilty of estafa on the ground that there
was no evidence proving her receipt of the goods subject of the trust receipts thus
could have not misappropriated the same.
VIII. RULING
No. The Supreme Court ruled for her acquittal.
Examined against the evidence of record, the assailed factual findings as
to the receipt of the merchandise and the damage sustained by the Bank cannot
stand. The proofs are indeed inadequate on these propositions of fact. It is difficult
to accept the prosecution's theory that it has furnished sufficient proof of delivery
by the introduction in evidence of the commercial invoices attached to the
applications for the letters of credit and of the trust receipts. The invoices are
actually nothing more than lists of the items sought to be purchased and their prices;
and it can scarcely be believed that goods worth no mean sum actually transferred
hands without the unpaid vendor requiring the vendee to acknowledge this fact in
some way, even by a simple signature on these documents alone if not in fact by the
execution of some appropriate document, such as a delivery receipt.
The trust receipts do not fare any better as proofs of the delivery to Ramos
of the goods. Except for the invoices, any documents relating to each trust receipt
agreement, including the trust receipts themselves, appear to be standard Bank
35
forms accomplished by the Bank personnel, and were all signed by Ramos in one
sitting, no doubt with a view to facilitating the pending transactions between the
parties. If, as she claims, Ramos was made to believe that bank usage or regulations
require the signing of the papers in this way, i.e., on a single occasion, there was
neither reason nor opportunity for her to question the statement therein of receipt
of the goods since it was evidently assumed that delivery to her of the goods would
shortly come to pass.
At any rate, Ramos has categorically and consistently denied ever having
received the goods either from the Bank or the suppliers. And this was because,
according to her, the suppliers simply refused to part with the goods as no payment
had been made therefor by the Bank.This rather sorry state of the evidence against
the accused, who is to be presumed innocent until the contrary is proved beyond
reasonable doubt, compels a reversal of her convictions in all four cases.
Having found the record to contain insufficient evidence of the essential elements
of the crime charged, this Court finds it unnecessary to resolve the other issue raised
by the accused.
IX. COMPLETE DISPOSITIVE PORTION
WHEREFORE, the judgments of the Trial Court and of the Court of Appeals
convicting the accused, Trinidad Ramos, of the crime with which she is charged are
hereby REVERSED, and she is acquitted on reasonable doubt, with costs de officio.
X. PREPARED BY: Matsuyama, Futoshi Ivan T.
I. SHORT TITLE: METROPOLITAN BANK V. TONDA
II. FULL CASE TITLE: Metropolitan Bank and Trust Company v. Joaquin Tonda and Ma.
Cristina Tonda
III. PONENTE: Justice Gonzaga-Reyez
IV. TOPIC: Trust Receipts Law
V. STATEMENT OF FACTS
Spouses Joaquin G. Tonda and Ma. Cristina U. Tonda (Tondas) applied for
and were granted commercial letters of credit by petitionerMetrobankfor a period
of eight (8) months in connection with the importation of raw textile materials to be
used in the manufacturing of garments.The Tondas acting both in their capacity as
officers of Honey Tree Apparel Corporation (HTAC) and in their personal capacities,
executed eleven (11) trust receipts to secure the release of the raw materials to
HTAC. The imported fabrics were withdrawn by HTAC under the 11 trust receipts
executed by the Tondas.
Due to their failure to settle their obligations under the trust receipts upon
maturity, Metrobankdemanded upon the Tondas to settle their past due TR/LC
accounts on or before August 15, 1992. Despite repeated demands therefor, the
Tondas failed to comply with their obligations stated in the trust receipts
agreements, i.e. the Tondas failed to account to Metrobank the goods and/or
proceeds of sale of the merchandise, subject of the trust receipts. Consequently,
Metrobank, filed a complaint-affidavit against the Tondas for violation of P.D. No.
115 (Trust Receipts Law) in relation to Article 315 (1) (b) of the Revised Penal Code.
Initially, the case was dismissed by the Provincial Director on the ground
that the complainants failed to establish the elements of estafa. Metrobank then
appealed to the Department of Justice (DOJ). On June 1, 1994, the DOJ reversed the
findings and ordered the latter to file the appropriate information against the Tondas
as charged in the complaint.The TONDAS immediately sought a reconsideration of
the DOJ Resolution but their motion was denied.
Subsequently, the Tondas filed with the Court of Appeals a special civil
action for certiorari and prohibition with application for a temporary restraining
order or a writ of preliminary injunction. The Court of Appeals granted the Tondas'
petition and ordered the criminal complaint against them dismissed. The Court of
Appeals held that Metrobank had failed to show a prima facie case that the Tondas
violated the Trust Receipts Law in relation to Art. 315 (1) (b) of the Revised Penal
Codeof convincing proof that "that the amount of P2.8 Million representing the
outstanding obligation of the TONDAS under the trust receipts account had already
been settled by them in compliance with the loan restructuring proposal.
VI. STATEMENT OF THE CASE
This is a petition for review on certiorari under Rule 45 of the Rules of Court
seeking to set aside the Decision of the Court of Appeals dated June 29, 1998 in CA-
G.R. SP No. 38113 which: (1) reversed Resolution No. 417, s. 1994, dated June 1,
1994 of the Department of Justice directing to file the appropriate Information
against herein respondents Joaquin P. Tonda and Ma. Cristina V. Tonda for violation
of P.D. 115 in relation to Article 315 (1) (b) of the Revised Penal Code; and (2)
effectively set aside the Resolutions dated April 7, 1995 and July 12 1995 of the
Department of Justice denying the motions for reconsideration.
VII. ISSUE/S
36
 Whether or not the dismissal by the Court of Appeals of the charge for
violation of the Trust Receipts Law in relation to Art. 315(1) (b) of the Revised Penal
Code against the Tondas is warranted by the evidence at hand and by law.
VIII. RULING
No. The findings of the appellate court is palpably erroneous.
The Trust Receipts Law declares the failure to turn over the goods or the
proceeds realized from the sale thereof, as a criminal offense punishable under
Article 315 (1) (b) of the Revised Penal Code. The law is violated whenever the
entrustee or the person to whom the trust receipts were issued in favor of fails to:
(1) return the goods covered by the trust receipts; or (2) return the proceeds of the
sale of the said goods. The foregoing acts constitute estafa punishable under Article
315 (1) (b) of the Revised Penal Code. Given that various trust receipts were executed
by the Tondas, they did not return the proceeds from the goods sold nor the goods
themselves to Metrobank, there is no dispute that that the Tondas failed to comply
with the obligations.
The amount of P2.8 million was not directly paid to Metrobank to settle
the trust receipt accounts, but deposited in a joint account. In February 28, 1992,
Metrobank was informed that the amount "may be applied anytime to the payment
of the trust receipts account upon implementation of the parties of the terms of the
restructuring." The parties failed to agree on the terms of the loan restructuring
agreement as the offer by the Tondas to restructure the loan was followed by a series
of counter-offers which yielded nothing. It is axiomatic that acceptance of an offer
must be unqualified and absolute to perfect a contract.
The finding that there was no fraud and deceit is likewise misplaced.
Considering that the offense is punished as a malum prohibitum regardless of the
existence of intent or malice. A mere failure to deliver the proceeds of the sale or
the goods if not sold, constitutes a criminal offense that causes prejudice not only to
another, but more to the public interest.
IX. COMPLETE DISPOSITIVE PORTION
WHEREFORE, the petition is hereby GRANTED. The assailed Decision is
REVERSED and SET ASIDE.SO ORDERED.
X. PREPARED BY: Matsuyama, Futoshi Ivan T.
I. SHORT TITLE: LAND BANK OF THE PHILIPPINES V. PEREZ
II. FULL CASE TITLE: Land Bank of the Philippines v. Lamberto C. Perez, Nestor C. Kun,
Ma. Estelita P. Angeles-Panlilio and Napoleon O. Garcia
III. PONENTE: Justice Brion
IV. TOPIC: Trust Receipts Law
V. STATEMENT OF FACTS
Petitioner Land Bank of the Philippines (LBP) is a government financial
institution and the official depository of the Philippines. Respondents are the officers
and representatives of Asian Construction and Development Corporation (ACDC), a
corporation incorporated under Philippine law and engaged in the construction
business.
On June 7, 1999, LBP filed a complaint for estafa or violation of Article 315,
paragraph 1(b) of the Revised Penal Code, in relation to P.D. 115, against the
respondents. In the affidavit-complaint, it stated that LBP extended a credit
accommodation to ACDC through the execution of an Omnibus Credit Line
Agreement (Agreement) between LBP and ACDC. In various instances, ACDC used
the Letters of Credit/Trust Receipts Facility of the Agreement to buy construction
materials. The trust receipts matured, but ACDC failed to return to LBP the proceeds
of the construction projects or the construction materials subject of the trust
receipts. When ACDC failed to comply with the demand letter, LBP filed the affidavit-
complaint.
On September 30, 1999, the complaint was dismissed. The resolution
pointed out that the evidence presented by LBP failed to state the date when the
goods described in the letters of credit were actually released to the possession of
the respondents. Section 4 of P.D. 115 requires that the goods covered by trust
receipts be released to the possession of the entrustee after the latters execution
and delivery to the entruster of a signed trust receipt.
On appeal, the Secretary of Justice reversed the Resolution of the Assistant
City Prosecutor. The Secretary of Justice pointed out that there was no question that
the goods covered by the trust receipts were received by ACDC. He likewise adopted
LBPs argument that while the subjects of the trust receipts were not mentioned in
the trust receipts, they were listed in the letters of credit referred to in the trust
receipts.
37
 Subsequently, the respondents filed a petition for review before the Court
of Appeals. The Court of Appeals applying the Colinares doctrine ruled that this case
did not involve a trust receipt transaction, but a mere loan.
LBP now files this petition for review on certiorari.
VI. STATEMENT OF THE CASE
Before this Court is a petition for review on certiorari, under Rule 45 of the
Rules of Court, assailing the decision dated January 20, 2005 of the Court of Appeals
in CA-G.R. SP No. 76588. In the assailed decision, the Court of Appeals dismissed the
criminal complaint for estafa against the respondents, Lamberto C. Perez, Nestor C.
Kun, Ma. Estelita P. Angeles-Panlilio and Napoleon Garcia, who allegedly violated
Article 315, paragraph 1(b) of the Revised Penal Code, in relation with Section 13 of
Presidential Decree No. (P.D.) 115 the Trust Receipts Law.
VII. ISSUE/S
Whether or not the Court of Appeals erred when it reversed the
resolutions of the Honorable Secretary of Justice by applying the ruling in the case
of Colinares v. Court of Appeals, which is not applicable in the case at bar.
VIII. RULING
No. The disputed transactions are not trust receipts.
Section 4 of P.D. 115 defines a trust receipt transaction in this manner:
Section 4.What constitutes a trust receipt transaction.
A trust receipt transaction, within the meaning of this Decree, is
any transaction by and between a person referred to in this
Decree as the entruster, and another person referred to in this
Decree as entrustee, whereby the entruster, who owns or holds
absolute title or security interests over certain specified goods,
documents or instruments, releases the same to the possession
of the entrustee upon the latter's execution and delivery to the
entruster of a signed document called a "trust receipt" wherein
the entrustee binds himself to hold the designated goods,
documents or instruments in trust for the entruster and to sell or
otherwise dispose of the goods, documents or instruments with
the obligation to turn over to the entruster the proceeds thereof
to the extent of the amount owing to the entruster or as appears
in the trust receipt or the goods, documents or instruments
themselves if they are unsold or not otherwise disposed of, in
accordance with the terms and conditions specified in the trust
receipt, or for other purposes substantially equivalent to any of
the following:
1. In the case of goods or documents, (a) to sell the
goods or procure their sale; or (b) to manufacture or process the
goods with the purpose of ultimate sale: Provided, That, in the
case of goods delivered under trust receipt for the purpose of
manufacturing or processing before its ultimate sale, the
entruster shall retain its title over the goods whether in its
original or processed form until the entrustee has complied fully
with his obligation under the trust receipt; or (c) to load, unload,
ship or tranship or otherwise deal with them in a manner
preliminary or necessary to their sale.
There are two obligations in a trust receipt transaction. The first is covered
by the provision that refers to money under the obligation to deliver it to the owner
of the merchandise sold. The second is covered by the provision referring to
merchandise received under the obligation to return it to the owner. Thus, under
the Trust Receipts Law, intent to defraud is presumed when (1) the entrustee fails to
turn over the proceeds of the sale of goods covered by the trust receipt to the
entruster; or when the entrustee fails to return the goods under trust, if they are not
disposed of in accordance with the terms of the trust receipts.
In all trust receipt transactions, both obligations on the part of the trustee
exist in the alternative the return of the proceeds of the sale or the return or
recovery of the goods, whether raw or processed. When both parties enter into an
agreement knowing that the return of the goods subject of the trust receipt is not
possible even without any fault on the part of the trustee, it is not a trust receipt
transaction penalized under Section 13 of P.D. 115; the only obligation actually
agreed upon by the parties would be the return of the proceeds of the sale
transaction. This transaction becomes a mere loan, where the borrower is obligated
to pay the bank the amount spent for the purchase of the goods.
We note in this regard that at the onset of these transactions, LBP knew
that ACDC was in the construction business and that the materials that it sought to
buy under the letters of credit were to be used for the following projects: the Metro
Rail Transit Project and the Clark Centennial Exposition Project. LBP had in fact
authorized the delivery of the materials on the construction sites for these projects,
38
as seen in the letters of credit it attached to its complaint. Clearly, they were aware
of the fact that there was no way they could recover the buildings or constructions
for which the materials subject of the alleged trust receipts had been used.
The fact that LBP had knowingly authorized the delivery of construction
materials to a construction site of two government projects, as well as unspecified
construction sites, repudiates the idea that LBP intended to be the owner of those
construction materials.
Thus, in concluding that the transaction was a loan and not a trust receipt,
we noted in Colinares that the industry or line of work that the borrowers were
engaged in was construction.
Based on these premises, we cannot consider the agreements between
the parties in this case to be trust receipt transactions because (1) from the start, the
parties were aware that ACDC could not possibly be obligated to reconvey to LBP the
materials or the end product for which they were used; and (2) from the moment
the materials were used for the government projects, they became public, not LBPs,
property.
Since these transactions are not trust receipts, an action for estafa should
not be brought against the respondents, who are liable only for a loan.
IX. COMPLETE DISPOSITIVE PORTION
WHEREFORE, we DENY the petition and AFFIRM the January 20, 2005
decision of the Court of Appeals in CA-G.R. SP No. 76588. No costs. SO ORDERED.
X. PREPARED BY: Matsuyama, Futoshi Ivan T.
I.SHORT TITLE: SIA V. CA
II. FULL TITLE: Jose O. Sia versus Court of Appeals and the People of
the Philippines,
G.R. No. L-40324, J. Padilla
III. Padilla, J.
IV. TOPIC: Trust Receipts Law
V. STATEMENT OF FACTS:
October 31, 1963 Jose O. Sia (appellant herein), President and General Manager of
the Metal Manufacturing of the Philippines, Inc. for and in its behalf, applied for and
was granted a Letter of Credit with the Continental Bank, Manila to cover the
importation of One Hundred (100) pieces of Safe-Deposit Locks No. 4440, complete
with keys, amounting Pl,979.06. A marginal deposit was made with the Bank and the
Letter of Credit was confirmed with its foreign correspondent. Thereafter, appellant,
for and in behalf of the Metal Manufacturing of the Philippines, Inc., executed a trust
receipt in favor of the Continental Bank, the terms and conditions of which read, in
part, as follows:
... and in consideration thereof, I/We HEREBY AGREE TO HOLD SAID
GOODS IN TRUST FOR THE SAID BANK as its property with liberty to sell the
same for its account but without any authority to make any other
disposition whatsoever of the said goods or any part thereof (or the
proceeds thereof) either by way of conditional sale, pledge or otherwise.
In case of sale I/We further agree to hand the proceeds as soon as received
to the Bank to apply against the relative accept instance (as described
above) and for the payment of any other indebtedness of mine/ours to
Continental Bank.
I/We agree to keep said goods insured to their full value against fire and
other casualties as directed by the Bank, the sum insured to be payable in
case of loss to the Bank, with the understanding that the Bank is not to be
charged with the storage, premium of insurance or any other expenses
incurred on said goods.
39
 I/We also agree to keep the said goods, manufactured products, or
proceeds thereof, whether in the form of money or bills, receivables or
accounts, separate and capable of Identification as property of the Bank.
xxx xxx xxx
The Bank may at any time cancel this trust and take possession of said
goods or the proceeds of the same as may then have been sold wherever
the said goods or proceeds may then be found, and in the event of any
suspensions, or failure, or assignment for the benefit of creditor on my/our
part or non-fulfillment of any obligation, or of the non-payment at
maturity of any acceptance specified hereon or under any credit issued by
the Bank on my/our account, or of any indebtedness on my/our part, all of
my/our obligations, acceptances, indebtedness, and liabilities whatsoever
shall thereupon (with or without notice) mature and become due and
payable. ...
When the said trust receipt became due and demandable, the Metal Manufacturing
of the Philippines, Inc. failed to pay or deliver the merchandise to the Bank despite
the latter's demand.
VI. STATEMENT OF THE CASE:
An information for estafa was filed against petitioner for violation of the trust receipt
agreement executed by him in his capacity as President and General Manager of
Metal Manufacturing of the Philippines, Inc. in favor of Continental.
VII. ISSUE: Whether petitioner Sia, as President and General Manager of Metal
Manufacturing of the Phil., Inc. having acted for and on its behalf in executing the
Trust Receipt Agreement in favor of the Continental Bank may be held liable for the
crime charged?
VIII. RULING: No.
The performance of the act is an obligation directly imposed by the law on
the corporation. Since it is a responsible officer or officers of the corporation who
actually perform the act for the corporation, they must of necessity be the ones to
assume the criminal liability; otherwise this liability as created by the law would be
illusory, and the deterrent effect of the law, negated.
In the absence of an express provision of law making the petitioner liable
for the criminal offense committed by the corporation of which he is a president as
in fact there is no such provisions in the Revised Penal Code under which petitioner
is being prosecuted, the existence of a criminal liability on his part may not be said
to be beyond any doubt. In all criminal prosecutions, the existence of criminal liability
for which the accused is made answerable must be clear and certain. The maxim that
all doubts must be resolved in favor of the accused is always of compelling force in
the prosecution of offenses. This Court has thus far not ruled on the criminal liability
of an officer of a corporation signing in behalf of said corporation a trust receipt of
the same nature as that involved herein.
All these acts were corporate acts with the accused duly representing the
corporation as its president and general manager: the application for bank financing,
the deposit (which was from corporate funds, and not a deposit made by the
petitioner, as wrongly alleged in the information), the receipt of the steel sheets,
then manufactured into finished products (which could not technically be done
under the terms of the trust receipt required by the bank, under which the very
sheets were supposed to be sold by the corporation) and the non-payment of the
credit extended by the bank. There is not the slightest evidence nor intimation that
these corporate acts were unauthorized or that petitioner personally had committed
any fraud or deceit in connection therewith or that he had personally been
responsible for or benefited from the corporation's failure to pay the bank the
balance due under the trust receipt.
It is worthy of note that the civil liability imposed by the trust receipt is
exclusively on the Metal Company. Speaking of such liability alone, as one arising
from the contract, as distinguished from the civil liability arising out of a crime, the
petitioner was never intended to be equally liable as the corporation. Without being
made so liable personally as the corporation is, there would then be no basis for
holding him criminally liable, for any violation of the trust receipt. This is made clearly
so upon consideration of the fact that in the violation of the trust agreement and in
the absence of positive evidence to the contrary, only the corporation benefited, not
the petitioner personally, yet, the allegation of the information is to effect that the
misappropriation or conversion was for the personal use and benefit of the
40
petitioner, with respect to which there is variance between the allegation and the
evidence.
IX. DISPOSITIVE PORTION:
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby
GRANTED. The decision of the Court of Appeals is SET ASIDE. Defendant is
ACQUITTED without prejudice to the institution of a civil action against the Metal
Manufacturing of the Phil., Inc. for collection of the sum due plus damages if any. No
costs. SO ORDERED.
X: PREPARED BY: Nepomuceno, Marlo
I. SHORT TITLE: ONG v. CA (2003)
II. FULL TITLE: Edward C. Ong v. Court of Appeals and the People of the Philippines
G.R. No. 119858 April 29, 2003.
III. PONENTE: J. Carpio
IV. TOPIC: Trust Receipts Law
V. STATEMENT OF FACTS:
Edward Ong (petitioner), representing ARMAGRI International
Corporation ("ARMAGRI"), applied for a letter of credit for P2, 532, 500.00 with
SOLIDBANK Corporation ("Bank") to finance the purchase of differential assemblies
from Metropole Industrial Sales. On 6 July 1990, petitioner, representing ARMAGRI,
executed a trust receipt acknowledging receipt from the Bank of the goods valued
at P2, 532, 500.00.
On 12 July 1990, petitioner and Benito Ong, representing ARMAGRI,
applied for another letter of credit for P2, 050, 000.00 to finance the purchase of
merchandise from Fertiphil Corporation. The Bank approved the application, opened
the letter of credit and paid to Fertiphil Corporation the amount of P2, 050, 000.00.
On 23 July 1990, petitioner, signing for ARMAGRI, executed another trust receipt in
favor of the Bank acknowledging receipt of the merchandise.
Both trust receipts contained the same stipulations. Under the trust
receipts, ARMAGRI undertook to account for the goods held in trust for the Bank, or
if the goods are sold, to turn over the proceeds to the Bank. ARMAGRI also undertook
the obligation to keep the proceeds in the form of money, bills or receivables as the
separate property of the Bank or to return the goods upon demand by the Bank, if
not sold. In addition, petitioner executed an additional undertaking stamped on the
dorsal portion of both trust receipts.
Petitioner signed alone the additional undertaking in the Trust Receipt for
P2, 253, 500.00, while both petitioner and Benito Ong signed the additional
undertaking in the Trust Receipt for P2, 050, 000.00.
When the trust receipts became due and demandable, ARMAGRI failed to
pay or deliver the goods to the Bank despite several demand letters. Consequently,
as of 31 May 1991, the unpaid account under the first trust receipt amounted to P1,
527, 180.66 while the unpaid account under the second trust receipt amounted to
P1, 449, 395.71.
VI. STATEMENT OF THE CASE:
Assistant City Prosecutor Dina P. Teves of the City of Manila charged petitioner and
Benito Ong with two counts of estafa for violation of the Trust Receipts Law where
he was found guilty by the RTC.
The CA affirmed the trial court’s decision and denied the subsequent motion for
reconsideration filed by the petitioner.
VII. ISSUE/S: 1. WON as agent and the one who signed for the entrustee corporation,
the
petitioner is the one liable; 2. WON the petitioner shall be guilty of estafa
VIII. RULING:
1. YES.
Section 13 of the Trust Receipts Law which provides:
41

x x x . If the violation is committed by a corporation, partnership, association or other
juridical entities, the penalty provided for in this Decree shall be imposed upon the
directors, officers, employees or other officials or persons therein responsible for the
offense, without prejudice to the civil liabilities arising from the offense
Trust Receipts Law is violated whenever the entrustee fails to: (1) turn over
the proceeds of the sale of the goods, or (2) return the goods covered by the trust
receipts if the goods are not sold. The mere failure to account or return gives rise to
the crime which is malum prohibitum. There is no requirement to prove intent to
defraud.
The Trust Receipts Law recognizes the impossibility of imposing the
penalty of imprisonment on a corporation. Hence, if the entrustee is a corporation,
the law makes the officers or employees or other persons responsible for the
offense liable to suffer the penalty of imprisonment. The reason is obvious:
corporations, partnerships, associations and other juridical entities cannot be put to
jail. Hence, the criminal liability falls on the human agent responsible for the violation
of the Trust Receipts Law.
In the instant case, the Bank was the entruster while ARMAGRI was the
entrustee. Being the entrustee, ARMAGRI was the one responsible to account for the
goods or its proceeds in case of sale. However, the criminal liability for violation of
the Trust Receipts Law falls on the human agent responsible for the violation.
Petitioner, who admits being the agent of ARMAGRI, is the person responsible for
the offense for two reasons. First, petitioner is the signatory to the trust receipts,
the loan applications and the letters of credit. Second, despite being the signatory to
the trust receipts and the other documents, petitioner did not explain or show why
he is not responsible for the failure to turn over the proceeds of the sale or account
for the goods covered by the trust receipts.
2. YES. The two information explicitly allege that petitioner, representing ARMAGRI,
defrauded the Bank by failing to remit the proceeds of the sale or to return the goods
despite demands by the Bank, to the latter's prejudice. As an essential element
of estafa with abuse of confidence, it is sufficient that the Informations specifically
allege that the entrustee received the goods. The Informations expressly state that
ARMAGRI, represented by petitioner, received the goods in trust for the Bank under
the express obligation to remit the proceeds of the sale or to return the goods upon
demand by the Bank. There is no need to allege in the Informations in what capacity
petitioner participated to hold him responsible for the offense. Under the Trust
Receipts Law, it is sufficient to allege and establish the failure of ARMAGRI, whom
petitioner represented, to remit the proceeds or to return the goods to the Bank.
When petitioner signed the trust receipts, he claimed he was representing
ARMAGRI. The corporation obviously acts only through its human agents and it is the
conduct of such agents which the law must deter. The existence of the corporate
entity does not shield from prosecution the agent who knowingly and intentionally
commits a crime at the instance of a corporation.
IX. DISPOSITIVE PORTION:
WHEREFORE, the assailed Decision is AFFIRMED with MODIFICATION. In
Criminal Case No. 92-101989 and in Criminal Case No. 92-101990, for each count
of estafa, petitioner EDWARD C. ONG is sentenced to an indeterminate penalty of
imprisonment from four (4) years and two (2) months of prision correctional as
MINIMUM, to twenty (20) years of reclusion temporal as MAXIMUM. Petitioner is
ordered to pay SOLIDBANK CORPORATION the stipulated penalty of 1% per month
on the outstanding balance of the two trust receipts to be computed from 15 July
1991 until the debt is fully paid.
X: PREPARED BY: Nepomuceno, Marlo
42
I. SHORT TITLE: GONZALES V. HSBC
II. FULL CASE TITLE: Jose Antonio U. Gonzales v. Hongkong and Shanghai Banking
Corporation
III. PONENTE: Justice Chico-Nazario
IV. TOPIC: Trust Receipts Law
V. STATEMENT OF FACTS
At the time of the incident subject of the case at bar, petitioner Gonzalez
was the Chairman and Chief Executive Officer of Mondragon Leisure and Resorts
Corporation (MLRC). On 1 August 1997, petitioner Gonzalez, for and in behalf of
MLRC, acknowledged receipt of various golfing equipments and assorted Walt
Disney items, and signed the corresponding two Trust Receipt agreements covering
the various golfing equipments and the assorted Walt Disney items, both in favor of
respondent HSBC.
When the due dates of subject Trust Receipts came and went without
word from MLRC, respondent HSBC, through Paula L. Felipe (Felipe) demanded from
MLRC the turnover of the proceeds of the sale of the assorted goods covered by the
Trust Receipts or the return of said goods. Despite demand, however, MLRC failed
to return the assorted goods or their value. Consequently, Felipe, for respondent
HSBC, filed a criminal complaint for estafa, i.e., for violation of Presidential Decree
No. 115, the Trust Receipts Law, in relation to Art. No. 315(1)(b) of the Revised Penal
Code against petitioner Gonzalez.
VI. STATEMENT OF THE CASE
In this petition for review on certiorari under Rule 45 of the Rules of Court,
as amended, petitioner Jose Antonio U. Gonzalez (Gonzalez) seeks; 1) the reversal of
the 13 January 2004 Decision, and 6 August 2004 Resolution, both of the Court of
Appeals in CA-G.R. SP No. 75469; and 2) the dismissal of the complaint for violation
of Presidential Decree No. 115, otherwise known as the Trust Receipts Law, in
relation to Article 315(1)(b) of the Revised Penal Code, filed by respondent Hongkong
& Shanghai Banking Corporation (HSBC) against him before the City Prosecutor of
Makati and docketed as I.S. No. 00-G-24734-35.
VII. ISSUE/S
Whether or not there is probable cause to hold petitioner Gonzalez liable
to stand trial for violation of Presidential Decree No. 115, in relation to Art. 315(1)
(b) of the Revised Penal Code
VIII. RULING
Yes. There is probable cause to hold petitioner liable.
To determine the existence of probable cause, there is a need to conduct
preliminary investigation. A preliminary investigation is an inquiry to determine
whether (a) a crime has been committed; and (b) whether there is probable cause
to believe that the accused is guilty thereof. Such investigation is designed to secure
the (accused) against hasty, malicious and oppressive prosecution, the conduct of
which is executive in nature. The Supreme Court cannot find substantiation that the
executive determination of probable cause was done without or in excess of
jurisdiction resulting from grave abuse of discretion.
In the case at bar, petitioner Gonzalez is charged by respondent HSBC with
violating the Trust Receipts Law. In general, a trust receipt transaction imposes upon
the entrustee the obligation to deliver to the entruster the price of the sale, or if the
merchandise is not sold, to return the same to the entruster. There are thus two
obligations in a trust receipt transaction: the first, refers to money received under
the obligation involving the duty to turn it over to the owner of the merchandise
sold, while the second refers to merchandise received under the obligation to return
it to the owner. A violation of any of these undertakings constitutes estafa defined
under Art. 315(1)(b) of the Revised Penal Code, as provided by Section 13 of the
same law.
As found in the complaint-affidavit, petitioner Gonzalez is charged with
failing to turn over to the Bank a single centavo of the proceeds of the sale of the
(assorted) goods covered by the Trust Receipts, or to return any of the assorted
goods.
The contention that petitioner neither had the intent to defraud
respondent HSBC nor personally misused/misappropriated the goods subject of the
trust receipts is of no moment. The offense punished under Presidential Decree No.
115 is in the nature of malum prohibitum. A mere failure to deliver the proceeds of
the sale or the goods if not sold, constitutes a criminal offense that causes prejudice
not only to another, but more to the public interest. This is a matter of public policy
as declared by the legislative authority. Moreover, this Court already held previously
that failure of the entrustee to turn over the proceeds of the sale of the goods,
covered by the trust receipt, to the entruster or to return said goods if they were not
43
disposed of in accordance with the terms of the trust receipt shall be punishable as
estafa under Art. 315(1)(b) of the Revised Penal Code without need of proving intent
to defraud.
IX. COMPLETE DISPOSITIVE PORTION
WHEREFORE, premises considered, the instant petition is DENIED for lack
of merit. The assailed 13 January 2004 Decision and 6 August 2004 Resolution, both
of the Court of Appeals in CA-G.R. SP No. 75469 are hereby AFFIRMED. Costs against
petitioner.SO ORDERED.
X. PREPARED BY: Matsuyama, Futoshi Ivan T.
I. SHORT TITLE: Development Bank of the Philippines v. Prudential Bank
II. FULL CASE TITLE: Development Bank of the Philippines v. Prudential Bank
III. PONENTE: Chief Justice Corona
IV. TOPIC: Trust Receipts Law
V. STATEMENT OF FACTS
In 1973, Lirag Textile Mills, Inc. (Litex) opened an irrevocable commercial
letter of credit with respondent Prudential Bank. This was in connection with its
importation of 5,000 spindles for spinning machinery with drawing frame, simplex
fly frame, ring spinning frame and various accessories, spare parts and tool gauge.
These were released to Litex under covering trust receipts it executed in favor of
Prudential Bank. Litex installed and used the items in its textile mill.
On October 1980, DBP granted a foreign currency loan to Litex. To secure
the loan, Litex executed real estate and chattel mortgages on its plant site including
the buildings and other improvements, machineries and equipments there. Among
the machineries and equipments mortgaged in favor of DBP were the articles
covered by the trust receipts.
Prudential Bank learned about DBPs plan for the overall rehabilitation of
Litex. Prudential Bank notified DBP of its claim over the various items covered by the
trust receipts which had been installed and used by Litex in the textile mill. Prudential
Bank informed DBP that it was the absolute and juridical owner of the said items and
they were thus not part of the mortgaged assets that could be legally ceded to
DBP.For the failure of Litex to pay its obligation, DBP extra-judicially foreclosed on
the real estate and chattel mortgages, including the articles claimed by Prudential
Bank.
Without the knowledge of Prudential Bank, DBP sold the Litex textile mill,
as well as the machineries and equipments therein, to Lyon Textile Mills, Inc. Since
its demands remained unheeded, Prudential Bank filed a complaint for a sum of
money with damages against DBP.
The trial court decided in favor of Prudential Bank. Applying the provisions
of PD 115, otherwise known as the Trust Receipts Law.Aggrieved, DBP filed an appeal
with the Court of Appeals. However, the appellate court dismissed the appeal and
affirmed the decision of the trial court in toto. It applied the provisions of PD 115
and held that ownership over the contested articles belonged to Prudential Bank as
entrustor, not to Litex. Consequently, even if Litex mortgaged the items to DBP and
the latter foreclosed on such mortgage, DBP was duty-bound to turn over the
proceeds to Prudential Bank, being the party that advanced the payment for
them.Moreover, the appellate court found that DBP was not a mortgagee in good
faith. It also upheld the finding of the trial court that DBP was a trustee ex maleficio
of Prudential Bank over the articles covered by the trust receipts.
VI. STATEMENT OF THE CASE
Development Bank of the Philippines (DBP) assails in this petition for
review on certiorari under Rule 45 of the Rules of Court the December 14, 1999
decision and the June 8, 2000 resolution of the Court of Appeals in CA-G.R. CV No.
45783. The challenged decision dismissed DBPs appeal and affirmed the February
12, 1991 decision of the Regional Trial Court of Makati, Branch 137 in Civil Case No.
88-931 in toto, while the impugned resolution denied DBPs motion for
reconsideration for being pro forma.
VII. ISSUE/S
Whether or not the transaction between Prudential Bank and Litex is a
trust receipt transaction?
VIII. RULING
Yes.
The various agreements between Prudential Bank and Litex commonly
denominated as trust receipts were valid. As the Court of Appeals correctly ruled,
44
their provisions did not contravene the law, morals, good customs, public order or
public policy.
The articles were owned by Prudential Bank and they were only held by
Litex in trust. While it was allowed to sell the items, Litex had no authority to dispose
of them or any part thereof or their proceeds through conditional sale, pledge or any
other means.
Litex had neither absolute ownership, free disposal nor the authority to
freely dispose of the articles. Litex could not have subjected them to a chattel
mortgage. Their inclusion in the mortgage was void and had no legal effect. There
being no valid mortgage, there could also be no valid foreclosure or valid auction
sale. Thus, DBP could not be considered either as a mortgagee or as a purchaser in
good faith.No one can transfer a right to another greater than what he himself has.
Nemo dat quod non habet. Hence, Litex could not transfer a right that it did not have
over the disputed items. Corollarily, DBP could not acquire a right greater than what
its predecessor-in-interest had. The spring cannot rise higher than its source. DBP
merely stepped into the shoes of Litex as trustee of the imported articles with an
obligation to pay their value or to return them on Prudential Banks demand. By its
failure to pay or return them despite Prudential Banks repeated demands and by
selling them to Lyon without Prudential Banks knowledge and conformity, DBP
became a trustee ex maleficio.
IX. COMPLETE DISPOSITIVE PORTION
WHEREFORE, the petition is hereby DENIED. The December 14, 1999
decision and June 8, 2000 resolution of the Court of Appeals in CA-G.R. CV No. 45783
are AFFIRMED.
X. PREPARED BY: Matsuyama, Futoshi Ivan T.
I. SHORT TITLE: VINTOLA V. INSULAR BANK
II. FULL CASE TITLE: Spouses Tirzo Vintola and Lorena Dy Vintola (1987)
III. PONENTE: Justice Cortes
IV. TOPIC: Trust Receipt Law
V. STATEMENT OF FACTS
On August 20, 1975 the spouses Tirso and Loreta Vintola (Vintolas), doing
business under the name "Dax Kin International," engaged in the manufacture of raw
sea shells into finished products, applied for and were granted a domestic letter of
credit by the Insular Bank of Asia and America (IBAA). The Letter of Credit authorized
the bank to negotiate for their account drafts drawn by their supplier, one Stalin Tan,
on Dax Kin International for the purchase of puka and olive seashells.
On the same day, having received from Stalin Tan the puka and olive shells,
the Vintolas executed a Trust Receipt agreement with IBAA. Under that Agreement,
the Vintolas agreed to hold the goods in trust for IBAA as the "latter's property with
liberty to sell the same for its account, and "in case of sale" to turn over the proceeds
as soon as received to (IBAA).
Having defaulted on their obligation, IBAA demanded payment from the
Vintolas. The Vintolas, who were unable to dispose of the shells, responded by
offering to return the goods. IBAA refused to accept the merchandise, and due to
the continued refusal of the Vintolas to make good their undertaking, IBAA charged
them with estafa. During the trial of the criminal case the VINTOLAS turned over the
seashells to the custody of the trial court.
The trial court acquitted the Vintolas of the crime charged, after finding
that the element of misappropriation or conversion was inexistent. Shortly
thereafter, IBAA commenced the present civil action to recover the value of the
goods before the Regional Trial Court. Holding that the complaint was barred by the
judgment of acquittal in the criminal case, said Court dismissed the complaint.
However, on IBAA's motion, the Court granted reconsideration and hold the Vintolas
civilly liable.
The VINTOLAS rest their present appeal on the principal allegation that
their acquittal in the estafa case bars IBAA's filing of the civil action because IBAA
had not reserved in the criminal case its right to enforce separately their civil
liability. Further, the VINTOLAS take the position that their obligation to IBAA has
been extinguished inasmuch as, through no fault of their own, they were unable to
dispose of the seashells, and that they have relinquished possession thereof to the
IBAA, as owner of the goods, by depositing them with the Court.
VI. STATEMENT OF THE CASE
This case was appealed to the Intermediate Appellate Court which,
however, certified the same to this Court, the issue involved being purely legal.
VII. ISSUE/S
45

Whether or not the Vintolas’ obligation with IBAA is extinguished on the
ground that they deposited the subject goods with the court?
VIII. RULING
No.
Contrary to the allegation of the VINTOLAS, IBAA did not become the real
owner of the goods. It was merely the holder of a security title for the advances it
had made to the Vintolas. The goods the Vintolas had purchased through IBAA
financing remain their own property and they hold it at their own risk. The trust
receipt arrangement did not convert the IBAA into an investor; the latter remained
a lender and creditor.
Since the IBAA is not the factual owner of the goods, the Vintolas cannot
justifiably claim that because they have surrendered the goods to IBAA and
subsequently deposited them in the custody of the court, they are absolutely
relieved of their obligation to pay their loan because of their inability to dispose of
the goods. The fact that they were unable to sell the seashells in question does not
affect IBAA's right to recover the advances it had made under the Letter of Credit.
The acquittal of the Vintolas in the estafa case is no bar to the institution
of a civil action for collection. It is inaccurate for the Vintolas to claim that the
judgment in the estafa case had declared that the facts from which the civil action
might arise, did not exist, for, it will be recalled that the decision of acquittal
expressly declared that "the remedy of the Bank is civil and not criminal in nature."
This amounts to a reservation of the civil action in IBAA's favor, for the Court would
not have dwelt on a civil liability that it had intended to extinguish by the same
decision.
The Vintolas are liable ex contractu for breach of the Letter of Credit —
Trust Receipt, whether they did or they did not "misappropriate, misapply or
convert" the merchandise as charged in the criminal case. Their civil liability does not
arise ex delicto, the action for the recovery of which would have been deemed
instituted with the criminal-action (unless waived or reserved) and where acquittal
based on a judicial declaration that the criminal acts charged do not exist would have
extinguished the civil action.
IX. COMPLETE DISPOSITIVE PORTION
WHEREFORE, finding no reversible error in the judgment appealed from,
the same is hereby AFFIRMED. No costs.SO ORDERED.
X. Prepared by: Matsuyama, Futoshi Ivan T.
I. SHORT TITLE: VINTOLA V. INSULAR BANK
II. FULL CASE TITLE: Spouses Tirzo Vintola and Loreta Dy Vintola (1988)
III. PONENTE: Justice Cortes
IV. TOPIC: Trust Receipts Law
V. STATEMENT OF FACTS
Spouses Tirzo Vintola and Loreta Dy Vintola, hereinafter referred to as
Vintolas, are the proprietors of Dax Kin International, a company engaged in the
manufacture of raw Us into finished products.
On August 20, 1975, the VINTOLA'S applied for, and were granted, a
commercial letter of credit with the Insular Bank of Asia and America (IBAA). The
letter of credit authorized the bank to negotiate for their account, drawn in favor of
one of their suppliers, on Dax Kin International to represent a shipment of a variety
of puka and olive shells.
To secure the release of the raw seashells, on the same day the VINTOLAS
executed in favor of IBAA a trust receipt agreement.
On January 9, 1976 IBAA demanded from the Vintolas payment, the latter
having failed to make good their obligation. The Vintolas offered to return the raw
seashells to IBAA as they were unable to dispose of the same. IBAA refused to accept
them.
As found by the Regional Trial Court, the Vintolas made several promises
to IBAA to settle their account. But due to their failure to pay their obligation, IBAA
was constrained to institute Criminal Case for estafa under Art. 315 No. 1(b) of the
Revised Penal Code in relation to Pres. Dec. No. 115 (The Trust Receipts Law). During
the trial of the criminal case, the Vintolas deposited in court the various puka and
olive shells. Subsequently, the Vintolas were acquitted for insufficiency of evidence.
46
 Thereafter IBAA brought Civil Case No. R-21103, subject of this appeal, to
recover from the Vintolas the amount due plus interest and other charges. The trial
court rendered judgment ordering the defendants to pay the plaintiff with legal
interests and costs.
The VINTOLAS appealed to the Court of Appeals but upon motion filed by
IBAA, the appellate court resolved to elevate the case to the Supreme Court
considering that purely questions of law are involved.
VI. STATEMENT OF THE CASE
This case stems on all fours with the decision of this Tribunal in G.R. No.
73271 promulgated on May 29, 1987, entitled Spouses Tirzo L. Vintola and Loreto Dy
Vintola v. Insular Bank of Asia and America (150 SCRA 578). The same issues and
virtually the same facts were involved in that case between the same parties, hence,
the decision in said can foreclosure this appeal.
VII. ISSUE/S
Whether or not the lower court was correct in holding that the Vintolas
still owe IBAA even though the goods held in trust were not sold and IBAA never
demanded for their return and even if the VINTOLAS deposited them in court
because the bank refused to accept their return.
VIII. RULING
Yes.
This Tribunal adopts and reiterates its ruling in G.R. No. 73271
promulgated on May 29, 1987, entitled Spouses Tirzo L. Vintola and Loreto Dy
Vintola v. Insular Bank of Asia and America considering the facts and circumstances
obtaining in the aforecited and the present cases.
To support their case, the Vintolas argue that their return of the goods
amounted to recovery by IBAA and to order them to further make payment would
be tantamount to double recovery.
According to them, "the situation is akin to an act or omission constituting
both a quasi-delict under the Civil Code and also criminal negligence under the
Revised Penal Code", hence they invoke the rule under Art. 2177 of the New Civil
Code against double recovery.
The VINTOLAS' reliance on said provision of law is erroneous. As correctly
argued by IBAA, there is no double recovery since the bank has not yet recovered
from them, The VINTOLAS' deposit in court of the puka and olive shells does not
amount to recovery by IBAA.
IX. COMPLETE DISPOSITIVE PORTION
WHEREFORE, the decision of the trial court is AFFIRMED. SO ORDERED.
X. PREPARED BY: Matsuyama, Futoshi Ivan T.
I. SHORT TITLE: LEE VS. CA
II. FILL TITLE: CHARLES LEE, CHUA SIOK SUY, MARIANO SIO, ALFONSO YAP, RICHARD
VELASCO and ALFONSO CO,petitioners,
vs.
COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS, respondents.
III. PONENTE: DE LEON, JR., J:
IV. TOPIC: Letters of Credit
V. STATEMENT OF FACTS
Charles Lee, as President of MICO wrote private respondent Philippine Bank of
Communications (PBCom) requesting for a grant of a discounting loan/credit line in
the sum of Three Million Pesos (₱3,000,000.00) for the purpose of carrying out
MICO’s line of business as well as to maintain its volume of business.
On the same day, Charles Lee requested for another discounting loan/credit line of
Three Million Pesos (₱3,000,000.00) from PBCom for the purpose of opening letters
of credit and trust receipts.
In connection with the requests for discounting loan/credit lines, PBCom was
furnished by MICO a resolution duly authorizing and empowering Mr. Charles Lee
and Mariano A. Sio to apply for, negotiate, and secure approval of commerce loans
such as letters of credits and trust receipts in behalf of the corporation which was
adopted unanimously by MICO’s Board of Directors.
47
MICO availed of the first loan of One Million Pesos (₱1,000,000.00) from PBCom.
Upon maturity of the loan, MICO caused the same to be renewed, the last renewal
of which was made on May 21, 1982 under Promissory Note BNA No. 26218.
Another loan of One Million Pesos (₱1,000,000.00) was availed of by MICO from
PBCom which was likewise later on renewed, the last renewal of which was. To
complete MICO’s availment of Three Million Pesos (₱3,000,000.00) discounting
loan/credit line with PBCom, MICO availed of another loan from PBCom in the sum
of One Million Pesos (₱1,000,000.00) on May 24, 1979. As in previous loans, this was
rolled over or renewed, the last renewal of which was made on May 25, 1982 under
Promissory Note BNA No. 26253.
As security for the loans, MICO through its Vice-President and General Manager,
Mariano Sio, executed on May 16, 1979 a Deed of Real Estate Mortgage over its
properties situated in Pasig, Metro Manila covered by Transfer Certificates of Title
(TCT) Nos. 11248 and 11250.
Charles Lee, Chua SiokSuy, Mariano Sio, Alfonso Yap and Richard Velasco, in their
personal capacities executed a Surety Agreement in favor of PBCom whereby the
petitioners jointly and severally, guaranteed the prompt payment on due dates or at
maturity of overdrafts, letters of credit, trust receipts, and other obligations of every
kind and nature, for which MICO may be held accountable by PBCom. It was
provided, however, that the liability of the sureties shall not at any one time exceed
the principal amount of Three Million Pesos (₱3,000,000.00) plus interest, costs,
losses, charges and expenses including attorney’s fees incurred by PBCom in
connection therewith.
On July 14, 1980, petitioner Charles Lee, in his capacity as president of MICO, wrote
PBCom and applied for an additional loan in the sum of Four Million Pesos
(₱4,000,000.00). The loan was intended for the expansion and modernization of the
company’s machineries.
As per agreement, the proceeds of all the loan availments were credited to MICO’s
current checking account with PBCom. To induce the PBCom to increase the credit
line of MICO, Charles Lee, Chua SiokSuy, Mariano Sio, Alfonso Yap, Richard Velasco
and Alfonso Co executed another surety agreement in favor of PBCom whereby they
jointly and severally guaranteed the prompt payment on due dates or at maturity of
overdrafts, promissory notes, discounts, drafts, letters of credit, bills of exchange,
trust receipts and all other obligations of any kind and nature for which MICO may
be held accountable by PBCom. It was provided, however, that their liability shall not
at any one time exceed the sum of Seven Million Five Hundred Thousand Pesos
(₱7,500,000.00) including interest, costs, charges, expenses and attorney’s fees
incurred by MICO in connection therewith.
On July 2, 1981, MICO filed with PBCom an application for a domestic letter of credit
in the sum of Three Hundred Forty-Eight Thousand Pesos (₱348,000). The
corresponding irrevocable letter of credit was approved and opened under LC No. L-
16060. Thereafter, the domestic letter of credit was negotiated and accepted by
MICO as evidenced by the corresponding bank draft issued for the purpose. After
the supplier of the merchandise was paid, a trust receipt upon MICO’s own initiative,
was executed in favor of PBCom.
On September 14, 1981, MICO applied for another domestic letter of credit with
PBCom in the sum of Two Hundred Ninety Thousand Pesos (₱290,000.00). The
corresponding irrevocable letter of credit was issued on September 22, 1981 under
LC No. L-16334. After the beneficiary of the said letter of credit was paid by PBCom
for the price of the merchandise, the goods were delivered to MICO which executed
a corresponding trust receipt in favor of PBCom.
MICO applied for authority to open a foreign letter of credit in favor of Ta Jih
Enterprises Co., Ltd., and thus, the corresponding letter of credit was then issued by
PBCom with a cable sent to the beneficiary, Ta Jih Enterprises Co., Ltd. advising that
said beneficiary may draw funds from the account of PBCom in its correspondent
bank’s New York Office. PBCom also informed its corresponding bank in Taiwan, the
Irving Trust Company, of the approved letter of credit. The correspondent bank
acknowledged PBCom’s advice through a confirmation letter and by debiting from
PBCom’s account with the said correspondent bank the sum of Eleven Thousand
Nine Hundred Sixty US Dollars ($11 ,960.00). As in past transactions, MICO executed
in favor of PBCom a corresponding trust receipt.
MICO applied, for authority to open a foreign letter of credit in the sum of One
Thousand Nine Hundred US Dollars ($1,900.00), with PBCom. Upon approval, the
corresponding letter of credit denominated as LC No. 62293 was issued whereupon
PBCom advised its correspondent bank and MICO of the same. Negotiation and
proper acceptance of the letter of credit were then made by MICO. Again, a
corresponding trust receipt was executed by MICO in favor of PBCom.
In all the transactions involving foreign letters of credit, PBCom turned over to MICO
the necessary documents such as the bills of lading and commercial invoices to
enable the latter to withdraw the goods from the port of Manila.
48
MICO obtained from PBCom another loan in the sum of Three Hundred Seventy-
Seven Thousand Pesos (₱377,000.00) covered by Promissory Note BA No. 7458.
Upon maturity of all credit availments obtained by MICO from PBCom, the latter
made a demand for payment. For failure of petitioner MICO to pay the obligations
incurred despite repeated demands, private respondent PBComextrajudicially
foreclosed MICO’s real estate mortgage and sold the said mortgaged properties in a
public auction sale held on November 23, 1982. Private respondent PBCom which
emerged as the highest bidder in the auction sale, applied the proceeds of the
purchase price at public auction of Three Million Pesos (₱3,000,000.00) to the
expenses of the foreclosure, interest and charges and part of the principal of the
loans, leaving an unpaid balance of Five Million Four Hundred Forty-One Thousand
Six Hundred Sixty-Three Pesos and Ninety Centavos (₱5,441,663.90) exclusive of
penalty and interest charges. Aside from the unpaid balance of Five Million Four
Hundred Forty-One Thousand Six Hundred Sixty-Three Pesos and Ninety Centavos
(₱5,441,663.90), MICO likewise had another standing obligation in the sum of Four
Hundred Sixty-One Thousand Six Hundred Pesos and Six Centavos (₱461,600.06)
representing its trust receipts liabilities to private respondent.
PBCom then demanded the settlement of the aforesaid obligations from herein
petitioners-sureties who, however, refused to acknowledge their obligations to
PBCom under the surety agreements.
VI. STATEMENT OF THE CASE
PBCom filed a complaint with prayer for writ of preliminary attachment before the
Regional Trial Court of Manila, which was raffled to Branch 55, alleging that MICO
was no longer in operation and had no properties to answer for its obligations.
PBCom further alleged that petitioner Charles Lee has disposed or concealed his
properties with intent to defraud his creditors.
Petitioners (MICO and herein petitioners-sureties) denied all the allegations of the
complaint filed by respondent PBCom, and alleged that: a) MICO was not granted
the alleged loans and neither did it receive the proceeds of the aforesaid loans; b)
Chua SiokSuy was never granted any valid Board Resolution to sign for and in behalf
of MICO; c) PBCom acted in bad faith in granting the alleged loans and in releasing
the proceeds thereof; d) petitioners were never advised of the alleged grant of loans
and the subsequent releases therefor, if any; e) since no loan was ever released to
or received by MICO, the corresponding real estate mortgage and the surety
agreements signed concededly by the petitioners-sureties are null and void.
The trial court gave credence to the testimonies of herein petitioners and dismissed
the complaint filed by PBCom. The trial court likewise declared the real estate
mortgage and its foreclosure null and void. In ruling for herein petitioners,
The Court of Appeals reversed the ruling of the trial court, saying that the latter
committed an erroneous application and appreciation of the rules governing the
burden of proof. Citing Section 24 of the Negotiable Instruments Law which provides
that "Every negotiable instrument is deemed prima facie to have been issued for
valuable consideration and every person whose signature appears thereon to have
become a party thereto for value", the Court of Appeals said that while the subject
promissory notes and letters of credit issued by the PBCom made no mention of
delivery of cash, it is presumed that said negotiable instruments were issued for
valuable consideration. The Court of Appeals also cited the case of Gatmaitan vs.
Court of Appeals which holds that "there is a presumption that an instrument sets
out the true agreement of the parties thereto and that it was executed for valuable
consideration".
VII. Issues:
1. Whether or not the proceeds of the loans and letters of credit transactions were
ever delivered to MICO, and
2. Whether or not the individual petitioners, as sureties, may be held liable under
the two (2) Surety Agreements executed on March 26, 1979 and July 28, 1980.
VIII. HELD:
1.)
Under Section 3, Rule 131 of the Rules of Court the following presumptions, among
others, are satisfactory if uncontradicted: a) That there was a sufficient consideration
for a contract and b) That a negotiable instrument was given or indorsed for
sufficient consideration. As observed by the Court of Appeals, a similar presumption
is found in Section 24 of the Negotiable Instruments Law which provides that every
negotiable instrument is deemed prima facie to have been issued for valuable
consideration and every person whose signature appears thereon to have become a
party for value. Negotiable instruments which are meant to be substitutes for
money, must conform to the following requisites to be considered as such a) it must
be in writing; b) it must be signed by the maker or drawer; c) it must contain an
unconditional promise or order to pay a sum certain in money; d) it must be payable
49
on demand or at a fixed or determinable future time; e) it must be payable to order
or bearer; and f) where it is a bill of exchange, the drawee must be named or
otherwise indicated with reasonable certainty. Negotiable instruments include
promissory notes, bills of exchange and checks. Letters of credit and trust receipts
are, however, not negotiable instruments. But drafts issued in connection with
letters of credit are negotiable instruments.
The private respondents presented documents which have not merely created
a prima facie case but have actually proved the solidary obligation of MICO and the
petitioners, as sureties of MICO, in favor of respondent PBCom. While the
presumption found under the Negotiable Instruments Law may not necessarily be
applicable to trust receipts and letters of credit, the presumption that the drafts
drawn in connection with the letters of credit have sufficient consideration. Under
Section 3(r), Rule 131 of the Rules of Court there is also a presumption that sufficient
consideration was given in a contract. Hence, petitioners should have presented
credible evidence to rebut that presumption as well as the evidence presented by
private respondent PBCom.
The letters of credit show that the pertinent materials/merchandise have been
received by MICO. The drafts signed by the beneficiary/suppliers in connection with
the corresponding letters of credit proved that said suppliers were paid by PBCom
for the account of MICO. On the other hand, aside from their bare denials petitioners
did not present sufficient and competent evidence to rebut the evidence of private
respondent PBCom.
Petitioners-sureties, for their part, presented the By-Laws of Mico Metals
Corporation (MICO) to prove that only the president of MICO is authorized to borrow
money, arrange letters of credit, execute trust receipts, and promissory notes and
consequently, that the loan transactions, letters of credit, promissory notes and trust
receipts, most of which were executed by Chua SiokSuy in representation of MICO
were not allegedly authorized and hence, are not binding upon MICO. A perusal of
the By-Laws of MICO, however, shows that the power to borrow money for the
company and issue mortgages, bonds, deeds of trust and negotiable instruments or
securities, secured by mortgages or pledges of property belonging to the company
is not confined solely to the president of the corporation. The Board of Directors of
MICO can also borrow money, arrange letters of credit, execute trust receipts and
promissory notes on behalf of the corporation. Significantly, this power of the Board
of Directors according to the by-laws of MICO, may be delegated to any of its
standing committee, officer or agent. Hence, PBCom had every right to rely on the
Certification issued by MICO's corporate secretary, P.B. Barrera, that Chua SiokSuy
was duly authorized by its Board of Directors to borrow money and obtain credit
facilities in behalf of MICO from PBCom.
Modern letters of credit are usually not made between natural persons. They involve
bank to bank transactions. Historically, the letter of credit was developed to facilitate
the sale of goods between, distant and unfamiliar buyers and sellers. It was an
arrangement under which a bank, whose credit was acceptable to the seller, would
at the instance of the buyer agree to pay drafts drawn on it by the seller, provided
that certain documents are presented such as bills of lading accompanied the
corresponding drafts. Expansion in the use of letters of credit was a natural
development in commercial banking. Parties to a commercial letter of credit include
(a) the buyer or the importer, (b) the seller, also referred to as beneficiary, (c) the
opening bank which is usually the buyer’s bank which actually issues the letter of
credit, (d) the notifying bank which is the correspondent bank of the opening bank
through which it advises the beneficiary of the letter of credit, (e) negotiating bank
which is usually any bank in the city of the beneficiary. The services of the notifying
bank must always be utilized if the letter of credit is to be advised to the beneficiary
through cable, (f) the paying bank which buys or discounts the drafts contemplated
by the letter of credit, if such draft is to be drawn on the opening bank or on another
designated bank not in the city of the beneficiary. As a rule, whenever the facilities
of the opening bank are used, the beneficiary is supposed to present his drafts to the
notifying bank for negotiation and (g) the confirming bank which, upon the request
of the beneficiary, confirms the letter of credit issued by the opening bank.
From the foregoing, it is clear that letters of credit, being usually bank to bank
transactions, involve more than just one bank. Consequently, there is nothing
unusual in the fact that the drafts presented in evidence by respondent bank were
not made payable to PBCom. As explained by respondent bank, a draft was drawn
on the Bank of Taiwan by Ta Jih Enterprises Co., Ltd. of Taiwan, supplier of the goods
covered by the foreign letter of credit. Having paid the supplier, the Bank of Taiwan
then presented the bank draft for reimbursement by PBCom’s correspondent bank
in Taiwan, the Irving Trust Company — which explains the reason why on its face,
the draft was made payable to the Bank of Taiwan. Irving Trust Company accepted
and endorsed the draft to PBCom. The draft was later transmitted to PBCom to
support the latter’s claim for payment from MICO. MICO accepted the draft upon
presentment and negotiated it to PBCom.
A trust receipt is considered as a security transaction intended to aid in financing
importers and retail dealers who do not have sufficient funds or resources to finance
the importation or purchase of merchandise, and who may not be able to acquire
credit except through utilization, as collateral of the merchandise imported or
50
purchased. A trust receipt, therefor, is a document of security pursuant to which a
bank acquires a "security interest" in the goods under trust receipt. Under a letter of
credit-trust receipt arrangement, a bank extends a loan covered by a letter of credit,
with the trust receipt as a security for the loan. The transaction involves a loan
feature represented by a letter of credit, and a security feature which is in the
covering trust receipt which secures an indebtedness.
2.)
guarantor or surety should receive any part or benefit, if such there be, accruing to
his principal.
In the case at bar, respondent PBCom, as plaintiff in the trial court, has in fact
presented sufficient documentary and testimonial evidence that proved by
preponderance of evidence its subject collection case against the defendants who
are the petitioners herein. In view of all the foregoing, the Court of Appeals
committed no reversible error in its appealed Decision.

MICO and herein petitioners-sureties insist that Chua SiokSuy was not duly IX.DISPOSITIVE PORTION:
authorized to negotiate for loans in behalf of MICO from PBCom. Petitioners’
allegation, however, is belied by the July 28, 1980 Certification issued by the WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R. CV No. 27480
corporate secretary of PBCom, Atty. P.B. Barrera, that MICO's Board of Directors entitled, "Philippine Bank of Communications vs. Mico Metals Corporation, Charles
gave Chua SiokSuy full authority to negotiate for loans in behalf of MICO with Lee, Chua SiokSuy, Mariano Sio, Alfonso Yap, Richard Velasco and Alfonso Co," is
PBCom. In fact, the Certification even provided that Chua SiokSuy’s authority AFFIRMED in toto.
continues until and unless PBCom is notified in writing of the withdrawal thereof by
the said Board. Notably, petitioners failed to contest the genuineness of the said
Costs against the petitioners.
Certification which is notarized and to show any written proof of any alleged
withdrawal of the said authority given by the Board of Directors to Chua SiokSuy to
negotiate for loans in behalf of MICO. SO ORDERED.

There was no need for PBCom to personally inform the petitioners-sureties I. PREPARED BY: Corpuz, Edwin A.
individually about the terms of the loans, letters of credit and other loan documents.
The petitioners-sureties themselves happen to comprise the Board of Directors of
MICO, which gave full authority to Chua SiokSuy to negotiate for loans in behalf of
MICO. Notice to MICO’s authorized representative, Chua SiokSuy, was notice to
MICO. The Certification issued by PBCom’s corporate secretary, Atty. P.B. Barrera,
indicated that Chua SiokSuy had full authority to negotiate and sign the necessary
documents, in behalf of MICO for loans from PBCom. Respondent PBCom therefore
had the right to rely on the said notarized Certification of MICO’s Corporate
Secretary.

Anent petitioners-sureties contention that they obtained no consideration

whatsoever on the surety agreements, we need only point out that the consideration
for the sureties is the very consideration for the principal obligor, MICO, in the
contracts of loan. In the case of Willex Plastic Industries Corporation vs. Court of
Appeals, we ruled that the consideration necessary to support a surety obligation
need not pass directly to the surety, a consideration moving to the principal alone
being sufficient. For a guarantor or surety is bound by the same consideration that
makes the contract effective between the parties thereto. It is not necessary that a

51
PDIC
Insured deposit refers to the amount due to any depositor for deposits in an
insured bank net of any obligation of the depositor to the insured bank as of
the date of closure, but not to exceed the Maximum Deposit Insurance
Coverage. Effective June 1, 2009, the Maximum Deposit Insurance Coverage is
P500,000.00 per deposits per bank.
Single accounts are accounts maintained solely by a depositor (natural person
or juridical entity/organization). In-Trust-For (ITF) and By Accounts are also
considered single accounts. In the case of account name: (1) Maria ITF Jose;
or, (2) Jose By Maria, the owner is Jose for both accounts.
In determining the insured deposit of single accounts, all deposits in the bank
maintained in the same right and capacity for his benefit either in his own
name or in the name of others shall be added together. Total insured deposit
should not exceed the Maximum Deposit Insurance Coverage of Php500,000.
Single accounts are insured separately from joint accounts up to the Maximum
Deposit Insurance Coverage of Php500,000.
Joint account is an account held jointly by two or more natural persons, or by
two or more juridical persons or entities. Joint account regardless of whether
the conjunction “and,” “or,” “and/or” is used, shall be insured separately from
any single or singly-owned deposit account.
If the account is held jointly by two or more natural persons, or by two or more
juridical persons/entities, the maximum insured deposit shall be divided into
as many equal shares as there are natural persons or juridical entities, unless
a different sharing is indicated in the deposit document.
If the account is held by a juridical person/entity jointly with one or more
natural persons, the maximum insured deposit shall be presumed to belong
entirely to such juridical person/entity
The aggregate of the interests of each co-owner over several joint accounts,
whether owned by the same or different combinations, shall likewise be
subject to the Maximum Deposit Insurance Coverage of Php500,000.
MALACAÑANG on Wednesday finally issued the government’s closely watched list
of sectors in which foreign participation is regulated, showing sectors where
restrictions have eased including teaching in “higher education levels.”
For at least two foreign business leaders, however, the long-awaited list could do
only so much in improving the Philippines’ attractiveness to foreign direct
investments (FDI).
President Rodrigo R. Duterte signed Executive Order No. (EO) 65, which provides the
11th Regular Foreign Investment Negative List (FINL), on Oct. 29, three years and five
months after the previous list — under EO 184 — was promulgated.
NEGATIVE LIST
The Duterte administration hit the ground running on this point soon after it
assumed office in mid-2016, with Finance Secretary Carlos G. Dominguez III telling a
gathering of Japanese businessmen during Mr. Duterte’s visit there in October that
year that the government “will be opening areas to investments that have been
administratively limited, and this will be done in May 2017.”
Noting that the previous 10th FINL had kept virtually adopted the preceding list of
domestic activities and sectors restricted to foreign participation, foreign business
leaders had then asked the government to “make the next FINL less negative.”
In November last year, Malacañang issued Memorandum Order No. 17, directing
agencies of the Executive branch to “take immediate steps to lift or ease existing
restrictions on foreign participation” in eight sectors and activities, namely: private
recruitment; practice of professions where allowing foreign participation will
redound to public benefit; contracts for construction and repair of locally funded
public works; public services “except activities and systems that are recognized as
public utilities such as transmission and distribution of electricity, water pipeline
distribution system and sewerage pipeline system”; culture, production, milling
processing and trading — except retailing — of rice and corn and acquiring these
grains “and by-products”; teaching at higher education levels; as well as retail trade
and domestic trade enterprises.
Noting in a press statement on Wednesday that the Philippines is one of the most
restrictive countries in the Association of Southeast Asian Nations (ASEAN) towards
foreign direct investments, Socioeconomic Planning Sec. Ernesto M. Pernia, director-
general of the National Economic and Development Authority (NEDA), said the latest
FINL “will help raise the country’s competitiveness and allow us to be closer to parity
with other ASEAN member-states by opening up more areas for foreign investment
into the country, particularly those that will introduce new technology and stimulate
innovation.”
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MORE FOREIGN PARTICIPATION ALLOWED
EO 65 added areas where up to 100% foreign participation will now be allowed,
namely:
• Internet businesses, a category that has been excluded from the category of mass
media, which otherwise remains completely restricted to foreign ownership and
participation;
• teaching at higher education levels, provided the subject being taught is not a
professional subject (included in a government board or bar examination);
• training centers engaged in short-term high-level skills development that do not
form part of the formal education system;
• insurance adjustment companies, lending companies, financing companies and
investment houses;
• wellness centers.
The same order increased to up to 40% allowed foreign participation levels in two
other sectors, namely:
• contracts for construction and repair of locally funded public works (except those
that are foreign funded or assisted and required to undergo international
competitive auction), which used to have a 25% foreign equity cap; and
• private radio communication networks, from 20% previously.
NOT ENOUGH
At least two foreign business leaders said the government should do more.
“There are modest gains in the 11th FINL with liberalization in insurance adjustment
and slight expansion of practice of professions and foreign ownership in locally
funded public works, and private radio communications networks,” Günter Taus,
president of the European Chamber of Commerce of the Philippines, said in an e-
mailed response to a request for comment.
“Overall, it falls short of the ‘aggressive’ changes pursued by NEDA. Given the
directive towards economic liberalization stated in Memorandum Order 2017-16, we
were hoping for a much less negative Foreign Investment Negative List,” Mr. Taus
wrote.
“With understanding on the limitations of NEDA as part of the Executive Branch, we
strongly urge Congress to institutionalize the legal framework for a competitive
Philippine economy. Significant of these are amendments to the Public Services Act,
to the Retail Trade Liberalization Act, to the Government Procurement Act, to the
Investment Restrictions in Commonwealth Act No. 541, and to the Contractors’
License Law. These measures will help establish a level playing field and benefit
Filipinos through better quality services at reduced prices.”
For John D. Forbes, senior adviser of the American Chamber of Commerce of the
Philippines, Inc., “[t]he new FINL reflects the first time any administration has
seriously sought to shorten the list.”
Saying that “[a]ppearances can be deceptive because the new FINL is a longer
document, but it has added more clarity and exceptions”, Mr. Forbes said in a
separate e-mail that “the administration can only do so much without repeal of the
many restrictions in the laws and constitutional provisions cited in the FINL.”
“Enactment of six bills now in Congress to amend the Public Services Act, the Retail
Trade Act, the Foreign Investment Act and three laws to liberalize foreign
participation in government procurement, including construction, will make the next
FINL shorter,” he added.
“There is also strong support in the business community to remove restrictions of
foreign equity from the 1987 Constitution. We urge Congressional leaders to
prioritize such reforms that will strengthen the economy, result in more foreign
investment, jobs, and competition.”
OTHER EFFORTS
Congress has trained its sights to paving the way for more foreign participation in
telecommunications.
The Duterte administration has been pushing for more competition in this sector,
with an auction for the selection of the country’s third major telecommunications
service provider scheduled on Nov. 7.
Two bills — House Bill No. 5828 which bagged third-reading in September 2017 and
Senate Bill No. 1754 which now awaits plenary action in that chamber — seek to
amend the 82-year-old Commonwealth Act No. 146, or “Public Service Act,” by
differentiating public services from public utility. The measures will narrow the
definition of “public utilities” to transmission and distribution of electricity and
water, as well as sewerage management.
“All told, these are still marginal improvements in our effort to attract FDIs,” Mr.
Pernia said in the Wednesday NEDA statement.
“If we really want to be sufficiently competitive with our ASEAN neighbors, more
drastic amendments in our restrictive laws are called for.”
Restrictions to foreign ownership and participation in several local sectors and
activities have been blamed by foreign and local economists and businessmen alike
for the Philippines’ relatively small FDI haul.
The latest Investment Trends Monitor of the United Nations Conference on Trade
and Development said FDI flows to Southeast Asia increased by 18% year-on-year to
$73 billion last semester, driven largely by Singapore’s $35 billion, Indonesia’s $9
billion and Thailand’s approximately $7 billion.
In comparison, data from the Bangko Sentral ng Pilipinas (BSP) showed that FDI net
inflows to the Philippines rose 42.4% to $5.755 billion last semester from $4.041
billion in 2017’s first half.
The central bank has projected these inflows to hit $9.2 billion for full-year 2018 from
the actual $10.049 billion actually received in 2017.
BSP data also show the Philippines’ closest Southeast Asian competitors for FDIs,
Thailand and Vietnam, growing inflows by 67.08% to $6.912 billion from $4.137
billion and by 11.84% to $6.99 billion from $6.25 billion, respectively. — Arjay L.
Balinbin
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