Banking Laws under Atty.
Fontanilla
1.
Vito Tanjutco Jr. Director & Personnel Manager
G.R. No. L-20583 January 23, 1967
The record shows that the Articles of Incorporation of defendant
REPUBLIC OF THE PHILIPPINES, petitioner,
corporation1 were registered with the Securities and Exchange
vs.
Commission on March 27, 1961; that the next day, the Board of
SECURITY CREDIT AND ACCEPTANCE CORPORATION,
Directors of the corporation adopted a set of by-laws,2 which were filed
ROSENDO T. RESUELLO, PABLO TANJUTCO, ARTURO
with said Commission on April 5, 1961; that on September 19, 1961,
SORIANO, RUBEN BELTRAN, BIENVENIDO V. ZAPA, PILAR
the Superintendent of Banks of the Central Bank of the Philippines
G. RESUELLO, RICARDO D. BALATBAT, JOSE SEBASTIAN
asked its legal counsel an opinion on whether or not said corporation is
and VITO TANJUTCO JR., respondents.
a banking institution, within the purview of Republic Act No. 337; that,
acting upon this request, on October 11, 1961, said legal counsel
Office of the Solicitor General Arturo A. Alafriz and Solicitor E. M. rendered an opinion resolving the query in the affirmative; that in a
Salva for petitioner. letter, dated January 15, 1962, addressed to said Superintendent of
Sycip, Salazar, Luna, Manalo & Feliciano for respondents. Banks, the corporation through its president, Rosendo T. Resuello, one
Natalio M. Balboa and F. E. Evangelista for the receiver. of defendants herein, sought a reconsideration of the aforementioned
opinion, which reconsideration was denied on March 16, 1962; that,
prior thereto, or on March 9, 1961, the corporation had applied with the
Securities and Exchange Commission for the registration and licensing
of its securities under the Securities Act; that, before acting on this
application, the Commission referred it to the Central Bank, which, in
CONCEPCION, C.J.:
turn, gave the former a copy of the above-mentioned opinion, in line
with which, the Commission advised the corporation on December 5,
This is an original quo warranto proceeding, initiated by the Solicitor 1961, to comply with the requirements of the General Banking Act; that,
General, to dissolve the Security and Acceptance Corporation for upon application of members of the Manila Police Department and an
allegedly engaging in banking operations without the authority required agent of the Central Bank, on May 18, 1962, the Municipal Court of
therefor by the General Banking Act (Republic Act No. 337). Named as Manila issued Search Warrant No. A-1019; that, pursuant thereto,
respondents in the petition are, in addition to said corporation, the members of the intelligence division of the Central Bank and of the
following, as alleged members of its Board of Directors and/or Manila Police Department searched the premises of the corporation and
Executive Officers, namely: seized documents and records thereof relative to its business operations;
that, upon the return of said warrant, the seized documents and records
were, with the authority of the court, placed under the custody of the
Central Bank of the Philippines; that, upon examination and evaluation
NAME POSITION
of said documents and records, the intelligence division of the Central
Bank submitted, to the Acting Deputy Governor thereof, a
memorandum dated September 10, 1962, finding that the corporation is:
Rosendo T. Resuello President & Chairman of the Board
1. Performing banking functions, without requisite certificate of
authority from the Monetary Board of the Central Bank, in violation of
Pablo Tanjutco Director
Secs. 2 and 6 of Republic Act 337, in that it is soliciting and accepting
deposit from the public and lending out the funds so received;
Arturo Soriano Director
2. Soliciting and accepting savings deposits from the general public
when the company's articles of incorporation authorize it only to engage
Ruben Beltran Director primarily in financing agricultural, commercial and industrial projects,
and secondarily, in buying and selling stocks and bonds of any
corporation, thereby exceeding the scope of its powers and authority as
Bienvenido V. Zapa Director & Vice-President granted under its charter; consequently such acts are ultra-vires:
3. Soliciting subscriptions to the corporate shares of stock and
Pilar G. Resuello Director & Secretary-Treasurer accepting deposits on account thereof, without prior registration and/or
licensing of such shares or securing exemption therefor, in violation of
the Securities Act; and
Ricardo D. Balatbat Director & Auditor
4. That being a private credit and financial institution, it should come
under the supervision of the Monetary Board of the Central Bank, by
Jose R. Sebastian Director & Legal Counsel
virtue of the transfer of the authority, power, duties and functions of the
Secretary of Finance, Bank Commissioner and the defunct Bureau of
Banking, to the said Board, pursuant to Secs. 139 and 140 of Republic
Act 265 and Secs. 88 and 89 of Republic Act 337." (Emphasis
Supplied.) that upon examination and evaluation of the same records of
the corporation, as well as of other documents and pertinent pipers
obtained elsewhere, the Superintendent of Banks, submitted to the
Monetary Board of the Central Bank a memorandum dated August 28,
1962, stating inter alia.
11. Pursuant to the request for assistance by the Chief, Intelligence
Division, contained in his Memorandum to the Governor dated May 23,
1962 and in accordance with the written instructions of Governor
Castillo dated May 31, 1962, an examination of the books and records
of the Security Credit and Loans Organizations, Inc. seized by the
combined MPD-CB team was conducted by this Department. The
examination disclosed the following findings:
a. Considering the extent of its operations, the Security Credit and
Acceptance Corporation, Inc., receives deposits from the public
regularly. Such deposits are treated in the Corporation's financial
statements as conditional subscription to capital stock. Accumulated
deposits of P5,000 of an individual depositor may be converted into
stock subscription to the capital stock of the Security Credit and
Acceptance Corporation at the option of the depositor. Sale of its shares
of stock or subscriptions to its capital stock are offered to the public as
part of its regular operations.
b. That out of the funds obtained from the public through the receipt of
deposits and/or the sale of securities, loans are made regularly to any
person by the Security Credit and Acceptance Corporation.
A copy of the Memorandum Report dated July 30, 1962 of the
examination made by Examiners of this Department of the seized books
and records of the Corporation is attached hereto.
12. Section 2 of Republic Act No. 337, otherwise known as the General
Banking Act, defines the term, "banking institution" as follows:
Sec. 2. Only duly authorized persons and entities may engage in the
lending of funds obtained from the public through the receipts of
deposits or the sale of bonds, securities, or obligations of any kind and
all entities regularly conducting operations shall be considered as
banking institutions and shall be subject to the provisions of this Act, of
the Central Bank Act, and of other pertinent laws. ...
13. Premises considered, the examination disclosed that the Security
Credit and Acceptance Corporation is regularly lending funds obtained
from the receipt of deposits and/or the sale of securities. The
Corporation therefore is performing 'banking functions' as
contemplated in Republic Act No. 337, without having first complied
with the provisions of said Act.
Recommendations:
In view of all the foregoing, it is recommended that the Monetary Board
decide and declare:
1. That the Security Credit and Acceptance Corporation is performing
banking functions without having first complied with the provisions of
Republic Act No. 337, otherwise known as the General Banking Act, in
violation of Sections 2 and 6 thereof; and
2. That this case be referred to the Special Assistant to the Governor
(Legal Counsel) for whatever legal actions are warranted, including, if
warranted criminal action against the Persons criminally liable and/or
quo warranto proceedings with preliminary injunction against the
Corporation for its dissolution. (Emphasis supplied.)
that, acting upon said memorandum of the Superintendent of Banks, on
September 14, 1962, the Monetary Board promulgated its Resolution
No. 1095, declaring that the corporation is performing banking
operations, without having first complied with the provisions of
Sections 2 and 6 of Republic Act No. 337;3 that on September 25, 1962,
the corporation was advised of the aforementioned resolution, but, this
notwithstanding, the corporation, as well as the members of its Board of
Directors and the officers of the corporation, have been and still are
performing the functions and activities which had been declared to
constitute illegal banking operations; that during the period from March
27, 1961 to May 18, 1962, the corporation had established 74 branches
in principal cities and towns throughout the Philippines; that through a
systematic and vigorous campaign undertaken by the corporation, the
same had managed to induce the public to open 59,463 savings deposit
accounts with an aggregate deposit of P1,689,136.74; that, in
consequence of the foregoing deposits with the corporation, its original
capital stock of P500,000, divided into 20,000 founders' shares of stock
and 80,000 preferred shares of stock, both of which had a par value of
P5.00 each, was increased, in less than one (1) year, to P3,000,000
divided into 130,000 founders' shares and 470,000 preferred shares,
both with a par value of P5.00 each; and that, according to its statement
of assets and liabilities, as of December 31, 1961, the corporation had a
capital stock aggregating P1,273,265.98 and suffered, during the year
1961, a loss of P96,685.29. Accordingly, on December 6, 1962, the
Solicitor General commenced this quo warranto proceedings for the
dissolution of the corporation, with a prayer that, meanwhile, a writ of
preliminary injunction be issued ex parte, enjoining the corporation and
its branches, as well as its officers and agents, from performing the
banking operations complained of, and that a receiver be appointed
pendente lite.
Upon joint motion of both parties, on August 20, 1963, the
Superintendent of Banks of the Central Bank of the Philippines was
appointed by this Court receiver pendente lite of defendant corporation,
and upon the filing of the requisite bond, said officer assumed his
functions as such receiver on September 16, 1963.
In their answer, defendants admitted practically all of the allegations of
fact made in the petition. They, however, denied that defendants
Tanjutco (Pablo and Vito, Jr.), Soriano, Beltran, Zapa, Balatbat and
Sebastian, are directors of the corporation, as well as the validity of the
opinion, ruling, evaluation and conclusions, rendered, made and/or
reached by the legal counsel and the intelligence division of the Central
Bank, the Securities and Exchange Commission, and the Superintendent
of Banks of the Philippines, or in Resolution No. 1095 of the Monetary
Board, or of Search Warrant No. A-1019 of the Municipal Court of
Manila, and of the search and seizure made thereunder. By way of
affirmative allegations, defendants averred that, as of July 7, 1961, the
Board of Directors of the corporation was composed of defendants
Rosendo T. Resuello, Aquilino L. Illera and Pilar G. Resuello; that on
July 11, 1962, the corporation had filed with the Superintendent of
Banks an application for conversion into a Security Savings and
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Banking Laws under Atty. Fontanilla
Mortgage Bank, with defendants Zapa, Balatbat, Tanjutco (Pablo and
Vito, Jr.), Soriano, Beltran and Sebastian as proposed directors, in
addition to the defendants first named above, with defendants Rosendo
T. Resullo, Zapa, Pilar G. Resuello, Balatbat and Sebastian as proposed
president, vice-president, secretary-treasurer, auditor and legal counsel,
respectively; that said additional officers had never assumed their
respective offices because of the pendency of the approval of said
application for conversion; that defendants Soriano, Beltran, Sebastian,
Vito Tanjutco Jr. and Pablo Tanjutco had subsequently withdrawn from
the proposed mortgage and savings bank; that on November 29, 1962
— or before the commencement of the present proceedings — the
corporation and defendants Rosendo T. Resuello and Pilar G. Resuello
had instituted Civil Case No. 52342 of the Court of First Instance of
Manila against Purificacion Santos and other members of the savings
plan of the corporation and the City Fiscal for a declaratory relief and
an injunction; that on December 3, 1962, Judge Gaudencio Cloribel of
said court issued a writ directing the defendants in said case No. 52342
and their representatives or agents to refrain from prosecuting the
plaintiff spouses and other officers of the corporation by reason of or in
connection with the acceptance by the same of deposits under its savings
plan; that acting upon a petition filed by plaintiffs in said case No.
52342, on December 6, 1962, the Court of First Instance of Manila had
appointed Jose Ma. Ramirez as receiver of the corporation; that, on
December 12, 1962, said Ramirez qualified as such receiver, after filing
the requisite bond; that, except as to one of the defendants in said case
No. 52342, the issues therein have already been joined; that the failure
of the corporation to honor the demands for withdrawal of its depositors
or members of its savings plan and its former employees was due, not
to mismanagement or misappropriation of corporate funds, but to an
abnormal situation created by the mass demand for withdrawal of
deposits, by the attachment of property of the corporation by its
creditors, by the suspension by debtors of the corporation of the payment
of their debts thereto and by an order of the Securities and Exchange
Commission dated September 26, 1962, to the corporation to stop
soliciting and receiving deposits; and that the withdrawal of deposits of
members of the savings plan of the corporation was understood to be
subject, as to time and amounts, to the financial condition of the
corporation as an investment firm.
In its reply, plaintiff alleged that a photostat copy, attached to said
pleading, of the anniversary publication of defendant corporation
showed that defendants Pablo Tanjutco, Arturo Soriano, Ruben Beltran,
Bienvenido V. Zapa, Ricardo D. Balatbat, Jose R. Sebastian and Vito
Tanjutco Jr. are officers and/or directors thereof; that this is confirmed
by the minutes of a meeting of stockholders of the corporation, held on
September 27, 1962, showing that said defendants had been elected
officers thereof; that the views of the legal counsel of the Central Bank,
of the Securities and Exchange Commission, the Intelligence Division,
the Superintendent of Banks and the Monetary Board above referred to
have been expressed in the lawful performance of their respective duties
and have not been assailed or impugned in accordance with law; that
neither has the validity of Search Warrant No. A-1019 been contested
as provided by law; that the only assets of the corporation now consist
of accounts receivable amounting approximately to P500,000, and its
office equipment and appliances, despite its increased capitalization of
P3,000,000 and its deposits amounting to not less than P1,689,136.74;
and that the aforementioned petition of the corporation, in Civil Case
No. 52342 of the Court of First Instance of Manila, for a declaratory
relief is now highly improper, the defendants having already committed
infractions and violations of the law justifying the dissolution of the
corporation.
Although, admittedly, defendant corporation has not secured the
requisite authority to engage in banking, defendants deny that its
transactions partake of the nature of banking operations. It is conceded,
however, that, in consequence of a propaganda campaign therefor, a
total of 59,463 savings account deposits have been made by the public
with the corporation and its 74 branches, with an aggregate deposit of
P1,689,136.74, which has been lent out to such persons as the
corporation deemed suitable therefor. It is clear that these transactions
partake of the nature of banking, as the term is used in Section 2 of the
General Banking Act. Indeed, a bank has been defined as:
... a moneyed institute [Talmage vs. Pell 7 N.Y. (3 Seld. ) 328, 347, 348]
founded to facilitate the borrowing, lending and safe-keeping of money
(Smith vs. Kansas City Title & Trust Co., 41 S. Ct. 243, 255 U.S. 180,
210, 65 L. Ed. 577) and to deal, in notes, bills of exchange, and credits
(State vs. Cornings Sav. Bank, 115 N.W. 937, 139 Iowa 338). (Banks &
Banking, by Zellmann Vol. 1, p. 46).
Moreover, it has been held that:
An investment company which loans out the money of its customers,
collects the interest and charges a commission to both lender and
borrower, is a bank. (Western Investment Banking Co. vs. Murray, 56
P. 728, 730, 731; 6 Ariz 215.)
... any person engaged in the business carried on by banks of deposit, of
discount, or of circulation is doing a banking business, although but one
of these functions is exercised. (MacLaren vs. State, 124 N.W. 667, 141
Wis. 577, 135 Am. S.R. 55, 18 Ann. Cas. 826; 9 C.J.S. 30.)
Accordingly, defendant corporation has violated the law by engaging in
banking without securing the administrative authority required in
Republic Act No. 337.
That the illegal transactions thus undertaken by defendant corporation
warrant its dissolution is apparent from the fact that the foregoing
misuser of the corporate funds and franchise affects the essence of its
business, that it is willful and has been repeated 59,463 times, and that
its continuance inflicts injury upon the public, owing to the number of
persons affected thereby.
It is urged, however, that this case should be remanded to the Court of
First Instance of Manila upon the authority of Veraguth vs. Isabela
Sugar Co. (57 Phil. 266). In this connection, it should be noted that this
Court is vested with original jurisdiction, concurrently with courts of
first instance, to hear and decide quo warranto cases and, that,
consequently, it is discretionary for us to entertain the present case or to
require that the issues therein be taken up in said Civil Case No. 52342.
The Veraguth case cited by herein defendants, in support of the second
alternative, is not in point, because in said case there were issues of fact
which required the presentation of evidence, and courts of first instance
are, in general, better equipped than appellate courts for the taking of
testimony and the determination of questions of fact. In the case at bar,
there is, however, no dispute as to the principal facts or acts performed
by the corporation in the conduct of its business. The main issue here is
one of law, namely, the legal nature of said facts or of the
aforementioned acts of the corporation. For this reason, and because
public interest demands an early disposition of the case, we have
deemed it best to determine the merits thereof.
Wherefore, the writ prayed for should be, as it is hereby granted and
defendant corporation is, accordingly, ordered dissolved. The
appointment of receiver herein issued pendente lite is hereby made
permanent, and the receiver is, accordingly, directed to administer the
properties, deposits, and other assets of defendant corporation and wind
up the affairs thereof conformably to Rules 59 and 66 of the Rules of
Court. It is so ordered.
2.
G.R. No. 218390 February 28, 2018
HONGKONG BANK INDEPENDENT LABOR UNION (HBILU),
Petitioner
vs HONGKONG AND SHANGHAI BANKING CORPORATION
LIMITED, Respondent
DECISION
VELASCO, JR., J.:
The Case
For consideration is a Petition for Review on Certiorari under Rule 45
of the Rules of Court questioning the Decision1 and Resolution of the
Court of Appeals (CA), dated October 23, 2014 and May 21, 2015,
respectively, in CA-G.R. SP No. 130798. The challenged rulings
sustained the validity of the external credit check as a condition before
respondent could grant the application for salary loans of petitioner's
members. This is notwithstanding the non-mention of the said condition
in the parties' Collective Bargaining Agreement (CBA).
The Facts
In 2001, the Bangko Sentral ng Pilipinas (BSP) issued the Manual of
Regulations for Banks (MoRB). Relevant to the instant case is Section
X338 thereof which reads:
Banks may provide financial assistance to
their officers and employees, as part of their
fringe benefits program, to meet housing,
transportation, household and personal needs
of their officers and employees. Financing
plans and amendments thereto shall be
with prior approval of the BSP. (emphasis
added)
Pursuant to the above-cited provision, respondent Hongkong and
Shanghai Banking Corporation Limited (HSBC), on March 12, 2003,
submitted its Financial Assistance Plan (Plan) to the BSP for approval.
The Plan allegedly contained a credit checking proviso stating that
"[r]epayment defaults on existing loans and adverse information on
outside loans will be considered in the evaluation of loan applications."
The BSP approved the Plan on May 5, 2003.2 Said Plan was later
amended thrice,3 all of which amendments were approved by the BSP.4
Meanwhile, petitioner Hongkong Bank Independent Labor Union
(HBILU), the incumbent bargaining agent of HSBC's rank-and-file
employees, entered into a CBA with the bank covering the period from
April 1, 2010 to March 31, 2012. Pertinent to the instant petition is
Article XI thereof, which reads:
Article XI
Salary Loans
Section 1. Housing/house Improvement Loan.
The BANK, or other financial institution
when appropriate, shall extend housing loan
to qualified employees with at least three (3)
YEARS OF SERVICE, UP TO One Million
Five Hundred Thousand Pesos
(₱l,500,000.00) payable in twenty-five (25)
years or up to the retirement date of the
employee, whichever comes first. Subject to
BSP approval, an additional Five Hundred
Thousand Pesos (₱500,000.00) can be availed
subject to the terms above with interest rate at
the BLR less 3% but not less than six percent
(6%) per annum.
Section 2. Personal Loans. The BANK, or the
Retirement Trust Fund Inc. or other financial
institutions, when appropriate, shall extend
personal loan to qualified employees, with at
least 1 year service, up to six months basic pay
of the employees at six percent (6%) interest
per annum, payable in three years.
Section 3. Car Loans. The BANK, or the
Retirement Trust Fund Inc. or other financial
institutions when appropriate, shall extend a
car loan to qualified employees with at least 3
years service up to Five Hundred Fifty
Thousand Pesos (PHP550,000.00) payable in
seven (7) years. Interest rate shall be six
percent (6%) per annum.
Section 4. Credit Ratio. The availment of any
of the foregoing loans shall be subject to the
BANK's credit ratio policy.
When the CBA was about to expire, the parties started negotiations for
a new one to cover the period from April 1, 2012 to March 31, 2017.
During the said negotiations, HSBC proposed amendments to the above-
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Banking Laws under Atty. Fontanilla
quoted Article XI allegedly to align the wordings of the CBA with its
BSP-approved Plan. Particularly, HSBC proposed the deletion of
Article XI, Section 4 (Credit Ratio) of the CBA, and the amendment of
Sections 1 to 3 of the same Article to read as follows:
Article XI
Salary Loans
Section 1. Housing/house Improvement Loan.
Based on the Financial Assistance Plan duly
approved by Bangko Sentral ng Pilipinas
(BSP), the BANK, or other financial
institution when appropriate, shall extend
housing loan to qualified employees with at
least three (3) YEARS OF SERVICE UP TO
One Million Five Hundred Thousand Pesos
(₱l,500,000.00) payable in twenty-five (25)
years or up to the retirement date of the
employee, whichever comes first, subject to
employee's credit ratio. An additional Five
hundred thousand Pesos (₱500,000.00) can be
availed subject to the terms above with
interest rates at the BLR less 3% but not less
than six percent (6%) per annum.
Section 2. Personal Loans. Based on the
financial Assistance Plan duly approved by
Bangko Sentral ng Pilipinas (BSP), the
BANK, or other financial institutions when
appropriate, shall extend personal loan to
qualified employees, with at least 1 year
service, up to six months basic pay of the
employees at six percent (6%) interest per
annum, payable in three (3) years, subject to
employee's credit ratio.
Section 3. Car loans. Based on the Financial
Assistance Plan duly approved by Bangko
Sentral ng Pilipinas (BSP), the BANK, or
other financial institutions when appropriate,
shall extend a car loan to qualified employees
with at least three years service, up to Five
Hundred Fifty Thousand Pesos
(PHP550,000.00) payable in seven (7) years.
Interest rate shall be six percent (6%) per
annum. (emphasis added)
HBILU vigorously objected to the proposed amendments, claiming that
their insertions would curtail its members' availment of salary loans.
This, according to the Union, violates the existing exceptions set forth
in BSP Circular 423, Series of 2004,5 and Section X338.36 of the
MoRB. In view of HBILU's objection, HSBC withdrew its proposed
amendments and, consequently, Article XI remained unchanged.
Dear All Thereafter, in September 2012, HBILU member Vince Mananghaya
(Mananghaya) applied for a loan under the provisions of Article XI of
the CBA. His first loan application in March 2012 was approved, but
We wish to reiterate the following provisions adverse findings from the external checks on his credit background
included in the Financial Assistance Plan (F resulted in the denial of his September application.8 HBILU then raised
AP) as approved by Bangko Sentral ng the denial as a grievance issue with the National Conciliation Mediation
Pilipinas (BSP). Note that the F AP is the Board (NCMB). It argued that the imposition of an additional
official guideline and policy governing Staff requirement-the external credit checking prior to approval of any loan
Loans and Credit Cards. application under Article XI of the CBA-is not sanctioned under the
CBA. The Union emphasized that under the terms of Article XI, there
is no such requirement and that it cannot, therefore, be unilaterally
>>>>CREDIT CHECKING
imposed by HSBC.
Below are the specific provisions included in
Justifying its denial of the loan application, HSBC countered that the
the F AP regarding credit checking.
external credit check conducted in line with Mananghaya's loan
application was merely an implementation of the ESP-approved Plan.
The adoption of the Plan, HSBC stressed, is a condition sine qua non
Housing Loan, Car Loan, Repayment defaults on
for any loan grant under Section X338 of the MoRB. Moreover, the
Personal Loan & existing loans and adverse Credit Check policy has been in place since 2003, and is a sound practice
Computer/Club information considered in in the banking industry to protect the interests of the public and preserve
Membership/Medical the evaluation of loan confidence in banks.
Equipment Loan applications.
The issue was then submitted for resolution by the NCMB Panel of
Accredited Voluntary Arbitrators (the Panel).9 In the interim, the
parties, on September 29, 2012, inked a new CBA for the period
covering April 1, 2012 up to March 31, 2017.10
Credit Card Repayment defaults on
NCMB-PVA Decision
existing loans and adverse
information considered in
the evaluation of loan On May 17, 2013, the Panel rendered a Decision finding for HSBC. It
applications. held that herein respondent, as an employer, has the right to issue and
implement guidelines for the availment of loan accommodations under
the CBA as part of its management prerogative. The repeated use of the
term "qualified employees" in Article XI of the CBA was deemed
indicative of room for the adoption of further guidelines in the availment
of the benefits thereunder. The Panel also agreed that HSBC's Plan is
not a new policy as it has already been approved by the BSP as early as
2003. Thus, the Panel ruled that the salary loan provisions under Article
With the strict implementation of these XI of the CBA must be read in conjunction with the provisions of the
provisions, adverse credit findings may result Plan.
to disapproval of loan or credit card
applications. These findings will include the
following: The Panel further discussed that HSBC's adoption of the Plan was not
done for any whimsical or arbitrary reason, but because the bank was
constrained to comply with Section X338 of the MoRB. As a banking
(1) Frequency of confirmed ADA failure on institution, HSBC cannot divorce itself from the regulatory powers of
staff/commercial loans and credit cards (3 the BSP. Observance of Section X338 of the MoRB was then necessary
consecutive incidents within the past 6 before the bank could have been allowed to extend loan
months or 6 incidents within the past 12 accommodations to its officers and employees.
months). Note that applications with pending
ADA for investigation will only be processed
upon confirmation of status (Confirmed or On the basis thereof, the Panel held that they are not ready to rule that
Reprieved); HSBC's Plan violates Article XI of the CBA.
(2) Adverse findings on HSBC cards; or Aggrieved, HBILU elevated the case to the CA.
X338 of the MoRB when it submitted the Plan to BSP. When BSP, in
turn, approved the said Plan, HSBC became legally bound to enforce its
provisions, including the conduct of external credit checks on its loan
applicants11 The appellate court further ruled that the Plan should be
deemed incorporated in the CBA because it is a regulatory requirement
of BSP without which the salary loan provisions of the CBA are
rendered inoperative.
Petitioner's motion for reconsideration having been denied by the CA
thru its May 21, 2015 Resolution, HBILU now seeks recourse from this
Court.
The Issues
HBILU presents the following grounds to warrant the reversal of the
assailed Decision, viz:
The decisions and resolutions of the Hon.
Panel of Voluntary Arbitrators and the Hon.
Court of Appeals are tainted with grave abuse
of discretion and it showed patent errors in the
appreciation of facts which led to wrong
conclusions of law; or stated otherwise;
The Hon. Panel of Voluntary Arbitrators and
Court of Appeals committed serious,
reversible and gross error in law in ruling that
the Bank's Financial Assistance Plan as not in
violation of Article XI of the Parties' CBA
provision on Salary Loans (Article XII of the
new and existing CBA)12
Simply put, the issue for Our resolution is whether or not HSBC could
validly enforce the credit-checking requirement under its BSP-approved
Plan in processing the salary loan applications of covered employees
even when the said requirement is not recognized under the CBA.
Arguments of Petitioner
In support of its position, HBILU argues, among others, that HSBC
failed to present in court the Plan that was supposedly submitted to the
BSP for approval, and to show that the requirement of external credit
checking had already been included therein.13 Too, said Plan is not a
set of policies for salary loans that came from the BSP, but was devised
solely by HSBC.14
Furthermore, HBILU claims that it is not privy to the Plan and has not
been consulted, much less informed, of the impositions therein prior to
its implementation. No proof was offered that the Plan had been
disseminated to the employees prior to the April 20, 2012 e-mail
blast.15

Lastly, the implementation of the Plan, according to HBILU, is

Despite the withdrawal of the proposal, HSBC sent an e-mail to its
employees on April 20, 2012 concerning the enforcement of the Plan,
including the Credit Checking provisions thereof. The e-mail reads:
(3) Adverse findings from external credit CA Decision
tantamount to diminution of benefits16 and a unilateral amendment of
checks.7
the existing CBA,17 which are both proscribed under the Labor Code.
Had the parties to the CBA intended to include the external credit check
The CA sustained the findings and conclusions of the NCMB-PV A in
toto on the ratiocination that HSBC was merely complying with Section
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Banking Laws under Atty. Fontanilla
as an additional condition to the availment of employee salary loans,
then it should have been plainly provided in their agreement.18
Arguments of Respondent
In its Comment, HSBC claims that the Plan is neither new nor was it
issued on a mere whim or caprice. On the contrary, the Plan was
established as early as 2003, way before Mananghaya's application was
denied, to conform to Section X338 of the BSP MoRB. HSBC reminds
the Court that the loan and credit accommodations could have only
formed part of the employees' fringe benefit program if they were
extended through a financing scheme (i.e., the Plan) approved by the
BSP.
Moreover, HSBC argues that the dissemination of the Plan via e-mail
blast on April 20, 2012 was but a reiteration, as opposed to a first
publication. It contends that even prior to the establishment and
approval of the Plan in 2003, the then-loan policy already included the
requirement on external credit checking. According to the bank, there
was already a provision that required the conduct of credit checking in
the processing and evaluation of loan applications in their General
Policies on Loans, cascaded through the Intranet system to HSBC
employees on October 24, 2002, viz:
CREDIT
CHECKING
Repayment defaults on existing loans and
adverse information on outside loans will be
considered m the evaluation of loan
applications.
The union members cannot then feign ignorance of the external credit
checking requirement in staff loan applications, according to HSBC.
Consequently, petitioner's bare denial of any knowledge about it cannot
be given any credence. Considering too that the Plan reiterating the
requirement has been approved by the BSP in 2003, HBILU slept on its
rights when it questioned its strict imposition almost a decade after its
issuance.
Finally, HSBC postulates that the non-mention of the Plan in the CBA
is no justification for the bank to disregard the same in processing
employee loan applications. Provisions of applicable laws, especially
those relating to matters affected with public policy, are deemed written
into the contract.19
Our Ruling
The petition is meritorious.
The constitutional right of employees
to participate in matters affecting
their benefits and the sanctity of the
CBA
Preliminarily, it is crucial to stress that no less than the basic law of the
land guarantees the rights of workers to collective bargaining and
negotiations as well as to participate in policy and decision-making
processes affecting their rights and benefits. Section 3, Article XIII of
the 1987 Constitution provides:
Section 3. The State shall afford full
protection to labor, local and overseas,
organized and unorganized, and promote full
employment and equality of employment
opportunities for all.
It shall guarantee the rights of all workers to
self-organization, collective bargaining and
negotiations, and peaceful concerted
activities, including the right to strike in
accordance with law. They shall be entitled to
security of tenure, humane conditions of
work, and a living wage. They shall also
participate in policy and decision-making
processes affecting their rights and benefits as
may be provided by law.
Pursuant to said guarantee, Article 211 of the Labor Code, as amended,
declares it a policy of the State:
(a) To promote and emphasize the primacy of
free collective bargaining and negotiations,
including voluntary arbitration, mediation and
conciliation, as modes of settling labor or
industrial disputes;
xx xx
(d) To promote the enlightenment of workers
concerning their rights and obligations as
union members and as employees;
xx xx
(g) To ensure the participation of workers in
decision and policymaking processes
affecting their rights, duties and welfare.
(Emphasis ours)
Corollary thereto, Article 255 of the same
Code provides:
ART. 255. EXCLUSIVE BARGAINING
REPRESENTATION AND WORKERS
PARTICIPATION IN POLICY AND
DECISION-MAKING.
xx xx
Any provision of law to the contrary
notwithstanding, workers shall have the right,
subject to such rules and regulations as the
Secretary of Labor and Employment may
promulgate, to participate in policy and
decision-making process of the establishment
where they are employed insofar as said
processes will directly affect their rights,
benefits and welfare. For this purpose,
workers and employers may form labor-
management councils: Provided, That the
representatives of the workers in such labor
management councils shall be elected by at
least the majority of all employees in said
establishment. (Emphasis and underscoring
ours)
We deem it necessary to remind HSBC of the basic and well-entrenched
rule that although jurisprudence recognizes the validity of the exercise
by an employer of its management prerogative and will ordinarily not
interfere with such, this prerogative is not absolute and is subject to
limitations imposed by law, collective bargaining agreement, and
general principles of fair play and justice.20
Indeed, being a product of said constitutionally-guaranteed right to
participate, the CBA is, therefore, .the law between the parties and they
are obliged to comply with its provisions.
Unilateral amendments to the CBA
violate Article 253 of the Labor Code
A collective bargaining agreement or CBA is the negotiated contract
between a legitimate labor organization and the employer concerning
wages, hours of work and all other terms and conditions of employment
in a bargaining unit. As in all contracts, the parties in a CBA may
establish such stipulations, clauses, terms and conditions as they may
deem convenient provided these are not contrary to law, morals, good
customs, public order or public policy. Thus, where the CBA is clear
and unambiguous, it becomes the law between the parties and
compliance therewith is mandated by the express policy of the law.21
In Faculty Association of Mapua Institute of Technology (FAMJT) v.
Court of Appeals,22 this Court was emphatic in its pronouncement that
the CBA during its lifetime binds all the parties. The provisions of the
CBA must be respected since its terms and conditions constitute the law
between the parties. And until a new CBA is executed by and between
the parties, they are duty-bound to keep the status quo and to continue
in full force and effect the terms and conditions of the existing
agreement.23 This finds basis under Article 253 of the Labor Code,
which states:
ARTICLE 253. Duty to bargain collectively
when there exists a collective bargaining
agreement. - When there is a collective
bargaining agreement, the duty to bargain
collectively shall also mean that neither party
shall terminate nor modify such agreement
during its lifetime. x x x It shall be the duty of
both parties to keep the status quo and to
continue in full force and effect the terms and
conditions of the existing agreement during
the 60-day period and/or until a new
agreement is reached by the parties. (emphasis
added)
In the present controversy, it is clear from the arguments and evidence
submitted that the Plan was never made part of the CBA. As a matter of
fact, HBILU vehemently rejected the Plan's incorporation into the
agreement. Due to this lack of consensus, the bank withdrew its proposal
and agreed to the retention of the original provisions of the CBA. The
subsequent implementation of the Plan's external credit check
provisions in relation to employee loan applications under Article XI of
the CBA was then an imposition solely by HSBC.
In this respect, this Court is of the view that tolerating HSBC's conduct
would be tantamount to allowing a blatant circumvention of Article 253
of the Labor Code. It would contravene the express prohibition against
the unilateral modification of a CBA during its subsistence and even
thereafter until a new agreement is reached. It would unduly license
HSBC to add, modify, and ultimately further restrict the grant of Salary
Loans beyond the terms of the CBA by simply adding stringent
requirements in its Plan, and having the said Plan approved by BSP in
the guise of compliance with the MoRB.
HSBC' s defense, that there was no modification of the CBA since the
external credit check has been a long-standing policy of the Bank
applied to all of its employees, is unconvincing. Noteworthy is that the
bank failed to submit in evidence the very Plan that was supposedly
approved by the BSP in 2003. Nevertheless, even if We were to rely on
the later versions of the Plan approved by the BSP, Our ruling will not
change.
The only provision relative to the credit checking requirement under the
2006 and 2011 Plans is this and nothing else:
CREDIT
CHECKING
Repayment defaults on existing loans and
adverse information on outside loans will be
considered in the evaluation of loan
applications.24
As for the manner in which said credit checking will be done, as well as
any additional requirements that will be imposed for the purpose, the
4
Banking Laws under Atty. Fontanilla
2006 Plan and even its later 2011 version are silent thereon.25 Nowhere
in these Plans can We find the requirement for the submission of an
"Authority to Conduct Checks Form," as well as the details on adverse
credit finding, specifically:
With the strict implementation of these
provisions, adverse credit findings may result
to disapproval of loan or credit card
applications. These findings will include the
following:
(1) Frequency of confirmed ADA failure on
staff/commercial loans and credit cards (3
consecutive incidents within the past 6
months or 6 incidents within the past 12
months). Note that applications with pending
ADA for investigation will only be processed
upon confirmation of status (Confirmed or
Reprieved);
(2) Adverse findings on HSBC cards; or
(3) Adverse findings from external credit
checks.26
In fact, regrettably, HSBC's only documentary basis for proving that the
credit checking requirement and the manner of its enforcement have
been set in place much earlier is the use of the term "reiterate" in its
April 20, 2012 e-mail. Thus, we quote:
Dear All
We wish to reiterate the following provisions
included in the Financial Assistance Plan
(FAP) as approved by Bangko Sentral ng
Pilipinas (BSP).
xxx
20. Accordingly, the above email dated 20
April 2012 clearly indicates that the
dissemination therein of the FAP and its
provisions is merely a reiteration, and not a
first publication as the Union now
conveniently claims.27 xx x (emphasis
supplied)
What further convinces Us that the external credit check as well as the
manner of its enforcement is a new imposition by HSBC is the fact that
the bank made no attempt to rebut HBILU's evidence that the former's
requirements for the grant of salary loans changed only after the April
20, 2012 email blast. HBILU sufficiently proved that prior to the April
20, 2012 email, members of the bargaining unit were using only four (4)
documents in applying for a loan, to wit: 1) Application for Personal
Loan Form; 2) Authority to Deduct Form; 3) Set-Off of Retirement
Fund Form; and 4) Promissory Note Form.28 Thereafter, management
imposed a new set of requirements, which includes the "Authority to
Conduct Checks Form."29 As testified to by Mananghaya, he only
signed the first four (4) requirements for his March 2012 loan. However,
for the September 2012 loan, he was asked to complete a new set of
documents which included the Authority to Conduct Checks Form.30
Too, even the email itself states that said credit checking requirement,
among others, is to be strictly enforced effective May 2012.31 Though
HSBC claims that credit checking has been the bank's long-standing
policy, it failed to show that it indeed required such before its covered
employees could avail of a salary loan under the CBA prior to April 20,
2012-the date of the email blast.
Thus, no other conclusion can be had in this factual milieu other than
the fact that HSBC's enforcement of credit checking on salary loans
under the CBA invalidly modified the latter's provisions thereon through
the imposition of additional requirements which cannot be found
anywhere in the CBA.
If it were true that said credit checking under the Plan covers salary loans
under the CBA, then the bank should have negotiated for its inclusion
thereon as early as the April 1, 2010 to March 31, 2012 CBA which it
entered into with HBILU. However, the express provisions of said CBA
inked by the parties clearly make no reference to the Plan. And even in
the enforcement thereof, credit checking was not included as one of its
requirements. This leads Us to conclude that HSBC originally never
intended the credit checking requirement under the Plan to apply to
salary loans under the CBA. At most, its application thereto is a mere
afterthought, as evidenced by its sudden, belated, and hurried
enforcement on said salary loans via the disputed email blast.
In other words, it appears that, based on its actuations, HSBC never
intended to apply the credit checking item under the Plan to salary loans
under the CBA. Otherwise, it would have enforced such requirement
from the moment the salary loans provisions under the old CBA were
implemented, which it did not. It may be that said requirement was being
applied to other types of loans under the Plan, but based on the evidence
presented, We cannot say the same for salary loans under the CBA.
The minority argues that primacy is being accorded to the CBA over the
Plan approved by the BSP. Such, however, is not the case. We are not
saying that the Plan should yield to the CBA. The point that we are
driving at in this lengthy discussion is that on the basis of the evidence
presented, We are convinced that the credit checking provision of the
Plan was never intended to cover salary loans under the CBA.
Otherwise, HSBC would have implemented such the moment said
salary loans under the previous CBA were made available to its covered
employees. Thus, HSBC cannot now insist on its imposition on loan
applications under the disputed CBA provision without violating its
duty to bargain collectively.
If We were to allow this practice of leaving to HSBC the determination,
formulation, and implementation of the guidelines, procedures, and
requirements for the availment of salary loans granted under the CBA,
which guidelines, procedures, and requirements unduly restrict the
provisions of the CBA, this Court would in effect be permitting HSBC
to repeatedly violate its duty to bargain collectively under the guise of
enforcing the general terms of the Plan.
Salary loans subject of this case are
not covered by the credit checking
requirement under the MORB
In maintaining that the credit checking requirement under the MoRB
should be deemed written into the CBA, the minority makes reference
to Sec. X304.1 of the 2011 MoRB in maintaining that financial
institutions must look into the obligor' s repayment history, among other
things, before approving a loan application. Said provision reads:
§ X304. l General guidelines. Consistent with
safe and sound banking practices, a bank shall
grant loans or other credit accommodations
only in amounts and for the periods of time
essential for the effective completion of the
operation to be financed. Before granting
loans or other credit accommodations, a bank
must ascertain that the borrower, co-maker,
endorser, surety, and/or guarantor, if
applicable, is/are financially capable of
fulfilling his/their commitments to the bank.
For this purpose, a bank shall obtain adequate
information on his/their credit standing and
financial capacities x x x.
At this point it is well to draw attention to the fact that said provision is
a general one as specifically indicated thereat. It is also equally
important to emphasize that Sec. X304.1 must be interpreted in
conjunction with Section X338.3, the provision which specifically
applies to salary loans under the fringe benefit program of the bank.
Thus:
Subsection X338.3 Other
conditions/limitations
The investment by a bank in equipment and
other chattels under its fringe benefits
program for officers and employees shall be
included in determining the extent of the
investment of the bank in real estate and
equipment for purposes of Section 51 of R.A.
No. 8791.
The investment by a bank in equipment and
other chattels contemplated under these
guidelines shall not be for the purpose of
profits in the course of business for the bank.
All loans or other credit accommodations to
bank officers and employees, EXCEPT those
granted under the fringe benefit program of
the bank, shall be subject to the same terms
and conditions imposed on the regular lending
operations of the bank. Loans or other credit
accommodations granted to officers shall, in
addition, be subject to the provisions of
Section 36 of RA. No. 8791 and Sections
X326 to X336 but not to the individual
ceilings where such loans or other credit
accommodations are obtained under the
bank's fringe benefits program. (emphasis
ours)
In specifying that "[a]ll loans or other credit accommodations to bank
officers and employees, except those granted under the fringe benefit
program of the bank, shall be subject to the same terms and conditions
imposed on the regular lending operations of the bank," Sec. X338.3
clearly excluded loans and credit accommodations under the bank's
fringe benefits program from the operation of Sec. X304.1. This fact is
even recognized in the dissent. To ignore this clear exception and insist
on interpreting the general guidelines under Section X304.1 would be to
renege from Our duty to apply a clear and unambiguous provision.32
It may also be argued that HSBC, being a bank, is statutorily required to
conduct a credit check on all of its borrowers, even though it be made
under a loan accommodation scheme, applying Section 4033 of
Republic Act No. (RA) 8791 (General Banking Law of 2000). A reading
of RA 8791, however, reveals that loan accommodations to employees
are not covered by said statute. Nowhere in the law does it state that its
provisions shall apply to loans extended to bank employees which are
granted under the latter's fringe benefits program. Had the law intended
otherwise, it could have easily specified such, similar to what was done
for directors, officers, stockholders and their related interests under
Section 36 thereof. This conclusion is supported by the very wording of
Subsection X338.3 of the MORE. To reiterate:
Subsection X338.3 Other
conditions/limitations
The investment by a bank in equipment and
other chattels under its fringe benefits
program for officers and employees shall be
included in determining the extent of the
investment of the bank in real estate and
equipment for purposes of Section 51 of R.A.
No. 8791.
The investment by a bank in equipment and
other chattels contemplated under these
guidelines shall not be for the purpose of
profits in the course of business for the bank.
All loans or other credit accommodations to
bank officers and employees, except those
granted under the fringe benefit program of
the bank, shall be subject to the same terms
and conditions imposed on the regular lending
operations of the bank. Loans or other credit
accommodations granted to officers shall, in
addition, be subject to the provisions of
Section 36 of R.A. No. 8791 and Sections
X326 to X336 but not to the individual
ceilings where such loans or other credit
accommodations are obtained under the
bank's fringe benefits program.
Notably, even though the provision covers loans extended to both bank
officers and employees, paragraph 3 thereof singled out loans and credit
accommodations granted to officers when it provided for the
applicability of RA 8791.
What the law does not include, it excludes.
5
Banking Laws under Atty. Fontanilla
These convince Us to conclude that RA 8791 only intended to cover
loans by third persons and those extended to directors, officers,
stockholders and their related interests. Consequently, Section 40
thereof, which requires a bank to ascertain that the debtor is capable of
fulfilling his commitments to it before granting a loan or other credit
accommodation, does not automatically apply to the type of loan subject
of the instant case.
Furthermore, it is inaccurate to state that credit checking is necessary,
or even indispensable, in the grant of salary loans to the bank's
employees, since the business of banking is imbued with public interest
and there is a fiduciary relationship between the depositor and the bank.
It is also incorrect to state that allowing bank employees to borrow funds
from their employer via salary loans without the prior conduct of a credit
check is inconsistent with this fiduciary obligation. This is so because
there are other ways of securing payment of said salary loans other than
ascertaining whether the borrowing employee has the capacity to pay
the loan. BSP Circular 423, Series of 2004 itself provides for such, thus:
Subsection X338.l Mechanics. The mechanics
of such financing plan shall have the
following minimum features:
Participation shall be limited to full-time and
permanent officers and employees of the
bank;
xx xx
The bank shall adopt measures to protect itself
from losses such as by incorporating in the
plan or contract provisions requiring co-
makers or co-signor, chattel, or real estate
mortgages, fire insurance, mortgage
redemption insurance, assignment of money
value of leave credits, pension or retirement
benefits. (Emphasis ours)
Additionally, both the BSP Circular 423, Series of 2004 and Section
X338.3 of the MoRB provide for a safeguard in order to protect the
funds of the Bank's depositors while allowing the Bank to extend such
benefits to its employees, in that both require that:
The aggregate outstanding loans and other
credit accommodations granted under the
bank's fringe benefits program, inclusive of
those granted to officers in the nature of lease
with option to purchase, shall not exceed five
percent (5%) of the bank's total loan
portfolio.34
There are, therefore, sufficient safety nets consistent with the bank's
fiduciary duty to its depositors even without requiring the conduct of an
external credit check in the availment of salary loans under the subject
CBA. As a matter of fact, there is no showing that the bank's finances
suffered because it has been granting said salary loans under the CBA
without the external credit check.
Withal, We cannot subscribe to HSBC's position that its imposition of
the credit checking requirement on salary loans granted under the CBA
is valid. The evidence presented convinces Us to hold that the credit
checking requirement imposed by HSBC under the questioned Plan
which effectively and undoubtedly modified the CBA provisions on
salary loans was a unilateral imposition violative of HSBC's duty to
bargain collectively and, therefore, invalid. HSBC miserably failed to
present even an iota of concrete documentary evidence that the credit
checking requirement has been imposed on salary loans even before the
signing of the CBA subject of the instant dispute and that the Plan was
sufficiently disseminated to all concerned. In contrast, HBILU
sufficiently proved that HSBC violated its duty to bargain collectively
under Article 253 of the Labor Code when it unilaterally restricted the
availment of salary loans under Article XI of the CBA on the excuse of
enforcing the Plan approved by the BSP.
As this Court emphasized in Philippine Airlines, Inc. v. NLRC, industrial
peace cannot be achieved if the employees are denied their just
participation in the discussion of matters affecting their rights,35 more
so in the case at bar where the employees have been led to believe that
they were given the chance to participate in HSBC's policy-formulation
with respect to the subject benefit, only to find out later that they would
be deprived of the fruits of said involvement.
On interpretation of CBAs
At this point, We deem it proper to recall the basics in resolving issues
relating to the provisions and enforcement of CBAs. In United
Kimberly-Clark Employees Union Philippine Transport General
Workers Organization (UKCEU-PTGWO) v. Kimberly-Clark
Philippines, Inc., this Court emphasized that:
As a general proposition, an arbitrator is
confined to the interpretation and application
of the collective bargaining agreement. He
does not sit to dispense his own brand of
industrial justice: his award is legitimate only
in so far as it draws its essence from the CBA,
i.e., when there is a rational nexus between the
award and the CBA under consideration. It is
said that an arbitral award does not draw its
essence from the CBA; hence, there is an
unauthorized amendment or alteration
thereof, if:
1. It is so unfounded
in reason and fact;
2. It is so
unconnected with
the working and
purpose of the
agreement;
3. It is without
factual support in
view of its
language, its
context, and any
other indicia of the Thus, in resolving issues concerning CBAs, We must not forget that the
parties' intention; foremost consideration therein is upholding the intention of both parties
as stated in the agreement itself, or based on their negotiations. Should
it appear that a proposition or provision has clearly been rejected by one
4. It ignores or party, and said provision was ultimately not included in the signed CBA,
abandons the plain then We should not simply disregard this fact. We are duty-bound to
language of the resolve the question presented, albeit on a different ground, so long as it
contract; is consistent with law and jurisprudence and, more importantly, does not
ignore the intention of both parties. Otherwise, We would be
substituting Our judgment in place of the will of the parties to the CBA.
5. It is mistakenly
based on a crucial
assumption which With these, We find no need to resolve the other matters presented.
concededly is a
nonfact;
WHEREFORE, premises considered, the petition is GRANTED. The
Decision dated October 23, 2014 and Resolution dated May 21, 2015 of
6. It is unlawful, the Court of Appeals in CA-G.R. SP No. 130798 are hereby
arbitrary or REVERSED and SET ASIDE.
capricious; and
Respondent Hongkong and Shanghai Banking Corporation's Financial
7. It is contrary to
Assistance Plan, insofar as it unilaterally imposed a credit checking
public policy.
proviso on the availment of Salary Loans by its employees under Article
XI of the 2010-2012 CBA, is hereby declared legally ineffective and
invalid for being in contravention of Article 253 of the Labor Code.
xx xx
SO ORDERED.
If the terms of a CBA are clear and [leave] no
doubt upon the intention of the contracting
parties, the literal meaning of its stipulation
.
shall prevail. However, if, in a CBA, the
parties stipulate that the hirees must be
presumed of employment qualification [ G.R. No. 199562, January 16, 2019 ]
standards but fail to state such qualification
standards in said CBA, the VA may resort to
BANK OF THE PHILIPPINE ISLANDS AND ANA C.
evidence extrinsic of the CBA to determine
the full agreement intended by the parties. GONZALES, PETITIONERS, VS. SPOUSES FERNANDO V.
When a CBA may be expected to speak on a QUIAOIT PROMULGATED: AND NORA L. QUIAOIT,
matter, but does not, its sentence imports RESPONDENTS.
.ambiguity on that subject. The VA is not
merely to rely on the cold and cryptic words
CARPIO, J.:
on the face of the CBA but is mandated to
discover the intention of the parties.
Recognizing the inability of the parties to
The Case
anticipate or address all future problems, gaps
may be left to be filled in by reference to the
practices of the industry, and the step which is
equally a part of the CBA although not
expressed in it. In order to ascertain the Before the Court is a petition for review on certiorari[1] assailing the 22
intention of the contracting parties, their September 2011 Decision[2] and the 29 November 2011 Resolution[3] of
contemporaneous and subsequent acts shall the Court of Appeals in CA-G.R. CV No. 94141. The Court of Appeals
be principally considered The VA may also affirmed the 15 May 2009 Decision[4] of the Regional Trial Court of
consider and rely upon negotiating and Quezon City, Branch 100 in Civil Case No. Q-00-42619.
contractual history of the parties, evidence of
past practices interpreting ambiguous
provisions. The VA has to examine such The Antecedent Facts
practices to determine the scope of their
agreement, as where the provision of the CBA
Fernando V. Quiaoit (Fernando) maintains peso and dollar accounts
has been loosely formulated. Moreover, the
CBA must be construed liberally rather than with the Bank of the Philippine Islands (BPI) Greenhills-Crossroads
narrowly and technically and the Court must Branch (BPI Greenhills). On 20 April 1999, Fernando, through Merlyn
place a practical and realistic construction Lambayong (Lambayong), encashed BPI Greenhills Check No. 003434
upon it.36 (emphasis ours) dated 19 April 1999 for US$20,000.
6
Banking Laws under Atty. Fontanilla
In a complaint filed by Fernando and his wife Nora L. Quiaoit (Nora)
against BPI, they alleged that Lambayong did not count the US$20,000
that she received because the money was placed in a large Manila
envelope. They also alleged that BPI did not inform Lambayong that the
dollar bills were marked with its "chapa" and the bank did not issue any
receipt containing the serial number of the bills. Lambayong delivered
the dollar bills to the spouses Quiaoit in US$100 denomination in
US$10,000 per bundle. Nora then purchased plane tickets worth
US$13,100 for their travel abroad, using part of the US$20,000 bills
withdrawn from BPI.
On 22 April 1999, the spouses Quiaoit left the Philippines for Jerusalem
and Europe. Nora handcarried US$6,900 during the tour. The spouses
Quiaoit alleged that on 19 May 1999, Nora was placed in a shameful
and embarrassing situation when several banks in Madrid, Spain refused
to exchange some of the US$100 bills because they were counterfeit.
Nora was also threatened that she would be taken to the police station
when she tried to purchase an item in a shop with the dollar bills. The
spouses Quiaoit were also informed by their friends, a priest and a nun,
that the US dollar bills they gave them were refused by third persons for
being counterfeit. Their aunt, Elisa Galan (Galan) also returned, via
DHL, the five US$100 bills they gave her and advised them that they
were not accepted for deposit by foreign banks for being counterfeit.
On 21 May 1999, while the spouses Quiaoit were still abroad, they asked
their daughter Maria Isabel, who was employed with BPI Makati, to
relay their predicament to BPI Greenhills. However, Ana C. Gonzales[5]
(Gonzales), branch manager of BPI Greenhills, failed to resolve their
concern or give them a return call. When the spouses Quiaoit returned,
they personally complained to Gonzales who went to Fernando's office
with three bank personnel. Gonzales took from Fernando the remaining
44 dollar bills worth US$4,400 and affixed her signature on the
photocopy of the bills, acknowledging that she received them. Chito
Bautista (Bautista), a bank representative, and another bank employee
informed the spouses Quiaoit that an investigation would be conducted
but they were not furnished any report. They gathered from a telephone
conversation with Clemente Banson (Banson), the bank-designated
investigator, that the dollar bills came from BPI Vira Mall and were
marked with "chapa" by the BPI Greenhills. On 9 June 1999, Fernando
tried to submit to Banson the five US$100 bills returned by Galan but
Banscn refused to accept them because they were counterfeit. On 18
August 1999, Gonzales informed Fernando that the absence of the
identification mark ("chapa") on the dollar bills meant they came from
other sources and not from BPI Greenhills.
On 7 July 1999, Fernando withdrew the remaining balance of his
account through his representative, Henry Mainot (Mainot). The dollar
bills withdrawn by Mainot were marked and the serial numbers were
listed. On 7 July 1999, Fernando's brother Edgardo encashed a US$500
check from BPI San Juan Branch and while the dollar bills were not
marked, the serial numbers thereof were listed.
The spouses Quiaoit alleged that Nora Cayetano, area manager of BPI
San Juan, called up Fernando and promised to do something about the
refund of the US$4,400 they surrendered to Gonzales. On 17 January
2000, the spouses Quiaoit demanded in writing for the refund of the
US$4,400 from Gonzales. On 9 February 2000, BPI sent its written
refusal to refund or reimburse the US$4,400.
The spouses Quiaoit alleged that BPI failed in its duty to ensure that the
foreign currency bills it furnishes its clients are genuine. According to
them, they suffered public embarrassment, humiliation, and possible
imprisonment in a foreign country due to BPI's negligence and bad faith.
BPI countered that it is the bank's standing policy and part of its internal
control to mark all dollar bills with "chapa" bearing the code of the
branch when a foreign currency bill is exchanged or withdrawn. BPI
alleged that any local or foreign currency bill deposited or withdrawn
from the bank undergoes careful and meticulous scrutiny by highly-
trained and experienced personnel for genuineness and authenticity. BPI
alleged that the US$20,000 in US$100 bills encashed by Fernando
through Lambayong were inspected, counted, personally examined, and
subjected to a counterfeit detector machine by the bank teller under
Gonzales' direct supervision. Gonzales also personally inspected and
"piece-counted" the dollar bills which bore the identifying "chapa" and
examined their genuineness and authenticity. BPI alleged that after its
investigation, it was established that the 44 US$100 bills surrendered by
the spouses Quiaoit were not the same as the dollar bills disbursed to
Lambayong. The dollar bills did not bear the identiying "chapa" from
BPI Greenhills and as such, they came from another source.
The Decisions of the Trial Court and the Court of Appeals
In its 15 May 2009 Decision, the Regional Trial Court of Quezon City,
Branch 100 (trial court), ruled in favor of the spouses Quiaoit. The
dispositive portion of the trial court's Decision reads:
WHEREFORE, premises considered,
judgment is hereby rendered in favor of the
plaintiffs and against the defendants.
Accordingly, defendants are ordered to pay
jointly and severally the plaintiffs the
following:
1. the amount of Four Thousand Four
Hundred US Dollars (US$4,400) as and for
actual damages;
2. the amount of Two Hundred Thousand
Pesos (P200,000.00) as and for moral
damages;
3. the amount of Fifty Thousand Pesos
(P50,000.00) as and for exemplary damages;
4. the amount of Fifty Thousand Pesos
(P50,000.00) as and for attorney's fees.
SO ORDERED.[6]
In its 22 September 2011 Decision, the Court of Appeals affirmed the
trial court's Decision. The Court of Appeals ruled that BPI did not follow
the normal banking procedure of listing the serial numbers of the dollar
bills considering the reasonable length of time from the time Fernando
advised them of the withdrawal until Lambayong's actual encashment
of the check. The Court of Appeals noted that BPI only listed down the
serial numbers of the dollar bills when Fernando, through Edgardo,
withdrew his remaining money from the bank. According to the Court
of Appeals, BPI had been negligent in not listing down the serial
numbers of the dollar bills. The Court of Appeals further ruled that,
assuming BPI had not been negligent, it had the last clear chance or the
last opportunity to avert the injury incurred by the spouses Quiaoit
abroad. The Court of Appeals ruled that BPI was the proximate,
immediate, and efficient cause of the loss incurred by the spouses
Quiaoit.
The Court of Appeals noted that BPI failed to return the call and to
attend to the needs of the spouses Quiaoit even when their daughter
Maria Isabel called the attention of the bank about the incidents abroad.
Gonzales also failed to disclose to Fernando about the identifying
"chapa" when she accepted the US$4,400 from him.
The dispositive portion of the Court of
Appeals' Decision reads:
WHEREFORE, premises considered, the
Decision dated May 15, 2009 of the RTC,
Branch 100, Quezon City in Civil Case No. Q-
00-42619 is hereby AFFIRMED.
SO ORDERED.[7]
BPI filed a' motion for reconsideration. In its 29 November 2011
Resolution, the Court of Appeals denied the motion for lack of merit.
Thus, BPI came to this Court for relief.
BPI raised the following issues in its petition:
A.
The Court of Appeals erred in its legal conclusions in
disregarding the preponderance of evidence showing no
irreconcilable inconsistencies in the testimonies of the
bank's witnesses. The "listing process" being imposed
by the [court a quo] did not impeach the credibility of
petitioner[s'] witnesses which proved that the 44 pieces
of fake USD 100 dollar bills shown by Mr. [Quiaoit]
could not have come from BPI Greenhills-Crossroads
branch.
B.
The Court of Appeals erred in its legal conclusions by
holding that there [was] "gross negligence amounting to
bad faith" because petitioner bank, through its officers
and employees[,] followed its [then] existing procedure
in handling dollar withdrawals. Respondents' own
negligence was the proximate cause of the loss. [8]
The Issues
Whether the counterfeit US dollar bills came from BPI;
Whether BPI exercised due diligence in handling the withdrawal of the
US dollar bills; and
Whether BPI is liable for damages.
The Ruling of this Court
We deny the petition.
BPI failed to exercise due diligence
in the transaction
In Spouses Carbonell v. Metropolitan Bank and Trust Company, [9] the
Court emphasized that the General Banking Act of 2000 demands of
banks the highest standards of integrity and performance. The Court
ruled that banks are under obligation to treat the accounts of their
depositors with meticulous care. [10] The Court ruled that the bank's
compliance with this degree of diligence has to be determined in
accordance with the particular circumstances of each case. [11]
In this case, BPI failed to exercise the highest degree of diligence that is
not only expected but required of a banking institution.
It was established that on 15 April 1999, Fernando informed BPI to
prepare US$20,000 that he would withdraw from his account. The
withdrawal, through encashment of BPI Greenhills Check No. 003434,
was done five days later, or on 20 April 1999. BPI had ample
opportunity to prepare the dollar bills. Since the dollar bills were handed
to Lambayong inside an envelope and in bundles, Lambayong did not
check them. However, as pointed out by the Court of Appeals, BPI could
have listed down the serial numbers of the dollar bills and erased any
doubt as to whether the counterfeit bills came from it. While BPI
Greenhills marked the dollar bills with "chapa" to identify that they
came from that branch, Lambayong was not informed of the markings
and hence, she could not have checked if all the bills were marked.
BPI insists that there is no law requiring it to list down the serial
7
Banking Laws under Atty. Fontanilla
numbers of the dollar bills. However, it is well-settled that the diligence
required of banks is more than that of a good father of a family. [12]
Banks are required to exercise the highest degree of diligence in its
banking transactions.[13] In releasing the dollar bills without listing down
their serial numbers, BPI failed to exercise the highest degree of care
and diligence required of it. BPI exposed not only its client but also itself
to the situation that led to this case. Had BPI listed down the serial
numbers, BPI's presentation of a copy of such listed serial numbers
would establish whether the returned 44 dollar bills came from BPI or
not.
We agree with the Court of Appeals that the action of BPI is the
proximate cause of the loss suffered by the spouses Quiaoit. Proximate
cause is defined as the cause which, in natural and continuous sequence,
unbroken by any efficient intervening cause, produces injury and
without which the result would not have occurred. [14] Granting that
Lambayong counted the two bundles of the US$100 bills she received
from the bank, there was no way for her, or for the spouses Quiaoit, to
determine whether the dollar bills were genuine or counterfeit. They did
not have the expertise to verify the genuineness of the bills, and they
were not informed about the "chapa" on the bills so that they could have
checked the same. BPI cannot pass the burden on the spouses Quiaoit to
verify the genuineness of the bills, even if they did not check or count
the dollar bills in their possession while they were abroad.
The Court has also applied the doctrine of last clear chance in banking
transactions. In Allied Banking Corporation v. Bank of the Philippine
Islands, [15] the Court explained:
The doctrine of last clear chance, stated
broadly, is that the negligence of the plaintiff
does not preclude a recovery for the
negligence of the defendant where it appears
that the defendant, by exercising reasonable
care and prudence, might have avoided
injurious consequences to the plaintiff
notwithstanding the plaintiff's negligence.
The doctrine necessarily assumes negligence
on the part of the defendant and contributory
negligence on the part of the plaintiff, and
does not apply except upon that assumption.
Stated differently, the antecedent negligence
of the plaintiff does not preclude him from
recovering damages caused by the
supervening negligence of the defendant, who
had the last fair chance to prevent the
impending harm by the exercise of due
diligence. Moreover, in situations where the
doctrine has been applied, it was defendant's
failure to exercise such ordinary care, having
the last clear chance to avoid loss or injury,
which was the proximate cause of the
occurrence of such loss or injury. [16]
As pointed out by the Court of Appeals, BPI had the last clear chance
to prove that all the dollar bills it issued to the spouses Quiaoit were
genuine and that the counterfeit bills did not come from it if only it
listed down the serial numbers of the bills. BPI's lapses in processing
the transaction fall below the extraordinary diligence required of it as a
banking institution. Hence, it must bear the consequences of its action.
Respondents are entitled to moral damages and attorney's fees
We sustain the award of moral damages to the spouses Quiaoit.
In Pilipinas Bank v. Court of Appeals,[17] the Court sustained the award
of moral damages and explained that while the bank's negligence may
not have been attended with malice and bad faith, it caused serious
anxiety, embarrassment, and humiliation to respondents. We apply the
same in this case. In this case, it was established that the spouses
Quiaoit suffered serious anxiety, embarrassment, humiliation, and even
threats of being taken to police authorities for using counterfeit bills.
Hence, they are entitled to the moral damages awarded by the trial
court and the Court of Appeals.
Nevertheless, we delete the award of exemplary damages since it does
not appear that BPI's negligence was attended with malice and bad
faith. We sustain the award of attorney's fees because the spouses
Quiaoit were forced to litigate to protect their rights.
WHEREFORE, we DENY the petition. We AFFIRM the 22
September 2011 Decision and the 29 November 2011 Resolution of
the Court of Appeals in CA-G.R. CV No. 94141 with
MODIFICATION by deleting the award of exemplary damages.
SO ORDERED.
4.
[G.R. No. 138569. September 11, 2003.]
THE CONSOLIDATED BANK and TRUST CORPORATION,
Petitioner, v. COURT OF APPEALS and L.C. DIAZ and
COMPANY, CPA’s, Respondents.
DECISION
CARPIO, J.:
The Case
Before us is a petition for review of the Decision 1 of the Court of
Appeals dated 27 October 1998 and its Resolution dated 11 May 1999.
The assailed decision reversed the Decision 2 of the Regional Trial
Court of Manila, Branch 8, absolving petitioner Consolidated. Bank and
Trust Corporation, now known as Solidbank Corporation ("Solidbank"),
of any liability. The questioned resolution of the appellate court denied
the motion for reconsideration of Solidbank but modified the decision
by deleting the award of exemplary damages, attorney’s fees, expenses
of litigation and cost of suit.chanrob1es virtua1 1aw 1ibrary
The Facts
Solidbank is a domestic banking corporation organized and existing
under Philippine laws. Private respondent L.C. Diaz and Company,
CPA’s ("L.C. Diaz"), is a professional partnership engaged in the
practice of accounting.
Sometime in March 1976, L.C. Diaz opened a savings account with
Solidbank, designated as Savings Account No. S/A 200-16872-6.
On 14 August 1991, L.C. Diaz through its cashier, Mercedes Macaraya
("Macaraya"), filled up a savings (cash) deposit slip for P990 and a
savings (checks) deposit slip for P50. Macaraya instructed the
messenger of L.C. Diaz, Ismael Calapre ("Calapre"), to deposit the
money with Solidbank. Macaraya also gave Calapre the Solidbank
passbook.
Calapre went to Solidbank and presented to Teller No. 6 the two deposit
slips and the passbook. The teller acknowledged receipt of the deposit
by returning to Calapre the duplicate copies of the two deposit slips.
Teller No. 6 stamped the deposit slips with the words "DUPLICATE"
and "SAVING TELLER 6 SOLIDBANK HEAD OFFICE." Since the
transaction took time and Calapre had to make another deposit for L.C.
Diaz with Allied Bank, he left the passbook with Solidbank. Calapre
then went to Allied Bank. When Calapre returned to Solidbank to
retrieve the passbook, Teller No. 6 informed him that "somebody got
the passbook. 3 Calapre went back to L.C. Diaz and reported the incident
to Macaraya.
Macaraya immediately prepared a deposit slip in duplicate copies with
a check of P200,000. Macaraya, together with Calapre, went to
Solidbank and presented to Teller No. 6 the deposit slip and check. The
teller stamped the words "DUPLICATE" and "SAVING TELLER 6
SOLIDBANK HEAD OFFICE" on the duplicate copy of the deposit slip.
When Macaraya asked for the passbook, Teller No. 6 told Macaraya that
someone got the passbook but she could not remember to whom she
gave the passbook. When Macaraya asked Teller No. 6 if Calapre got
the passbook, Teller No. 6 answered that someone shorter than Calapre
got the passbook. Calapre was then standing beside Macaraya.
Teller No. 6 handed to Macaraya a deposit slip dated 14 August 1991
for the deposit of a check for P90,000 drawn on Philippine Banking
Corporation ("PBC"). This PBC check of L.C. Diaz was a check that it
had "long closed." 4 PBC subsequently dishonored the check because
of insufficient funds and because the signature in the check differed
from PBC’s specimen signature. Failing to get back the passbook,
Macaraya went back to her office and reported the matter to the
Personnel Manager of L.C. Diaz, Emmanuel Alvarez.
The following day, 15 August 1991, L.C. Diaz through its Chief
Executive Officer, Luis C. Diaz ("Diaz"), called up Solidbank to stop
any transaction using the same passbook until L.C. Diaz could open a
new account. 5 On the same day, Diaz formally wrote Solidbank to
make the same request. It was also on the same day that L.C. Diaz
learned of the unauthorized withdrawal the day before, 14 August 1991,
of P300,000 from its savings account. The withdrawal slip for the
P300,000 bore the signatures of the authorized signatories of L.C. Diaz,
namely Diaz and Rustico L. Murillo. The signatories, however, denied
signing the withdrawal slip. A certain Noel Tamayo received the
P300,000.cralaw : red
In an Information 6 dated 5 September 1991, L.C. Diaz charged its
messenger, Emerano Ilagan ("Ilagan") and one Roscon Verdazola with
Estafa through Falsification of Commercial Document. The Regional
Trial Court of Manila dismissed the criminal case after the City
Prosecutor filed a Motion to Dismiss on 4 August 1992.
On 24 August 1992, L.C. Diaz through its counsel demanded from
Solidbank the return of its money. Solidbank refused.
On 25 August 1992, L.C. Diaz filed a Complaint 7 for Recovery of a
Sum of Money against Solidbank with the Regional Trial Court of
Manila, Branch 8. After trial, the trial court rendered on 28 December
1994 a decision absolving Solidbank and dismissing the complaint.
L.C. Diaz then appealed 8 to the Court of Appeals. On 27 October 1998,
the Court of Appeals issued its Decision reversing the decision of the
trial court.
On 11 May 1999, the Court of Appeals issued its Resolution denying
the motion for reconsideration of Solidbank. The appellate court,
however, modified its decision by deleting the award of exemplary
damages and attorney’s fees.
The Ruling of the Trial Court
In absolving Solidbank, the trial court applied the rules on savings
account written on the passbook. The rules state that "possession of this
book shall raise the presumption of ownership and any payment or
payments made by the bank upon the production of the said book and
entry therein of the withdrawal shall have the same effect as if made to
the depositor personally." 9
At the time of the withdrawal, a certain Noel Tamayo was not only in
possession of the passbook, he also presented a withdrawal slip with the
signatures of the authorized signatories of L.C. Diaz. The specimen
signatures of these persons were in the signature cards. The teller
stamped the withdrawal slip with the words "Saving Teller No. 5." The
teller then passed on the withdrawal slip to Genere Manuel ("Manuel")
for authentication. Manuel verified the signatures on the withdrawal slip.
The withdrawal slip was then given to another officer who compared
the signatures on the withdrawal slip with the specimen on the signature
cards. The trial court concluded that Solidbank acted with care and
observed the rules on savings account when it allowed the withdrawal
of P300,000 from the savings account of L.C. Diaz.
The trial court pointed out that the burden of proof now shifted to L.C.
Diaz to prove that the signatures on the withdrawal slip were forged.
The trial court admonished L.C. Diaz for not offering in evidence the
National Bureau of Investigation ("NBI") report on the authenticity of
the signatures on the withdrawal slip for P300,000. The trial court
believed that L.C. Diaz did not offer this evidence because it is
derogatory to its action.
8
Banking Laws under Atty. Fontanilla
Another provision of the rules on savings account states that the
depositor must keep the passbook "under lock and key." 10 When
another person presents the passbook for withdrawal prior to
Solidbank’s receipt of the notice of loss of the passbook, that person is
considered as the owner of the passbook. The trial court ruled that the
passbook presented during the questioned transaction was "now out of
the lock and key and presumptively ready for a business transaction."
11
Solidbank did not have any participation in the custody and care of the
passbook. The trial court believed that Solidbank’s act of allowing the
withdrawal of P300,000 was not the direct and proximate cause of the
loss. The trial court held that L.C. Diaz’s negligence caused the
unauthorized withdrawal. Three facts establish L.C. Diaz’s negligence:
(1) the possession of the passbook by a person other than the depositor
L.C. Diaz; (2) the presentation of a signed withdrawal receipt by an
unauthorized person; and (3) the possession by an unauthorized person
of a PBC check "long closed" by L.C. Diaz, which check was deposited
on the day of the fraudulent withdrawal.
The trial court debunked L.C. Diaz’s contention that Solidbank did not
follow the precautionary procedures observed by the two parties
whenever L.C. Diaz withdrew significant amounts from its account. L.C.
Diaz claimed that a letter must accompany withdrawals of more than
P20,000. The letter must request Solidbank to allow the withdrawal and
convert the amount to a manager’s check. The bearer must also have a
letter authorizing him to withdraw the same amount. Another person
driving a car must accompany the bearer so that he would not walk from
Solidbank to the office in making the withdrawal. The trial court pointed
out that L.C. Diaz disregarded these precautions in its past withdrawal.
On 16 July 1991, L.C. Diaz withdrew P82,554 without any separate
letter of authorization or any communication with Solidbank that the
money be converted into a manager’s check.
The trial court further justified the dismissal of the complaint by holding
that the case was a last ditch effort of L.C. Diaz to recover P300,000
after the dismissal of the criminal case against Ilagan.
The dispositive portion of the decision of the trial court
reads:chanrob1es virtual 1aw library
IN VIEW OF THE FOREGOING, judgment is hereby rendered
DISMISSING the complaint.
The Court further renders judgment in favor of defendant bank pursuant
to its counterclaim the amount of Thirty Thousand Pesos (P30,000.00)
as attorney’s fees.
With costs against plaintiff.
SO ORDERED. 12
The Ruling of the Court of Appeals
The Court of Appeals ruled that Solidbank’s negligence was the
proximate cause of the unauthorized withdrawal of P300,000 from the
savings account of L.C. Diaz. The appellate court reached this
conclusion after applying the provision of the Civil Code on quasi-delict,
to wit:chanrob1es virtual 1aw library
Article 2176. Whoever by act or omission causes damage to another,
there being fault or negligence, is obliged to pay for the damage done.
Such fault or negligence, if there is no pre-existing contractual relation
between the parties, is called a quasi-delict and is governed by the
provisions of this chapter.
The appellate court held that the three elements of a quasi-delict are
present in this case, namely: (a) damages suffered by the plaintiff; (b)
fault or negligence of the defendant, or some other person for whose acts
he must respond; and (c) the connection of cause and effect between the
fault or negligence of the defendant and the damage incurred by the
plaintiff.
The Court of Appeals pointed out that the teller of Solidbank who
received the withdrawal slip for P300,000 allowed the withdrawal
without making the necessary inquiry. The appellate court stated that the
teller, who was not presented by Solidbank during trial, should have
called up the depositor because the money to be withdrawn was a
significant amount. Had the teller called up L.C. Diaz, Solidbank would
have known that the withdrawal was unauthorized. The teller did not
even verify the identity of the impostor who made the withdrawal. Thus,
the appellate court found Solidbank liable for its negligence in the
selection and supervision of its employees.
The appellate court ruled that while L.C. Diaz was also negligent in
entrusting its deposits to its messenger and its messenger in leaving the
passbook with the teller, Solidbank could not escape liability because of
the doctrine of "last clear chance." Solidbank could have averted the
injury suffered by L.C. Diaz had it called up L.C. Diaz to verify the
withdrawal.
The appellate court ruled that the degree of diligence required from
Solidbank is more than that of a good father of a family. The business
and functions of banks are affected with public interest. Banks are
obligated to treat the accounts of their depositors with meticulous care,
always having in mind the fiduciary nature of their relationship with
their clients. The Court of Appeals found Solidbank remiss in its duty,
violating its fiduciary relationship with L.C. Diaz.
The dispositive portion of the decision of the Court of Appeals
reads:chanrob1es virtual 1aw library
WHEREFORE, premises considered, the decision appealed from is
hereby REVERSED and a new one entered.
1. Ordering defendant-appellee Consolidated Bank and Trust
Corporation. to pay plaintiff-appellant the sum of Three Hundred
Thousand Pesos (P300,000.00), with interest thereon at the rate of 12%
per annum from the date of filing of the complaint until paid, the sum of
P20,000.00 as exemplary damages, and P20,000.00 as attorney’s fees
and expenses of litigation as well as the cost of suit; and
2. Ordering the dismissal of defendant-appellee’s counterclaim in the
amount of P30,000.00 as attorney’s fees.
SO ORDERED. 13
Acting on the motion for reconsideration of Solidbank, the appellate
court affirmed its decision but modified the award of damages. The
appellate court deleted the award of exemplary damages and attorney’s
fees. Invoking Article 2231 14 of the Civil Code, the appellate court
ruled that exemplary damages could be granted if the defendant acted
with gross negligence. Since Solidbank was guilty of simple negligence
only, the award of exemplary damages was not justified. Consequently,
the award of attorney’s fees was also disallowed pursuant to Article
2208 of the Civil Code. The expenses of litigation and cost of suit were
also not imposed on Solidbank.
The dispositive portion of the Resolution reads as follows:chanrob1es
virtual 1aw library
WHEREFORE, foregoing considered, our decision dated October 27,
1998 is affirmed with modification by deleting the award of exemplary
damages and attorney’s fees, expenses of litigation and cost of
suit.chanrob1es virtua1 1aw 1ibrary
SO ORDERED. 15
Hence, this petition.
The Issues
Solidbank seeks the review of the decision and resolution of the Court
of Appeals on these grounds:chanrob1es virtual 1aw library
I. THE COURT OF APPEALS ERRED IN HOLDING THAT
PETITIONER BANK SHOULD SUFFER THE LOSS BECAUSE ITS
TELLER SHOULD HAVE FIRST CALLED PRIVATE
RESPONDENT BY TELEPHONE BEFORE IT ALLOWED THE
WITHDRAWAL OF P300,000.00 TO RESPONDENT’S
MESSENGER EMERANO ILAGAN, SINCE THERE IS NO
AGREEMENT BETWEEN THE PARTIES IN THE OPERATION OF
THE SAVINGS ACCOUNT, NOR IS THERE ANY BANKING LAW,
WHICH MANDATES THAT A BANK TELLER SHOULD FIRST
CALL UP THE DEPOSITOR BEFORE ALLOWING A
WITHDRAWAL OF A BIG AMOUNT IN A SAVINGS ACCOUNT.
II. THE COURT OF APPEALS ERRED IN APPLYING THE
DOCTRINE OF LAST CLEAR CHANCE AND IN HOLDING THAT
PETITIONER BANK’S TELLER HAD THE LAST OPPORTUNITY
TO WITHHOLD THE WITHDRAWAL WHEN IT IS UNDISPUTED
THAT THE TWO SIGNATURES OF RESPONDENT ON THE
WITHDRAWAL SLIP ARE GENUINE AND PRIVATE
RESPONDENT’S PASSBOOK WAS DULY PRESENTED, AND
CONTRARIWISE RESPONDENT WAS NEGLIGENT IN THE
SELECTION AND SUPERVISION OF ITS MESSENGER
EMERANO ILAGAN, AND IN THE SAFEKEEPING OF ITS
CHECKS AND OTHER FINANCIAL DOCUMENTS.
III. THE COURT OF APPEALS ERRED IN NOT FINDING THAT
THE INSTANT CASE IS A LAST DITCH EFFORT OF PRIVATE
RESPONDENT TO RECOVER ITS P300,000.00 AFTER FAILING
IN ITS EFFORTS TO RECOVER THE SAME FROM ITS
EMPLOYEE EMERANO ILAGAN.
IV. THE COURT OF APPEALS ERRED IN NOT MITIGATING THE
DAMAGES AWARDED AGAINST PETITIONER UNDER
ARTICLE 2197 OF THE CIVIL CODE, NOTWITHSTANDING ITS
FINDING THAT PETITIONER BANK’S NEGLIGENCE WAS
ONLY CONTRIBUTORY. 16
The Ruling of the Court
The petition is partly meritorious.
Solidbank’s Fiduciary Duty under the Law
The rulings of the trial court and the Court of Appeals conflict on the
application of the law. The trial court pinned the liability on L.C. Diaz
based on the provisions of the rules on savings account, a recognition of
the contractual relationship between Solidbank and L.C. Diaz, the latter
being a depositor of the former. On the other hand, the Court of Appeals
applied the law on quasi-delict to determine who between the two
parties was ultimately negligent. The law on quasi-delict or culpa
aquiliana is generally applicable when there is no pre-existing
contractual relationship between the parties.
We hold that Solidbank is liable for breach of contract due to negligence,
or culpa contractual.
The contract between the bank and its depositor is governed by the
provisions of the Civil Code on simple loan. 17 Article 1980 of the Civil
Code expressly provides that." . . savings . . . deposits of money in banks
and similar institutions shall be governed by the provisions concerning
simple loan." There is a debtor-creditor relationship between the bank
and its depositor. The bank is the debtor and the depositor is the creditor.
The depositor lends the bank money and the bank agrees to pay the
depositor on demand. The savings deposit agreement between the bank
and the depositor is the contract that determines the rights and
obligations of the parties.
The law imposes on banks high standards in view of the fiduciary nature
of banking. Section 2 of Republic Act No. 8791 ("RA 8791"), 18 which
took effect on 13 June 2000, declares that the State recognizes the
"fiduciary nature of banking that requires high standards of integrity and
performance." 19 This new provision in the general banking law,
introduced in 2000, is a statutory affirmation of Supreme Court
decisions, starting with the 1990 case of Simex International v. Court of
Appeals, 20 holding that "the bank is under obligation to treat the
accounts of its depositors with meticulous care, always having in mind
the fiduciary nature of their relationship. 21
This fiduciary relationship means that the bank’s obligation to observe
"high standards of integrity and performance" is deemed written into
every deposit agreement between a bank and its depositor. The fiduciary
nature of banking requires banks to assume a degree of diligence higher
than that of a good father of a family. Article 1172 of the Civil Code
states that the degree of diligence required of an obligor is that
prescribed by law or contract, and absent such stipulation then the
diligence of a good father of a family. 22 Section 2 of RA 8791
prescribes the statutory diligence required from banks — that banks
must observe "high standards of integrity and performance" in servicing
their depositors. Although RA 8791 took effect almost nine years after
the unauthorized withdrawal of the P300,000 from L.C. Diaz’s savings
account, jurisprudence 23 at the time of the withdrawal already imposed
on banks the same high standard of diligence required under RA No.
8791.
However, the fiduciary nature of a bank-depositor relationship does not
convert the contract between the bank and its depositors from a simple
loan to a trust agreement, whether express or implied. Failure by the
bank to pay the depositor is failure to pay a simple loan, and not a breach
of trust. 24 The law simply imposes on the bank a higher standard of
integrity and performance in complying with its obligations under the
9
Banking Laws under Atty. Fontanilla
contract of simple loan, beyond those required of non-bank debtors
under a similar contract of simple loan.
The fiduciary nature of banking does not convert a simple loan into a
trust agreement because banks do not accept deposits to enrich
depositors but to earn money for themselves. The law allows banks to
offer the lowest possible interest rate to depositors while charging the
highest possible interest rate on their own borrowers. The interest spread
or differential belongs to the bank and not to the depositors who are not
cestui que trust of banks. If depositors are cestui que trust of banks, then
the interest spread or income belongs to the depositors, a situation that
Congress certainly did not intend in enacting Section 2 of RA 8791.
Solidbank’s Breach of its Contractual Obligation
Article 1172 of the Civil Code provides that "responsibility arising from
negligence in the performance of every kind of obligation is
demandable." For breach of the savings deposit agreement due to
negligence, or culpa contractual, the bank is liable to its depositor.
Calapre left the passbook with Solidbank because the "transaction took
time" and he had to go to Allied Bank for another transaction. The
passbook was still in the hands of the employees of Solidbank for the
processing of the deposit when Calapre left Solidbank. Solidbank’s rules
on savings account require that the "deposit book should be carefully
guarded by the depositor and kept under lock and key, if possible."
When the passbook is in the possession of Solidbank’s tellers during
withdrawals, the law imposes on Solidbank and its tellers an even higher
degree of diligence in safeguarding the passbook.
Likewise, Solidbank’s tellers must exercise a high degree of diligence
in insuring that they return the passbook only to the depositor or his
authorized representative. The tellers know, or should know, that the
rules on savings account provide that any person in possession of the
passbook is presumptively its owner. If the tellers give the passbook to
the wrong person, they would be clothing that person presumptive
ownership of the passbook, facilitating unauthorized withdrawals by
that person. For failing to return the passbook to Calapre, the authorized
representative of L.C. Diaz, Solidbank and Teller No. 6 presumptively
failed to observe such high degree of diligence in safeguarding the
passbook, and in insuring its return to the party authorized to receive the
same.
In culpa contractual, once the plaintiff proves a breach of contract, there
is a presumption that the defendant was at fault or negligent. The burden
is on the defendant to prove that he was not at fault or negligent. In
contrast, in culpa aquiliana the plaintiff has the burden of proving that
the defendant was negligent. In the present case, L.C. Diaz has
established that Solidbank breached its contractual obligation to return
the passbook only to the authorized representative of L.C. Diaz. There
is thus a presumption that Solidbank was at fault and its teller was
negligent in not returning the passbook to Calapre. The burden was on
Solidbank to prove that there was no negligence on its part or its
employees.
Solidbank failed to discharge its burden. Solidbank did not present to
the trial court Teller No. 6, the teller with whom Calapre left the
passbook and who was supposed to return the passbook to him. The
record does not indicate that Teller No. 6 verified the identity of the
person who retrieved the passbook. Solidbank also failed to adduce in
evidence its standard procedure in verifying the identity of the person
retrieving the passbook, if there is such a procedure, and that Teller No.
6 implemented this procedure in the present case.
Solidbank is bound by the negligence of its employees under the
principle of respondeat superior or command responsibility. The
defense of exercising the required diligence in the selection and
supervision of employees is not a complete defense in culpa contractual,
unlike in culpa aquiliana.25cralaw:red
The bank must not only exercise "high standards of integrity and
performance," it must also insure that its employees do likewise because
this is the only way to insure that the bank will comply with its fiduciary
duty. Solidbank failed to present the teller who had the duty to return to
Calapre the passbook, and thus failed to prove that this teller exercised
the "high standards of integrity and performance" required of
Solidbank’s employees.chanrob1es virtua1 1aw 1ibrary
Proximate Cause of the Unauthorized Withdrawal
Another point of disagreement between the trial and appellate courts is
the proximate cause of the unauthorized withdrawal. The trial court
believed that L.C. Diaz’s negligence in not securing its passbook under
lock and key was the proximate cause that allowed the impostor to
withdraw the P300,000. For the appellate court, the proximate cause was
the teller’s negligence in processing the withdrawal without first
verifying with L.C. Diaz. We do not agree with either court.
Proximate cause is that cause which, in natural and continuous sequence,
unbroken by any efficient intervening cause, produces the injury and
without which the result would not have occurred. 26 Proximate cause
is determined by the facts of each case upon mixed considerations of
logic, common sense, policy and precedent. 27
L.C. Diaz was not at fault that the passbook landed in the hands of the
impostor. Solidbank was in possession of the passbook while it was
processing the deposit. After completion of the transaction, Solidbank
had the contractual obligation to return the passbook only to Calapre,
the authorized representative of L.C. Diaz. Solidbank failed to fulfill its
contractual obligation because it gave the passbook to another person.
Solidbank’s failure to return the passbook to Calapre made possible the
withdrawal of the P300,000 by the impostor who took possession of the
passbook. Under Solidbank’s rules on savings account, mere possession
of the passbook raises the presumption of ownership. It was the
negligent act of Solidbank’s Teller No. 6 that gave the impostor
presumptive ownership of the passbook. Had the passbook not fallen
into the hands of the impostor, the loss of P300,000 would not have
happened. Thus, the proximate cause of the unauthorized withdrawal
was Solidbank’s negligence in not returning the passbook to Calapre.
We do not subscribe to the appellate court’s theory that the proximate
cause of the unauthorized withdrawal was the teller’s failure to call up
L.C. Diaz to verify the withdrawal. Solidbank did not have the duty to
call up L.C. Diaz to confirm the withdrawal. There is no arrangement
between Solidbank and L.C. Diaz to this effect. Even the agreement
between Solidbank and L.C. Diaz pertaining to measures that the parties
must observe whenever withdrawals of large amounts are made does not
direct Solidbank to call up L.C. Diaz.
There is no law mandating banks to call up their clients whenever their
representatives withdraw significant amounts from their accounts. L.C.
Diaz therefore had the burden to prove that it is the usual practice of
Solidbank to call up its clients to verify a withdrawal of a large amount
of money. L.C. Diaz failed to do so.
Teller No. 5 who processed the withdrawal could not have been put on
guard to verify the withdrawal. Prior to the withdrawal of P300,000, the
impostor deposited with Teller No. 6 the P90,000 PBC check, which
later bounced. The impostor apparently deposited a large amount of
money to deflect suspicion from the withdrawal of a much bigger
amount of money. The appellate court thus erred when it imposed on
Solidbank the duty to call up L.C. Diaz to confirm the withdrawal when
no law requires this from banks and when the teller had no reason to be
suspicious of the transaction.
Solidbank continues to foist the defense that Ilagan made the withdrawal.
Solidbank claims that since Ilagan was also a messenger of L.C. Diaz,
he was familiar with its teller so that there was no more need for the
teller to verify the withdrawal. Solidbank relies on the following
statements in the Booking and Information Sheet of Emerano
Ilagan:chanrob1es virtual 1aw library
. . . Ilagan also had with him (before the withdrawal) a forged check of
PBC and indicated the amount of P90,000 which he deposited in favor
of L.C. Diaz and Company. After successfully withdrawing this large
sum of money, Accused Ilagan gave alias Rey (Noel Tamayo) his share
of the loot. Ilagan then hired a taxicab in the amount of P1,000 to
transport him (Ilagan) to his home province at Bauan, Batangas. Ilagan
extravagantly and lavishly spent his money but a big part of his loot was
wasted in cockfight and horse racing. Ilagan was apprehended and
meekly admitted his guilt. 28 (Emphasis supplied.)
L.C. Diaz refutes Solidbank’s contention by pointing out that the person
who withdrew the P300,000 was a certain Noel Tamayo. Both the trial
and appellate courts stated that this Noel Tamayo presented the
passbook with the withdrawal slip.
We uphold the finding of the trial and appellate courts that a certain Noel
Tamayo withdrew the P300,000. The Court is not a trier of facts. We
find no justifiable reason to reverse the factual finding of the trial court
and the Court of Appeals. The tellers who processed the deposit of the
P90,000 check and the withdrawal of the P300,000 were not presented
during trial to substantiate Solidbank’s claim that Ilagan deposited the
check and made the questioned withdrawal. Moreover, the entry quoted
by Solidbank does not categorically state that Ilagan presented the
withdrawal slip and the passbook.
Doctrine of Last Clear Chance
The doctrine of last clear chance states that where both parties are
negligent but the negligent act of one is appreciably later than that of the
other, or where it is impossible to determine whose fault or negligence
caused the loss, the one who had the last clear opportunity to avoid the
loss but failed to do so, is chargeable with the loss. 29 Stated differently,
the antecedent negligence of the plaintiff does not preclude him from
recovering damages caused by the supervening negligence of the
defendant, who had the last fair chance to prevent the impending harm
by the exercise of due diligence. 30
We do not apply the doctrine of last clear chance to the present case.
Solidbank is liable for breach of contract due to negligence in the
performance of its contractual obligation to L.C. Diaz. This is a case of
culpa contractual, where neither the contributory negligence of the
plaintiff nor his last clear chance to avoid the loss, would exonerate the
defendant from liability. 31 Such contributory negligence or last clear
chance by the plaintiff merely serves to reduce the recovery of damages
by the plaintiff but does not exculpate the defendant from his breach of
contract. 32
Mitigated Damages
Under Article 1172, "liability (for culpa contractual) may be regulated
by the courts, according to the circumstances." This means that if the
defendant exercised the proper diligence in the selection and supervision
of its employee, or if the plaintiff was guilty of contributory negligence,
then the courts may reduce the award of damages. In this case, L.C. Diaz
was guilty of contributory negligence in allowing a withdrawal slip
signed by its authorized signatories to fall into the hands of an impostor.
Thus, the liability of Solidbank should be reduced.
In Philippine Bank of Commerce v. Court of Appeals, 33 where the
Court held the depositor guilty of contributory negligence, we allocated
the damages between the depositor and the bank on a 40-60 ratio.
Applying the same ruling to this case, we hold that L.C. Diaz must
shoulder 40% of the actual damages awarded by the appellate court.
Solidbank must pay he other 60% of the actual damages.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED
with MODIFICATION. Petitioner Solidbank Corporation shall pay
private respondent L.C. Diaz and Company, CPA’s only 60% of the
actual damages awarded by the Court of Appeals. The remaining 40%
of the actual damages shall be borne by private respondent L.C. Diaz
and Company, CPA’s. Proportionate costs.chanrob1es virtua1 1aw
1ibrary
SO ORDERED.
5.
G.R. No. 127469 January 15, 2004
PHILIPPINE BANKING CORPORATION, petitioner,
vs.
COURT OF APPEALS and LEONILO MARCOS, respondents.
The Case
Before us is a petition for review of the Decision1 of the Court of
Appeals in CA-G.R. CV No. 34382 dated 10 December 1996 modifying
the Decision2 of the Regional Trial Court, Fourth Judicial Region,
Assisting Court, Biñan, Laguna in Civil Case No. B-3148 entitled
"Leonilo Marcos v. Philippine Banking Corporation."
The Antecedent Facts
On 30 August 1989, Leonilo Marcos ("Marcos") filed with the trial court
a Complaint for Sum of Money with Damages3 against petitioner
Philippine Banking Corporation ("BANK").4
Marcos alleged that sometime in 1982, the BANK through Florencio B.
Pagsaligan ("Pagsaligan"), one of the officials of the BANK and a close
friend of Marcos, persuaded him to deposit money with the BANK.
Marcos yielded to Pagsaligan’s persuasion and claimed he made a time
deposit with the BANK on two occasions. The first was on 11 March
1982 for P664,897.67. The BANK issued Receipt No. 635734 for this
time deposit. On 12 March 1982, Marcos claimed he again made a time
deposit with the BANK for P764,897.67. The BANK did not issue an
official receipt for this time deposit but it acknowledged a deposit of this
amount through a letter-certification Pagsaligan issued. The time
10
Banking Laws under Atty. Fontanilla
deposits earned interest at 17% per annum and had a maturity period of
90 days.
Marcos alleged that Pagsaligan kept the various time deposit certificates
on the assurance that the BANK would take care of the certificates,
interests and renewals. Marcos claimed that from the time of the deposit,
he had not received the principal amount or its interest.
Sometime in March 1983, Marcos wanted to withdraw from the BANK
his time deposits and the accumulated interests to buy materials for his
construction business. However, the BANK through Pagsaligan
convinced Marcos to keep his time deposits intact and instead to open
several domestic letters of credit. The BANK required Marcos to give a
marginal deposit of 30% of the total amount of the letters of credit. The
time deposits of Marcos would secure 70% of the letters of credit. Since
Marcos trusted the BANK and Pagsaligan, he signed blank printed
forms of the application for the domestic letters of credit, trust receipt
agreements and promissory notes.
Marcos executed three Trust Receipt Agreements totalling P851,250,
broken down as follows: (1) Trust Receipt No. CD 83.7 dated 8 March
1983 for P300,000; (2) Trust Receipt No. CD 83.9 dated 15 March 1983
for P300,000; and (3) Trust Receipt No. CD 83.10 dated 15 March 1983
for P251,250. Marcos deposited the required 30% marginal deposit for
the trust receipt agreements. Marcos claimed that his obligation to the
BANK was therefore only P595,875 representing 70% of the letters of
credit.
Marcos believed that he and the BANK became creditors and debtors of
each other. Marcos expected the BANK to offset automatically a portion
of his time deposits and the accumulated interest with the amount
covered by the three trust receipts totalling P851,250 less the 30%
marginal deposit that he had paid. Marcos argued that if only the BANK
applied his time deposits and the accumulated interest to his remaining
obligation, which is 70% of the total amount of the letters of credit, he
would have paid completely his debt. Marcos further pointed out that
since he did not apply for a renewal of the trust receipt agreements, the
BANK had no right to renew the same.
Marcos accused the BANK of unjustly demanding payment for the total
amount of the trust receipt agreements without deducting the 30%
marginal deposit that he had already made. He decried the BANK’s
unlawful charging of accumulated interest because he claimed there was
no agreement as to the payment of interest. The interest arose from
numerous alleged extensions and penalties. Marcos reiterated that there
was no agreement to this effect because his time deposits served as the
collateral for his remaining obligation.
Marcos also denied that he obtained another loan from the BANK for
P500,000 with interest at 25% per annum supposedly covered by
Promissory Note No. 20-979-83 dated 24 October 1983. Marcos
bewailed the BANK’s belated claim that his time deposits were applied
to this void promissory note on 12 March 1985.
In sum, Marcos claimed that:
(1) his time deposit with the BANK "in the total sum of P1,428,795.345
has earned accumulated interest since March 1982 up to the present in
the total amount of P1,727,305.45 at the rate of 17% per annum so his
total money with defendant (the BANK) is P3,156,100.79 less the
amount of P595,875 representing the 70% balance of the marginal
deposit and/or balance of the trust agreements;" and
(2) his indebtedness was only P851,250 less the 30% paid as marginal
deposit or a balance of P595,875, which the BANK should have
automatically deducted from his time deposits and accumulated interest,
leaving the BANK’s indebtedness to him at P2,560,025.79.
Marcos prayed the trial court to declare Promissory Note No. 20-979-
83 void and to order the BANK to pay the amount of his time deposits
with interest. He also sought the award of moral and exemplary damages
as well as attorney’s fees for P200,000 plus 25% of the amount due.
On 18 September 1989, summons and a copy of the complaint were
served on the BANK.6
On 9 October 1989, the BANK filed its Answer with Counterclaim. The
BANK denied the allegations in the complaint. The BANK believed that
the suit was Marcos’ desperate attempt to avoid liability under several
trust receipt agreements that were the subject of a criminal complaint.
The BANK alleged that as of 12 March 1982, the total amount of the
various time deposits of Marcos was only P764,897.67 and not
P1,428,795.357 as alleged in the complaint. The P764,897.67 included
the P664,897.67 that Marcos deposited on 11 March 1982.
The BANK pointed out that Marcos delivered to the BANK the time
deposit certificates by virtue of the Deed of Assignment dated 2 June
1989. Marcos executed the Deed of Assignment to secure his various
loan obligations. The BANK claimed that these loans are covered by
Promissory Note No. 20-756-82 dated 2 June 1982 for P420,000 and
Promissory Note No. 20-979-83 dated 24 October 1983 for P500,000.
The BANK stressed that these obligations are separate and distinct from
the trust receipt agreements.
When Marcos defaulted in the payment of Promissory Note No. 20-979-
83, the BANK debited his time deposits and applied the same to the
obligation that is now considered fully paid.8 The BANK insisted that
the Deed of Assignment authorized it to apply the time deposits in
payment of Promissory Note No. 20-979-83.
In March 1982, the wife of Marcos, Consolacion Marcos, sought the
advice of Pagsaligan. Consolacion informed Pagsaligan that she and her
husband needed to finance the purchase of construction materials for
their business, L.A. Marcos Construction Company. Pagsaligan
suggested the opening of the letters of credit and the execution of trust
receipts, whereby the BANK would agree to purchase the goods needed
by the client through the letters of credit. The BANK would then entrust
the goods to the client, as entrustee, who would undertake to deliver the
proceeds of the sale or the goods themselves to the entrustor within a
specified time.
The BANK claimed that Marcos freely entered into the trust receipt
agreements. When Marcos failed to account for the goods delivered or
for the proceeds of the sale, the BANK filed a complaint for violation
of Presidential Decree No. 115 or the Trust Receipts Law. Instead of
initiating negotiations for the settlement of the account, Marcos filed
this suit.
The BANK denied falsifying Promissory Note No. 20-979-83. The
BANK claimed that the promissory note is supported by documentary
evidence such as Marcos’ application for this loan and the microfilm of
the cashier’s check issued for the loan. The BANK insisted that Marcos
could not deny the agreement for the payment of interest and penalties
under the trust receipt agreements. The BANK prayed for the dismissal
of the complaint, payment of damages, attorney’s fees and cost of suit.
On 15 December 1989, the trial court on motion of Marcos’ counsel
issued an order declaring the BANK in default for filing its answer five
days after the 15-day period to file the answer had lapsed.9 The trial
court also held that the answer is a mere scrap of paper because a copy
was not furnished to Marcos. In the same order, the trial court allowed
Marcos to present his evidence ex parte on 18 December 1989. On that
date, Marcos testified and presented documentary evidence. The case
was then submitted for decision.
On 19 December 1989, Marcos received a copy of the BANK’s Answer
with Compulsory Counterclaim.
On 29 December 1989, the BANK filed an opposition to Marcos’
motion to declare the BANK in default. On 9 January 1990, the BANK
filed a motion to lift the order of default claiming that it had only then
learned of the order of default. The BANK explained that its delayed
filing of the Answer with Counterclaim and failure to serve a copy of
the answer on Marcos was due to excusable negligence. The BANK
asked the trial court to set aside the order of default because it had a
valid and meritorious defense.
On 7 February 1990, the trial court issued an order setting aside the
default order and admitting the BANK’s Answer with Compulsory
Counterclaim. The trial court ordered the BANK to present its evidence
on 12 March 1990.
On 5 March 1990, the BANK filed a motion praying to cross-examine
Marcos who had testified during the ex-parte hearing of 18 December
1989. On 12 March 1990, the trial court denied the BANK’s motion and
directed the BANK to present its evidence. Trial then ensued.
The BANK presented two witnesses, Rodolfo Sales, the Branch
Manager of the BANK’s Cubao Branch since 1987, and Pagsaligan, the
Branch Manager of the same branch from 1982 to 1986.
On 24 April 1990, the counsel of Marcos cross-examined Pagsaligan.
Due to lack of material time, the trial court reset the continuation of the
cross-examination and presentation of other evidence. The succeeding
hearings were postponed, specifically on 24, 27 and 28 of August 1990,
because of the BANK’s failure to produce its witness, Pagsaligan. The
BANK on these scheduled hearings also failed to present other
evidence.
On 7 September 1990, the BANK moved to postpone the hearing on the
ground that Pagsaligan could not attend the hearing because of illness.
The trial court denied the motion to postpone and on motion of Marcos’
counsel ruled that the BANK had waived its right to present further
evidence. The trial court considered the case submitted for decision. The
BANK moved for reconsideration, which the trial court denied.
On 8 October 1990, the trial court rendered its decision in favor of
Marcos. Aggrieved, the BANK appealed to the Court of Appeals.
On 10 December 1996, the Court of Appeals modified the decision of
the trial court by reducing the amount of actual damages and deleting
the attorney’s fees awarded to Marcos.
The Ruling of the Trial Court
The trial court ruled that the total amount of time deposits of Marcos
was P1,429,795.34 and not only P764,897.67 as claimed by the BANK.
The trial court found that Marcos made a time deposit on two occasions.
The first time deposit was made on 11 March 1982 for P664,897.67 as
shown by Receipt No. 635743. On 12 March 1982, Marcos again made
a time deposit for P764,897.67 as acknowledged by Pagsaligan in a
letter of certification. The two time deposits thus amounted to
P1,429,795.34.
The trial court pointed out that no receipt was issued for the 12 March
1982 time deposit because the letter of certification was sufficient. The
trial court made a finding that the certification letter did not include the
time deposit made on 11 March 1982. The 12 March 1982 deposit was
in cash while the 11 March 1982 deposit was in checks which still had
to clear. The checks were not included in the certification letter since
the BANK could not credit the amounts of the checks prior to clearing.
The trial court declared that even the Deed of Assignment
acknowledged that Marcos made several time deposits as the Deed
stated that the assigment was charged against "various" time deposits.
The trial court recognized the existence of the Deed of Assignment and
the two loans that Marcos supposedly obtained from the BANK on 28
May 1982 for P340,000 and on 2 June 1982 for P420,000. The two loans
amounted to P760,000. On 2 June 1982, the same day that he secured
the second loan, Marcos executed a Deed of Assignment assigning to
the BANK P760,000 of his time deposits. The trial court concluded that
obviously the two loans were immediately paid by virtue of the Deed of
Assignment.
The trial court found it strange that Marcos borrowed money from the
BANK at a higher rate of interest instead of just withdrawing his time
deposits. The trial court saw no rhyme or reason why Marcos had to
secure the loans from the BANK. The trial court was convinced that
Marcos did not know that what he had signed were loan applications
and a Deed of Assignment in payment for his loans. Nonetheless, the
trial court recognized "the said loan of P760,000 and its corresponding
payment by virtue of the Deed of Assignment for the equal sum."10
If the BANK’s claim is true that the time deposits of Marcos amounted
only to P764,897.67 and he had already assigned P760,000 of this
amount, the trial court pointed out that what would be left as of 3 June
1982 would only be P4,867.67.11 Yet, after the time deposits had
matured, the BANK allowed Marcos to open letters of credit three times.
The three letters of credit were all secured by the time deposits of
Marcos after he had paid the 30% marginal deposit. The trial court
opined that if Marcos’ time deposit was only P764,897.67, then the
11
Banking Laws under Atty. Fontanilla
letters of credit totalling P595,875 (less 30% marginal deposit) was
guaranteed by only P4,867.67,12 the remaining time deposits after
Marcos had executed the Deed of Assignment for P760,000.
According to the trial court, a security of only P4,867.6713 for a loan
worth P595,875 (less 30% marginal deposit) is not only preposterous, it
is also comical. Worse, aside from allowing Marcos to have unsecured
trust receipts, the BANK still claimed to have granted Marcos another
loan for P500,000 on 25 October 1983 covered by Promissory Note No.
20-979-83. The BANK is a commercial bank engaged in the business of
lending money. Allowing a loan of more than a million pesos without
collateral is in the words of the trial court, "an impossibility and a gross
violation of Central Bank Rules and Regulations, which no Bank
Manager has such authority to grant."14 Thus, the trial court held that
the BANK could not have granted Marcos the loan covered by
Promissory Note No. 20-979-83 because it was unsecured by any
collateral.
The trial court required the BANK to produce the original copies of the
loan application and Promissory Note No. 20-979-83 so that it could
determine who applied for this loan. However, the BANK presented to
the trial court only the "machine copies of the duplicate" of these
documents.
Based on the "machine copies of the duplicate" of the two documents,
the trial court noticed the following discrepancies: (1) Marcos’ signature
on the two documents are merely initials unlike in the other documents
submitted by the BANK; (2) it is highly unnatural for the BANK to only
have duplicate copies of the two documents in its custody; (3) the
address of Marcos in the documents is different from the place of
residence as stated by Marcos in the other documents annexed by the
BANK in its Answer; (4) Pagsaligan made it appear that a check for the
loan proceeds of P470,588 less bank charges was issued to Marcos but
the check’s payee was one ATTY. LEONILO MARCOS and, as the trial
court noted, Marcos is not a lawyer; and (5) Pagsaligan was not sure
what branch of the BANK issued the check for the loan proceeds. The
trial court was convinced that Marcos did not execute the questionable
documents covering the P500,000 loan and Pagsaligan used these
documents as a means to justify his inability to explain and account for
the time deposits of Marcos.
The trial court noted the BANK’s "defective" documentation of its
transaction with Marcos. First, the BANK was not in possession of the
original copies of the documents like the loan applications. Second, the
BANK did not have a ledger of the accounts of Marcos or of his various
transactions with the BANK. Last, the BANK did not issue a certificate
of time deposit to Marcos. Again, the trial court attributed the BANK’s
lapses to Pagsaligan’s scheme to defraud Marcos of his time deposits.
The trial court also took note of Pagsaligan’s demeanor on the witness
stand. Pagsaligan evaded the questions by giving unresponsive or
inconsistent answers compelling the trial court to admonish him. When
the trial court ordered Pagsaligan to produce the documents, he
"conveniently became sick"15 and thus failed to attend the hearings
without presenting proof of his physical condition.
The trial court disregarded the BANK’s assertion that the time deposits
were converted into a savings account at 14% or 10% per annum upon
maturity. The BANK never informed Marcos that his time deposits had
already matured and these were converted into a savings account. As to
the interest due on the trust receipts, the trial court ruled that there is no
basis for such a charge because the documents do not stipulate any
interest.
In computing the amount due to Marcos, the trial court took into account
the marginal deposit that Marcos had already paid which is equivalent
to 30% of the total amount of the three trust receipts. The three trust
receipts totalling P851,250 would then have a balance of P595,875. The
balance became due in March 1987 and on the same date, Marcos’ time
deposits of P669,932.30 had already earned interest from 1983 to 1987
totalling P569,323.21 at 17% per annum. Thus, the trial court ruled that
the time deposits in 1987 totalled P1,239,115. From this amount, the
trial court deducted P595,875, the amount of the trust receipts, leaving
a balance on the time deposits of P643,240 as of March 1987. However,
since the BANK failed to return the time deposits of Marcos, which
again matured in March 1990, the time deposits with interest, less the
amount of trust receipts paid in 1987, amounted to P971,292.49 as of
March 1990.
In the alternative, the trial court ruled that even if Marcos had only one
time deposit of P764,897.67 as claimed by the BANK, the time deposit
would have still earned interest at the rate of 17% per annum. The time
deposit of P650,163 would have increased to P1,415,060 in 1987 after
earning interest. Deducting the amount of the three trust receipts,
Marcos’ time deposits still totalled P1,236,969.30 plus interest.
The dispositive portion of the decision of the trial court reads:
WHEREFORE, under the foregoing circumstances, judgment is hereby
rendered in favor of Plaintiff, directing Defendant Bank as follows:
1) to return to Plaintiff his time deposit in the sum of P971,292.49 with
interest thereon at the legal rate, until fully restituted;
2) to pay attorney’s fees of P200,000.00; [and]
3) [to pay the] cost of these proceedings.
IT IS SO ORDERED.16
The Ruling of the Court of Appeals
The Court of Appeals addressed the procedural and substantive issues
that the BANK raised.
The appellate court ruled that the trial court committed a reversible error
when it denied the BANK’s motion to cross-examine Marcos. The
appellate court ruled that the right to cross-examine is a fundamental
right that the BANK did not waive because the BANK vigorously
asserted this right. The BANK’s failure to serve a notice of the motion
to Marcos is not a valid ground to deny the motion to cross-examine.
The appellate court held that the motion to cross-examine is one of those
non-litigated motions that do not require the movant to provide a notice
of hearing to the other party.
The Court of Appeals pointed out that when the trial court lifted the
order of default, it had the duty to afford the BANK its right to cross-
examine Marcos. This duty assumed greater importance because the
only evidence supporting the complaint is Marcos’ ex-parte testimony.
The trial court should have tested the veracity of Marcos’ testimony
through the distilling process of cross-examination. The Court of
Appeals, however, believed that the case should not be remanded to the
trial court because Marcos’ testimony on the time deposits is supported
by evidence on record from which the appellate court could make an
intelligent judgment.
On the second procedural issue, the Court of Appeals held that the trial
court did not err when it declared that the BANK had waived its right to
present its evidence and had submitted the case for decision. The
appellate court agreed with the grounds relied upon by the trial court in
its Order dated 7 September 1990.
The Court of Appeals, however, differed with the finding of the trial
court as to the total amount of the time deposits. The appellate court
ruled that the total amount of the time deposits of Marcos is only
P764,897.67 and not P1,429,795.34 as found by the trial court. The
certification letter issued by Pagsaligan showed that Marcos made a time
deposit on 12 March 1982 for P764,897.67. The certification letter
shows that the amount mentioned in the letter was the aggregate or total
amount of the time deposits of Marcos as of that date. Therefore, the
P764,897.67 already included the P664,897.67 time deposit made by
Marcos on 11 March 1982.
The Court of Appeals further explained:
Besides, the Official Receipt (Exh. "B", p. 32, Records) dated March 11,
1982 covering the sum of P664,987.67 time deposit did not provide for
a maturity date implying clearly that the amount covered by said receipt
forms part of the total sum shown in the letter-certification which
contained a maturity date. Moreover, it taxes one’s credulity to believe
that appellee would make a time deposit on March 12, 1982 in the sum
of P764,897.67 which except for the additional sum of P100,000.00 is
practically identical (see underlined figures) to the sum of P664,897.67
deposited the day before March 11, 1982.
Additionally, We agree with the contention of the appellant that the
lower court wrongly appreciated the testimony of Mr. Pagsaligan. Our
finding is strengthened when we consider the alleged application for
loan by the appellee with the appellant in the sum of P500,000.00 dated
October 24, 1983. (Exh. "J", p. 40, Records), wherein it was stated that
the loan is for additional working capital versus the various time deposit
amounting to P760,000.00.17 (Emphasis supplied)
The Court of Appeals sustained the factual findings of the trial court in
ruling that Promissory Note No. 20-979-83 is void. There is no evidence
of a bank ledger or computation of interest of the loan. The appellate
court blamed the BANK for failing to comply with the orders of the trial
court to produce the documents on the loan. The BANK also made
inconsistent statements. In its Answer to the Complaint, the BANK
alleged that the loan was fully paid when it debited the time deposits of
Marcos with the loan. However, in its discussion of the assigned errors,
the BANK claimed that Marcos had yet to pay the loan.
The appellate court deleted the award of attorney’s fees. It noted that the
trial court failed to justify the award of attorney’s fees in the text of its
decision. The dispositive portion of the decision of the Court of Appeals
reads:
WHEREFORE, premises considered, the appealed decision is SET
ASIDE. A new judgment is hereby rendered ordering the appellant bank
to return to the appellee his time deposit in the sum of P764,897.67
with 17% interest within 90 days from March 11, 1982 in
accordance with the letter-certification and with legal interest
thereafter until fully paid. Costs against the appellant.
SO ORDERED.18 (Emphasis supplied)
The Issues
The BANK anchors this petition on the following issues:
1) WHETHER OR NOT THE PETITIONER [sic] ABLE TO PROVE
THE PRIVATE RESPONDENT’S OUTSTANDING OBLIGATIONS
SECURED BY THE ASSIGNMENT OF TIME DEPOSITS?
1.1) COROLLARILY, WHETHER OR NOT THE PROVISIONS OF
SECTION 8 RULE 10 OF [sic] THEN REVISED RULES OF COURT
BE APPLIED [sic] SO AS TO CREATE A JUDICIAL ADMISSION
ON THE GENUINENESS AND DUE EXECUTION OF THE
ACTIONABLE DOCUMENTS APPENDED TO THE
PETITIONER’S ANSWER?
2) WHETHER OR NOT PETITIONER [sic] DEPRIVED OF DUE
PROCESS WHEN THE LOWER COURT HAS [sic] DECLARED
PETITIONER TO HAVE WAIVED PRESENTATION OF FURTHER
EVIDENCE AND CONSIDERED THE CASE SUBMITTED FOR
RESOLUTION?19
The Ruling of the Court
The petition is without merit.
Procedural Issues
There was no violation of the BANK’s right to procedural due process
when the trial court denied the BANK’s motion to cross-examine
Marcos. Prior to the denial of the motion, the trial court had properly
declared the BANK in default. Since the BANK was in default, Marcos
was able to present his evidence ex-parte including his own testimony.
When the trial court lifted the order of default, the BANK was restored
to its standing and rights in the action. However, as a rule, the
proceedings already taken should not be disturbed.20 Nevertheless, it is
within the trial court’s discretion to reopen the evidence submitted by
the plaintiff and allow the defendant to challenge the same, by cross-
examining the plaintiff’s witnesses or introducing countervailing
evidence.21 The 1964 Rules of Court, the rules then in effect at the time
of the hearing of this case, recognized the trial court’s exercise of this
discretion. The 1997 Rules of Court retained this discretion.22 Section
3, Rule 18 of the 1964 Rules of Court reads:
12
Banking Laws under Atty. Fontanilla
Sec. 3. Relief from order of default. — A party declared in default may
any time after discovery thereof and before judgment file a motion under
oath to set aside the order of default upon proper showing that his failure
to answer was due to fraud, accident, mistake or excusable neglect and
that he has a meritorious defense. In such case the order of default may
be set aside on such terms and conditions as the judge may impose
in the interest of justice. (Emphasis supplied)
The records show that the BANK did not ask the trial court to restore its
right to cross-examine Marcos when it sought the lifting of the default
order on 9 January 1990. Thus, the order dated 7 February 1990 setting
aside the order of default did not confer on the BANK the right to cross-
examine Marcos. It was only on 2 March 1990 that the BANK filed the
motion to cross-examine Marcos. During the 12 March 1990 hearing,
the trial court denied the BANK’s oral manifestation to grant its motion
to cross-examine Marcos because there was no proof of service on
Marcos. The BANK’s counsel pleaded for reconsideration but the trial
court denied the plea and ordered the BANK to present its evidence.
Instead of presenting its evidence, the BANK moved for the resetting of
the hearing and when the trial court denied the same, the BANK
informed the trial court that it was elevating the denial to the "upper
court."23
To repeat, the trial court had previously declared the BANK in default.
The trial court therefore had the right to decide whether or not to disturb
the testimony of Marcos that had already been terminated even before
the trial court lifted the order of default.
We do not agree with the appellate court’s ruling that a motion to cross-
examine is a non-litigated motion and that the trial court gravely abused
its discretion when it denied the motion to cross-examine. A motion to
cross-examine is adversarial. The adverse party in this case had the right
to resist the motion to cross-examine because the movant had previously
forfeited its right to cross-examine the witness. The purpose of a notice
of a motion is to avoid surprises on the opposite party and to give him
time to study and meet the arguments.24 In a motion to cross-examine,
the adverse party has the right not only to prepare a meaningful
opposition to the motion but also to be informed that his witness is being
recalled for cross-examination. The proof of service was therefore
indispensable and the trial court was correct in denying the oral
manifestation to grant the motion for cross-examination.
We find no justifiable reason to relax the application of the rule on notice
of motions25 to this case. The BANK could have easily re-filed the
motion to cross-examine with the requisite notice to Marcos. It did not
do so. The BANK did not make good its threat to elevate the denial to a
higher court. The BANK waited until the trial court rendered a judgment
on the merits before questioning the interlocutory order of denial.
While the right to cross-examine is a vital element of procedural due
process, the right does not necessarily require an actual cross-
examination, but merely an opportunity to exercise this right if desired
by the party entitled to it.26 Clearly, the BANK’s failure to cross-
examine is imputable to the BANK when it lost this right27 as it was in
default and failed thereafter to exhaust the remedies to secure the
exercise of this right at the earliest opportunity.
The two other procedural lapses that the BANK attributes to the
appellate and trial courts deserve scant consideration.
The BANK raises for the very first time the issue of judicial admission
on the part of Marcos. The BANK even has the audacity to fault the
Court of Appeals for not ruling on this issue when it never raised this
matter before the appellate court or before the trial court. Obviously, this
issue is only an afterthought. An issue raised for the first time on appeal
and not raised timely in the proceedings in the lower court is barred by
estoppel.28
The BANK cannot claim that Marcos had admitted the due execution of
the documents attached to its answer because the BANK filed its answer
late and even failed to serve it on Marcos. The BANK’s answer,
including the actionable documents it pleaded and attached to its
answer, was a mere scrap of paper. There was nothing that Marcos could
specifically deny under oath. Marcos had already completed the
presentation of his evidence when the trial court lifted the order of
default and admitted the BANK’s answer. The provision of the Rules of
Court governing admission of actionable documents was not enacted to
reward a party in default. We will not allow a party to gain an advantage
from its disregard of the rules.
As to the issue of its right to present additional evidence, we agree with
the Court of Appeals that the trial court correctly ruled that the BANK
had waived this right. The BANK cannot now claim that it was deprived
of its right to conduct a re-direct examination of Pagsaligan. The BANK
postponed the hearings three times29 because of its inability to secure
Pagsaligan’s presence during the hearings. The BANK could have
presented another witness or its other evidence but it obstinately insisted
on the resetting of the hearing because of Pagsaligan’s absence allegedly
due to illness.
The BANK’s propensity for postponements had long delayed the case.
Its motion for postponement based on Pagsaligan’s illness was not even
supported by documentary evidence such as a medical certificate.
Documentary evidence of the illness is necessary before the trial court
could rule that there is a sufficient basis to grant the postponement.30
The BANK’s Fiduciary Duty to its Depositor
The BANK is liable to Marcos for offsetting his time deposits with a
fictitious promissory note. The existence of Promissory Note No. 20-
979-83 could have been easily proven had the BANK presented the
original copies of the promissory note and its supporting evidence. In
lieu of the original copies, the BANK presented the "machine copies of
the duplicate" of the documents. These substitute documents have no
evidentiary value. The BANK’s failure to explain the absence of the
original documents and to maintain a record of the offsetting of this loan
with the time deposits bring to fore the BANK’s dismal failure to fulfill
its fiduciary duty to Marcos.
Section 2 of Republic Act No. 8791 (General Banking Law of 2000)
expressly imposes this fiduciary duty on banks when it declares that the
State recognizes the "fiduciary nature of banking that requires high
standards of integrity and performance." This statutory declaration
merely echoes the earlier pronouncement of the Supreme Court in Simex
International (Manila) Inc. v. Court of Appeals31 requiring banks to
"treat the accounts of its depositors with meticulous care, always having
in mind the fiduciary nature of their relationship."32 The Court
reiterated this fiduciary duty of banks in subsequent cases.33
Although RA No. 8791 took effect only in the year 2000,34 at the time
that the BANK transacted with Marcos, jurisprudence had already
imposed on banks the same high standard of diligence required under
RA No. 8791.35 This fiduciary relationship means that the bank’s
obligation to observe "high standards of integrity and performance" is
deemed written into every deposit agreement between a bank and its
depositor.
The fiduciary nature of banking requires banks to assume a degree of
diligence higher than that of a good father of a family. Thus, the
BANK’s fiduciary duty imposes upon it a higher level of accountability
than that expected of Marcos, a businessman, who negligently signed
blank forms and entrusted his certificates of time deposits to Pagsaligan
without retaining copies of the certificates.
The business of banking is imbued with public interest. The stability of
banks largely depends on the confidence of the people in the honesty
and efficiency of banks. In Simex International (Manila) Inc. v. Court
of Appeals36 we pointed out the depositor’s reasonable expectations
from a bank and the bank’s corresponding duty to its depositor, as
follows:
In every case, the depositor expects the bank to treat his account with
the utmost fidelity, whether such account consists only of a few hundred
pesos or of millions. The bank must record every single transaction
accurately, down to the last centavo, and as promptly as possible. This
has to be done if the account is to reflect at any given time the amount
of money the depositor can dispose of as he sees fit, confident that the
bank will deliver it as and to whomever he directs.
As the BANK’s depositor, Marcos had the right to expect that the
BANK was accurately recording his transactions with it. Upon the
maturity of his time deposits, Marcos also had the right to withdraw the
amount due him after the BANK had correctly debited his outstanding
obligations from his time deposits.
By the very nature of its business, the BANK should have had in its
possession the original copies of the disputed promissory note and the
records and ledgers evidencing the offsetting of the loan with the time
deposits of Marcos. The BANK inexplicably failed to produce the
original copies of these documents. Clearly, the BANK failed to treat
the account of Marcos with meticulous care.
The BANK claims that it is a reputable banking institution and that it
has no reason to forge Promissory Note No. 20-979-83. The trial court
and appellate court did not rule that it was the bank that forged the
promissory note. It was Pagsaligan, the BANK’s branch manager and a
close friend of Marcos, whom the trial court categorically blamed for
the fictitious loan agreements. The trial court held that Pagsaligan made
up the loan agreement to cover up his inability to account for the time
deposits of Marcos.
Whether it was the BANK’s negligence and inefficiency or Pagsaligan’s
misdeed that deprived Marcos of the amount due him will not excuse
the BANK from its obligation to return to Marcos the correct amount of
his time deposits with interest. The duty to observe "high standards of
integrity and performance" imposes on the BANK that obligation. The
BANK cannot also unjustly enrich itself by keeping Marcos’ money.
Assuming Pagsaligan was behind the spurious promissory note, the
BANK would still be accountable to Marcos. We have held that a bank
is liable for the wrongful acts of its officers done in the interest of the
bank or in their dealings as bank representatives but not for acts outside
the scope of their authority.37 Thus, we held:
A bank holding out its officers and agents as worthy of confidence will
not be permitted to profit by the frauds they may thus be enabled to
perpetrate in the apparent scope of their employment; nor will it be
permitted to shirk its responsibility for such frauds, even though no
benefit may accrue to the bank therefrom (10 Am Jur 2d, p. 114).
Accordingly, a banking corporation is liable to innocent third persons
where the representation is made in the course of its business by an agent
acting within the general scope of his authority even though, in the
particular case, the agent is secretly abusing his authority and attempting
to perpetrate a fraud upon his principal or some other person, for his
own ultimate benefit.38
The Existence of Promissory Note No. 20-979-83 was not Proven
The BANK failed to produce the best evidence — the original copies of
the loan application and promissory note. The Best Evidence Rule
provides that the court shall not receive any evidence that is merely
substitutionary in its nature, such as photocopies, as long as the original
evidence can be had.39 Absent a clear showing that the original writing
has been lost, destroyed or cannot be produced in court, the photocopy
must be disregarded, being unworthy of any probative value and being
an inadmissible piece of evidence.40
What the BANK presented were merely the "machine copies of the
duplicate" of the loan application and promissory note. No explanation
was ever offered by the BANK for its inability to produce the original
copies of the documentary evidence. The BANK also did not comply
with the orders of the trial court to submit the originals.
The purpose of the rule requiring the production of the best evidence is
the prevention of fraud.41 If a party is in possession of evidence and
withholds it, and seeks to substitute inferior evidence in its place, the
presumption naturally arises that the better evidence is withheld for
fraudulent purposes, which its production would expose and defeat.42
The absence of the original of the documentary evidence casts suspicion
on the existence of Promissory Note No. 20-979-83 considering the
BANK’s fiduciary duty to keep efficiently a record of its transactions
with its depositors. Moreover, the circumstances enumerated by the trial
court bolster the conclusion that Promissory Note No. 20-979-83 is
bogus. The BANK has only itself to blame for the dearth of competent
proof to establish the existence of Promissory Note No. 20-979-83.
Total Amount Due to Marcos
The BANK and Marcos do not now dispute the ruling of the Court of
Appeals that the total amount of time deposits that Marcos placed with
the BANK is only P764,897.67 and not P1,429,795.34 as found by the
trial court. The BANK has always argued that Marcos’ time deposits
only totalled P764,897.67.43 What the BANK insists on in this petition
is the trial court’s violation of its right to procedural due process and the
absence of any obligation to pay or return anything to Marcos. Marcos,
13
Banking Laws under Atty. Fontanilla
on the other hand, merely prays for the affirmation of either the trial
court or appellate court decision.44 We uphold the finding of the Court
of Appeals as to the amount of the time deposits as such finding is in
accord with the evidence on record.
Marcos claimed that the certificates of time deposit were with
Pagsaligan for safekeeping. Marcos was only able to present the receipt
dated 11 March 1982 and the letter-certification dated 12 March 1982
to prove the total amount of his time deposits with the BANK. The
letter-certification issued by Pagsaligan reads:
March 12, 1982
Dear Mr. Marcos:
This is to certify that we are taking care in your behalf various Time
Deposit Certificates with an aggregate value of PESOS: SEVEN
HUNDRED SIXTY FOUR THOUSAND EIGHT HUNDRED
NINETY SEVEN AND 67/100 (P764,897.67) ONLY, issued today for
90 days at 17% p.a. with the interest payable at maturity on June 10,
1982.
Thank you.
Sgd. FLORENCIO B. PAGSALIGAN
Branch Manager45
The foregoing certification is clear. The total amount of time deposits
of Marcos as of 12 March 1982 is P764,897.67, inclusive of the sum of
P664,987.67 that Marcos placed on time deposit on 11 March 1982. This
is plainly seen from the use of the word "aggregate."
We are not swayed by Marcos’ testimony that the certification is
actually for the first time deposit that he placed on 11 March 1982. The
letter-certification speaks of "various Time Deposits Certificates with
an ‘aggregate value’ of P764,897.67." If the amount stated in the letter-
certification is for a single time deposit only, and did not include the 11
March 1982 time deposit, then Marcos should have demanded a new
letter of certification from Pagsaligan. Marcos is a businessman. While
he already made an error in judgment in entrusting to Pagsaligan the
certificates of time deposits, Marcos should have known the importance
of making the letter-certification reflect the true nature of the
transaction. Marcos is bound by the letter-certification since he was the
one who prodded Pagsaligan to issue it.
We modify the amount that the Court of Appeals ordered the BANK to
return to Marcos. The appellate court did not offset Marcos’ outstanding
debt with the BANK covered by the three trust receipt agreements even
though Marcos admits his obligation under the three trust receipt
agreements. The total amount of the trust receipts is P851,250 less the
30% marginal deposit of P255,375 that Marcos had already paid the
BANK. This reduced Marcos’ total debt with the BANK to P595,875
under the trust receipts.
The trial and appellate courts found that the parties did not agree on the
imposition of interest on the loan covered by the trust receipts and thus
no interest is due on this loan. However, the records show that the three
trust receipt agreements contained stipulations for the payment of
interest but the parties failed to fill up the blank spaces on the rate of
interest. Put differently, the BANK and Marcos expressly agreed in
writing on the payment of interest46 without, however, specifying the
rate of interest. We, therefore, impose the legal interest of 12% per
annum, the legal interest for the forbearance of money,47 on each of the
three trust receipts.
Based on Marcos’ testimony48 and the BANK’s letter of demand,49 the
trust receipt agreements became due in March 1987. The records do not
show exactly when in March 1987 the obligation became due. In
accordance with Article 2212 of the Civil Code, in such a case the court
shall fix the period of the duration of the obligation.50 The BANK’s
letter of demand is dated 6 March 1989. We hold that the trust receipts
became due on 6 March 1987.
Marcos’ payment of the marginal deposit of P255,375 for the trust
receipts resulted in the proportionate reduction of the three trust receipts.
The reduced value of the trust receipts and their respective interest as of
6 March 1987 are as follows:
1. Trust Receipt No. CD 83.7 issued on 8 March 1983 originally for
P300,000 was reduced to P210,618.75 with interest of P101,027.76.51
2. Trust Receipt No. CD 83.9 issued on 15 March 1983 originally for
P300,000 was reduced to P210,618.75 with interest of P100,543.04.52
3. Trust Receipt No. CD 83.10 issued on 15 March 1983 originally for
P251,250 was reduced to P174,637.5 with interest of P83,366.68. 53
When the trust receipts became due on 6 March 1987, Marcos owed the
BANK P880,812.48. This amount included P595,875, the principal
value of the three trust receipts after payment of the marginal deposit,
and P284,937.48, the interest then due on the three trust receipts.
Upon maturity of the three trust receipts, the BANK should have
automatically deducted, by way of offsetting, Marcos’ outstanding debt
to the BANK from his time deposits and its accumulated interest.
Marcos’ time deposits of P764,897.67 had already earned interest54 of
P616,318.92 as of 6 March 1987.55 Thus, Marcos’ total funds with the
BANK amounted to P1,381,216.59 as of the maturity of the trust
receipts. After deducting P880,812.48, the amount Marcos owed the
BANK, from Marcos’ funds with the BANK of P1,381,216.59, Marcos’
remaining time deposits as of 6 March 1987 is only P500,404.11. The
accumulated interest on this P500,404.11 as of 30 August 1989, the date
of filing of Marcos’ complaint with the trial court, is P211,622.96.56
From 30 August 1989, the interest due on the accumulated interest of
P211,622.96 should earn legal interest at 12% per annum pursuant to
Article 221257 of the Civil Code.
The BANK’s dismal failure to account for Marcos’ money justifies the
award of moral58 and exemplary damages.59 Certainly, the BANK, as
employer, is liable for the negligence or the misdeed of its branch
manager which caused Marcos mental anguish and serious anxiety.60
Moral damages of P100,000 is reasonable and is in accord with our
rulings in similar cases involving banks’ negligence with regard to the
accounts of their depositors.61
We also award P20,000 to Marcos as exemplary damages. The law
allows the grant of exemplary damages by way of example for the public
good.62 The public relies on the banks’ fiduciary duty to observe the
highest degree of diligence. The banking sector is expected to maintain
at all times this high level of meticulousness.63
WHEREFORE, the decision of the Court of Appeals is AFFIRMED
with MODIFICATION. Petitioner Philippine Banking Corporation is
ordered to return to private respondent Leonilo Marcos P500,404.11, the
remaining principal amount of his time deposits, with interest at 17%
per annum from 30 August 1989 until full payment. Petitioner
Philippine Banking Corporation is also ordered to pay to private
respondent Leonilo Marcos P211,622.96, the accumulated interest as of
30 August 1989, plus 12% legal interest per annum from 30 August
1989 until full payment. Petitioner Philippine Banking Corporation is
further ordered to pay P100,000 by way of moral damages and P20,000
as exemplary damages to private respondent Leonilo Marcos.
Costs against petitioner.
SO ORDERED.
6.
G.R. No. 157845 September 20, 2005
PHILIPPINE NATIONAL BANK, Petitioners,
vs.
NORMAN Y. PIKE, Respondent.
DECISION
CHICO-NAZARIO, J.:
This petition for review on certiorari under Rule 45 of the 1997 Rules
of Civil Procedure, as amended, seeks to reverse the Decision1 dated 19
December 2002, and the Resolution2 dated 02 April 2003, both of the
Court of Appeals, in CA-G.R. CV No. 59389, which affirmed with
modification the Decision3 rendered by the Regional Trial Court (RTC),
Branch 07 of Manila, dated 10 January 1997, in Civil Case No. 94-
68821 in favor of herein respondent Norman Pike (Pike).
The case stemmed from a complaint4 filed by herein respondent Pike for
damages5 against Philippine National Bank (PNB) on 04 January 1994.
Complainant Pike often traveled to and from Japan as a gay entertainer
in said country. Sometime in 1991, he opened U.S. Dollar Savings
Account No. 0265-704591-0 with herein petitioner PNB Buendia
branch for which he was issued a corresponding passbook. The
complaint alleged in substance that before complainant Pike left for
Japan on 18 March 1993, he kept the aforementioned passbook inside a
cabinet under lock and key, in his home; that on 19 April 1993, a few
hours after he arrived from Japan, he discovered that some of his
valuables were missing including the passbook; that he immediately
reported the incident to the police which led to the arrest and prosecution
of a certain Mr. Joy Manuel Davasol; that complainant Pike also
discovered that Davasol made two (2) unauthorized withdrawals from
his U.S. Dollar Savings Account No. 0265-704591-0, both times at the
PNB Buendia branch on the following dates:
DATE AMOUNT
31 March 1993 $3,500.00
05 April 1993 4,000.00
TOTAL $7,500.00
that on several occasions, complainant Pike went to defendant PNB’s
Buendia branch and verbally protested the unauthorized withdrawals
and likewise demanded the return of the total withdrawn amount of U.S.
$7,500.00, on the ground that he never authorized anybody to withdraw
from his account as the signatures appearing on the subject withdrawal
slips were clearly forgeries; that defendant PNB refused to credit said
amount back to complainant’s U.S. Dollar Savings Account without
justifiable reason, and instead, defendant bank wrote him that it
exercised due diligence in the handling of said account; and that on 06
May 1993, complainant Pike wrote defendant PNB simply to request
that the hold-account be lifted so that he may withdraw the remaining
balance left in his U.S.$ Savings Account and nothing else.
On the other hand, defendant PNB alleged, in its Motion to Dismiss6 of
18 April 1994, a counterstatement of facts. Its factual allegations read:
. . . On March 15, 1993 at PNB Buendia Branch, Mr. Norman Y. Pike,
together with a certain Joy Davasol went to see PNB AVP Mr. Lorenzo
T. Val (sic), Jr. purposely to withdraw the amount of $2,000.00. Mr.
Pike also informed AVP Val that he is leaving for abroad (Japan) and
made verbal instruction to honor all withdrawals to be transmitted by
his Talent Manager and Choreographer, Joy Davasol who shall present
pre-signed withdrawal slips bearing his (Pike’s) signature. . .
On April 19, 1993, a certain Josephine Balmaceda, who claimed to be
plaintiff’s sister executed an affidavit . . . . stating therein that they
discovered today (April 19, 1993) the lost (sic) of her brother’s passbook
issued by PNB on account of robbery, committed in the residence/office
of her brother, promptly reporting the matter to the police authorities
and her brother cannot report the matter to the Bank because he was
currently in Japan and therefore requesting the Bank to issue a hold-
order on her brother’s passbook.
But a copy of an alarm (Police) Report dated April 19, 1993. . . stated
that plaintiff (who was the one who reported the matter) after one month
in Japan, he (complainant) arrived yesterday. . .
On April 26, 1993, Atty. Nathaniel Ifurung who claims to be plaintiff’s
counsel sent a demand letter to VP Violeta T. Suquila (then VP and
Manager of PNB Buendia Branch) demanding the bank to credit back
the amount of US$7,500.00 which were withdrawn on March 31, 1993
and April 5, 1993, because his client’s signatures were forged and the
withdrawal made thereon were unauthorized. . .
14
Banking Laws under Atty. Fontanilla
On May 5, 1993, Mr. Norman Y. Pike executed an affidavit of loss (sic)
Dollar Account Passbook … and requested the PNB to replace the same
and allow him to make withdrawals thereon. He stated that his passbook
was stolen together with other valuables which he discovered only in
the early morning of April 19, 1993. . .
On May 6, 1993, plaintiff Norman Y. Pike wrote a letter. . . addressed
to the Manager of PNB, Buendia Branch the full contents of said letter
hereto quoted as follows:
May 6, 1993
The Manager
Philippine National Bank
Buendia Branch
Paseo de Roxas cor. Gil Puyat Street
Makati, Metro Manila
Sir:
In connection with the request of my sister, Mrs. Josephine P.
Balmaceda for the hold-order on my dollar savings passbook No. 265-
704591-0, I am now requesting your good office to lift the same so I can
withdraw the remaining balance of my passbook which was reported
lost sometime in March of this year.
I also promise not to hold responsible the bank and its officers for the
withdrawal made on my dollar savings passbook on March 19 and April
5, 1993 respectively as a result of the lost (sic) of my passbook.
Sgd. NORMAN Y. PIKE
Depositor
Philippine Passport
A letter dated May 18, 1993 was sent to Plaintiff’s counsel … by PNB
… stating that the Bank regrets that it cannot accede to such request
inasmuch as the Bank exercised due diligence of a good father to his
family in the handling of transactions covering the deposit account of
Mr. Pike … .
On July 2, 1993, Plaintiff’s counsel sent a letter to PNB Vice Pres.
Suquila denying that his client made any such promise not to hold
responsible the bank and its officers for the withdrawal made … .
A letter dated July 29, 1993 … was sent to Plaintiff’s counsel by VP
Suquila stating that plaintiff’s withdrawal of the remaining balance of
his account with the Bank effectively estops him from claiming on the
alleged unauthorized withdrawals.
The trial court, in its decision dated 10 January 1997, made the
following findings of fact:
. . . [T]hat the bank is responsible for such unauthorized withdrawals.
The court is not impressed with the defense put up by the bank. Its
contention that the withdrawals were authorized by the plaintiff because
there was an arrangement between the bank represented by its Asst. Vice
President Lorenzo Bal, Jr. and the depositor Norman Y. Pike to the
effect that pre-signed withdrawal slips, that is, withdrawal slip signed
by the depositor in the presence of Mr. Bal whereby it would be made
to appear that it was the depositor himself who presented the same to
the bank despite the fact that it was another person who presented the
same should be honored by the bank cannot be sanctioned by the court.
Firstly, the court is not satisfied that there was indeed such an
arrangement. . . It is Mr. Bal’s contention that such an arrangement
although not ordinarily entered into is still a legal procedure of the bank
and is resorted to accommodate the depositors’ specially honored and
valued depositor at that.
...
The court compared the signatures in the questioned withdrawal slips
with the known signatures of the depositor and is convinced that the
signatures in the unauthorized withdrawal slips do not correspond to the
true signatures of the depositor.
From the evidence that it received, the court is convinced that the bank
was negligent in the performance of its duties such that unauthorized
withdrawals were made in the deposit of plaintiff Norman Y. Pike. 7
3. P50,000.00 as moral damages and P50,000.00 as exemplary damages;
and
4. Plus the costs of suit.8
Defendant PNB’s motion for reconsideration was subsequently denied
by the court a quo.9
On appeal, the Court of Appeals issued the assailed decision dated 19
December 2002, affirming the findings of the RTC that indeed
defendant-appellant PNB was negligent in exercising the diligence
required of a business imbued with public interest such as that of the
banking industry, however, it modified the rate of interest and award for
damages, to wit:
WHEREFORE, premises considered, the Decision dated January 10,
1997 issued by the Regional Trial Court of Manila, Branch 7, in Civil
Case No. 94-68821, is hereby AFFIRMED with MODIFICATION, as
follows:
1. Ordering appellant, the Philippine National Bank, Buendia Branch, to
refund appellee the amount of $7,500.00 plus interest of 6% per annum
to be computed from the date of the filing of the complaint which
interest rate shall become 12% per annum from the time the judgment
in this case becomes final and executory until its satisfaction;
2. The award for moral damages is reduced to P20,000.00; and
3. The award for exemplary damages is likewise reduced to P20,000.00.
Costs against appellant.10
The appellate court held that:
Appellant claims that appellee personally talked to its officers to allow
Joy Manuel Davasol to make withdrawals. Appellee even left pre-signed
withdrawal slips before he went to Japan. However, appellant could
have told appellee to authorize the withdrawal by a representative by
indicating the same at the space provided at the back portion of the
withdrawal slip. This operational flaw was observed by the trial court,
when it ruled:
the due care and caution required of managers and employees of a firm
engaged in so sensitive and demanding business as banking. …
In its desire to be exonerated from liability, appellant advances the
argument that, granting negligence on its part, appellee condoned this
negligence as shown in his letter dated May 6, 1993, wherein appellee
purportedly undertook, not to hold the bank and its officers responsible
for the unauthorized withdrawals from his account.
We do not agree. It should be emphasized that while the appellee
admitted signing the letter dated May 6, 1993, he, however, denied
having undertook (sic) to exonerate the appellant from liability for the
unauthorized withdrawals. Appellee questioned the second paragraph of
the said letter as being superimposed so that his signature overlapped
the text of the second paragraph of said letter. A waiver of right, in order
to be valid, should be in a language that clearly manifests his desire to
do so. … In the instant case, appellee’s filing of the instant action is
inconsistent with appellant’s contention that he had waived his right to
question appellant’s negligent act of allowing the unauthorized
withdrawals from his account.11
Defendant-appellant PNB filed a motion for reconsideration. In a
Resolution dated 02 April 2003, the Court of Appeals denied said
motion.
Hence, this petition.
Petitioner PNB now seeks the review of the aforequoted decision and
resolution of the Court of Appeals predicated on the following issues:
I.
WHETHER OR NOT THE PRINCIPLE OF ESTOPPEL WAS NOT
PROPERLY APPLIED IN THIS CASE;
II.
WHETHER OR NOT RESPONDENT HAVE SUBSTANTIALLY
PROVEN THAT THE SIGNATURES APPEARING ON THE TWO
(2) QUESTIONED PRE-SIGNED WITHDRAWAL SLIP FORMS
ARE ALL FORGERIES IN ACCORDANCE WITH SECTION 22,
RULE 132 OF THE REVISED RULES OF COURT; and

No. H918022 The court cannot also understand why the bank did not require the III.
The dispositive portion of the trial court’s decision reads: correct, proper and the usual procedure of requiring a depositor who is
withdrawing the money through a representative to fill up the back
Issued at Manila on portion of the withdrawal slips, which form was issued by the bank WHETHER OR NOT MORAL AND EXEMPLARY DAMAGES
WHEREFORE and considering the foregoing, judgment is hereby
itself. CAN BE AWARDED AGAINST A PARTY IN GOOD FAITH.
rendered in favor of the plaintiff and against the defendant and ordering
Sept. 6, 1990 the defendant to pay the following:
A perusal of the records discloses that appellee had previously Petitioner PNB contends that due to the verbal instructions 12 of
authorized withdrawals by a representative. However, these respondent Pike, a valued depositor, it allowed the withdrawal by
Place of Issuance 1. US$7,500.00 plus interest thereon at the rate of 12% per annum until
withdrawals were properly accompanied by a "withdrawal by a another person. Plus, the fact that said respondent withdrew the
the full amount is paid;
representative" form aside from a handwritten request by appellee to remaining balance in his US Savings Account and executed a waiver
allow such withdrawals by his representative, or a typewritten letter- releasing petitioner PNB from any liability due to the loss of the funds
On the same day May 6, 1993 Plaintiff Norman Y. Pike was allowed by
2. P25,000.00 for and as attorney’s fees; request for withdrawal by a representative. Certainly, appellant lacked should rightly negate a finding of negligence on its part. Accordingly,
defendant bank to withdraw the remaining balance from his passbook
…. petitioner PNB claims that the appellate court, as well as the trial court

15
Banking Laws under Atty. Fontanilla
erred in holding that the withdrawals in question were unauthorized as
the signatures appearing on the subject withdrawal slips were forgeries.
Petitioner PNB, therefore, argues that it should not be held liable for the
amount withdrawn from the account of respondent Pike in the sum of
$7,500.00, as well as for moral and exemplary damages.
A priori, it is quite evident that the petition is anchored on a plea to
review or re-examine the factual conclusions reached by the trial court
and affirmed by the Court of Appeals, and for this Court to hold
otherwise. Whether:
1) respondent Pike’s signatures appearing on the pertinent withdrawal
slips used by Joy Manuel Davasol13 to withdraw the amount of
$7,500.00, were forgeries, as found by the trial court and affirmed by
the Court of Appeals, or were authentic as claimed by petitioner bank;
and
2) respondent Pike in fact executed a waiver absolving petitioner bank
from any legal responsibility due to the unauthorized withdrawals, as
maintained by petitioner bank, or the paragraph containing said waiver
was intercalated by some other person, thus, amounting no waiver at all,
as held by the courts a quo.
are questions of fact and not of law. Inexorably, these issues call for an
inquiry into the facts and evidence on record. This, as we have so often
held, we cannot do.
Elementary is the rule that this Court is not the appropriate venue to
consider anew the factual issues as it is not a trier of facts, and, it
generally does not weigh anew the evidence already passed upon by the
Court of Appeals.14 When this Court is tasked to go over once more the
evidence presented by both parties, and analyze, assess and weigh them
to ascertain if the trial court and the appellate court were correct in
according superior credit to this or that piece of evidence of one party
or the other, the Court cannot and will not do the same. 15 Such task is
foreclosed by the rule enunciated under Section 1 of Rule 4516 of the
Rules of Court:
SECTION 1. Filing of petition with Supreme Court. - . . . The petition
shall raise only questions of law17 which must be distinctly set forth.
We have oft "ruled that factual findings of the Court of Appeals are
conclusive on the parties and not reviewable by this Court – and they
carry even more weight when the Court of Appeals affirms the factual
findings of the trial court,"18 and in the absence of any showing that the
findings complained of are totally devoid of support in the evidence on
record, or that they are so glaringly erroneous as to constitute serious
abuse of discretion, such findings must stand. The courts a quo are in a
much better position to evaluate properly the evidence.
Finding no other alternative but to affirm their finding that petitioner
PNB negligently allowed the unauthorized withdrawals subject of the
case at bar, the instant petition for review must necessarily fail.
At this juncture, it bears emphasizing that negligence of banking
institutions should never be countenanced. The negligence here lies in
the lackadaisical attitude exhibited by employees of petitioner PNB in
their treatment of respondent Pike’s US Dollar Savings Account that
resulted in the unauthorized withdrawal of $7,500.00. Nevertheless,
though its employees may be the ones negligent, a bank’s liability as an
obligor is not merely vicarious but primary, as banks are expected to
exercise the highest degree of diligence in the selection and supervision
of their employees,19 and having such obligation, this Court cannot
ignore the circumstances surrounding the case at bar – how the
employees of petitioner PNB turned their heads, nay, closed their eyes
to the suspicious circumstances enfolding the two withdrawals subject
of the case at bar. It may even be said that they went out of their ways
to disregard standard operating procedures formulated to ensure the
security of each and every account that they are handling. Petitioner
PNB does not deny that the withdrawal slips used were in breach of
standard operating procedures of banks in the ordinary and usual course
of banking operations as testified to by one of its witnesses, Mr. Lorenzo
T. Bal, Assistant Vice President of Petitioner PNB’s Buendia branch, on
cross-examination20 he stated thus:
Q: Mr. Witness, when the original of Exhibit "B"21 was presented to you
for approval, how many signatures of depositor appears thereon?
A: Two (2) signatures appears (sic) on the face of the withdrawal slip.
Q: When it (sic) was (sic) presented to you immediately?
A: Yes, sir.
Q: Are you sure of that?
A: Yes, sir. Because it was pre signed withdrawal slip.
Q: What does the signature appear, the word recipient means?
A: Received.
Q: So, what you are saying is that, the depositor here signed this even
before receiving the amount?
A: Because before the withdrawal was made, Mr. Pike, the depositor
came to the bank when he withdrew the $2,000.00 and instructed me or
requested us even the supervisor to honor all withdrawal slip.
Q: And this is a regular procedure?
A: Yes, sir.
Q: Are you sure of that?
A: Yes, sir.
Q: Do you have written manual on this particular procedure, Mr.
Witness?
A: Of course, that includes in the Rules and regulations of the bank. A: Yes, sir.
Q: Are you are (sic) are very sure of that? Q: And when did you first met (sic) Norman Pike?
A: And banking is a fast transaction between the depositor and the bank. A: March 15 when he withdrew $2,000.00.
Q: And then, is the use of the back portion of the withdrawal slip … with Q: That was the first time?
a heading of authorization?
A: First time, yes.
A: Normally, a depositor and the bank agrees on certain terms that if
you allow withdrawal from his account, his or her account, its enough
Q: And Mr. Norman Pike was already transacting with you long before
that the signature of the depositor appears on both spaces in the front
that day, is this correct? For how long was he transacting with you?
side of the withdrawal slip. Even if you do not have the back portion of
the withdrawal slip.
A: That was my first time.
Q: You are very sure of that?
Q: That was the first time. What I mean is, that he was transacting with
A: Yes, sir. the PNB, Buendia Branch long before you met him?
Q: And that has been done with the other withdrawal slip of Norman A: Maybe.
Pike as stated or as shown in the Statement of Account?
…
A: Yes, sir.
Q: And the withdrawal made on April 5, 1993 which you approved, you
Q: That withdrawal made by representative? did not look at Exhibit "C", the Savings Signature Card Individual?
A: Yes, sir. A: We do not look at that, that is kept in the vault.
Q: Yes or no?
From the foregoing, petitioner PNB’s witness was utterly remiss in
protecting the bank’s client, as well as the bank itself, when he allowed
an account holder to make it appear as if he was the one actually
withdrawing from an account and actually receiving the withdrawn
A: No, sir.
amount. Ordinarily, banks allow withdrawal by someone who is not the
account holder so long as the account holder authorizes his …
representative to withdraw and receive from his account by signing on
the space provided particularly for such transactions, usually found at
the back of withdrawal slips. As fittingly found by the courts a quo, if Q: And Mr. witness, Exhibit "C-1"22 which is being kept at your vault,
indeed, respondent Pike signed the withdrawal slips in the presence of also contains a picture?
Mr. Lorenzo Bal, petitioner PNB’s AVP at its Buendia branch, why did
he not call respondent Pike’s attention and refer him to the space
provided for authorizing representatives to withdraw from and receive A: Yes, sir.
the proceeds of such withdrawal? Or, at the very least, sign or initial the
same so that he could identify the pre-signed withdrawal slips made by Q: And the picture of the depositor?
Mr. Pike?
A: Yes, sir.
Q: You are also saying that on March 15, 1993, you likewise met Joy
Manuel Dabasol?
Q: And are you familiar with the identity of the depositor Norman Pike?
A: Yes, sir.
A: What particular identity?
Q: And you (sic) also saying on March 15, 1993, you also met Norman
Pike, the depositor, Q: His appearance?
16
Banking Laws under Atty. Fontanilla
A: He is gay looking fellow.
COURT: Answer. You are familiar with his physical appearance?
A: Not so much. Because there are so much depositor (sic) in the bank.23
[Emphasis ours.]
By his own testimony, the witness negated the very reason for the bank’s
bizarre "accommodation" of the alleged verbal request of respondent
Pike – that he was a "valued client." From the aforequoted, it appears
that the witness, Lorenzo Bal, was not even reasonably familiar with
respondent Pike, yet, he was ready, willing and able to accommodate
the verbal request of said depositor. Worse still, the witness still
approved the withdrawal transaction without asking for any proof of
identification for the reason that: 1) Davasol was in possession of a pre-
signed withdrawal slip; and 2) the witness "recognized" the signature of
respondent Pike – even after admitting that he did not bother to counter
check the signature on the slip with the specimen signature card of
respondent Pike and that he met respondent Pike just once so that he
cannot seem to recall what the latter looks like. The ensuing quoted
testimony of the same witness will justify a finding of negligence
amounting to bad faith, to wit:
Q: And you also met Joy Manuel Dabasol on March 15?
A: Yes, sir.
Q: And can you describe Joy Manuel Dabasol?
A: I cannot recall his face but then he is a Talent manager, because there
are so many depositors in the bank.
...
Q: Mr. witness, you are saying that Mr. Pike, the depositor gave you
verbal authority to honor withdrawal by Joy Manuel Dabasol?
A: Yes, sir.
Q: Why did you not require then that Mr. Pike instead sign the
authorization portion and that the name of Joy Manuel Dabasol appear
thereon with his signature?
...
A: I required Mr. Norman Pike to sign the withdrawal slip on the face
of the withdrawal slip.
Q: But not the authorization portion of the said withdrawal slip?
...
A: No, because that is sufficient already.
Q: And is this your normal procedure, Mr. witness? This particular
procedure that you conducted?
A: I don’t think so.
Q: Mr. witness, when – on April 5, 1993, when Joy Dabasol came to the
office and according to you, you do not remember him, is that correct?
A: I cannot recall his face.
...
Q: And he just showed you a withdrawal slip, is this correct?
A: Yes, on April 5.
Q: Did you require him to produce any Identification Card, yes or no?
A: No.
Q: And how did you know then that it was Joy Dabasol who was making
the withdrawal on April 5?
A: Because the presigned withdrawal slip was presented to me.
Q: Is that all your basis?
A: Yes, sir. Because his signature appears.
...
Q: Mr. witness, this alleged authority given to you by Norman Pike to
honor withdrawal by Joy Manuel Dabasol, was that in writing?
A: It was verbally requested.
Q: And that is SPO (sic) of PNB, Buendia Branch to accept verbal
authorities?
A: Yes.
Q: Is that Standard Operating Procedure?
A: It is not SPO, but when you knew the client, Your Honor, you have
to honor also the trust and confidence. Let us say if you…
Q: According to you, you met Norman Pike only on March 15, 1993 and
immediately you allowed him to withdraw through pre-signed
withdrawal slip?
A: Yes, Your Honor. Because a depositor requested you to honor his
signature, you have to do that or else will…and besides the request is
for purpose of expediency, Your Honor. Because most often than that,
he is out of the country, in Japan. And his Talent Manager is the one
managing the recruiting agency. The money will be used in the
operating expenses.
...
Q: You did not even bother to look at the Savings Signature Card
Individual, yes or no?
24
A: No, sir. [Emphases supplied.]
Having admitted that pre-signed withdrawal slips do not constitute the
normal procedure with respect to withdrawals by representatives should
have already put petitioner PNB’s employees on guard. Rather than
readily validating and permitting said withdrawals, they should have
proceeded more cautiously. Clearly, petitioner bank’s employee,
Lorenzo T. Bal, an Assistant Vice President at that, was exceedingly
careless in his treatment of respondent Pike’s savings account.
From the foregoing, the evidence clearly showed that the petitioner bank
did not exercise the degree of diligence that it ought to have exercised
in dealing with their clients.
With banks, the degree of diligence required, contrary to the position of
petitioner PNB, is more than that of a good father of a family
considering that the business of banking is imbued with public interest
due to the nature of their functions. The stability of banks largely
depends on the confidence of the people in the honesty and efficiency
of banks. Thus, the law imposes on banks a high degree of obligation to
treat the accounts of its depositors with meticulous care, always having
in mind the fiduciary nature of banking. Section 2 of Republic Act No.
8791,25 which took effect on 13 June 2000, makes a categorical
declaration that the State recognizes the "fiduciary nature of banking
that requires high standards of integrity and performance."26
Though passed long after the unauthorized withdrawals in this case, the
aforequoted provision is a statutory affirmation of Supreme Court
decisions already in esse at the time of such withdrawals. We elucidated
in the 1990 case of Simex International, Inc. v. Court of Appeals,27 that
"the bank is under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of their
relationship."28
Likewise, in the case of The Consolidated Bank and Trust Corporation
v. Court of Appeals,29 we clarified that said fiduciary relationship means
that the bank’s obligation to observe "highest standards of integrity and
performance" is deemed written into every deposit agreement between
a bank and its depositor. The fiduciary nature of banking requires banks
to assume a degree of diligence higher than that of a good father of a
family. Article 1172 of the New Civil Code states that the degree of
diligence required of an obligor30 is that prescribed by law or contract,
and absent such stipulation then the diligence of a family. In every case,
the depositor expects the bank to treat his account with the utmost
fidelity, whether such accounts consist only of a few hundred pesos or
of millions of pesos.31
Anent the issue of the propriety of the award of damages in this case,
petitioner PNB asseverates that there was no evidence to prove that
respondent Pike "suffered anguish, embarrassment and mental
sufferings"32 due to its acts in allowing the alleged unauthorized
withdrawals. And, having relied on the instructions of a valued
depositor, petitioner PNB likewise avers that its actions were made in
good faith, for this reason, there is no factual basis for said award.
Petitioner PNB’s assertions fail to impress us.
The award of moral and exemplary damages is left to the sound
discretion of the court, and if such discretion is well exercised, as in this
case, it will not be disturbed on appeal.33 In the case of Philippine
Telegraph & Telephone Corporation v. Court of Appeals,34 we had the
occasion to reiterate the conditions to be met in order that moral
damages may be recovered. In said case we stated:
An award of moral damages would require, firstly, evidence of
besmirched reputation, or physical, mental or psychological suffering
sustained by the claimant; secondly, a culpable act or omission factually
established; thirdly, proof that the wrongful act or omission of the
defendant is the proximate cause of the damages sustained by the
claimant; and fourthly, that the case is predicated on any of the instances
expressed or envisioned by Articles 221935 and 222036 of the Civil Code.
Specifically, in culpa contractual or breach of contract, as here, moral
damages are recoverable only if the defendant has acted fraudulently or
in bad faith,37 or is found guilty of gross negligence amounting to bad
faith,38 or in wanton disregard of his contractual obligations. 39 Verily,
the breach must be wanton, reckless, malicious, or in bad faith,
oppressive or abusive.40
There is no reason to disturb the trial court’s finding of petitioner bank’s
employees’ negligence in their treatment of respondent Pike’s account.
In the case on hand, the Court of Appeals sustained, and rightly so, that
an award of moral damages is warranted. For, as found by said appellate
court, citing the case of Prudential Bank v. Court of Appeals,41 "the
bank’s negligence is a result of lack of due care and caution required of
managers and employees of a firm engaged in so sensitive and
demanding business, as banking, hence, the award of ₱20,000.00 as
moral damages, is proper.
The award of exemplary damages is also proper as a warning to
petitioner PNB and all concerned not to recklessly disregard their
obligation to exercise the highest and strictest diligence in serving their
depositors.
Finally, the aforestated grant of exemplary damages entitles respondent
Pike the award of attorney's fees in the amount of P20,000.00 and the
award of P10,000.00 for litigation expenses.42
WHEREFORE, the instant petition is DENIED. The assailed Decision
dated 19 December 2002, and the Resolution dated 02 April 2003, both
17
Banking Laws under Atty. Fontanilla
of the Court of Appeals, in CA-G.R. CV No. 59389, which affirmed
with modification the Decision rendered by the Regional Trial Court
(RTC), Branch 07 of Manila, dated 10 January 1997, in Civil Case No.
94-68821, are hereby AFFIRMED with the modification that petitioner
PNB is directed to pay respondent Pike additional 1) ₱20,000.00
representing attorney’s fees; and 2) ₱10,000.00 representing expenses
of litigation. Costs against petitioner PNB.

SO ORDERED..

18
Banking Laws under Atty. Fontanilla
7.
G.R. No. 176434 June 25, 2008
BANK OF THE PHILIPPINE ISLANDS, petitioner,
vs.
LIFETIME MARKETING CORPORATION, respondent.
DECISION
TINGA, J.:
The Bank of the Philippine Islands (BPI) seeks the reversal of the
Decision1 of the Court of Appeals dated 31 July 2006 in CA-G.R. CV
No. 62769 which ordered it to pay Lifetime Marketing Corporation
(LMC) actual damages in the amount of P2,075,695.50 on account of
its gross negligence in handling LMC's account.
The following facts, quoted from the decision of the Court of Appeals,
are undisputed:
On October 22, 1981, Lifetime Marketing Corporation (LMC, for
brevity), opened a current account with the Bank of the Philippine
Islands (BPI, for brevity), Greenhills-Edsa branch, denominated as
Account No. 3101-0680-63. In this account, the "sales agents" of LMC
would have to deposit their collections or payments to the latter. As a
result, LMC and BPI, made a special arrangement that the former's
agents will accomplish three (3) copies of the deposit slips, the third
copy to be retained and held by the teller until LMC's authorized
representatives, Mrs. Virginia Mongon and Mrs. Violeta Ancajas, shall
retrieve them on the following banking day.
Sometime in 1986, LMC availed of the BPI's inter-branch banking
network services in Metro Manila, whereby the former's agents could
make [a] deposit to any BPI branch in Metro Manila under the same
account. Under this system, BPI's bank tellers were no longer obliged to
retain the extra copy of the deposit slips instead, they will rely on the
machine-validated deposit slip, to be submitted by LMC's agents. For
its part, BPI would send to LMC a monthly bank statement relating to
the subject account. This practice was observed and complied with by
the parties.
As a business practice, the registered sales agents or the Lifetime
Educational Consultants of LMC, can get the books from the latter on
consignment basis, then they would go directly to their clients to sell.
These agents or Lifetime Educational Consultants would then pay to
LMC, seven (7) days after they pick up all the books to be sold. Since
LMC have several agents around the Philippines, it required to remit
their payments through BPI, where LMC maintained its current account.
It has been LMC's practice to require its agents to present a validated
deposit slip and, on that basis, LMC would issue to the latter an
acknowledgement receipt.
Alice Laurel, is one of LMC's "Educational Consultants" or agents. On
various dates covering the period from May, [sic] 1991 up to August,
1992, Alice Laurel deposited checks to LMC's subject account at
different branches of BPI, specifically: at the Harrison/Buendia branch-
8 checks; at Arrangue branch-4 checks; at Araneta branch-1 check; at
Binondo branch-3 checks; at Ermita branch-5 checks; at Cubao
Shopping branch-1 check; at Escolta branch-4 checks; at the Malate
branch-2 checks; at Taft Avenue branch-2 checks; at Paseo de Roxas
branch-1 check; at J. Ruiz, San Juan branch, at West Avenue and
Commonwealth Quezon City branch- 2 checks; and at Vito Cruz
branch-2 checks.
Each check thus deposited were retrieved by Alice Laurel after the
deposit slips were machine-validated, except the following thirteen (13)
checks, which bore no machine validation, to wit: CBC Check No.
484004, RCBC Check No. 419818, CBC Check No. 484042, FEBTC
Check No. 171857, RCBC Check No. 419847, CBC Check No. 484053,
MBTC Check No. 080726, CBC Check No. 484062, PBC Check No.
158076, CBC Check No. 484027, CBC Check No. 484017, CBC Check
No. 484023 and CBC Check No. 218190.
A verification with BPI by LMC showed that Alice Laurel made check
deposits with the named BPI branches and, after the check deposit slips
were machine-validated, requested the teller to reverse the transactions.
Based on general banking practices, however, the cancellation of
deposit or payment transactions upon request by any depositor or payor,
requires that all copies of the deposit slips must be retrieved or
surrendered to the bank. This practice, in effect, cancels the deposit or
payment transaction, thus, it leaves no evidence for any subsequent
claim or misrepresentation made by any innocent third person.
Notwithstanding this, the verbal requests of Alice Laurel and her
husband to reverse the deposits even after the deposit slips were already
received and consummated were accommodated by BPI tellers.
Alice Laurel presented the machine-validated deposit slips to LMC
which, on the strength thereof, considered her account paid. LMC even
granted her certain privileges or prizes based on the deposits she made.
The total aggregate amount covered by Alice Laurel's deposit slips was
Two Million Seven Hundred Sixty Seven Thousand, Five Hundred
Ninety Four Pesos (P2,767,594.00) and, for which, LMC paid Laurel
the total sum of Five Hundred Sixty Thousand Seven Hundred Twenty
Six Pesos (P560,726.00) by way of "sales discount and promo prizes."
The above fraudulent transactions of Alice Laurel and her husband was
made possible through BPI teller's failure to retrieve the duplicate
original copies of the deposit slips from the former, every time they ask
for cancellation or reversal of the deposit or payment transaction.
Upon discovery of this fraud in early August 1992, LMC made queries
from the BPI branches involved. In reply to said queries, BPI branch
managers formally admitted that they cancelled, without the permission
of or due notice to LMC, the deposit transactions made by Alice and her
husband, and based only upon the latter's verbal request or
representation.
Thereafter, LMC immediately instituted a criminal action for Estafa
against Alice Laurel and her husband Thomas Limoanco, before the
Regional Trial Court of Makati, Branch 65, docketed as Criminal Case
No. 93-7970 to 71, entitled People of the Philippines v. Thomas
Limoanco and Alice Laurel. This case for estafa, however, was archived
because summons could not be served upon the spouses as they have
absconded. Thus, the BPI's apparent reluctance to admit liability and
settle LMC's claim for damages, and a hopeless case of recovery from
Alice Laurel and her husband, has left LMC, with no option but to
recover damages from BPI.
On July 24, 1995, LMC, through its representative, Miss Consolacion
C. Rogacion, the President of the company, filed a Complaint for
Damages against BPI, docketed as Civil Case No. 95-1106, and was
raffled to Regional Trial Court of Makati City, Branch 141.
After trial on the merits, the court a quo rendered a Decision in favor of
LMC. The dispositive portion of which reads, as follows:
WHEREFORE, decision is hereby rendered ordering defendant bank
to pay plaintiff actual damages equitably reduced to one (1) million
pesos plus attorney's fees of P100,000.00.
No pronouncement as to costs.
SO ORDERED.2
Only BPI filed an appeal. The Court of Appeals affirmed the decision
of the trial court but increased the award of actual damages to
P2,075,695.50 and deleted the award of P100,000.00 as attorney's fees.3
Citing public interest, the appellate court denied reconsideration in a
Resolution4 dated 30 January 2007.
In this Petition for Review5 dated 19 March 2007, BPI insists that LMC
should have presented evidence to prove not only the amount of the
checks that were deposited and subsequently reversed, but also the
actual delivery of the books and the payment of "sales and promo prizes"
to Alice Laurel. Failing this, there was allegedly no basis for the award
of actual damages. Moreover, the actual damages should not have been
increased because the decision of the trial court became conclusive as
regards LMC when it did not appeal the said decision.
BPI further avers that LMC's negligence in considering the machine-
validated check deposit slips as evidence of Alice Laurel's payment was
the proximate cause of its own loss. Allegedly, by allowing its agents to
make deposits with other BPI branches, LMC violated its own special
arrangement with BPI's Greenhills-EDSA branch for the latter to hold
on to an extra copy of the deposit slip for pick up by LMC's authorized
representatives. BPI points out that the deposits were in check and not
in cash. As such, LMC should have borne in mind that the machine
validation in the deposit slips is still subject to the sufficiency of the
funds in the drawers' account. Furthermore, LMC allegedly ignored the
express notice indicated in its monthly bank statements and
consequently failed to check the accuracy of the transactions reflected
therein.
In its Manifestation of Compliance by Respondent on the Order Dated
20 June 2007 Received on 29 July 2007 to Submit Comment, 6 dated 9
August 2007, LMC insists that it is indeed entitled to the actual damages
awarded to it by the appellate court.
BPI filed a Reply7 dated 15 January 2008, in reiteration of its
submissions.
We have repeatedly emphasized that the banking industry is impressed
with public interest. Of paramount importance thereto is the trust and
confidence of the public in general. Accordingly, the highest degree of
diligence is expected, and high standards of integrity and performance
are required of it. By the nature of its functions, a bank is under
obligation to treat the accounts of its depositors with meticulous care,
always having in mind the fiduciary nature of its relationship with
them.8 The fiduciary nature of banking, previously imposed by case law,
is now enshrined in Republic Act No. 8791 or the General Banking Law
of 2000. Section 2 thereof specifically says that the state recognizes the
fiduciary nature of banking that requires high standards of integrity and
performance.9
Whether BPI observed the highest degree of care in handling LMC's
account is the subject of the inquiry in this case.
LMC sought recovery from BPI on a cause of action based on tort.
Article 2176 of the Civil Code provides, "Whoever by act or omission
causes damage to another, there being fault or negligence, is obliged to
pay for the damage done. Such fault or negligence if there is no pre-
existing contractual relation between the parties, is called a quasi-delict
and is governed by the provisions of this Chapter." There are three
elements of quasi-delict: (a) fault or negligence of the defendant, or
some other person for whose acts he must respond; (b) damages suffered
by the plaintiff; and (c) the connection of cause and effect between the
fault or negligence of the defendant and the damages incurred by the
plaintiff.10
In this case, both the trial court and the Court of Appeals found that the
reversal of the transactions in question was unilaterally undertaken by
BPI's tellers without following normal banking procedure which
requires them to ensure that all copies of the deposit slips are
surrendered by the depositor. The machine-validated deposit slips do
not show that the transactions have been cancelled, leading LMC to rely
on these slips and to consider Alice Laurel's account as already paid.
Negligence is the omission to do something which a reasonable man,
guided by those considerations which ordinarily regulate the conduct of
human affairs, would do, or the doing of something which a prudent and
reasonable man would not do.11 Negligence in this case lies in the tellers'
disregard of the validation procedures in place and BPI's utter failure to
supervise its employees. Notably, BPI's managers admitted in several
correspondences with LMC that the deposit transactions were cancelled
without LMC's knowledge and consent and based only upon the request
of Alice Laurel and her husband.12
It is well to reiterate that the degree of diligence required of banks is
more than that of a reasonable man or a good father of a family. In view
of the fiduciary nature of their relationship with their depositors, banks
are duty-bound to treat the accounts of their clients with the highest
degree of care.13
BPI cannot escape liability because of LMC's failure to scrutinize the
monthly statements sent to it by the bank. This omission does not change
the fact that were it not for the wanton and reckless negligence of BPI's
tellers in failing to require the surrender of the machine-validated
deposit slips before reversing the deposit transactions, the loss would
not have occurred. BPI's negligence is undoubtedly the proximate cause
of the loss. Proximate cause is that cause which, in a natural and
continuous sequence, unbroken by any efficient intervening cause,
19
Banking Laws under Atty. Fontanilla
produces the injury, and without which the result would not have
occurred.14
It is also true, however, that LMC should have been more vigilant in
managing and overseeing its own financial affairs. The damages
awarded to it were correctly reduced on account of its own contributory
negligence in accordance with Article 1172 of the Civil Code. 15
Parenthetically, we find no merit in BPI's allegation that LMC should
have presented evidence of delivery of the books and payment of sales
and promo prizes to Alice Laurel. The evidence presented by LMC in
the form of BPI's own admission that the deposit transactions were
reversed at the instance of Alice Laurel and her husband, coupled with
the machine-validated deposit slips16 which were supposed to have been
deposited to LMC's account but were cancelled without its knowledge
and consent, sufficiently form the bases for the actual damages claimed
because they are the very same documents relied upon by LMC in
considering Alice Laurel's account paid and in granting her monetary
privileges and prizes.
Be that as it may, we find the appellate court's decision increasing the
award of actual damages in favor of LMC improper since the latter did
not appeal from the decision of the trial court. It is well-settled that a
party who does not appeal from the decision may not obtain any
affirmative relief from the appellate court other than what he has
obtained from the lower court whose decision is brought up on appeal.
The exceptions to this rule, such as where there are (1) errors affecting
the lower court's jurisdiction over the subject matter, (2) plain errors not
specified, and (3) clerical errors, do not apply in this case. 17
WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV
No. 62769 dated 31 July 2006 and its Resolution dated January 30, 2007
are AFFIRMED with the MODIFICATION that the Bank of the
Philippine Islands is ordered to pay actual damages to Lifetime
Marketing Corporation in the amount of One Million Pesos
(P1,000,000.00). No pronouncement as to costs.
SO ORDERED.
8.
G.R. No. 149454 May 28, 2004
BANK OF THE PHILIPPINE ISLANDS, petitioner,
vs.
CASA MONTESSORI INTERNATIONALE LEONARDO T.
YABUT, respondents.
x ----------------------------- x
G.R. No. 149507 May 28, 2004
CASA MONTESSORI INTERNATIONALE, petitioner,
vs.
BANK OF THE PHILIPPINE ISLANDS, respondent.
DECISION
PANGANIBAN, J.:
By the nature of its functions, a bank is required to take meticulous care
of the deposits of its clients, who have the right to expect high standards
of integrity and performance from it.
Among its obligations in furtherance thereof is knowing the signatures
of its clients. Depositors are not estopped from questioning wrongful
withdrawals, even if they have failed to question those errors in the
statements sent by the bank to them for verification.
The Case
Before us are two Petitions for Review1 under Rule 45 of the Rules of
Court, assailing the March 23, 2001 Decision2 and the August 17, 2001
Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 63561.
The decretal portion of the assailed Decision reads as follows:
"WHEREFORE, upon the premises, the decision appealed from is
AFFIRMED with the modification that defendant bank [Bank of the
Philippine Islands (BPI)] is held liable only for one-half of the value of
the forged checks in the amount of ₱547,115.00 after deductions subject
to REIMBURSEMENT from third party defendant Yabut who is
likewise ORDERED to pay the other half to plaintiff corporation [Casa
Montessori Internationale (CASA)]."4
The assailed Resolution denied all the parties’ Motions for
Reconsideration.
The Facts
The facts of the case are narrated by the CA as follows:
"On November 8, 1982, plaintiff CASA Montessori International5
opened Current Account No. 0291-0081-01 with defendant BPI[,] with
CASA’s President Ms. Ma. Carina C. Lebron as one of its authorized
signatories.
"In 1991, after conducting an investigation, plaintiff discovered that
nine (9) of its checks had been encashed by a certain Sonny D. Santos
since 1990 in the total amount of ₱782,000.00, on the following dates
and amounts:
‘Check No. Date Amount
1. 839700 April 24, 1990 ₱ 43,400.00
In GR No. 149454, Petitioner BPI submits the following issues for our
2. 839459 Nov. 2, 1990 110,500.00
consideration:
3. 839609 Oct. 17, 1990 47,723.00 "I. The Honorable Court of Appeals erred in deciding this case NOT in
accord with the applicable decisions of this Honorable Court to the
effect that forgery cannot be presumed; that it must be proved by clear,
4. 839549 April 7, 1990 90,700.00 positive and convincing evidence; and that the burden of proof lies on
the party alleging the forgery.
5. 839569 Sept. 23, 1990 52,277.00
"II. The Honorable Court of Appeals erred in deciding this case not in
accord with applicable laws, in particular the Negotiable Instruments
6. 729149 Mar. 22, 1990 148,000.00 Law (NIL) which precludes CASA, on account of its own negligence,
from asserting its forgery claim against BPI, specially taking into
account the absence of any negligence on the part of BPI."10
7. 729129 Mar. 16, 1990 51,015.00
In GR No. 149507, Petitioner CASA submits the following issues:
8. 839684 Dec. 1, 1990 140,000.00
"1. The Honorable Court of Appeals erred when it ruled that ‘there is no
showing that [BPI], although negligent, acted in bad faith x x x’ thus
9. 729034 Mar. 2, 1990 98,985.00
denying the prayer for the award of attorney’s fees, moral damages and
exemplary damages to [CASA]. The Honorable Court also erred when
it did not order [BPI] to pay interest on the amounts due to [CASA].
Total -- ₱ 782,600.006 "2. The Honorable Court of Appeals erred when it declared that [CASA]
was likewise negligent in the case at bar, thus warranting its conclusion
that the loss in the amount of ₱547,115.00 be ‘apportioned between
[CASA] and [BPI] x x x.’"11
"It turned out that ‘Sonny D. Santos’ with account at BPI’s Greenbelt
Branch [was] a fictitious name used by third party defendant Leonardo
T. Yabut who worked as external auditor of CASA. Third party These issues can be narrowed down to three. First, was there forgery
under the Negotiable Instruments Law (NIL)? Second, were any of the
defendant voluntarily admitted that he forged the signature of Ms.
Lebron and encashed the checks. "The PNP Crime Laboratory parties negligent and therefore precluded from setting up forgery as a
defense? Third, should moral and exemplary damages, attorney’s fees,
conducted an examination of the nine (9) checks and concluded that the
and interest be awarded?
handwritings thereon compared to the standard signature of Ms. Lebron
were not written by the latter.
The Court’s Ruling
"On March 4, 1991, plaintiff filed the herein Complaint for Collection
with Damages against defendant bank praying that the latter be ordered The Petition in GR No. 149454 has no merit, while that in GR No.
to reinstate the amount of ₱782,500.007 in the current and savings 149507 is partly meritorious.
accounts of the plaintiff with interest at 6% per annum.
First Issue:
"On February 16, 1999, the RTC rendered the appealed decision in favor
of the plaintiff."8
Forged Signature Wholly Inoperative
Ruling of the Court of Appeals
Section 23 of the NIL provides:
Modifying the Decision of the Regional Trial Court (RTC), the CA
apportioned the loss between BPI and CASA. The appellate court took "Section 23. Forged signature; effect of. -- When a signature is forged
into account CASA’s contributory negligence that resulted in the or made without the authority of the person whose signature it purports
undetected forgery. It then ordered Leonardo T. Yabut to reimburse BPI to be, it is wholly inoperative, and no right x x x to enforce payment
half the total amount claimed; and CASA, the other half. It also thereof against any party thereto, can be acquired through or under such
disallowed attorney’s fees and moral and exemplary damages. signature, unless the party against whom it is sought to enforce such
right is precluded from setting up the forgery or want of authority."12
Hence, these Petitions.9
Under this provision, a forged signature is a real13 or absolute defense,14
and a person whose signature on a negotiable instrument is forged is
Issues
20
Banking Laws under Atty. Fontanilla
deemed to have never become a party thereto and to have never
consented to the contract that allegedly gave rise to it. 15
The counterfeiting of any writing, consisting in the signing of another’s
name with intent to defraud, is forgery.16
In the present case, we hold that there was forgery of the drawer’s
signature on the check.
First, both the CA17 and the RTC18 found that Respondent Yabut himself
had voluntarily admitted, through an Affidavit, that he had forged the
drawer’s signature and encashed the checks.19 He never refuted these
findings.20 That he had been coerced into admission was not
corroborated by any evidence on record.21
Second, the appellate and the trial courts also ruled that the PNP Crime
Laboratory, after its examination of the said checks,22 had concluded
that the handwritings thereon -- compared to the standard signature of
the drawer -- were not hers.23 This conclusion was the same as that in
the Report24 that the PNP Crime Laboratory had earlier issued to BPI --
the drawee bank -- upon the latter’s request.
Indeed, we respect and affirm the RTC’s factual findings, especially
when affirmed by the CA, since these are supported by substantial
evidence on record.25
Voluntary Admission Not Violative of Constitutional Rights
If in these government proceedings waiver is allowed, all the more is it
so in private investigations. It is of no moment that no criminal case has
yet been filed against Yabut. The filing thereof is entirely up to the
appropriate authorities or to the private individuals upon whom damage
has been caused. As we shall also explain later, it is not mandatory for
CASA -- the plaintiff below -- to implead Yabut in the civil case before
the lower court.
Under these two constitutional provisions, "[t]he Bill of Rights 40 does
not concern itself with the relation between a private individual and
another individual. It governs the relationship between the individual
and the State."41 Moreover, the Bill of Rights "is a charter of liberties
for the individual and a limitation upon the power of the [S]tate."42
These rights43 are guaranteed to preclude the slightest coercion by the
State that may lead the accused "to admit something false, not prevent
him from freely and voluntarily telling the truth."44
Yabut is not an accused here. Besides, his mere invocation of the
aforesaid rights "does not automatically entitle him to the constitutional
protection."45 When he freely and voluntarily executed46 his Affidavit,
the State was not even involved. Such Affidavit may therefore be
admitted without violating his constitutional rights while under
custodial investigation and against self-incrimination.
Clear, Positive and Convincing Examination and Evidence
The examination by the PNP, though inconclusive, was nevertheless
clear, positive and convincing.
Carina Lebron herself, the drawer’s authorized signatory, testified many
times that she had never signed those checks. Her testimonial evidence
is admissible; the checks have not been actually executed. The
genuineness of her handwriting is proved, not only through the court’s
comparison of the questioned handwritings and admittedly genuine
specimens thereof,60 but above all by her.
The failure of CASA to produce the original checks neither gives rise to
the presumption of suppression of evidence 61 nor creates an unfavorable
inference against it.62 Such failure merely authorizes the introduction of
secondary evidence63 in the form of microfilm copies. Of no
consequence is the fact that CASA did not present the signature card
containing the signatures with which those on the checks were
compared.64 Specimens of standard signatures are not limited to such a
card. Considering that it was not produced in evidence, other documents
that bear the drawer’s authentic signature may be resorted to.65 Besides,
that card was in the possession of BPI -- the adverse party.
We have held that without the original document containing the
allegedly forged signature, one cannot make a definitive comparison
that would establish forgery;66 and that a comparison based on a mere
reproduction of the document under controversy cannot produce reliable
results.67 We have also said, however, that a judge cannot merely rely
on a handwriting expert’s testimony,68 but should also exercise
independent judgment in evaluating the authenticity of a signature under
scrutiny.69 In the present case, both the RTC and the CA conducted
independent examinations of the evidence presented and arrived at
reasonable and similar conclusions. Not only did they admit secondary
evidence; they also appositely considered testimonial and other
documentary evidence in the form of the Affidavit.

Forgery "cannot be presumed."47 It must be established by clear, positive

The voluntary admission of Yabut did not violate his constitutional
rights (1) on custodial investigation, and (2) against self-incrimination.
In the first place, he was not under custodial investigation. 26 His
Affidavit was executed in private and before private individuals.27 The
mantle of protection under Section 12 of Article III of the 1987
Constitution28 covers only the period "from the time a person is taken
into custody for investigation of his possible participation in the
commission of a crime or from the time he is singled out as a suspect in
the commission of a crime although not yet in custody."29
The best evidence rule admits of exceptions and, as we have discussed
and convincing evidence.48 Under the best evidence rule as applied to
earlier, the first of these has been met.70 The result of examining a
documentary evidence like the checks in question, no secondary or
questioned handwriting, even with the aid of experts and scientific
substitutionary evidence may inceptively be introduced, as the original
instruments, may be inconclusive;71 but it is a non sequitur to say that
writing itself must be produced in court.49 But when, without bad faith
such result is not clear, positive and convincing. The preponderance of
on the part of the offeror, the original checks have already been
evidence required in this case has been satisfied. 72
destroyed or cannot be produced in court, secondary evidence may be
produced.50 Without bad faith on its part, CASA proved the loss or
destruction of the original checks through the Affidavit of the one
person who knew of that fact51 -- Yabut. He clearly admitted to
discarding the paid checks to cover up his misdeed.52 In such a situation,
secondary evidence like microfilm copies may be introduced in court.

Therefore, to fall within the ambit of Section 12, quoted above, there
must be an arrest or a deprivation of freedom, with "questions
propounded on him by the police authorities for the purpose of eliciting
admissions, confessions, or any information."30 The said constitutional
provision does "not apply to spontaneous statements made in a
voluntary manner"31 whereby an individual orally admits to authorship
of a crime.32 "What the Constitution proscribes is the compulsory or
coercive disclosure of incriminating facts."33
Moreover, the right against self-incrimination34 under Section 17 of
Article III35 of the Constitution, which is ordinarily available only in
criminal prosecutions, extends to all other government proceedings --
including civil actions, legislative investigations, 36 and administrative
proceedings that possess a criminal or penal aspect37 -- but not to private
investigations done by private individuals. Even in such government
proceedings, this right may be waived,38 provided the waiver is certain;
unequivocal; and intelligently, understandingly and willingly made.39
The drawer’s signatures on the microfilm copies were compared with
the standard signature. PNP Document Examiner II Josefina de la Cruz
testified on cross-examination that two different persons had written
them.53 Although no conclusive report could be issued in the absence of
the original checks,54 she affirmed that her findings were 90 percent
conclusive.55 According to her, even if the microfilm copies were the
only basis of comparison, the differences were evident.56 Besides, the
RTC explained that although the Report was inconclusive, no
conclusive report could have been given by the PNP, anyway, in the
absence of the original checks.57 This explanation is valid; otherwise, no
such report can ever be relied upon in court.
Even with respect to documentary evidence, the best evidence rule
applies only when the contents of a document -- such as the drawer’s
signature on a check -- is the subject of inquiry.58 As to whether the
document has been actually executed, this rule does not apply; and
testimonial as well as any other secondary evidence is admissible. 59
21
Banking Laws under Atty. Fontanilla
Second Issue:
Negligence Attributable to BPI Alone
Having established the forgery of the drawer’s signature, BPI -- the
drawee -- erred in making payments by virtue thereof. The forged
signatures are wholly inoperative, and CASA -- the drawer whose
authorized signatures do not appear on the negotiable instruments --
cannot be held liable thereon. Neither is the latter precluded from setting
up forgery as a real defense.
Clear Negligence in Allowing Payment Under a Forged Signature
We have repeatedly emphasized that, since the banking business is
impressed with public interest, of paramount importance thereto is the
trust and confidence of the public in general. Consequently, the highest
degree of diligence73 is expected,74 and high standards of integrity and
performance are even required, of it. 75 By the nature of its functions, a
bank is "under obligation to treat the accounts of its depositors with
meticulous care,76 always having in mind the fiduciary nature of their
relationship."77
BPI contends that it has a signature verification procedure, in which
checks are honored only when the signatures therein are verified to be
the same with or similar to the specimen signatures on the signature
cards. Nonetheless, it still failed to detect the eight instances of forgery.
Its negligence consisted in the omission of that degree of diligence
required78 of a bank. It cannot now feign ignorance, for very early on
we have already ruled that a bank is "bound to know the signatures of
its customers; and if it pays a forged check, it must be considered as
making the payment out of its own funds, and cannot ordinarily charge
the amount so paid to the account of the depositor whose name was
forged."79 In fact, BPI was the same bank involved when we issued this
ruling seventy years ago.
Neither Waiver nor Estoppel Results from Failure to Report Error in
Bank Statement
The monthly statements issued by BPI to its clients contain a notice
worded as follows: "If no error is reported in ten (10) days, account will
be correct."80 Such notice cannot be considered a waiver, even if CASA
failed to report the error. Neither is it estopped from questioning the
mistake after the lapse of the ten-day period.
This notice is a simple confirmation81 or "circularization" -- in
accounting parlance -- that requests client-depositors to affirm the
accuracy of items recorded by the banks. 82 Its purpose is to obtain from
the depositors a direct corroboration of the correctness of their account
balances with their respective banks.83 Internal or external auditors of a
bank use it as a basic audit procedure84 -- the results of which its client-
depositors are neither interested in nor privy to -- to test the details of
transactions and balances in the bank’s records. 85 Evidential matter
obtained from independent sources outside a bank only serves to provide
greater assurance of reliability86 than that obtained solely within it for
purposes of an audit of its own financial statements, not those of its
client-depositors.
Furthermore, there is always the audit risk that errors would not be
detected87 for various reasons. One, materiality is a consideration in
audit planning;88 and two, the information obtained from such a
substantive test is merely presumptive and cannot be the basis of a valid
waiver.89 BPI has no right to impose a condition unilaterally and
thereafter consider failure to meet such condition a waiver. Neither may
CASA renounce a right90 it has never possessed.91
Every right has subjects -- active and passive. While the active subject
is entitled to demand its enforcement, the passive one is duty-bound to
suffer such enforcement.92
On the one hand, BPI could not have been an active subject, because it
could not have demanded from CASA a response to its notice. Besides,
the notice was a measly request worded as follows: "Please examine x
x x and report x x x."93 CASA, on the other hand, could not have been a
passive subject, either, because it had no obligation to respond. It could
-- as it did -- choose not to respond.
Estoppel precludes individuals from denying or asserting, by their own
deed or representation, anything contrary to that established as the truth,
in legal contemplation.94 Our rules on evidence even make a juris et de
jure presumption95 that whenever one has, by one’s own act or omission,
intentionally and deliberately led another to believe a particular thing to
be true and to act upon that belief, one cannot -- in any litigation arising
from such act or omission -- be permitted to falsify that supposed truth.96
In the instant case, CASA never made any deed or representation that
misled BPI. The former’s omission, if any, may only be deemed an
innocent mistake oblivious to the procedures and consequences of
periodic audits. Since its conduct was due to such ignorance founded
upon an innocent mistake, estoppel will not arise.97 A person who has
no knowledge of or consent to a transaction may not be estopped by it.98
"Estoppel cannot be sustained by mere argument or doubtful inference
x x x."99 CASA is not barred from questioning BPI’s error even after the
lapse of the period given in the notice.
Loss Borne by Proximate Source of Negligence
For allowing payment100 on the checks to a wrongful and fictitious
payee, BPI -- the drawee bank -- becomes liable to its depositor-drawer.
Since the encashing bank is one of its branches, 101 BPI can easily go
after it and hold it liable for reimbursement.102 It "may not debit the
drawer’s account103 and is not entitled to indemnification from the
drawer."104 In both law and equity, when one of two innocent persons
"must suffer by the wrongful act of a third person, the loss must be borne
by the one whose negligence was the proximate cause of the loss or who
put it into the power of the third person to perpetrate the wrong."105
Proximate cause is determined by the facts of the case. 106 "It is that cause
which, in natural and continuous sequence, unbroken by any efficient
intervening cause, produces the injury, and without which the result
would not have occurred."107
Pursuant to its prime duty to ascertain well the genuineness of the
signatures of its client-depositors on checks being encashed, BPI is
"expected to use reasonable business prudence."108 In the performance
of that obligation, it is bound by its internal banking rules and
regulations that form part of the contract it enters into with its
depositors.109
Unfortunately, it failed in that regard. First, Yabut was able to open a
bank account in one of its branches without privity;110 that is, without
the proper verification of his corresponding identification papers.
Second, BPI was unable to discover early on not only this irregularity,
but also the marked differences in the signatures on the checks and those
on the signature card. Third, despite the examination procedures it
conducted, the Central Verification Unit111 of the bank even passed off
these evidently different signatures as genuine. Without exercising the
required prudence on its part, BPI accepted and encashed the eight
checks presented to it. As a result, it proximately contributed to the fraud
and should be held primarily liable112 for the "negligence of its officers
or agents when acting within the course and scope of their
employment."113 It must bear the loss.
CASA Not Negligent in Its Financial Affairs
In this jurisdiction, the negligence of the party invoking forgery is
recognized as an exception114 to the general rule that a forged signature
is wholly inoperative.115 Contrary to BPI’s claim, however, we do not
find CASA negligent in handling its financial affairs. CASA, we stress,
is not precluded from setting up forgery as a real defense.
Role of Independent Auditor
The major purpose of an independent audit is to investigate and
determine objectively if the financial statements submitted for audit by
a corporation have been prepared in accordance with the appropriate
financial reporting practices116 of private entities. The relationship that
arises therefrom is both legal and moral.117 It begins with the execution
of the engagement letter118 that embodies the terms and conditions of
the audit and ends with the fulfilled expectation of the auditor’s
ethical119 and competent performance in all aspects of the audit. 120
The financial statements are representations of the client; but it is the
auditor who has the responsibility for the accuracy in the recording of
data that underlies their preparation, their form of presentation, and the
opinion121 expressed therein.122 The auditor does not assume the role of
employee or of management in the client’s conduct of operations 123 and
is never under the control or supervision124 of the client.
Yabut was an independent auditor125 hired by CASA. He handled its
monthly bank reconciliations and had access to all relevant documents
and checkbooks.126 In him was reposed the client’s127 trust and
confidence128 that he would perform precisely those functions and apply
the appropriate procedures in accordance with generally accepted
auditing standards.129 Yet he did not meet these expectations. Nothing
could be more horrible to a client than to discover later on that the person
tasked to detect fraud was the same one who perpetrated it.
Cash Balances Open to Manipulation
It is a non sequitur to say that the person who receives the monthly bank
statements, together with the cancelled checks and other debit/credit
memoranda, shall examine the contents and give notice of any
discrepancies within a reasonable time. Awareness is not equipollent
with discernment.
Besides, in the internal accounting control system prudently installed by
CASA,130 it was Yabut who should examine those documents in order
to prepare the bank reconciliations.131 He owned his working papers,132
and his output consisted of his opinion as well as the client’s financial
statements and accompanying notes thereto. CASA had every right to
rely solely upon his output -- based on the terms of the audit engagement
-- and could thus be unwittingly duped into believing that everything
was in order. Besides, "[g]ood faith is always presumed and it is the
burden of the party claiming otherwise to adduce clear and convincing
evidence to the contrary."133
Moreover, there was a time gap between the period covered by the bank
statement and the date of its actual receipt. Lebron personally received
the December 1990 bank statement only in January 1991134 -- when she
was also informed of the forgery for the first time, after which she
immediately requested a "stop payment order." She cannot be faulted
for the late detection of the forged December check. After all, the bank
account with BPI was not personal but corporate, and she could not be
expected to monitor closely all its finances. A preschool teacher charged
with molding the minds of the youth cannot be burdened with the
intricacies or complexities of corporate existence.
There is also a cutoff period such that checks issued during a given
month, but not presented for payment within that period, will not be
reflected therein.135 An experienced auditor with intent to defraud can
easily conceal any devious scheme from a client unwary of the
accounting processes involved by manipulating the cash balances on
record -- especially when bank transactions are numerous, large and
frequent. CASA could only be blamed, if at all, for its unintelligent
choice in the selection and appointment of an auditor -- a fault that is
not tantamount to negligence.
Negligence is not presumed, but proven by whoever alleges it. 136 Its
mere existence "is not sufficient without proof that it, and no other
cause,"137 has given rise to damages.138 In addition, this fault is common
to, if not prevalent among, small and medium-sized business entities,
thus leading the Professional Regulation Commission (PRC), through
the Board of Accountancy (BOA), to require today not only
accreditation for the practice of public accountancy, 139 but also the
registration of firms in the practice thereof. In fact, among the
attachments now required upon registration are the code of good
governance140 and a sworn statement on adequate and effective
training.141
The missing checks were certainly reported by the bookkeeper142 to the
accountant143 -- her immediate supervisor -- and by the latter to the
auditor. However, both the accountant and the auditor, for reasons
known only to them, assured the bookkeeper that there were no
irregularities.
The bookkeeper144 who had exclusive custody of the checkbooks145 did
not have to go directly to CASA’s president or to BPI. Although she
rightfully reported the matter, neither an investigation was conducted
nor a resolution of it was arrived at, precisely because the person at the
top of the helm was the culprit. The vouchers, invoices and check stubs
in support of all check disbursements could be concealed or fabricated -
22
Banking Laws under Atty. Fontanilla
- even in collusion -- and management would still have no way to verify
its cash accountabilities.
Clearly then, Yabut was able to perpetrate the wrongful act through no
fault of CASA. If auditors may be held liable for breach of contract and
negligence,146 with all the more reason may they be charged with the
perpetration of fraud upon an unsuspecting client. CASA had the
discretion to pursue BPI alone under the NIL, by reason of expediency
or munificence or both. Money paid under a mistake may rightfully be
recovered,147 and under such terms as the injured party may choose.
Third Issue:
Award of Monetary Claims
Moral Damages Denied
We deny CASA’s claim for moral damages.
In the absence of a wrongful act or omission,148 or of fraud or bad
faith,149 moral damages cannot be awarded.150 The adverse result of an
action does not per se make the action wrongful, or the party liable for
it. One may err, but error alone is not a ground for granting such
damages.151 While no proof of pecuniary loss is necessary therefor --
with the amount to be awarded left to the court’s discretion152 -- the
claimant must nonetheless satisfactorily prove the existence of its
factual basis153 and causal relation154 to the claimant’s act or omission.155
Regrettably, in this case CASA was unable to identify the particular
instance -- enumerated in the Civil Code -- upon which its claim for
moral damages is predicated.156 Neither bad faith nor negligence so
gross that it amounts to malice157 can be imputed to BPI. Bad faith,
under the law, "does not simply connote bad judgment or negligence;158
it imports a dishonest purpose or some moral obliquity and conscious
doing of a wrong, a breach of a known duty through some motive or
interest or ill will that partakes of the nature of fraud."159
As a general rule, a corporation -- being an artificial person without
feelings, emotions and senses, and having existence only in legal
contemplation -- is not entitled to moral damages,160 because it cannot
experience physical suffering and mental anguish.161 However, for
breach of the fiduciary duty required of a bank, a corporate client may
claim such damages when its good reputation is besmirched by such
breach, and social humiliation results therefrom.162 CASA was unable
to prove that BPI had debased the good reputation of, 163 and
consequently caused incalculable embarrassment to, the former.
CASA’s mere allegation or supposition thereof, without any sufficient
evidence on record,164 is not enough.
Exemplary Damages Also Denied
We also deny CASA’s claim for exemplary damages.
Imposed by way of correction165 for the public good,166 exemplary
damages cannot be recovered as a matter of right. 167 As we have said
earlier, there is no bad faith on the part of BPI for paying the checks of
CASA upon forged signatures. Therefore, the former cannot be said to
have acted in a wanton, fraudulent, reckless, oppressive or malevolent
manner.168 The latter, having no right to moral damages, cannot demand
exemplary damages.169
Attorney’s Fees Granted
Although it is a sound policy not to set a premium on the right to
litigate,170 we find that CASA is entitled to reasonable attorney’s fees
based on "factual, legal, and equitable justification."171
When the act or omission of the defendant has compelled the plaintiff
to incur expenses to protect the latter’s interest,172 or where the court
deems it just and equitable,173 attorney’s fees may be recovered. In the
present case, BPI persistently denied the claim of CASA under the NIL
to recredit the latter’s account for the value of the forged checks. This
denial constrained CASA to incur expenses and exert effort for more
than ten years in order to protect its corporate interest in its bank
account. Besides, we have already cautioned BPI on a similar act of
negligence it had committed seventy years ago, but it has remained
unrelenting. Therefore, the Court deems it just and equitable to grant ten
percent (10%)174 of the total value adjudged to CASA as attorney’s fees.
Interest Allowed
For the failure of BPI to pay CASA upon demand and for compelling
the latter to resort to the courts to obtain payment, legal interest may be
adjudicated at the discretion of the Court, the same to run from the
filing175 of the Complaint.176 Since a court judgment is not a loan or a
forbearance of recovery, the legal interest shall be at six percent (6%)
per annum.177 "If the obligation consists in the payment of a sum of
money, and the debtor incurs in delay, the indemnity for damages, there
being no stipulation to the contrary, shall be the payment of x x x legal
interest, which is six percent per annum."178 The actual base for its
computation shall be "on the amount finally adjudged,"179
compounded180 annually to make up for the cost of money181 already
lost to CASA.
Moreover, the failure of the CA to award interest does not prevent us
from granting it upon damages awarded for breach of contract. 182
Because BPI evidently breached its contract of deposit with CASA, we
award interest in addition to the total amount adjudged. Under Section
196 of the NIL, any case not provided for shall be "governed by the
provisions of existing legislation or, in default thereof, by the rules of
the law merchant."183 Damages are not provided for in the NIL. Thus,
we resort to the Code of Commerce and the Civil Code. Under Article
2 of the Code of Commerce, acts of commerce shall be governed by its
provisions and, "in their absence, by the usages of commerce generally
observed in each place; and in the absence of both rules, by those of the
civil law."184 This law being silent, we look at Article 18 of the Civil
Code, which states: "In matters which are governed by the Code of
Commerce and special laws, their deficiency shall be supplied" by its
provisions. A perusal of these three statutes unmistakably shows that the
award of interest under our civil law is justified.
WHEREFORE, the Petition in GR No. 149454 is hereby DENIED, and
that in GR No. 149507 PARTLY GRANTED. The assailed Decision of
the Court of Appeals is AFFIRMED with modification: BPI is held
liable for ₱547,115, the total value of the forged checks less the amount
already recovered by CASA from Leonardo T. Yabut, plus interest at
the legal rate of six percent (6%) per annum -- compounded annually,
from the filing of the complaint until paid in full; and attorney’s fees of
ten percent (10%) thereof, subject to reimbursement from Respondent
Yabut for the entire amount, excepting attorney’s fees. Let a copy of this
Decision be furnished the Board of Accountancy of the Professional
Regulation Commission for such action as it may deem appropriate
against Respondent Yabut. No costs.
SO ORDERED.
9.
G.R. No. 141835 February 4, 2009
CENTRAL BANK OF THE PHILIPPINES, Petitioner,
vs.
CITYTRUST BANKING CORPORATION, Respondent.
DECISION
CARPIO MORALES, J.:
Pursuant to Republic Act No. 625, the old Central Bank Law,
respondent Citytrust Banking Corporation (Citytrust), formerly Feati
Bank, maintained a demand deposit account with petitioner Central
Bank of the Philippines, now Bangko Sentral ng Pilipinas.
As required, Citytrust furnished petitioner with the names and
corresponding signatures of five of its officers authorized to sign checks
and serve as drawers and indorsers for its account. And it provided
petitioner with the list and corresponding signatures of its roving tellers
authorized to withdraw, sign receipts and perform other transactions on
its behalf. Petitioner later issued security identification cards to the
roving tellers one of whom was "Rounceval Flores" (Flores).
On July 15, 1977, Flores presented for payment to petitioner’s Senior
Teller Iluminada dela Cruz (Iluminada) two Citytrust checks of even
date, payable to Citytrust, one in the amount of ₱850,000 and the other
in the amount of ₱900,000, both of which were signed and indorsed by
Citytrust’s authorized signatory-drawers.
After the checks were certified by petitioner’s Accounting Department,
Iluminada verified them, prepared the cash transfer slip on which she
affixed her signature, stamped the checks with the notation "Received
Payment" and asked Flores to, as he did, sign on the space above such
notation. Instead of signing his name, however, Flores signed as
"Rosauro C. Cayabyab" – a fact Iluminada failed to notice.1avvphi1
Iluminada thereupon sent the cash transfer slip and checks to petitioner’s
Cash Department where an officer verified and compared the drawers’
signatures on the checks against their specimen signatures provided by
Citytrust, and finding the same in order, approved the cash transfer slip
and paid the corresponding amounts to Flores. Petitioner then debited
the amount of the checks totaling ₱1,750,000 from Citytrust’s demand
deposit account.
More than a year and nine months later, Citytrust, by letter dated April
23, 1979, alleging that the checks were already cancelled because they
were stolen, demanded petitioner to restore the amounts covered thereby
to its demand deposit account. Petitioner did not heed the demand,
however.
Citytrust later filed a complaint for estafa, with reservation on the filing
of a separate civil action, against Flores. Flores was convicted.
Citytrust thereafter filed before the Regional Trial Court (RTC) of
Manila a complaint for recovery of sum of money with damages against
petitioner which it alleged erred in encashing the checks and in charging
the proceeds thereof to its account, despite the lack of authority of
"Rosauro C. Cayabyab."
By Decision1 of November 13, 1991, Branch 32 of the RTC of Manila
found both Citytrust and petitioner negligent and accordingly held them
equally liable for the loss. Both parties appealed to the Court of Appeals
which, by Decision2 dated July 16, 1999, affirmed the trial court’s
decision, it holding that both parties contributed equally to the
fraudulent encashment of the checks, hence, they should equally share
the loss in consonance with Article 21793 vis a vis Article 11724 of the
Civil Code.
In arriving at its Decision, the appellate court noted that while "Citytrust
failed to take adequate precautionary measures to prevent the fraudulent
encashment of its checks," petitioner was not entirely blame-free in light
of its failure to verify the signature of Citytrust’s agent authorized to
receive payment.
Brushing aside petitioner’s contention that it cannot be sued, the
appellate court held that petitioner’s Charter specifically clothes it with
the power to sue and be sued.
Also brushing aside petitioner’s assertion that Citytrust’s reservation of
the filing of a separate civil action against Flores precluded Citytrust
from filing the civil action against it, the appellate court held that the
"action for the recovery of sum of money is separate and distinct and is
grounded on a separate cause of action from that of the criminal case for
estafa."
Hence, the present appeal, petitioner maintaining that Flores having
been an authorized roving teller, Citytrust is bound by his acts. Also
maintaining that it was not negligent in releasing the proceeds of the
checks to Flores, the failure of its teller to properly verify his signature
notwithstanding, petitioner contends that verification could be
dispensed with, Flores having been known to be an authorized roving
teller of Citytrust who had had numerous transactions with it (petitioner)
on its (Citytrust’s) behalf for five years prior to the questioned
transaction.
Attributing negligence solely to Citytrust, petitioner harps on Citytrust’s
allowing Flores to steal the checks and failing to timely cancel them;
allowing Flores to wear the issued identification card issued by it
(petitioner); failing to report Flores’ absence from work on the day of
the incident; and failing to explain the circumstances surrounding the
supposed theft and cancellation of the checks.
23
Banking Laws under Atty. Fontanilla
Drawing attention to Citytrust’s considerable delay in demanding the
restoration of the proceeds of the checks, petitioners argue that,
assuming arguendo that its teller was negligent, Citytrust’s negligence,
which preceded that committed by the teller, was the proximate cause
of the loss or fraud.
The petition is bereft of merit.
Petitioner’s teller Iluminada did not verify Flores’ signature on the
flimsy excuse that Flores had had previous transactions with it for a
number of years. That circumstance did not excuse the teller from
focusing attention to or at least glancing at Flores as he was signing, and
to satisfy herself that the signature he had just affixed matched that of
his specimen signature. Had she done that, she would have readily been
put on notice that Flores was affixing, not his but a fictitious signature.
Given that petitioner is the government body mandated to supervise and
regulate banking and other financial institutions, this Court’s ruling in
Consolidated Bank and Trust Corporation v. Court of Appeals 5
illumines:
The contract between the bank and its depositor is governed by the
provisions of the Civil Code on simple loan. Article 1980 of the Civil
Code expressly provides that "x x x savings x x x deposits of money in
banks and similar institutions shall be governed by the provisions
concerning simple loan." There is a debtor-creditor relationship between
the bank and its depositor. The bank is the debtor and the depositor is
the creditor. The depositor lends the bank money and the bank agrees to
pay the depositor on demand. The savings deposit agreement between
the bank and the depositor is the contract that determines the rights and
obligations of the parties.
The law imposes on banks high standards in view of the fiduciary nature
of banking. Section 2 of Republic Act No. 8791 ("RA 8791"), which
took effect on 13 June 2000, declares that the State recognizes the
"fiduciary nature of banking that requires high standards of integrity and
performance." This new provision in the general banking law,
introduced in 2000, is a statutory affirmation of Supreme Court
decisions, starting with the 1990 case of Simex International v. Court of
Appeals, holding that "the bank is under obligation to treat the accounts
of its depositors with meticulous care, always having in mind the
fiduciary nature of their relationship."
This fiduciary relationship means that the bank’s obligation to observe
"high standards of integrity and performance" is deemed written into
every deposit agreement between a bank and its depositor. The fiduciary
nature of banking requires banks to assume a degree of diligence higher
than that of a good father of a family. Article 1172 of the Civil Code
states that the degree of diligence required of an obligor is that
prescribed by law or contract, and absent such stipulation then the
diligence of a good father of a family. Section 2 of RA 8791 prescribes
the statutory diligence required from banks – that banks must observe
"high standards of integrity and performance" in servicing their
depositors. Although RA 8791 took effect almost nine years after the
unauthorized withdrawal of the ₱300,000 from L.C. Diaz’s savings
account, jurisprudence at the time of the withdrawal already imposed on
banks the same high standard of diligence required under RA No. 8791.
(Emphasis supplied)
Citytrust’s failure to timely examine its account, cancel the checks and
notify petitioner of their alleged loss/theft should mitigate petitioner’s
liability, in accordance with Article 2179 of the Civil Code which
provides that if the plaintiff’s negligence was only contributory, the
immediate and proximate cause of the injury being the defendant’s lack
of due care, the plaintiff may recover damages, but the courts shall
mitigate the damages to be awarded. For had Citytrust timely discovered
the loss/theft and/or subsequent encashment, their proceeds or part
thereof could have been recovered.
In line with the ruling in Consolidated Bank, the Court deems it proper
to allocate the loss between petitioner and Citytrust on a 60-40 ratio.
WHEREFORE, the assailed Court of Appeals Decision of July 16, 1999
is hereby AFFIRMED with MODIFICATION, in that petitioner and
Citytrust should bear the loss on a 60-40 ratio.
SO ORDERED.
10.
G.R. No. 133179 March 27, 2008
ALLIED BANKING CORPORATION, Petitioner,
vs.
LIM SIO WAN, METROPOLITAN BANK AND TRUST CO.,
and PRODUCERS BANK, Respondents.
DECISION
VELASCO, JR., J.:
To ingratiate themselves to their valued depositors, some banks at times
bend over backwards that they unwittingly expose themselves to great
risks.
The Case
This Petition for Review on Certiorari under Rule 45 seeks to reverse
the Court of Appeals’ (CA’s) Decision promulgated on March 18, 19981
in CA-G.R. CV No. 46290 entitled Lim Sio Wan v. Allied Banking
Corporation, et al. The CA Decision modified the Decision dated
November 15, 19932 of the Regional Trial Court (RTC), Branch 63 in
Makati City rendered in Civil Case No. 6757.
The Facts
The facts as found by the RTC and affirmed by the CA are as follows:
On November 14, 1983, respondent Lim Sio Wan deposited with
petitioner Allied Banking Corporation (Allied) at its Quintin Paredes
Branch in Manila a money market placement of PhP 1,152,597.35 for a
term of 31 days to mature on December 15, 1983,3 as evidenced by
Provisional Receipt No. 1356 dated November 14, 1983.4
On December 5, 1983, a person claiming to be Lim Sio Wan called up
Cristina So, an officer of Allied, and instructed the latter to pre-
terminate Lim Sio Wan’s money market placement, to issue a manager’s
check representing the proceeds of the placement, and to give the check
to one Deborah Dee Santos who would pick up the check.5 Lim Sio Wan
described the appearance of Santos so that So could easily identify her. 6
Later, Santos arrived at the bank and signed the application form for a
manager’s check to be issued.7 The bank issued Manager’s Check No.
035669 for PhP 1,158,648.49, representing the proceeds of Lim Sio
Wan’s money market placement in the name of Lim Sio Wan, as payee.8
The check was cross-checked "For Payee’s Account Only" and given to
Santos.9
Thereafter, the manager’s check was deposited in the account of
Filipinas Cement Corporation (FCC) at respondent Metropolitan Bank
and Trust Co. (Metrobank),10 with the forged signature of Lim Sio Wan
as indorser.11
Earlier, on September 21, 1983, FCC had deposited a money market
placement for PhP 2 million with respondent Producers Bank. Santos
was the money market trader assigned to handle FCC’s account. 12 Such
deposit is evidenced by Official Receipt No. 31756813 and a Letter dated
September 21, 1983 of Santos addressed to Angie Lazo of FCC,
acknowledging receipt of the placement.14 The placement matured on
October 25, 1983 and was rolled-over until December 5, 1983 as
evidenced by a Letter dated October 25, 1983.15 When the placement
matured, FCC demanded the payment of the proceeds of the
placement.16 On December 5, 1983, the same date that So received the
phone call instructing her to pre-terminate Lim Sio Wan’s placement,
the manager’s check in the name of Lim Sio Wan was deposited in the
account of FCC, purportedly representing the proceeds of FCC’s money
market placement with Producers Bank.17 In other words, the Allied
check was deposited with Metrobank in the account of FCC as
Producers Bank’s payment of its obligation to FCC.
To clear the check and in compliance with the requirements of the
Philippine Clearing House Corporation (PCHC) Rules and Regulations,
Metrobank stamped a guaranty on the check, which reads: "All prior
endorsements and/or lack of endorsement guaranteed."18
The check was sent to Allied through the PCHC. Upon the presentment
of the check, Allied funded the check even without checking the
authenticity of Lim Sio Wan’s purported indorsement. Thus, the amount
on the face of the check was credited to the account of FCC. 19
On December 9, 1983, Lim Sio Wan deposited with Allied a second
money market placement to mature on January 9, 1984. 20
On December 14, 1983, upon the maturity date of the first money market
placement, Lim Sio Wan went to Allied to withdraw it. 21 She was then
informed that the placement had been pre-terminated upon her
instructions. She denied giving any instructions and receiving the
proceeds thereof. She desisted from further complaints when she was
assured by the bank’s manager that her money would be recovered. 22
When Lim Sio Wan’s second placement matured on January 9, 1984,
So called Lim Sio Wan to ask for the latter’s instructions on the second
placement. Lim Sio Wan instructed So to roll-over the placement for
another 30 days.23 On January 24, 1984, Lim Sio Wan, realizing that the
promise that her money would be recovered would not materialize, sent
a demand letter to Allied asking for the payment of the first placement.24
Allied refused to pay Lim Sio Wan, claiming that the latter had
authorized the pre-termination of the placement and its subsequent
release to Santos.25
Consequently, Lim Sio Wan filed with the RTC a Complaint dated
February 13, 198426 docketed as Civil Case No. 6757 against Allied to
recover the proceeds of her first money market placement. Sometime in
February 1984, she withdrew her second placement from Allied.
Allied filed a third party complaint27 against Metrobank and Santos. In
turn, Metrobank filed a fourth party complaint28 against FCC. FCC for
its part filed a fifth party complaint29 against Producers Bank.
Summonses were duly served upon all the parties except for Santos, who
was no longer connected with Producers Bank.30
On May 15, 1984, or more than six (6) months after funding the check,
Allied informed Metrobank that the signature on the check was forged. 31
Thus, Metrobank withheld the amount represented by the check from
FCC. Later on, Metrobank agreed to release the amount to FCC after the
latter executed an Undertaking, promising to indemnify Metrobank in
case it was made to reimburse the amount.32
Lim Sio Wan thereafter filed an amended complaint to include
Metrobank as a party-defendant, along with Allied.33 The RTC admitted
the amended complaint despite the opposition of Metrobank. 34
Consequently, Allied’s third party complaint against Metrobank was
converted into a cross-claim and the latter’s fourth party complaint
against FCC was converted into a third party complaint. 35
After trial, the RTC issued its Decision, holding as follows:
WHEREFORE, judgment is hereby rendered as follows:
1. Ordering defendant Allied Banking Corporation to pay plaintiff the
amount of P1,158,648.49 plus 12% interest per annum from March 16,
1984 until fully paid;
2. Ordering defendant Allied Bank to pay plaintiff the amount of
P100,000.00 by way of moral damages;
3. Ordering defendant Allied Bank to pay plaintiff the amount of
P173,792.20 by way of attorney’s fees; and,
4. Ordering defendant Allied Bank to pay the costs of suit.
24
Banking Laws under Atty. Fontanilla
Defendant Allied Bank’s cross-claim against defendant Metrobank is
DISMISSED.
Likewise defendant Metrobank’s third-party complaint as against
Filipinas Cement Corporation is DISMISSED.
Filipinas Cement Corporation’s fourth-party complaint against
Producer’s Bank is also DISMISSED.
SO ORDERED.36
The Decision of the Court of Appeals
Allied appealed to the CA, which in turn issued the assailed Decision
on March 18, 1998, modifying the RTC Decision, as follows:
WHEREFORE, premises considered, the decision appealed from is
MODIFIED. Judgment is rendered ordering and sentencing defendant-
appellant Allied Banking Corporation to pay sixty (60%) percent and
defendant-appellee Metropolitan Bank and Trust Company forty (40%)
of the amount of P1,158,648.49 plus 12% interest per annum from
March 16, 1984 until fully paid. The moral damages, attorney’s fees and
costs of suit adjudged shall likewise be paid by defendant-appellant
Allied Banking Corporation and defendant-appellee Metropolitan Bank
and Trust Company in the same proportion of 60-40. Except as thus
modified, the decision appealed from is AFFIRMED.
SO ORDERED.37
Hence, Allied filed the instant petition.
The Issues
Allied raises the following issues for our consideration:
The Honorable Court of Appeals erred in holding that Lim Sio Wan did
not authorize [Allied] to pre-terminate the initial placement and to
deliver the check to Deborah Santos.
The Honorable Court of Appeals erred in absolving Producers Bank of
any liability for the reimbursement of amount adjudged demandable.
The Honorable Court of Appeals erred in holding [Allied] liable to the
extent of 60% of amount adjudged demandable in clear disregard to the
ultimate liability of Metrobank as guarantor of all endorsement on the
check, it being the collecting bank.38
The petition is partly meritorious.
A Question of Fact
Allied questions the finding of both the trial and appellate courts that
Allied was not authorized to release the proceeds of Lim Sio Wan’s
money market placement to Santos. Allied clearly raises a question of
fact. When the CA affirms the findings of fact of the RTC, the factual
findings of both courts are binding on this Court. 39
We also agree with the CA when it said that it could not disturb the trial
court’s findings on the credibility of witness So inasmuch as it was the
trial court that heard the witness and had the opportunity to observe
closely her deportment and manner of testifying. Unless the trial court
had plainly overlooked facts of substance or value, which, if considered,
might affect the result of the case, 40 we find it best to defer to the trial
court on matters pertaining to credibility of witnesses.
Additionally, this Court has held that the matter of negligence is also a
factual question.41 Thus, the finding of the RTC, affirmed by the CA,
that the respective parties were negligent in the exercise of their
obligations is also conclusive upon this Court.
The Liability of the Parties
As to the liability of the parties, we find that Allied is liable to Lim Sio
Wan. Fundamental and familiar is the doctrine that the relationship
between a bank and a client is one of debtor-creditor.
Articles 1953 and 1980 of the Civil Code provide:
Art. 1953. A person who receives a loan of money or any other fungible
thing acquires the ownership thereof, and is bound to pay to the creditor
an equal amount of the same kind and quality.
Art. 1980. Fixed, savings, and current deposits of money in banks and
similar institutions shall be governed by the provisions concerning
simple loan.
Thus, we have ruled in a line of cases that a bank deposit is in the nature
of a simple loan or mutuum.42 More succinctly, in Citibank, N.A.
(Formerly First National City Bank) v. Sabeniano, this Court ruled that
a money market placement is a simple loan or mutuum. 43 Further, we
defined a money market in Cebu International Finance Corporation v.
Court of Appeals, as follows:
[A] money market is a market dealing in standardized short-term credit
instruments (involving large amounts) where lenders and borrowers do
not deal directly with each other but through a middle man or dealer in
open market. In a money market transaction, the investor is a lender who
loans his money to a borrower through a middleman or dealer.
In the case at bar, the money market transaction between the petitioner
and the private respondent is in the nature of a loan. 44
Lim Sio Wan, as creditor of the bank for her money market placement,
is entitled to payment upon her request, or upon maturity of the
placement, or until the bank is released from its obligation as debtor.
Until any such event, the obligation of Allied to Lim Sio Wan remains
unextinguished.
Art. 1231 of the Civil Code enumerates the instances when obligations intervening cause, also the last negligent act, x x x contributory to the
are considered extinguished, thus: injury caused in the present case, which thereby leads to the conclusion
that it is the collecting bank, Metrobank that is the proximate cause of
the alleged loss of the plaintiff in the instant case. 46
Art. 1231. Obligations are extinguished:
We are not persuaded.
(1) By payment or performance;
Proximate cause is "that cause, which, in natural and continuous
(2) By the loss of the thing due; sequence, unbroken by any efficient intervening cause, produces the
injury and without which the result would not have occurred."47 Thus,
there is an efficient supervening event if the event breaks the sequence
(3) By the condonation or remission of the debt;
leading from the cause to the ultimate result. To determine the proximate
cause of a controversy, the question that needs to be asked is: If the event
(4) By the confusion or merger of the rights of creditor and debtor; did not happen, would the injury have resulted? If the answer is NO,
then the event is the proximate cause.
(5) By compensation;
In the instant case, Allied avers that even if it had not issued the check
payment, the money represented by the check would still be lost because
(6) By novation. of Metrobank’s negligence in indorsing the check without verifying the
genuineness of the indorsement thereon.
Other causes of extinguishment of obligations, such as annulment,
rescission, fulfillment of a resolutory condition, and prescription, are Section 66 in relation to Sec. 65 of the Negotiable Instruments Law
governed elsewhere in this Code. (Emphasis supplied.) provides:
From the factual findings of the trial and appellate courts that Lim Sio Section 66. Liability of general indorser.—Every indorser who indorses
Wan did not authorize the release of her money market placement to without qualification, warrants to all subsequent holders in due course;
Santos and the bank had been negligent in so doing, there is no question
that the obligation of Allied to pay Lim Sio Wan had not been
extinguished. Art. 1240 of the Code states that "payment shall be made a) The matters and things mentioned in subdivisions (a), (b) and (c) of
the next preceding section; and
to the person in whose favor the obligation has been constituted, or his
successor in interest, or any person authorized to receive it." As
commented by Arturo Tolentino:
b) That the instrument is at the time of his indorsement valid and
subsisting;
Payment made by the debtor to a wrong party does not extinguish the
obligation as to the creditor, if there is no fault or negligence which can
And in addition, he engages that on due presentment, it shall be accepted
be imputed to the latter. Even when the debtor acted in utmost good faith
or paid, or both, as the case may be according to its tenor, and that if it
and by mistake as to the person of his creditor, or through error induced
be dishonored, and the necessary proceedings on dishonor be duly taken,
by the fraud of a third person, the payment to one who is not in fact his
he will pay the amount thereof to the holder, or to any subsequent
creditor, or authorized to receive such payment, is void, except as
indorser who may be compelled to pay it.
provided in Article 1241. Such payment does not prejudice the creditor,
and accrual of interest is not suspended by it.45 (Emphasis supplied.)
Section 65. Warranty where negotiation by delivery, so forth.—Every
person negotiating an instrument by delivery or by a qualified
Since there was no effective payment of Lim Sio Wan’s money market
indorsement, warrants:
placement, the bank still has an obligation to pay her at six percent (6%)
interest from March 16, 1984 until the payment thereof.
a) That the instrument is genuine and in all respects what it purports to
be;
We cannot, however, say outright that Allied is solely liable to Lim Sio
Wan.
b) That he has a good title of it;
Allied claims that Metrobank is the proximate cause of the loss of Lim
Sio Wan’s money. It points out that Metrobank guaranteed all prior c) That all prior parties had capacity to contract;
indorsements inscribed on the manager’s check, and without
Metrobank’s guarantee, the present controversy would never have
occurred. According to Allied: d) That he has no knowledge of any fact which would impair the
validity of the instrument or render it valueless.
Failure on the part of the collecting bank to ensure that the proceeds of
the check is paid to the proper party is, aside from being an efficient
25
Banking Laws under Atty. Fontanilla
But when the negotiation is by delivery only, the warranty extends in
favor of no holder other than the immediate transferee.
The provisions of subdivision (c) of this section do not apply to persons
negotiating public or corporation securities, other than bills and notes.
(Emphasis supplied.)
The warranty "that the instrument is genuine and in all respects what it
purports to be" covers all the defects in the instrument affecting the
validity thereof, including a forged indorsement. Thus, the last indorser
will be liable for the amount indicated in the negotiable instrument even
if a previous indorsement was forged. We held in a line of cases that "a
collecting bank which indorses a check bearing a forged indorsement
and presents it to the drawee bank guarantees all prior indorsements,
including the forged indorsement itself, and ultimately should be held
liable therefor."48
However, this general rule is subject to exceptions. One such exception
is when the issuance of the check itself was attended with negligence.
Thus, in the cases cited above where the collecting bank is generally
held liable, in two of the cases where the checks were negligently issued,
this Court held the institution issuing the check just as liable as or more
liable than the collecting bank.
In isolated cases where the checks were deposited in an account other
than that of the payees on the strength of forged indorsements, we held
the collecting bank solely liable for the whole amount of the checks
involved for having indorsed the same. In Republic Bank v. Ebrada, 49
the check was properly issued by the Bureau of Treasury. While in
Banco de Oro Savings and Mortgage Bank (Banco de Oro) v. Equitable
Banking Corporation,50 Banco de Oro admittedly issued the checks in
the name of the correct payees. And in Traders Royal Bank v. Radio
Philippines Network, Inc.,51 the checks were issued at the request of
Radio Philippines Network, Inc. from Traders Royal Bank.1avvphi1
However, in Bank of the Philippine Islands v. Court of Appeals, we said
that the drawee bank is liable for 60% of the amount on the face of the
negotiable instrument and the collecting bank is liable for 40%. We also
noted the relative negligence exhibited by two banks, to wit:
Both banks were negligent in the selection and supervision of their
employees resulting in the encashment of the forged checks by an
impostor. Both banks were not able to overcome the presumption of
negligence in the selection and supervision of their employees. It was
the gross negligence of the employees of both banks which resulted in
the fraud and the subsequent loss. While it is true that petitioner BPI’s
negligence may have been the proximate cause of the loss, respondent
CBC’s negligence contributed equally to the success of the impostor in
encashing the proceeds of the forged checks. Under these
circumstances, we apply Article 2179 of the Civil Code to the effect that
while respondent CBC may recover its losses, such losses are subject to
mitigation by the courts. (See Phoenix Construction Inc. v. Intermediate
Appellate Courts, 148 SCRA 353 [1987]).
Considering the comparative negligence of the two (2) banks, we rule
that the demands of substantial justice are satisfied by allocating the loss
of P2,413,215.16 and the costs of the arbitration proceeding in the
amount of P7,250.00 and the cost of litigation on a 60-40 ratio.52
Similarly, we ruled in Associated Bank v. Court of Appeals that the
issuing institution and the collecting bank should equally share the
liability for the loss of amount represented by the checks concerned due
to the negligence of both parties:
The Court finds as reasonable, the proportionate sharing of fifty percent-
fifty percent (50%-50%). Due to the negligence of the Province of
Tarlac in releasing the checks to an unauthorized person (Fausto
Pangilinan), in allowing the retired hospital cashier to receive the checks
for the payee hospital for a period close to three years and in not properly
ascertaining why the retired hospital cashier was collecting checks for
the payee hospital in addition to the hospital’s real cashier, respondent
Province contributed to the loss amounting to P203,300.00 and shall be
liable to the PNB for fifty (50%) percent thereof. In effect, the Province
of Tarlac can only recover fifty percent (50%) of P203,300.00 from
PNB.
The collecting bank, Associated Bank, shall be liable to PNB for fifty
(50%) percent of P203,300.00. It is liable on its warranties as indorser
of the checks which were deposited by Fausto Pangilinan, having
guaranteed the genuineness of all prior indorsements, including that of
the chief of the payee hospital, Dr. Adena Canlas. Associated Bank was
also remiss in its duty to ascertain the genuineness of the payee’s
indorsement.53
A reading of the facts of the two immediately preceding cases would
reveal that the reason why the bank or institution which issued the check
was held partially liable for the amount of the check was because of the
negligence of these parties which resulted in the issuance of the checks.
In the instant case, the trial court correctly found Allied negligent in
issuing the manager’s check and in transmitting it to Santos without
even a written authorization.54 In fact, Allied did not even ask for the
certificate evidencing the money market placement or call up Lim Sio
Wan at her residence or office to confirm her instructions. Both actions
could have prevented the whole fraudulent transaction from unfolding.
Allied’s negligence must be considered as the proximate cause of the
resulting loss.
To reiterate, had Allied exercised the diligence due from a financial
institution, the check would not have been issued and no loss of funds
would have resulted. In fact, there would have been no issuance of
indorsement had there been no check in the first place.
The liability of Allied, however, is concurrent with that of Metrobank
as the last indorser of the check. When Metrobank indorsed the check in
compliance with the PCHC Rules and Regulations 55 without verifying
the authenticity of Lim Sio Wan’s indorsement and when it accepted the
check despite the fact that it was cross-checked payable to payee’s
account only,56 its negligent and cavalier indorsement contributed to the
easier release of Lim Sio Wan’s money and perpetuation of the fraud.
Given the relative participation of Allied and Metrobank to the instant
case, both banks cannot be adjudged as equally liable. Hence, the 60:40
ratio of the liabilities of Allied and Metrobank, as ruled by the CA, must
be upheld.
FCC, having no participation in the negotiation of the check and in the
forgery of Lim Sio Wan’s indorsement, can raise the real defense of
forgery as against both banks.57
As to Producers Bank, Allied Bank’s argument that Producers Bank
must be held liable as employer of Santos under Art. 2180 of the Civil
Code is erroneous. Art. 2180 pertains to the vicarious liability of an
employer for quasi-delicts that an employee has committed. Such
provision of law does not apply to civil liability arising from delict.
One also cannot apply the principle of subsidiary liability in Art. 103 of
the Revised Penal Code in the instant case. Such liability on the part of
the employer for the civil aspect of the criminal act of the employee is
based on the conviction of the employee for a crime. Here, there has
been no conviction for any crime.
As to the claim that there was unjust enrichment on the part of Producers
Bank, the same is correct. Allied correctly claims in its petition that
Producers Bank should reimburse Allied for whatever judgment that
may be rendered against it pursuant to Art. 22 of the Civil Code, which
provides: "Every person who through an act of performance by another,
or any other means, acquires or comes into possession of something at
the expense of the latter without just cause or legal ground, shall return
the same to him."1avvphi1
The above provision of law was clarified in Reyes v. Lim, where we
ruled that "[t]here is unjust enrichment when a person unjustly retains a
benefit to the loss of another, or when a person retains money or
property of another against the fundamental principles of justice, equity
and good conscience."58
In Tamio v. Ticson, we further clarified the principle of unjust
enrichment, thus: "Under Article 22 of the Civil Code, there is unjust
enrichment when (1) a person is unjustly benefited, and (2) such benefit
is derived at the expense of or with damages to another."59
In the instant case, Lim Sio Wan’s money market placement in Allied
Bank was pre-terminated and withdrawn without her consent.
Moreover, the proceeds of the placement were deposited in Producers
Bank’s account in Metrobank without any justification. In other words,
there is no reason that the proceeds of Lim Sio Wans’ placement should
be deposited in FCC’s account purportedly as payment for FCC’s
money market placement and interest in Producers Bank.lavvphil With
such payment, Producers Bank’s indebtedness to FCC was
extinguished, thereby benefitting the former. Clearly, Producers Bank
was unjustly enriched at the expense of Lim Sio Wan. Based on the facts
and circumstances of the case, Producers Bank should reimburse Allied
and Metrobank for the amounts the two latter banks are ordered to pay
Lim Sio Wan.
It cannot be validly claimed that FCC, and not Producers Bank, should
be considered as having been unjustly enriched. It must be remembered
that FCC’s money market placement with Producers Bank was already
due and demandable; thus, Producers Bank’s payment thereof was
justified. FCC was entitled to such payment. As earlier stated, the fact
that the indorsement on the check was forged cannot be raised against
FCC which was not a part in any stage of the negotiation of the check.
FCC was not unjustly enriched.
From the facts of the instant case, we see that Santos could be the
architect of the entire controversy. Unfortunately, since summons had
not been served on Santos, the courts have not acquired jurisdiction over
her.60 We, therefore, cannot ascribe to her liability in the instant case.
Clearly, Producers Bank must be held liable to Allied and Metrobank
for the amount of the check plus 12% interest per annum, moral
damages, attorney’s fees, and costs of suit which Allied and Metrobank
are adjudged to pay Lim Sio Wan based on a proportion of 60:40.
WHEREFORE, the petition is PARTLY GRANTED. The March 18,
1998 CA Decision in CA-G.R. CV No. 46290 and the November 15,
1993 RTC Decision in Civil Case No. 6757 are AFFIRMED with
MODIFICATION.
Thus, the CA Decision is AFFIRMED, the fallo of which is
reproduced, as follows:
WHEREFORE, premises considered, the decision appealed from is
MODIFIED. Judgment is rendered ordering and sentencing defendant-
appellant Allied Banking Corporation to pay sixty (60%) percent and
defendant-appellee Metropolitan Bank and Trust Company forty (40%)
of the amount of P1,158,648.49 plus 12% interest per annum from
March 16, 1984 until fully paid. The moral damages, attorney’s fees and
costs of suit adjudged shall likewise be paid by defendant-appellant
Allied Banking Corporation and defendant-appellee Metropolitan Bank
and Trust Company in the same proportion of 60-40. Except as thus
modified, the decision appealed from is AFFIRMED.
SO ORDERED.
Additionally and by way of MODIFICATION, Producers Bank is
hereby ordered to pay Allied and Metrobank the aforementioned
amounts. The liabilities of the parties are concurrent and independent of
each other.
SO ORDERED.
11.
G.R. No. 156940 December 14, 2004
ASSOCIATED BANK (Now WESTMONT BANK), petitioner,
vs.
VICENTE HENRY TAN, respondent.
DECISION
PANGANIBAN, J.:
While banks are granted by law the right to debit the value of a
dishonored check from a depositor’s account, they must do so with the
highest degree of care, so as not to prejudice the depositor unduly.
26
Banking Laws under Atty. Fontanilla
The Case probity, plaintiff claimed that he suffered embarrassment, humiliation,
besmirched reputation, mental anxieties and sleepless nights because of
the said unfortunate incident. [Respondent] further averred that he
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, continuously lost profits in the amount of P250,000.00. [Respondent]
assailing the January 27, 2003 Decision2 of the Court of Appeals (CA) therefore prayed for exemplary damages and that [petitioner] be ordered
in CA-GR CV No. 56292. The CA disposed as follows: to pay him the sum of P1,000,000.00 by way of moral damages,
P250,000.00 as lost profits, P50,000.00 as attorney’s fees plus 25% of
the amount claimed including P1,000.00 per court appearance.
"WHEREFORE, premises considered, the Decision dated December 3,
1996, of the Regional Trial Court of Cabanatuan City, Third Judicial
Region, Branch 26, in Civil Case No. 892-AF is hereby AFFIRMED. "Meanwhile, [petitioner] filed a Motion to Dismiss on February 7, 1991,
Costs against the [petitioner]."3 but the same was denied for lack of merit in an Order dated March 7,
1991. Thereafter, [petitioner] BANK on March 20, 1991 filed its
Answer denying, among others, the allegations of [respondent] and
The Facts
alleged that no banking institution would give an assurance to any of its
client/depositor that the check deposited by him had already been
The CA narrated the antecedents as follows: cleared and backed up by sufficient funds but it could only presume that
the same has been honored by the drawee bank in view of the lapse of
time that ordinarily takes for a check to be cleared. For its part,
"Vicente Henry Tan (hereafter TAN) is a businessman and a regular [petitioner] alleged that on October 2, 1990, it gave notice to the
depositor-creditor of the Associated Bank (hereinafter referred to as the [respondent] as to the return of his UCPB check deposit in the amount
BANK). Sometime in September 1990, he deposited a postdated UCPB of P101,000.00, hence, on even date, [respondent] deposited the amount
check with the said BANK in the amount of P101,000.00 issued to him of P50,000.00 to cover the returned check.
by a certain Willy Cheng from Tarlac. The check was duly entered in
his bank record thereby making his balance in the amount of
P297,000.00, as of October 1, 1990, from his original deposit of "By way of affirmative defense, [petitioner] averred that [respondent]
P196,000.00. Allegedly, upon advice and instruction of the BANK that had no cause of action against it and argued that it has all the right to
the P101,000.00 check was already cleared and backed up by sufficient debit the account of the [respondent] by reason of the dishonor of the
funds, TAN, on the same date, withdrew the sum of P240,000.00, check deposited by the [respondent] which was withdrawn by him prior
leaving a balance of P57,793.45. A day after, TAN deposited the amount to its clearing. [Petitioner] further averred that it has no liability with
of P50,000.00 making his existing balance in the amount of respect to the clearing of deposited checks as the clearing is being
P107,793.45, because he has issued several checks to his business undertaken by the Central Bank and in accepting [the] check deposit, it
partners, to wit: merely obligates itself as depositor’s collecting agent subject to actual
payment by the drawee bank. [Petitioner] therefore prayed that
[respondent] be ordered to pay it the amount of P1,000,000.00 by way
CHECK NUMBERS DATE AMOUNT of loss of goodwill, P7,000.00 as acceptance fee plus P500.00 per
appearance and by way of attorney’s fees.
a. 138814 Sept. 29, 1990 P9,000.00
b. 138804 Oct. 8, 1990 9,350.00
"Considering that Westmont Bank has taken over the management of
c. 138787 Sept. 30, 1990 6,360.00
the affairs/properties of the BANK, [respondent] on October 10, 1996,
d. 138847 Sept. 29, 1990 21,850.00 filed an Amended Complaint reiterating substantially his allegations in
the original complaint, except that the name of the previous defendant
e. 167054 Sept. 29, 1990 4,093.40
ASSOCIATED BANK is now WESTMONT BANK.
f. 138792 ` Sept. 29, 1990 3,546.00
g. 138774 Oct. 2, 1990 6,600.00
"Trial ensured and thereafter, the court rendered its Decision dated
h. 167072 Oct. 10, 1990 9,908.00 December 3, 1996 in favor of the [respondent] and against the
i. 168802 Oct. 10, 1990 3,650.00 [petitioner], ordering the latter to pay the [respondent] the sum of
P100,000.00 by way of moral damages, P75,000.00 as exemplary
damages, P25,000.00 as attorney’s fees, plus the costs of this suit. In
"However, his suppliers and business partners went back to him alleging making said ruling, it was shown that [respondent] was not officially
that the checks he issued bounced for insufficiency of funds. Thereafter, informed about the debiting of the P101,000.00 [from] his existing
TAN, thru his lawyer, informed the BANK to take positive steps balance and that the BANK merely allowed the [respondent] to use the
regarding the matter for he has adequate and sufficient funds to pay the fund prior to clearing merely for accommodation because the BANK
amount of the subject checks. Nonetheless, the BANK did not bother considered him as one of its valued clients. The trial court ruled that the
nor offer any apology regarding the incident. Consequently, TAN, as bank manager was negligent in handling the particular checking account
plaintiff, filed a Complaint for Damages on December 19, 1990, with of the [respondent] stating that such lapses caused all the inconveniences
the Regional Trial Court of Cabanatuan City, Third Judicial Region, to the [respondent]. The trial court also took into consideration that
docketed as Civil Case No. 892-AF, against the BANK, as defendant. [respondent’s] mother was originally maintaining with the x x x BANK
[a] current account as well as [a] time deposit, but [o]n one occasion,
although his mother made a deposit, the same was not credited in her
"In his [C]omplaint, [respondent] maintained that he ha[d] sufficient favor but in the name of another."4
funds to pay the subject checks and alleged that his suppliers decreased
in number for lack of trust. As he has been in the business community
for quite a time and has established a good record of reputation and
Petitioner appealed to the CA on the issues of whether it was within its
rights, as collecting bank, to debit the account of its client for a
dishonored check; and whether it had informed respondent about the
dishonor prior to debiting his account.
Ruling of the Court of Appeals
Affirming the trial court, the CA ruled that the bank should not have
authorized the withdrawal of the value of the deposited check prior to
its clearing. Having done so, contrary to its obligation to treat
respondent’s account with meticulous care, the bank violated its own
policy. It thereby took upon itself the obligation to officially inform
respondent of the status of his account before unilaterally debiting the
amount of P101,000. Without such notice, it is estopped from blaming
him for failing to fund his account.
The CA opined that, had the P101,000 not been debited, respondent
would have had sufficient funds for the postdated checks he had issued.
Thus, the supposed accommodation accorded by petitioner to him is the
proximate cause of his business woes and shame, for which it is liable
for damages.
Because of the bank’s negligence, the CA awarded respondent moral
damages of P100,000. It also granted him exemplary damages of
P75,000 and attorney’s fees of P25,000.
Hence this Petition.5
Issue
In its Memorandum, petitioner raises the sole issue of "whether or not
the petitioner, which is acting as a collecting bank, has the right to debit
the account of its client for a check deposit which was dishonored by
the drawee bank."6
The Court’s Ruling
The Petition has no merit.
Sole Issue:
Debit of Depositor’s Account
Petitioner-bank contends that its rights and obligations under the present
set of facts were misappreciated by the CA. It insists that its right to
debit the amount of the dishonored check from the account of
respondent is clear and unmistakable. Even assuming that it did not give
him notice that the check had been dishonored, such right remains
immediately enforceable.
In particular, petitioner argues that the check deposit slip accomplished
by respondent on September 17, 1990, expressly stipulated that the bank
was obligating itself merely as the depositor’s collecting agent and --
until such time as actual payment would be made to it -- it was reserving
the right to charge against the depositor’s account any amount
previously credited. Respondent was allowed to withdraw the amount
of the check prior to clearing, merely as an act of accommodation, it
added.
At the outset, we stress that the trial court’s factual findings that were
affirmed by the CA are not subject to review by this Court.7 As
petitioner itself takes no issue with those findings, we need only to
determine the legal consequence, based on the established facts.
Right of Setoff
A bank generally has a right of setoff over the deposits therein for the
payment of any withdrawals on the part of a depositor.8 The right of a
collecting bank to debit a client’s account for the value of a dishonored
check that has previously been credited has fairly been established by
jurisprudence. To begin with, Article 1980 of the Civil Code provides
that "[f]ixed, savings, and current deposits of money in banks and
similar institutions shall be governed by the provisions concerning
simple loan."
Hence, the relationship between banks and depositors has been held to
be that of creditor and debtor.9 Thus, legal compensation under Article
127810 of the Civil Code may take place "when all the requisites
mentioned in Article 1279 are present,"11 as follows:
"(1) That each one of the obligors be bound principally, and that he be
at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if
the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the
debtor."12
Nonetheless, the real issue here is not so much the right of petitioner to
debit respondent’s account but, rather, the manner in which it exercised
such right. The Court has held that even while the right of setoff is
conceded, separate is the question of whether that remedy has properly
been exercised.13
The liability of petitioner in this case ultimately revolves around the
issue of whether it properly exercised its right of setoff. The
determination thereof hinges, in turn, on the bank’s role and obligations,
first, as respondent’s depositary bank; and second, as collecting agent
for the check in question.
Obligation as
Depositary Bank
27
Banking Laws under Atty. Fontanilla
In BPI v. Casa Montessori,14 the Court has emphasized that the banking
business is impressed with public interest. "Consequently, the highest
degree of diligence is expected, and high standards of integrity and
performance are even required of it. By the nature of its functions, a
bank is under obligation to treat the accounts of its depositors with
meticulous care."15
Also affirming this long standing doctrine, Philippine Bank of
Commerce v. Court of Appeals16 has held that "the degree of diligence
required of banks is more than that of a good father of a family where
the fiduciary nature of their relationship with their depositors is
concerned."17 Indeed, the banking business is vested with the trust and
confidence of the public; hence the "appropriate standard of diligence
must be very high, if not the highest, degree of diligence."18 The
standard applies, regardless of whether the account consists of only a
few hundred pesos or of millions.19
The fiduciary nature of banking, previously imposed by case law,20 is
now enshrined in Republic Act No. 8791 or the General Banking Law
of 2000. Section 2 of the law specifically says that the State recognizes
the "fiduciary nature of banking that requires high standards of integrity
and performance."
Did petitioner treat respondent’s account with the highest degree of
care? From all indications, it did not.
It is undisputed -- nay, even admitted -- that purportedly as an act of
accommodation to a valued client, petitioner allowed the withdrawal of
the face value of the deposited check prior to its clearing. That act
certainly disregarded the clearance requirement of the banking system.
Such a practice is unusual, because a check is not legal tender or
money;21 and its value can properly be transferred to a depositor’s
account only after the check has been cleared by the drawee bank.22
Under ordinary banking practice, after receiving a check deposit, a bank
either immediately credit the amount to a depositor’s account; or infuse
value to that account only after the drawee bank shall have paid such
amount.23 Before the check shall have been cleared for deposit, the
collecting bank can only "assume" at its own risk -- as herein petitioner
did -- that the check would be cleared and paid out.
Reasonable business practice and prudence, moreover, dictated that
petitioner should not have authorized the withdrawal by respondent of
P240,000 on October 1, 1990, as this amount was over and above his
outstanding cleared balance of P196,793.45.24 Hence, the lower courts
correctly appreciated the evidence in his favor.
Obligation as
Collecting Agent
Indeed, the bank deposit slip expressed this reservation:
"In receiving items on deposit, this Bank obligates itself only as the
Depositor’s Collecting agent, assuming no responsibility beyond
carefulness in selecting correspondents, and until such time as actual
payments shall have come to its possession, this Bank reserves the right
to charge back to the Depositor’s account any amounts previously
credited whether or not the deposited item is returned. x x x."25
However, this reservation is not enough to insulate the bank from any
liability. In the past, we have expressed doubt about the binding force
of such conditions unilaterally imposed by a bank without the consent
of the depositor.26 It is indeed arguable that "in signing the deposit slip,
the depositor does so only to identify himself and not to agree to the
conditions set forth at the back of the deposit slip."27
Further, by the express terms of the stipulation, petitioner took upon
itself certain obligations as respondent’s agent, consonant with the well-
settled rule that the relationship between the payee or holder of a
commercial paper and the collecting bank is that of principal and
agent.28 Under Article 190929 of the Civil Code, such bank could be
held liable not only for fraud, but also for negligence.
As a general rule, a bank is liable for the wrongful or tortuous acts and
declarations of its officers or agents within the course and scope of their
employment.30 Due to the very nature of their business, banks are
expected to exercise the highest degree of diligence in the selection and
supervision of their employees.31 Jurisprudence has established that the
lack of diligence of a servant is imputed to the negligence of the
employer, when the negligent or wrongful act of the former proximately
results in an injury to a third person;32 in this case, the depositor.
The manager of the bank’s Cabanatuan branch, Consorcia Santiago,
categorically admitted that she and the employees under her control had
breached bank policies. They admittedly breached those policies when,
without clearance from the drawee bank in Baguio, they allowed
respondent to withdraw on October 1, 1990, the amount of the check
deposited. Santiago testified that respondent "was not officially
informed about the debiting of the P101,000 from his existing balance
of P170,000 on October 2, 1990 x x x."33
Being the branch manager, Santiago clearly acted within the scope of
her authority in authorizing the withdrawal and the subsequent debiting
without notice. Accordingly, what remains to be determined is whether
her actions proximately caused respondent’s injury. Proximate cause is
that which -- in a natural and continuous sequence, unbroken by any
efficient intervening cause --produces the injury, and without which the
result would not have occurred.34
Let us go back to the facts as they unfolded. It is undeniable that the
bank’s premature authorization of the withdrawal by respondent on
October 1, 1990, triggered -- in rapid succession and in a natural
sequence -- the debiting of his account, the fall of his account balance
to insufficient levels, and the subsequent dishonor of his own checks for
lack of funds. The CA correctly noted thus:
"x x x [T]he depositor x x x withdrew his money upon the advice by
[petitioner] that his money was already cleared. Without such advice,
[respondent] would not have withdrawn the sum of P240,000.00.
Therefore, it cannot be denied that it was [petitioner’s] fault which
allowed [respondent] to withdraw a huge sum which he believed was
already his.
"To emphasize, it is beyond cavil that [respondent] had sufficient funds
for the check. Had the P101,000.00 not [been] debited, the subject
checks would not have been dishonored. Hence, we can say that
[respondent’s] injury arose from the dishonor of his well-funded checks.
x x x."35
Aggravating matters, petitioner failed to show that it had immediately
and duly informed respondent of the debiting of his account.
Nonetheless, it argues that the giving of notice was discernible from his
act of depositing P50,000 on October 2, 1990, to augment his account
and allow the debiting. This argument deserves short shrift.
First, notice was proper and ought to be expected. By the bank
manager’s account, respondent was considered a "valued client" whose
checks had always been sufficiently funded from 1987 to 1990,36 until
the October imbroglio. Thus, he deserved nothing less than an official
notice of the precarious condition of his account.
Second, under the provisions of the Negotiable Instruments Law
regarding the liability of a general indorser37 and the procedure for a
notice of dishonor,38 it was incumbent on the bank to give proper notice
to respondent. In Gullas v. National Bank,39 the Court emphasized:
"x x x [A] general indorser of a negotiable instrument engages that if the
instrument – the check in this case – is dishonored and the necessary
proceedings for its dishonor are duly taken, he will pay the amount
thereof to the holder (Sec. 66) It has been held by a long line of
authorities that notice of dishonor is necessary to charge an indorser and
that the right of action against him does not accrue until the notice is
given.
"x x x. The fact we believe is undeniable that prior to the mailing of
notice of dishonor, and without waiting for any action by Gullas, the
bank made use of the money standing in his account to make good for
the treasury warrant. At this point recall that Gullas was merely an
indorser and had issued checks in good faith. As to a depositor who has
funds sufficient to meet payment of a check drawn by him in favor of a
third party, it has been held that he has a right of action against the
bank for its refusal to pay such a check in the absence of notice to him
that the bank has applied the funds so deposited in extinguishment of
past due claims held against him. (Callahan vs. Bank of Anderson
[1904], 2 Ann. Cas., 203.) However this may be, as to an indorser the
situation is different, and notice should actually have been given him in
order that he might protect his interests."40
Third, regarding the deposit of P50,000 made by respondent on October
2, 1990, we fully subscribe to the CA’s observations that it was not
unusual for a well-reputed businessman like him, who "ordinarily takes
note of the amount of money he takes and releases," to immediately
deposit money in his current account to answer for the postdated checks
he had issued.41
Damages
Inasmuch as petitioner does not contest the basis for the award of
damages and attorney’s fees, we will no longer address these matters.
WHEREFORE, the Petition is DENIED and the assailed Decision
AFFIRMED. Costs against petitioner.
SO ORDERED.
12.
[G.R. No. 153571. September 18, 2003.]
BENGUET MANAGEMENT CORPORATION, Petitioner, v.
COURT OF APPEALS, KEPPEL BANK PHILIPPINES, INC., as
Trustee for METROPOLITAN BANK AND TRUST COMPANY,
UNITED COCONUT PLANTERS BANK, RIZAL
COMMERCIAL BANKING CORPORATION, FAR EAST
BANK AND TRUST COMPANY and BANK OF THE
PHILIPPINE ISLANDS under the Mortgage Trust Indenture, and
THE REGISTER OF DEEDS OF CALAMBA, Respondents.
DECISION
YNARES-SANTIAGO, J.:
Assailed in this petition for certiorari under Rule 65 of the Revised
Rules of Court is the Resolution of the Court of Appeals in CA-G.R. SP
No. 69503 dated April 5, 2002, 1 which denied petitioner’s application
for the issuance of a temporary restraining order, as well as its May 28,
2002 2 Resolution denying the motion for reconsideration.
The antecedent facts reveal that on November 29, 1994, petitioner
Benguet Management Corporation (BMC) and Keppel Bank Philippines,
Inc. (KBPI), 3 acting as trustee of the other respondent banks, entered
into a Loan Agreement and Mortgage Trust Indenture (MTI) whereby
BMC, in consideration of the syndicated loan of P190,000,000.00,
constituted in favor of KBPI a mortgage on several lots located in
Alaminos, Laguna and Iba, Zambales.
On September 28, 2001, for failure of BMC to pay in full the
installments due on the Loan Agreement and Mortgage Trust Indenture,
KBPI filed an application 4 for extra-judicial foreclosure of mortgage
before the Office of the Clerk of Court of the Regional Trial Court of
Iba, Zambales. On October 29, 2001, a similar application 5 for extra
judicial foreclosure of mortgage was filed by KBPI with the Office of
the Clerk of Court of the Regional Trial Court of San Pablo City,
docketed as EJF No. Sp-2546 (01). Accompanying the latter application
was a certification 6 from the Clerk of Court of the Regional Trial Court
of Iba, Zambales, stating that KBPI had paid the corresponding
foreclosure fees covering BMC’s properties situated in Zambales and
Laguna.chanrob1es virtua1 1aw 1ibrary
On October 31, 2001, BMC filed with the Office of the Executive Judge
of the Regional Trial Court of San Pablo City a "Request Not To Give
Due Course To The Application for Extra-Judicial Foreclosure. . ." 7 in
EJF No. Sp-2546 (01). BMC claimed that the application should be
denied because it is insufficient in form and substance and there is no
need to proceed with the foreclosure of its properties situated in Laguna
because it was willing to execute a dacion en pago in place of the
mortgaged properties. Subsequently, BMC filed a "Compliance and
Supplementary Grounds to Disapprove Application for Extra judicial
Foreclosure of Real Estate Mortgage" 8 and a Memorandum. 9 BMC
contended that the application for foreclosure should be denied because
KBPI included unauthorized penalties in the statement of accounts and
it did not comply with its obligation to give BMC a 60-day grace period.
28
Banking Laws under Atty. Fontanilla
BMC further claimed that the MTI securing the principal loan of P190
Million cannot be foreclosed because it was not registered with the
Register of Deeds.
KBPI opposed the letter-request of BMC on the ground, inter alia, of
wrong remedy and forum shopping. 10
Meanwhile, on November 7, 2001, BMC filed with the Regional Trial
Court of Iba, Zambales, Branch 70, a complaint for damages, accounting
and nullification of foreclosure of its properties in Zambales, with
prayer for the issuance of a temporary restraining order, docketed as
Civil Case No. RTC-1852-I. 11 BMC averred that the foreclosure of its
properties should be annulled because KBPI imposed unauthorized
penalties, interest and charges. Assuming that the amount claimed is due
and demandable, BMC maintained that the same cannot be enforced
because KBPI did not comply with the 60-day grace period. BMC added
that dacion en pago should be preferred over the foreclosure of the
collaterals because the other respondent banks are agreeable to such
proposal.
On the same date, the Regional Trial Court of Iba, Zambales issued a
temporary restraining order enjoining the sale at public auction of
BMC’s properties in Zambales. 12
On February 6, 2002, KBPI’s application for extra-judicial foreclosure
of mortgage was found to be sufficient in form and substance, and was
granted. 13 BMC filed a motion for reconsideration, which was denied
on March 4, 2002. 14
Hence, BMC filed a petition for certiorari with the Court of Appeals,
15 reiterating its arguments in EJF No. Sp-2546 (01) and assailing the
validity of the foreclosure of its properties in Laguna. It prayed for the
issuance of a preliminary injunction and/or temporary restraining order
to enjoin the scheduled sale of its properties in Laguna on March 19,
2002 at 10:00 pm. Since no injunction or restraining order was issued
by the Court of Appeals, the auction sale proceeded as scheduled with
KBPI as the highest bidder.
To restrain the registration of the certificate of sale, 16 BMC filed a
Supplemental Petition 17 which was favorably acted upon by the Court
of Appeals on March 22, 2002. 18 On the same day, a temporary
restraining order enjoining the registration of the certificate of sale was
issued by the appellate court, albeit, late as the certificate was already
registered at 2:15 p.m. of March 22, 2002.
Subsequently, BMC filed with the appellate court an Amended
Supplemental Petition, 19 followed by an Urgent Manifestation 20
praying for the issuance of a writ of preliminary injunction and/or
temporary restraining order to enjoin the consolidation of titles over the
foreclosed properties in the name of respondent banks. BMC contended
that the foreclosure sale should be annulled because — (1) the bid price
was grossly inadequate; (2) the sale was conducted in violation of
Sections 2 and 3 of Act No. 3135 on the requirements of place of sale
and posting of notice; and (3) the other creditor banks are amenable to
the proposed dacion en pago instead of the foreclosure.
In its Resolution dated April 5, 2002, the Court of Appeals denied
BMC’s prayer to restrain the consolidation of title in the name of KBPI,
thus:chanrob1es virtual 1aw library
The petitioner’s filing of an Amended Supplemental Petition dated
March 25, 2002, and an Urgent Manifestation dated March 27, 2002 is
hereby noted.chanrob1es virtua1 1aw 1ibrary
However, we see no justifiable reason to grant an injunctive relief at this
point in time, since the acts sought to be restrained or enjoined are
positive rights of a buyer in a foreclosure sale. Unless the petitioner
could prove the nullity of such sale, there is no reason to stop the
Register of Deeds concerned from performing its ministerial duty under
the law.
WHEREFORE, the application for temporary restraining order in the
Amended Supplemental Petition is hereby DENIED.
The respondents are directed to also file their comment thereto within
ten (10) days from notice hereof. Should the parties prefer, the case shall
be set for hearing to enable the parties to prove their respective positions
as to issues in the petition as well as subsequent Supplemental Petition
and Amended Supplemental Petition.
In the meantime, the Chief of the Mailing Section is directed to
investigate and report to us within fifteen (15) days from notice, how
and who made the unauthorized insertion of the "Register of Deeds of
Laguna" to the Court’s Notice of Resolution of March 22, 2002.
SO ORDERED. 21
BMC filed a motion for reconsideration claiming, among others, that
Section 47 of the General Banking Act (Republic Act No. 8791), which
reduced the period of redemption for extra-judicially foreclosed
properties of juridical persons from one year to — "until, but not after,
the registration of the certificate of foreclosure sale . . . which in no case
shall be more than three (3) months after foreclosure, whichever is
earlier," is unduly discriminatory and therefore unconstitutional.
On May 28, 2002, the Court of Appeals denied BMC’s motion for
reconsideration. 22 Hence, BMC filed the instant petition, contending
that —
I THE REQUIREMENTS OF SECTION 3 OF ACT 3135, AS
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF
DISCRETION IN DENYING PETITIONER’S APPLICATION FOR
TRO TO RESTRAIN THE CONSOLIDATION OF TITLES AFTER
IT HAD EARLIER RESTRAINED, ALBEIT TOO LATE, THE
REGISTRATION OF THE SHERIFF’S CERTIFICATE OF SALE,
DEMONSTRATIVELY HAVING BEEN CONVINCED OF THE
MERIT OF THE LEGAL GROUNDS RAISED BY THE
PETITIONER IN SUPPORT OF THE APPLICATION FOR
TEMPORARY RESTRAINING ORDER.
II
THE NEW LAW (GENERAL BANKING LAW OF 2000)
ABROGATING THE RIGHT TO ONE YEAR REDEMPTION
PERIOD OF CORPORATE MORTGAGORS IS
UNCONSTITUTIONAL.
III
ASSUMING THAT THE NEW LAW IS CONSTITUTIONAL, IT
SHOULD BE GIVEN PROSPECTIVE APPLICATION.
IV
THE BID PRICE OF ONLY P162,354,329.46 FOR THE FOUNDRY
PROJECT WITH A FAIR MARKET VALUE OF P444,184,000.00,
SOUND VALUE OF P493,732,000.00 COST OF REPRODUCTION
OF P989,605,000.00 IS SO GROSSLY INADEQUATE AS TO
RENDER THE SALE NULL AND VOID IN LAW AND IN
EQUITY.
V mortgaged and their respective locations, which certificate shall serve
THE AUCTION SALE CONDUCTED IN SAN PABLO CITY IS
NULL AND VOID FOR BEING IN VIOLATION OF SECTION 2
OF ACT 3135, AS AMENDED AND THE EXPRESS PROVISION
OF THE MORTGAGE TRUST INDENTURE THAT: IN ANY
EXTRA-JUDICIAL FORECLOSURE UNDER ACT 3135, AS
AMENDED . . . THE AUCTION SALE SHALL TAKE PLACE IN
THE CITY OR CAPITAL OF THE PROVINCE WHERE THE
COLLATERAL IS SITUATED.
VI
AMENDED, FOR POSTING OF NOTICES WERE NOT
COMPLIED WITH IN THE FORECLOSURE PROCEEDINGS IN
QUESTION.
VII
THE INTEREST BASED ON THE FLOATING RATE STIPULATED
IN THE PROMISSORY NOTES IS NULL AND VOID FOR BEING
POTESTATIVE IN CHARACTER AND FOR BEING VIOLATIVE
OF THE PRINCIPLE OF MUTUALITY OF CONTRACT, HENCE
THE FORECLOSURE MAY PROCEED ONLY ONCE THE
CORRECT LEGAL AMOUNT OF THE LOAN IS DETERMINED
AND ONLY IF THE MORTGAGOR CANNOT PAY FOLLOWING
THAT DETERMINATION. 23
On June 26, 2002, a status quo order was issued enjoining the
cancellation of titles over the mortgaged properties in the name of BMC
as well as the issuance of new titles and the consolidation thereof in the
name of private respondent banks 24
We deem it proper to resolve the issue of forum shopping raised by
private respondents.
Under the Procedure on Extra-Judicial Foreclosure of Mortgage (A.M.
No. 99-10-05-0), 25 the applicant in an extra-judicial foreclosure
covering properties located in different provinces is required to pay only
one filing fee regardless of the number of properties to be foreclosed so
long as the application covers only one transaction or indebtedness. The
venue, however, of the extra-judicial foreclosure proceedings is the
place where each of the mortgaged property is located. Pertinent portion
thereof states —
Where the application concerns the extra-judicial foreclosure of
mortgages, of real estates and/or chattels in different locations covering
one indebtedness, only one filing fee corresponding to such
indebtedness shall be collected. The collecting Clerk of Court shall,
apart from the official receipt of the fees, issue a certificate of payment
indicating the amount of indebtedness, the filing fees collected, the
mortgages sought to be foreclosed, the real estates and/or chattels
the purpose of having the application docketed with the Clerks of Court
of the places where the other properties are located and of allowing the
extra-judicial foreclosures to proceed thereat.
In Spouses Caviles v. Court of Appeals, 26 we recognized the
predicament that confronts a mortgagor seeking to restrain the extra
judicial foreclosure of mortgages arising from a single transaction but
concerning properties found in different provinces. Thus —
. . . [W]e find it necessary to dwell on the issue of whether or not the act
of petitioners in filing three civil actions — one with the RTC of Makati,
another with the RTC of Biñan, Laguna (Branch 24) and the third one,
with the Biñan Assisting Court, constitutes forum shopping.
The problem of petitioners is an off-shoot of the express provisions of
B.P. Blg. 129, to wit:jgc:chanrobles.com.ph
"Sec. 21. Original jurisdiction in other cases. — Regional Trial Courts
shall exercise original jurisdiction:jgc:chanrobles.com.ph
"(1) In the issuance of writs of certiorari, prohibition, mandamus, quo
warranto, habeas corpus and injunction which may be enforced in any
part of their respective regions; (Emphasis, supplied)chanrob1es virtual
law library
and Section 3, Rule 2 of the Rules of Court which provides that a party
may not institute more than one suit for a single cause of action.
(Emphasis supplied)
In the said case, the mortgagors filed separate actions for breach of
mortgage contract with injunction to restrain the extra-judicial
foreclosure proceedings commenced by the mortgagee in Makati and
Biñan, Laguna where the properties were situated. The Court did not
find the mortgagors guilty of forum shopping insofar as the cases filed
with the Makati and Biñan, Laguna (Branch 24) courts were concerned.
The obvious reason is that since injunction is enforceable only within
the territorial limits of the trial court, the mortgagor is left without
29
Banking Laws under Atty. Fontanilla
remedy as to the properties located outside the jurisdiction of the issuing
court, unless an application for injunction is made with another court
which has jurisdiction over the latter properties.
In the case at bar, BMC is not guilty of forum shopping precisely
because the remedy available to them under the law was the filing of
separate injunction suits. It is mandated to file only one case for a single
cause of action, e.g., breach of mortgage contract, yet, it cannot enforce
any injunctive writ issued by the court to protect its properties situated
outside the jurisdiction of said court. Besides, BMC was honest enough
to inform the Zambales court in the certification 27 of its complaint that
it has a pending request not to give due course to the foreclosure
proceedings with the San Pablo court, in the same manner that its
petition for certiorari with the Court of Appeals notified the appellate
court of the pendency of its complaint with the Zambales court. 28 It
would therefore be unfair to dismiss the cases filed by BMC on the
ground of forum shopping where under the circumstances the law gives
it no other remedy.
The issues involved in the instant petition for certiorari are not only
limited to the propriety of the Court of Appeals’ denial of BMC’s prayer
to enjoin the consolidation of title of the foreclosed properties in the
name of private respondents. There are likewise raised factual issues,
i.e., the validity of the foreclosure and the sale at public auction of its
properties, which are yet to be resolved by the Court of Appeals. Since
this Court is not a trier of facts, the remand of this case to the appellate
court is necessary.
Anent the constitutional issue raised by BMC, we have repeatedly held
that the constitutionality of a law may be passed upon by the Court,
where there is an actual case and that the resolution of the constitutional
question must be necessary in deciding the controversy. 29 In this case,
the resolution of the constitutionality of Section 47 of the General
Banking Act (Republic Act No. 8791) which reduced the period of
redemption of extra-judicially foreclosed properties of juridical persons
is not the very lis mota of the controversy. BMC is not asserting a legal
right for which it is entitled to a judicial determination at this time
inasmuch as it may not even be entitled to redeem the foreclosed
properties. Until an actual controversy is brought to test the
constitutionality of Republic Act No. 8791, the presumption of validity,
which inheres in every statute, must be accorded to it.chanrob1es virtua1
1aw 1ibrary
WHEREFORE, in view of all the foregoing, the petition is PARTLY
GRANTED. The Resolutions of the Court of Appeals dated April 5,
2002 and May 28, 2002, in CA-G.R. SP No. 69503, insofar as they
denied BMC’s application for temporary restraining order, are
REVERSED and SET ASIDE. The status quo order issued by the Court
on June 26, 2002 shall stand until further order of the Court, and the
instant case is REMANDED to the Court of Appeals for determination
of the case on its merits. Petitioner BMC is ordered to inform the
appellate court of the present status of Civil Case No. RTC-1852-1, then
pending with the Regional Trial Court of Iba, Zambales, Branch 70, and
if it had been decided and the decision is on appeal in the Court of
Appeals, the latter may consider its consolidation with CA-G.R. SP No.
69503 if warranted.
No pronouncement as to costs.
SO ORDERED.
13.
G.R. No. 168088 April 3, 2007
SAN FERNANDO RURAL BANK, INC., Petitioner
vs.
PAMPANGA OMNIBUS DEVELOPMENT CORPORATION
and DOMINIC G. AQUINO, Respondents.
DECISION
CALLEJO, SR., J.:
Before the Court is a Petition for Review under Rule 45 of the Rules of
Court, assailing the Decision1 of the Court of Appeals (CA) in CA-G.R.
SP No. 75787 as well as the Resolution2 which denied the motion for
reconsideration thereof. The appellate court set aside the Order 3 of the
Regional Trial Court (RTC), San Fernando, Pampanga, Branch 44, in
LRC No. 890, which in turn had granted the petition of San Fernando
Rural Bank, Inc. (petitioner) for the issuance of a writ of possession.
The Antecedents
Pampanga Omnibus Development Corporation (respondent PODC) was
the registered owner of a parcel of land in San Fernando, Pampanga
(now San Fernando City). The 61,579-square-meter lot was covered by
Transfer Certificate of Title (TCT) No. 275745-R.
Respondent PODC secured two loans from petitioner and Masantol
Rural Bank, Inc. (MRBI) at an annual interest of 24%: ₱750,000.00 on
April 20, 1989, to mature on April 15, 1990;4 and another ₱750,000.00
on May 3, 1989, payable on April 28, 1990.5 The loans were evidenced
by separate promissory notes executed by Federico R. Mendoza and
Anastacio E. de Vera. To secure payment of the loans, respondent
PODC executed a real estate mortgage over the subject lot in favor of
the creditor banks.6 The contract provided that in case of failure or
refusal of the mortgagor to pay the obligation secured thereby, the real
estate mortgage may be extrajudicially foreclosed in accordance with
Act No. 3135, as amended.7
Eliza M. Garbes (PODC President and daughter of Federico Mendoza),
together with her husband Aristedes Garbes, secured a ₱950,000.00 loan
from petitioner on March 27, 1992. The loan was to mature after 180
days or on September 23, 1992.8 Mendoza signed as co-borrower in the
promissory note executed by the spouses. The spouses also executed a
chattel mortgage over their personal property as security for the payment
of their loan account.9
Upon respondent PODC’s failure to pay its loan to petitioner, the latter
filed a petition for extrajudicial foreclosure of real estate mortgage and
at the auction on April 23, 2001, petitioner emerged as the winning
bidder for ₱1,245,982.05. The Ex-Officio Sheriff executed a Certificate
of Sale10 on May 9, 2001 which stated that "the period of redemption of
the property shall expire one (1) year after registration in the Register of
Deeds." The certificate was annotated at the dorsal portion of TCT No.
275745-R on June 7, 2001. Petitioner did not file a petition for a writ of
possession during the redemption period.
On May 11, 2002, petitioner, through Eliza Garbes (with the authority
of petitioner’s board of directors),11 executed a notarized deed of
assignment12 in favor of respondent Dominic G. Aquino over its right to
redeem the property. On May 29, 2002, respondent Aquino offered to
redeem the property for ₱1,588,094.28, but petitioner rejected the offer
and demanded the payment of ₱16,805,414.71 (including the loan of the
spouses Garbes)13 as redemption money. Respondent Aquino rejected
the demand of petitioner.
On May 30, 2002, respondent Aquino remitted Cashier’s Check No.
000020275614 for ₱1,588,094.28 to the Ex-Officio Sheriff as
redemption money for the property for which he was issued Receipt No.
15582906 dated May 31, 2002.15
In a letter16 dated June 4, 2002, the Ex-Officio Sheriff informed
petitioner that the property had been redeemed by respondent Aquino
for ₱1,588,094.28. She requested petitioner for the computation of the
correct redemption price before the lapse of the reglementary period to
redeem the property. Petitioner then submitted a statement of account
indicating that the redemption price was ₱9,052,309.23, and including
the loan of the spouses Garbes (₱7,753,105.48), a total of
₱16,805,414.71.17 Thereafter, the Ex-Officio Sheriff computed the
redemption price (based on the General Banking Act [R.A. No. 8791],
and The Rural Bank Act of 1992 R.A. No. 7353) to be ₱5,194,742.50. 18
When respondent Aquino was apprised of this, he remitted on June 7,
2002 a cashier’s check for ₱3,606,648.52, representing the difference
between the redemption price computed by the Ex-Officio Sheriff
(₱5,194,742.50) and the amount he had earlier paid (₱1,588,094.28).
The Ex-Officio Sheriff issued Official Receipt No. 15582907 to
respondent Aquino, and on June 7, 2002, a Certificate of Redemption. 19
The certificate reads in part:
WHEREAS, before the expiration of the one (1) year period to redeem,
by virtue of the Deed of Assignment executed by the President of the
Pampanga Omnibus Dev’t. Corp., Mr. DOMINIC G. AQUINO
redeemed the said property in the total amount of FIVE MILLION ONE
HUNDRED NINETY-FOUR THOUSAND SEVEN HUNDRED
FORTY-TWO and 50/100 (₱5,194,742.50) paid under Official Receipts
Nos. 15582906 and 15582907 dated May 31, 2002 and June 7, 2002,
respectively, and have issued this CERTIFICATE OF REDEMPTION
under the guarantees prescribed by law.
City of San Fernando (P), June 7, 2002.20
On the same day, petitioner’s representative Elvin Reyes went to the
office of the Ex-Officio Sheriff and inquired how the amount of
₱5,194,742.50 was arrived at. The Ex-Officio Sheriff explained to him
that she had accepted the redemption price in accordance with the
provisions of R.A. Nos. 8791 and 7353. She further explained that she
had furnished petitioner with a copy of the Certificate of Redemption
she had earlier executed; however, Reyes refused to receive a copy of
the Certificate of Redemption.21
On June 10, 2002, petitioner, through its president Rogelio D. Reyes,
executed an Affidavit of Consolidation22 over the property. It was
alleged therein that respondent PODC or any other person/entity with
the right of redemption did not exercise their right to repurchase within
one year from June 7, 2001. The affidavit was filed with the Office of
the Register of Deeds on the same day. The penultimate paragraph
reads:
That the aforesaid Mortgagors nor any other persons or entity entitled
with the right of redemption did not exercise their right of repurchase
and a period of more than one (1) year from June 7, 2001 has already
elapsed and by reason thereof, the San Fernando Rural Bank, Inc. do
hereby request the Registry of Deeds of the province of Pampanga, after
the payment of the lawful fees of this office to cancel Transfer
Certificate of Title No. 275745-R and to issue a new Certificate of Title
in favor of the San Fernando Rural Bank, Inc.23
The affidavit was entered in the Registry Book in the Office of the
Register of Deeds as Entry No. 784. However, no new title was issued
in favor of petitioner.
In a letter24 dated June 10, 2002, the Ex-Officio Sheriff informed
petitioner that respondent Aquino had redeemed the property and
requested petitioner, through its president, to turn over the owner’s
duplicate of TCT No. 275745-R before the redemption price of
₱5,194,742.50 would be remitted. She appended to the letter a copy of
the Certificate of Redemption she had executed in favor of respondent
Aquino. However, petitioner refused to do so.
Meanwhile, the Ex-Officio Sheriff fell ill and failed to report for work
up to June 14, 2002. She then wrote petitioner, reiterating her request
for the delivery of TCT No. 275745-R. She, however, failed to file the
Certificate of Redemption with the Register of Deeds. 25
When respondent Aquino learned that petitioner had filed an Affidavit
of Consolidation, he sent a letter26 dated June 14, 2002 to the Register
of Deeds, informing the latter that he was the assignee under the Deed
of Assignment executed by respondent PODC, and that as shown by the
appended Certificate of Redemption he had redeemed the property on
June 7, 2002. He also insisted that he had redeemed the property within
the period therefor, and requested the Register of Deeds not to register
the Affidavit of Consolidation and to cancel TCT No. 275745-R.27
On June 17, 2002, respondent Aquino filed the Certificate of
Redemption executed by the Ex-Officio Sheriff with the Office of the
Register of Deeds. The Register of Deeds entered the Certificate of
Redemption in the Primary Entry Book of Entries under Entry No.
1205.28 On even date, the Register of Deeds entered the deed of
assignment executed by respondent PODC in favor of Aquino in the
Primary Book of Entries as Entry No. 1208.
30
Banking Laws under Atty. Fontanilla
Meanwhile, the Registrar of Deeds was in a quandary; he was not certain
whether it was proper for him to issue a new title to petitioner. In a
letter29 dated June 18, 2002, he requested the Administrator of the Land
Registration Authority (LRA), by way of consulta, to issue an opinion
on whether a new title should be issued to petitioner, or the Certificate
of Redemption in favor of respondent Aquino should be annotated at the
dorsal portion of TCT No. 275745-R.
On October 15, 2002, petitioner filed a Petition for a Writ of Possession
in the RTC of Pampanga. Petitioner alleged that it had purchased the
property at public auction as evidenced by the Certificate of Sale
appended thereto; the Certificate of Sale was annotated at the dorsal
portion of TCT No. 275745-R on June 7, 2001; as far as he was
concerned, the right of respondent PODC to redeem the property had
already expired; and under Act No. 3135, as amended, it is entitled to
the possession of the property during or even after the redemption
period. It prayed that the corresponding writ of possession over the
property be issued in its favor upon the filing of the requisite bond in an
amount equivalent to the market value of the property or in an amount
as the court may direct.30 Petitioner appended to its petition a certified
true copy of the Certificate of Sale executed by the Ex-Officio Sheriff
in its favor over the property. The case was docketed as LRC No. 890.
The court set the hearing of the petition at 8:30 a.m. on November 28,
2002 and sent the corresponding notices to respondent PODC. 31
During the hearing, respondent PODC opposed the petition on the
following grounds: petitioner deliberately concealed the fact that the
property had been redeemed on June 7, 2002; respondent Aquino had
paid ₱5,194,742.00 as redemption money based on the computation of
petitioner; the Ex-Officio Sheriff had executed a Certificate of
Redemption in favor of respondent Aquino on June 7, 2002, a copy of
which petitioner refused to receive; respondent Aquino, as assignee, had
offered to redeem the property on May 29, 2002 and tendered the
amount of ₱1,588,094.28, but petitioner insisted that the redemption
price was ₱16,805,414.71, including the loan account of the spouses
Garbes; that since respondent Aquino had redeemed the property from
the Ex-Officio Sheriff on June 7, 2002 within the one-year period after
paying the total amount of ₱5,194,742.50, it was respondent Aquino,
and not petitioner, who is entitled to a writ of possession;32 and that
besides, he was already in possession of the property. 33 It insisted that
petitioner filed its petition to preempt the resolution of the LRA on the
consulta of the Register of Deeds. The oppositor prayed that the petition
be denied and that it be granted such other relief and remedies just and
equitable under the premises.
In its Reply, petitioner averred that since respondent Aquino had offered
an amount short of the redemption price of ₱16,805,414.71, under
Section 47 of R.A. No. 8791 there was no valid redemption of the
property. The loan of the spouses Garbes was intended for respondent
PODC as borrower. Petitioner alleged that it would have been foolhardy
for it to grant a ₱950,000.00 loan to the spouses without any security.
Hence, unless the entire loan account of respondent PODC and the
spouses Garbes (₱16,805,414.71) was paid, the mortgage persisted.34 It
further posited that, since respondent PODC had already assigned its
right to redeem the property, the oppositor had no more right or interest
over the property; it was thus not the proper party as oppositor.
By way of rejoinder, respondent PODC averred that the Certificate of
Redemption executed by the Ex-Officio Sheriff is presumed valid and
legal; the RTC, acting as a Land Registration Court, had no jurisdiction
to pass upon the validity of the Certificate of Redemption;35 upon the
execution of the Deed of Assignment in favor of respondent Aquino and
the payment of redemption money, the latter had taken actual possession
of the property; based on the Certificate of Redemption, he had
developed the property and introduced a lot of improvements; and since
a third party was in possession of the property, possession could no
longer be given to petitioner via a writ of possession. Respondent PODC
maintained that petitioner was not entitled to a writ of possession until
the title was consolidated in its name.
On December 12, 2002, the LRA resolved the consulta of the Register
of Deeds as follows:
While it is clear from the records that an agent of the assignee tried to
redeem the property within the one (1) year period of redemption and,
in fact, the Certificate of Redemption was executed by the Clerk of
Court and Ex-Officio Sheriff of the Regional Trial Court of San
Fernando City, Pampanga on the last day of the redemption period, the
same was not registered before the Registry of Deeds within the one (1)
year period of redemption. Borne by the records is the receipt before the
registry of the Certificate of Redemption and other related documents
on June 17, 2002 for annotation. Hence, the same was not registered
within the aforesaid one (1) year redemption period.
Considering that the document first presented and entered in the Primary
Entry Book of the registry is the Affidavit of Consolidation in favor of
the creditors, the mortgagee bank and not the Certificate of Redemption
in favor of the assignee of the debtor-mortgagor, although admittedly,
the latter instrument was executed on the last day of the redemption
period but not, in fact, registered within the same period, under the
premises, the consolidating mortgagee is possessed with a superior right
than the redemptioner. Under the law, the first in registration is the first
in law.36
The dispositive portion of the Resolution of the LRA Administrator
reads:
WHEREFORE, premises considered, this Authority is of the opinion
and so holds that the Affidavit of Consolidation is superior over the
Certificate of Redemption, hence, registrable on TCT No. 275745-R.
SO ORDERED. 37
Respondents filed a motion for reconsideration of the Resolution of the
LRA Administrator.
On December 20, 2002, the court in LRC No. 890 issued an Order
granting the petition and ordered the issuance of a writ of possession, on
a bond equivalent to the market value of the property. It ruled that
petitioner, as purchaser at the foreclosure sale, was entitled to a writ of
possession. The question of the validity of the redemption made by
respondent Aquino, to whom respondent PODC had assigned its right
to redeem the property, as well as the registrability of the Affidavit of
Consolidation executed by petitioner, through its president, and the
validity of the Certificate of Redemption executed by the clerk of court
and Ex-Officio Sheriff of the RTC cannot be raised as a justification for
opposing the petition. It declared that the proceedings for the issuance
of a writ of possession were ex-parte and it was the court’s ministerial
duty to issue the writ.
Furthermore, the court held that petitioner’s right to the possession of
the foreclosed property is bolstered by the fact that no third party was
actually holding the property adverse to respondent PODC. Respondent
Aquino, as assignee of respondent PODC’s right to redeem could not be
considered a party holding the property adversely to respondent PODC.
Neither was there any pending civil case involving the rights of third
parties. Consequently, it was the ministerial duty of the RTC to issue a
writ of possession in favor of petitioner, as the winning bidder in the
public auction.
The court declared that the purpose of the law in requiring the filing of
a bond is to answer for the reasonable rental for a period of twelve
months for the use of the property during the period of redemption.
Since the period of redemption had already expired, a bond was no
longer necessary. Nevertheless, the court granted petitioner’s prayer to
put up a bond in the amount equivalent to the market value of the
property. The court ruled that petitioner was entitled to the possession
of the property, together with improvements existing thereon, as a mere
incident of its right of ownership.38
Respondents filed a motion for reconsideration of the order, contending
that petitioner was entitled to a writ of possession after the lapse of the
period for redemption only if a Torrens title had been issued in its favor.
Since the one-year redemption period had lapsed without petitioner
having been issued any Torrens title, the court erred when it granted the
petition for a writ of possession. It also pointed out that petitioner had
failed to present any title under its name.
For its part, petitioner stated in its Opposition to respondents’ motion
for reconsideration, that it was not necessary that a buyer in a public
auction be issued a title in its name before it could be entitled to a writ
of possession upon the expiration of the redemption period. The title is
merely an evidence of ownership; it is the Certificate of Sale that vests
ownership in the buyer over the property sold. It insisted that the
purchaser was entitled to the possession of the property even after the
lapse of the redemption period.39
On February 18, 2003, the court issued an Order denying the motion for
reconsideration of respondents. The court ruled that petitioner, as
purchaser at public auction, acquired the right to possess the property,
and the right of the mortgagor from the time it purchased the property
and not from the issuance of the title over the property in its name. 40
On March 6, 2003, respondents filed a Petition for Certiorari with the
CA, assailing the orders of the RTC as follows:
I. Public respondent committed grave abuse of discretion amounting to
lack or excess of jurisdiction when it granted private respondent’s prayer
for an issuance of writ of possession in its favor when serious issues
affecting private respondent’s right to possess the subject lot is still
pending determination by the Land Registration Authority.
II. Public respondent committed grave abuse of discretion amounting to
lack or excess of jurisdiction when it allowed private respondent to post
a redemption bond beyond the redemption period.41
They averred that the RTC should have denied the petition for a writ of
possession pending the resolution of the consulta by the LRA. They
asserted that the issues before the RTC were substantial, namely: (a)
whether respondent Aquino, as the assignee of the right of respondent
PODC to redeem the property, had the right to do so; (b) whether he had
redeemed the property as evidenced by the Certificate of Redemption
executed by the Ex-Officio Sheriff; and (c) the redemption price. They
insisted that the obligation of the RTC to issue the writ of possession
ceased to be ministerial.
Respondents maintained that they had the right to redeem the property.
Since there were grave doubts about the parties’ contentions as to who
had the right to possess the property, the RTC should have dismissed
the petition for a writ of possession pending determination of the
substantial issues by the LRA. The trial court should have relied on the
rulings of this Court in Rivero de Ortega v. Natividad, 42 Barican v.
Intermediate Appellate Court,43 and Sulit v. Court of Appeals.44
Respondents asserted that petitioner was not entitled to a writ of
possession because contrary to Section 7 of Act No. 3135, it posted a
bond beyond the period for redemption. The case was docketed as CA-
G.R. SP No. 75787.
In its Comment on the petition, petitioner insisted on its right to a writ
of possession and that the trial court acted in accordance with law and
the facts of the case. Moreover, it averred that the RTC, sitting as a land
registration court, had jurisdiction over the petition for a writ of
possession; thus, the remedy of respondents was to appeal the assailed
order and not to file a petition for certiorari in the CA.
The CA failed to resolve the plea of respondents for a temporary
restraining order. Petitioner filed a motion for execution of the
December 20, 2002 Order of the trial court in LRC No. 890. The RTC
granted the motion and issued a writ of possession on May 14, 2003. 45
The Sheriff implemented the writ and placed petitioner in possession of
the property.
On September 4, 2003, petitioner filed a Complaint46 against
respondents and the Ex-Officio Sheriff in the RTC of Pampanga, for the
nullification of the Deed of Assignment executed by PODC in favor of
Aquino and of the Certificate of Redemption executed by the Ex-Officio
Sheriff, and for damages with a plea for injunctive relief. Petitioner filed
an Amended/Supplemental Complaint and prayed that judgment be
rendered in its favor, thus:
WHEREFORE, it is prayed that a judgment be rendered in favor of the
plaintiff and against the defendants:
a) Annulling the Deed of Assignment dated May 11, 2002 executed by
and between defendants PODC and AQUINO.
b) Declaring the Certificate of Redemption dated June 7, 2001 issued by
the defendant Clerk of Court and Ex-Officio Sheriff as null and void ab
initio.
c) Ordering the defendants, jointly and severally, to pay the plaintiff the
amount of:
A. ₱100,000.00 as and for moral damages.
31
Banking Laws under Atty. Fontanilla
B. ₱100,000.00 as and for exemplary damages.
C. ₱50,000.00 as and for attorney’s fees plus the costs of suit.
OTHER RELIEF and remedies just equitable are also prayed for. 47
The case was docketed as Civil Case No. 12785.
Meanwhile, the LRA Administrator issued a Resolution recalling the
Resolution dated December 12, 2002 and declared that the Certificate
of Redemption executed by the Ex-Officio Sheriff was superior to the
Affidavit of Consolidation filed by petitioner. Based on the June 14,
2002 letter of the Ex-Officio Sheriff and the Certificate of Redemption,
respondent Aquino, who was the assignee of respondent PODC, had
redeemed the property on June 7, 2002. Petitioner was already aware as
early as June 7, 2002 of the redemption of the property by respondent
Aquino; hence, the date of registration of the Certificate of Redemption
on June 17, 2002 was of no legal consequence.
Accordingly, on September 10, 2003, respondents filed (in LRC No.
890) a Joint Motion to quash the writ of possession issued by the trial
court and for the issuance of a new TCT. They averred that the LRA
Administrator finally resolved that the Certificate of Redemption issued
by the Ex-Officio Sheriff was superior to the Affidavit of Consolidation
of petitioner. On the basis of the LRA Order, the Register of Deeds
issued TCT No. 544978-A over the property in the name of respondent
Aquino as the registered owner.
The court denied the joint motion on November 10, 2003, holding that
respondent Aquino, as the registered owner of the subject property,
should initiate the appropriate action in the proper court in order to
exclude petitioner or any other person from the physical possession of
his property.48 The court ruled that after placing petitioner in possession
of the property, the court had lost jurisdiction over the case.
On November 27, 2003, respondents filed before the CA their Joint
Notice of Appeal49 from the November 10, 2003 Order of the RTC in
LRC No. 890. The appeal was docketed as CA-G.R. CV No. 81607.
On November 28, 2003, petitioner filed a Manifestation, 50 stating that
under Section 47 of R.A. No. 8791, the period to exercise the right to
redeem shall be until but not after the registration of the Certificate of
Foreclosure Sale with the Register of Deeds which is in no case shall be
more than three (3) months after the foreclosure, whichever is earlier. 51
The Certificate of Foreclosure Sale was registered on June 7, 2001 and
since respondent PODC had assigned/transferred the right to redeem the
property to respondent Aquino only on May 11, 2002, the redemption
period had already lapsed.
On December 18, 2003, the CA rendered judgment in CA-G.R. SP No.
75787 granting the petition of respondents and setting aside the assailed
orders of the trial court. The fallo of the decision reads:
WHEREFORE, the petition is GRANTED and the orders dated
December 20, 200[2] and February 18, 2003 of respondent judge are
VACATED and SET ASIDE.
SO ORDERED.52
The appellate court ruled that the December 20, 2002 Order of the RTC
granting the petition for a writ of possession was interlocutory and not
final; hence, it may be questioned only via petition for certiorari under
Rule 65 of the Rules of Court, not by appeal. The CA cited the ruling of
this Court in City of Manila v. Serrano.53
The CA further held that the RTC committed grave abuse of discretion
amounting to excess or lack of jurisdiction when it granted the
application of petitioner for a writ of possession. Respondent Aquino,
as successor-in-interest of respondent PODC, had redeemed the
property on June 7, 2002 in accordance with Section 6 of Act No. 3135,
as amended, and in relation to Section 27(a), Rule 39 of the Rules of
Court. Thus, although the Certificate of Redemption was not registered
before the Register of Deeds, he was entitled to the possession thereof;
the registration of the Certificate of Redemption in the Office of the
Register of Deeds is merely required to bind third persons. According
to the CA, petitioner may not refuse the redemption by respondent
Aquino because the right of petitioner over the property was merely
inchoate until after the redemption period had lapsed without the right
being exercised by those allowed by law.
Petitioner moved for the reconsideration of its decision on the ground
that, under Section 47 of R.A. No. 8791, respondent PODC had only up
to the registration of the Certificate of Foreclosure Sale (June 7, 2001)
but not more than three (3) months from the public auction, whichever
is earlier, within which to redeem the property; respondent PODC, on
the other hand, assigned its right to redeem the property on May 11,
2002, long after the redemption period had expired; hence, respondent
PODC had no more right to assign it to respondent Aquino.
Consequently, the latter had no right to redeem the property, and the
Certificate of Redemption executed by the Ex-Officio Sheriff was null
and void. Moreover, respondent Aquino failed to pay the correct amount
of the redemption price. Petitioner claimed that it acted in good faith
when it had its Affidavit of Consolidation registered in the Register of
Deeds. In sum, petitioner ascribes error on the part of the CA in
nullifying the order of the RTC.
However, the CA denied the motion of petitioner on the ground that by
invoking Section 47 of R.A. No. 8791, it thereby changed its theory on
appeal which, as held by this Court in Dalumpines v. Court of Appeals, 54
is prohibited.55
Petitioner SFRBI then filed a petition for review on certiorari with this
Court for the reversal of the Decision and Resolution of the CA, and
raised the following issues:
I Act of 2000. Respondent PODC had the right to redeem the property not
Whether or not the Court of Appeals seriously
erred when it sanctioned the Respondents’
resort to Certiorari under Rule 65 of the
Revised Rules of Court, questioning a final
order and not an interlocutory order of the
RTC.
II
Whether or not the respondents are guilty of
forum shopping by taking both the remedy of
appeal and certiorari on the same issues and
substantially the same set of facts.
III
Whether or not the Court of Appeals
committed serious error when it ruled on a
matter that was not and could not have been
submitted for its adjudication.
IV
Whether or not the Honorable Court is
precluded from reviewing the factual findings
of the Court of Appeals.
V at the foreclosure sale during and after the redemption period.
Whether or not the petitioner SAFER Bank, as
well as the Honorable Court, is precluded
from applying the governing law, under which
the redemption period had clearly expired.56
On the first issue, petitioner avers that the December 20, 2002 Order of
the RTC granting the writ of possession in its favor was final; hence, the
remedy of respondents herein, as oppositors below, was to appeal to the
CA and not to file a special civil action for certiorari. In fact, petitioner
asserts, the writ of possession issued by the RTC had already been
implemented when respondents filed their petition in the CA on
December 10, 2003.
Petitioner also claims that the assailed order of the RTC was in
accordance with the law and the Rules of Court; even if it is merely an
error of judgment and not a jurisdictional error, resort to a petition for
certiorari was inappropriate. Respondents were, thus, proscribed from
filing a petition for certiorari in the CA since the appeal was an adequate
and speedy remedy in the ordinary course of law and, indeed, they
appealed the November 10, 2003 Order of the RTC in LRC No. 890 to
the CA in CA-G.R. CV No. 81607. It had also posted a bond in the RTC
to answer for any damages. The ruling of this Court in City of Manila v.
Serrano57 is, therefore, not applicable.
Petitioner further avers that the CA erred in applying Act No. 3135, as
amended, instead of Section 47 of R.A. No. 8791, the General Banking
later than June 7, 2001. Undisputably, respondent PODC failed to
redeem the property before the registration of the Certificate of Sale;
hence, when respondent PODC executed the deed of assignment on May
11, 2002 in favor of respondent Aquino, it had no more right to redeem
the property.1ªvvphi1.nét
Thus, it could not have assigned the right to redeem the property to
respondent Aquino. The latter redeemed the property only on June 7,
2002, long after the Certificate of Sale was registered on June 7, 2001.
Since there was no valid redemption of the property by respondent
Aquino, petitioner claimed that it was entitled to the writ of possession
of the property. It further insisted that the RTC, acting as a Land
Registration Court, had limited jurisdiction; it had no jurisdiction to
resolve the issues on the validity of the deed of assignment and the
legality of respondent Aquino’s redemption of the property, as well as
its ownership. Only the RTC in the exercise of its general jurisdiction in
Civil Case No. 12765 (where petitioner assailed the deed of assignment
and the Certificate of Redemption executed by the Ex-Officio Sheriff)
was vested with jurisdiction to resolve these issues. In resolving these
issues, the CA thereby preempted the RTC in Civil Case No. 12765 and
deprived it of due process. In any event, according to petitioner, the
pronouncement of the CA on the validity of the Deed of Assignment
and Certificate of Redemption was merely an obiter dictum.
Petitioner posits that the CA’s reliance on the rulings of this Court in
Rivero and Barican was erroneous because the right of third parties
holding the property adverse to respondent PODC was not involved.
Neither was the pendency of the consulta of the Register of Deeds in the
LRA a bar to the issuance of a writ of possession in its favor by the RTC
acting as a land registration court. It was the ministerial duty of the RTC
to issue a writ of possession over the property to petitioner as purchaser
Petitioner further maintains that respondents filed their petition for
certiorari in the CA and delineated the issues to be resolved. It did not
change its theory in the CA when it filed its motion for reconsideration
of the CA decision. Citing the ruling in Rivera v. Court of Appeals, 58
petitioner avers that a theory of the case is that which refers to the facts
on which the cause of action is based. The facts are those alleged in the
complaint and satisfactorily proven at the trial. It insists that it did not
change the set of facts that it submitted and presented to the CA. It was
not estopped from citing Section 47 of R.A. No. 8791. It had posited in
the RTC that respondents failed to redeem the property before the
expiration of the redemption period. Besides, as held by this Court in
Lianga Lumber Company v. Lianga Timber Co., Inc., 59 a party may
change his theory on appeal when the factual basis thereof would not
require presentation of any further evidence by the adverse party to
enable it to properly meet the issue raised in the new theory. The failure
of a party to invoke an applicable law in a given case does not create a
vested right, and an erroneous interpretation does not give rise to
estoppel. Even if petitioner did not invoke R.A. No. 8791, it behooved
the CA to apply the law before it, prescinding from the theory advocated
by the parties. Neither may respondents invoke estoppel. They were
aware of the provisions of the law as well as the facts and circumstances
warranting the application thereof.
Petitioner also imputes forum shopping to respondents because the latter
raised the issue of possession in both CA-G.R. SP No. 75787 and CA-
G.R. CV No. 81607. Petitioner also accuses respondents of using the
decision in CA-G.R. SP No. 75787 to support their contention in CA-
G.R. CV No. 81607. It further contends that the writ of possession
issued by the RTC was void.
For their part, respondents aver that the RTC committed grave abuse of
its discretion in issuing the December 20, 2002 and February 18, 2003
Orders. Hence, the decision of the CA was in accord with the law and
the Rules of Court. They assert that given the circumstances obtaining
in this case, their petition for certiorari was proper. Although they had
the right to appeal the orders of the RTC, the same was not a speedy and
adequate remedy. They insist that they were not guilty of forum
shopping because the only issue in CA-G.R. CV No. 81607 was the
32
Banking Laws under Atty. Fontanilla
validity of the Order of the RTC dated November 10, 2003, which
denied their motion to quash the writ of possession. On the other hand,
challenged in CA-G.R. SP No. 75787 was the Order of the RTC granting
the petition for a writ of possession. Since the Ex-Officio Sheriff
declared in the Certificate of Redemption that respondent Aquino
redeemed the property within the one-year period, petitioner was
estopped from relying on Section 47 of R.A. No. 8791. Respondents
point out that in the RTC and the CA, petitioner had insisted that
respondent Aquino had one (1) year from June 7, 2001 within which to
redeem the property as provided in Act No. 3135, as amended; thus,
petitioner was proscribed from changing the theory it pursued in the
RTC and the CA. Moreover, under Section 71 of R.A. No. 8791,
redemption by entities of property mortgaged is governed by R.A. No.
7353, under which the period of redemption is one year from the
registration of the Certificate of Sale.
The Ruling of the Court
The petition is meritorious.
The CA erred in holding that the Order of the RTC granting the petition
for a writ of possession was merely interlocutory. Interlocutory orders
are those that determine incidental matters and which do not touch on
the merits of the case or put an end to the proceedings. A petition for
certiorari under Rule 65 of the Rules of Court is the proper remedy to
question an improvident interlocutory order.60 On the other hand, a final
order is one that disposes of the whole matter or terminates the particular
proceedings or action leaving nothing to be done but to enforce by
execution what has been determined. It is one that finally disposes of
the pending action so that nothing more can be done with it in the lower
court.61 The remedy to question a final order is appeal under Rule 41 of
the Rules of Court.
We agree with petitioner’s contention that the December 20, 2002 Order
of the RTC granting the petition for a writ of possession is final. The
remedy of respondents was to appeal to the CA by filing their notice of
appeal within the period therefor.62 Indeed, when the RTC denied on
November 10, 2003 the motion of respondents to quash the writ the
court had earlier issued, respondents appealed to the CA under Rule 41
of the Rules of Court. The appeal was docketed as CA-G.R. CV No.
81607. Respondents did not file a supplemental petition in CA-G.R. SP
No. 75787.
The reliance of the CA in City of Manila v. Serrano 63 is misplaced. In
that case, the trial court issued the writ of possession in connection with
a complaint for expropriation under Rule 67 of the Rules of Court. Such
a writ is interlocutory in nature.64 On the other hand, an order granting
a writ of possession under Act No. 3135, as amended, is of a different
species. The latter order is final, hence, appealable. 65 Even if the trial
court erred in granting a petition for a writ of possession, such an error
is merely an error of judgment correctible by ordinary appeal and not by
a petition for a writ of certiorari. 66 Such writ cannot be legally used for
any other purpose.
Certiorari is a remedy narrow in its scope and inflexible in
character.1a\^/phi1.net It is not a general utility tool in the legal
workshop.67 Certiorari will issue only to correct errors of jurisdiction
and not to correct errors of judgment. An error of judgment is one which
the court may commit in the exercise of its jurisdiction, and which error
is reviewable only by an appeal. Error of jurisdiction is one where the
act complained of was issued by the court without or in excess of
jurisdiction and which error is correctible only by the extraordinary writ
of certiorari. As long as the court acts within its jurisdiction, any alleged
errors committed in the exercise of its discretion will amount to nothing
more than mere errors of judgment, correctible by an appeal if the
aggrieved party raised factual and legal issues; or a petition for review
under Rule 45 of the Rules of Court if only questions of law are
involved.68
A cert writ may be issued if the court or quasi-judicial body issues an
order with grave abuse of discretion amounting to excess or lack of
jurisdiction. Grave abuse of discretion implies such capricious and
whimsical exercise of judgment as is equivalent to lack of jurisdiction
or, in other words, where the power is exercised in an arbitrary manner
by reason of passion, prejudice, or personal hostility, and it must be so
patent or gross as to amount to an evasion of a positive duty or to a
virtual refusal to perform the duty enjoined or to act at all in
contemplation of law.69 Mere abuse of discretion is not enough.
Moreover, a party is entitled to a writ of certiorari only if there is no
appeal nor any plain, speedy or adequate relief in the ordinary course of
law.
The raison d’etre for the rule is that when a court exercises its
jurisdiction, an error committed while so engaged does not deprive it of
the jurisdiction being exercised when the error was committed. If it did,
every error committed by a court would deprive it of its jurisdiction and
every erroneous judgment would be a void judgment. In such a situation,
the administration of justice would not survive. Hence, where the issue
or question involved affects the wisdom or legal soundness of the
decision – not the jurisdiction of the court to render said decision – the
same is beyond the province of a special civil action for certiorari.
Under Section 8, Act No. 3135, as amended, the debtor-mortgagor may
file a motion to set aside a writ of execution:
Section 8. Setting aside of sale and writ of possession. – The debtor may,
in the proceedings in which possession was requested, but not later than
thirty days after the purchaser was given possession, petition that the
sale be set aside and the writ of possession cancelled, specifying the
damages suffered by him, because the mortgage was not violated or the
sale was not made in accordance with the provisions hereof, and the
court shall take cognizance of this petition in accordance with the
summary procedure provided for in section one hundred and twelve of
Act Numbered Four hundred and ninety-six; and if it finds the complaint
of the debtor justified, it shall dispose in his favor of all or part of the
bond furnished by the person who obtained possession. Either of the
parties may appeal from the order of the judge in accordance with
section fourteen of Act Numbered Four hundred and ninety-six; but the
order of possession shall continue in effect during the pendency of the
appeal.
The purchaser may appeal the order to the CA if his petition is denied
by the RTC. However, during the pendency of the appeal, the purchaser
must be placed in possession of the property, such possession being
predicated on the right of ownership.70
The threshold issue between petitioner and respondents in the RTC was
the correct amount of redemption money under Section 47 of R.A. No.
8791. Respondent Aquino had the right to file an action against
petitioner in the RTC in the exercise of its general jurisdiction to enforce
redemption within the redemption period to preserve its right to redeem
the foreclosed property.71 It bears stressing that the controversy between
the parties relates to the precise amount of redemption: petitioner
contended that, under the real estate mortgage executed by respondent
PODC in its favor, the loan account of the spouses Garbes was secured
by the property covered by said deed; on the other hand, respondents
averred that only the loan account of respondent PODC was secured by
the mortgage of its property. Indeed, the parties could have raised the
issue of the redemption period under the second paragraph of Section
47 of R.A. No. 8791. The provision reads:
Notwithstanding Act 3135, juridical persons whose property is being
sold pursuant to an extrajudicial foreclosure, shall have the right to
redeem the property in accordance with this provision until, but not
after, the registration of the certificate of foreclosure sale with the
applicable Register of Deeds which in no case shall be more than three
(3) months after foreclosure, whichever is earlier. Owners of property
that has been sold in a foreclosure sale prior to the effectivity of this Act
shall retain their redemption rights until their expiration.
The ministerial duty of the RTC to issue a writ of possession does not
become discretionary simply because the Register of Deeds had
elevated in consulta to the LRA the question of whether the Torrens title
should be issued in favor of petitioner whose Affidavit of Consolidation
was registered in the Office of the Register of Deeds, or in favor of
respondent Aquino who claimed to have redeemed the property on June
7, 2002 as gleaned from the Certificate of Redemption of the Ex-Officio
Sheriff but registered only on June 17, 2002. Respondent Aquino
claimed to have redeemed the property with the correct redemption price
and within the one year period of redemption. The LRA himself
admitted that the issue of whether respondent Aquino had remitted the
correct redemption price is a matter that should be resolved by the
regular courts.72 The LRA was vested with jurisdiction to resolve only
the registrability of the Affidavit of Consolidation executed by
petitioner and the Certificate of Redemption executed by the Ex-Officio
Sheriff.
We need not rule on the issue of whether respondent Aquino had
lawfully redeemed the property as provided in Section 47 of R.A. No.
8791. This issue shall be passed upon by the RTC in Civil Case No.
12785 after the parties present their testimonial and documentary
evidence.
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED.
The Decision of the Court of Appeals is SET ASIDE AND
REVERSED.
SO ORDERED.
14.
G.R. No. 150886 February 16, 2007
RURAL BANK OF SAN MIGUEL, INC. and HILARIO P.
SORIANO, in his capacity as majority stockholder in the Rural
Bankof San Miguel, Inc., Petitioners,
vs.
MONETARY BOARD, BANGKO SENTRAL NG PILIPINAS
and PHILIPPINE DEPOSIT INSURANCE CORPORATION,
Respondents.
DECISION
CORONA, J.:
This is a petition for review on certiorari1 of a decision2 and resolution3
of the Court of Appeals (CA) dated March 28, 2000 and November 13,
2001, respectively, in CA-G.R. SP No. 57112.
Petitioner Rural Bank of San Miguel, Inc. (RBSM) was a domestic
corporation engaged in banking. It started operations in 1962 and by
year 2000 had 15 branches in Bulacan.4 Petitioner Hilario P. Soriano
claims to be the majority stockholder of its outstanding shares of stock. 5
On January 21, 2000, respondent Monetary Board (MB), the governing
board of respondent Bangko Sentral ng Pilipinas (BSP), issued
Resolution No. 105 prohibiting RBSM from doing business in the
Philippines, placing it under receivership and designating respondent
Philippine Deposit Insurance Corporation (PDIC) as receiver:
On the basis of the comptrollership/monitoring report as of October 31,
1999 as reported by Mr. Wilfredo B. Domo-ong, Director, Department
of Rural Banks, in his memorandum dated January 20, 2000, which
report showed that [RBSM] (a) is unable to pay its liabilities as they
become due in the ordinary course of business; (b) cannot continue in
business without involving probable losses to its depositors and
creditors; that the management of the bank had been accordingly
informed of the need to infuse additional capital to place the bank in a
solvent financial condition and was given adequate time within which
to make the required infusion and that no infusion of adequate fresh
capital was made, the Board decided as follows:
1. To prohibit the bank from doing business in the Philippines and to
place its assets and affairs under receivership in accordance with Section
30 of [RA 7653];
2. To designate the [PDIC] as receiver of the bank;
xxx xxx xxx6
33
Banking Laws under Atty. Fontanilla
On January 31, 2000, petitioners filed a petition for certiorari and
prohibition in the Regional Trial Court (RTC) of Malolos, Branch 22 to
nullify and set aside Resolution No. 105. 7 However, on February 7,
2000, petitioners filed a notice of withdrawal in the RTC and, on the
same day, filed a special civil action for certiorari and prohibition in the
CA. On February 8, 2000, the RTC dismissed the case pursuant to
Section 1, Rule 17 of the Rules of Court. 8
The CA’s findings of facts were as follows.
To assist its impaired liquidity and operations, the RBSM was granted
emergency loans on different occasions in the aggregate amount of ₱375
[million].
As early as November 18, 1998, Land Bank of the Philippines (LBP)
advised RBSM that it will terminate the clearing of RBSM’s checks in
view of the latter’s frequent clearing losses and continuing failure to
replenish its Special Clearing Demand Deposit with LBP. The BSP
interceded with LBP not to terminate the clearing arrangement of RBSM
to protect the interests of RBSM’s depositors and creditors.
After a year, or on November 29, 1999, the LBP informed the BSP of
the termination of the clearing facility of RBSM to take effect on
December 29, 1999, in view of the clearing problems of RBSM.
On December 28, 1999, the MB approved the release of ₱26.189
[million] which is the last tranche of the ₱375 million emergency loan
for the sole purpose of servicing and meeting the withdrawals of its
depositors. Of the ₱26.180 million, xxx ₱12.6 million xxx was not used
to service withdrawals [and] remains unaccounted for as admitted by
[RBSM’s Treasury Officer and Officer-in-Charge of Treasury]. Instead
of servicing withdrawals of depositors, RBSM paid Forcecollect
Professional Solution, Inc. and Surecollect Professional, Inc., entities
which are owned and controlled by Hilario P. Soriano and other RBSM
officers.
On January 4, 2000, RBSM declared a bank holiday. RBSM and all of
its 15 branches were closed from doing business.
Alarmed and disturbed by the unilateral declaration of bank holiday,
[BSP] wanted to examine the books and records of RBSM but
encountered problems.
Meanwhile, on November 10, 1999, RBSM’s designated comptroller,
Ms. Zenaida Cabais of the BSP, submitted to the Department of Rural
Banks, BSP, a Comptrollership Report on her findings on the financial
condition and operations of the bank as of October 31, 1999. Another
set of findings was submitted by said comptroller [and] this second
report reflected the financial status of RBSM as of December 31, 1999.
The findings of the comptroller on the financial state of RBSM as of
October 31, 1999 in comparison with the financial condition as of
December 31, 1999 is summed up pertinently as follows:
FINANCIAL CONDITION OF RBSM
As of Oct. 31, 1999 As of Dec. 31, 1999
Total obligations/
₱1,076,863,000.00 1,009,898,000.00
Liabilities
Realizable Assets 898,588,000.00 796,930,000.00
Deficit 178,275,000.00 212,968,000.00
Cash on Hand 101,441.547.00 8,266,450.00
Required Capital Infusion ₱252,120,000.00
Capital Infusion ₱5,000,000.00
(On Dec. 20, 1999)
Actual Breakdown of Total Obligations:
1) Deposits of 20,000 depositors – ₱578,201,000.00
2) Borrowings from BSP – ₱320,907,000.00
3) Unremitted withholding and gross receipt taxes – ₱57,403,000.00.9
Based on these comptrollership reports, the director of the Department
of Rural Banks Supervision and Examination Sector, Wilfredo B.
Domo-ong, made a report to the MB dated January 20, 2000.10 The MB,
after evaluating and deliberating on the findings and recommendation
of the Department of Rural Banks Supervision and Examination Sector,
issued Resolution No. 105 on January 21, 2000. 11 Thereafter, PDIC
implemented the closure order and took over the management of
RBSM’s assets and affairs.
In their petition12 before the CA, petitioners claimed that respondents
MB and BSP committed grave abuse of discretion in issuing Resolution
No. 105. The petition was dismissed by the CA on March 28, 2000. It
held, among others, that the decision of the MB to issue Resolution No.
105 was based on the findings and recommendations of the Department
of Rural Banks Supervision and Examination Sector, the comptroller
reports as of October 31, 1999 and December 31, 1999 and the
declaration of a bank holiday. Such could be considered as substantial
evidence.13
Pertinently, on June 9, 2000, on the basis of reports prepared by PDIC
stating that RBSM could not resume business with sufficient assurance
of protecting the interest of its depositors, creditors and the general
public, the MB passed Resolution No. 966 directing PDIC to proceed
with the liquidation of RBSM under Section 30 of RA 7653. 14
Hence this petition.
It is well-settled that the closure of a bank may be considered as an
exercise of police power.15 The action of the MB on this matter is final
and executory.16 Such exercise may nonetheless be subject to judicial
inquiry and can be set aside if found to be in excess of jurisdiction or
with such grave abuse of discretion as to amount to lack or excess of
jurisdiction.17
Petitioners argue that Resolution No. 105 was bereft of any basis
considering that no complete examination had been conducted before it
was issued. This case essentially boils down to one core issue: whether
Section 30 of RA 7653 (also known as the New Central Bank Act) and
applicable jurisprudence require a current and complete examination of
the bank before it can be closed and placed under receivership.
Section 30 of RA 7653 provides:
SECTION 30. Proceedings in Receivership and Liquidation. —
Whenever, upon report of the head of the supervising or examining
department, the Monetary Board finds that a bank or quasi-bank:
(a) is unable to pay its liabilities as they become due in the ordinary
course of business: Provided, That this shall not include inability to pay
caused by extraordinary demands induced by financial panic in the
banking community;
(b) has insufficient realizable assets, as determined by the [BSP] to meet
its liabilities; or
(c) cannot continue in business without involving probable losses to its
depositors or creditors; or
(d) has willfully violated a cease and desist order under Section 37 that
has become final, involving acts or transactions which amount to fraud
or a dissipation of the assets of the institution; in which cases, the
Monetary Board may summarily and without need for prior
hearing forbid the institution from doing business in the Philippines
and designate the Philippine Deposit Insurance Corporation as
receiver of the banking institution.
xxx xxx xxx
The actions of the Monetary Board taken under this section or under
Section 29 of this Act shall be final and executory, and may not be
restrained or set aside by the court except on petition for certiorari on
the ground that the action taken was in excess of jurisdiction or with
such grave abuse of discretion as to amount to lack or excess of
jurisdiction. The petition for certiorari may only be filed by the
stockholders of record representing the majority of the capital stock
within ten (10) days from receipt by the board of directors of the
institution of the order directing receivership, liquidation or
conservatorship. (Emphasis supplied)
xxx xxx xxx
Petitioners contend that there must be a current, thorough and complete
examination before a bank can be closed under Section 30 of RA 7653.
They argue that this section should be harmonized with Sections 25 and
28 of the same law:
SECTION 25. Supervision and Examination. — The [BSP] shall have
supervision over, and conduct periodic or special examinations of,
banking institutions and quasi-banks, including their subsidiaries and
affiliates engaged in allied activities.
xxx xxx xxx
SECTION 28. Examination and Fees. — The supervising and
examining department head, personally or by deputy, shall examine
the books of every banking institution once in every twelve (12) months,
and at such other time as the Monetary Board by an affirmative vote of
five (5) members may deem expedient and to make a report on the
same to the Monetary Board: Provided that there shall be an interval
of at least twelve (12) months between annual examinations. (Emphasis
supplied)
xxx xxx xxx
According to the petitioners, it is clear from these provisions that the
"report of the supervising or examining department" required under
Section 30 refers to the report on the examination of the bank which,
under Section 28, must be made to the MB after the supervising or
examining head conducts an examination mandated by Sections 25 and
28.18 They cite Banco Filipino Savings & Mortgage Bank v. Monetary
Board, Central Bank of the Philippines19 wherein the Court ruled:
There is no question that under Section 29 of the Central Bank Act, the
following are the mandatory requirements to be complied with before
a bank found to be insolvent is ordered closed and forbidden to do
business in the Philippines: Firstly, an examination shall be
conducted by the head of the appropriate supervising or examining
department or his examiners or agents into the condition of the
bank; secondly, it shall be disclosed in the examination that the
condition of the bank is one of insolvency, or that its continuance in
business would involve probable loss to its depositors or creditors;
thirdly, the department head concerned shall inform the Monetary Board
in writing, of the facts; and lastly, the Monetary Board shall find the
statements of the department head to be true.20 (Emphasis supplied)
Petitioners assert that an examination is necessary and not a mere report,
otherwise the decision to close a bank would be arbitrary.
Respondents counter that RA 7653 merely requires a report of the head
of the supervising or examining department. They maintain that the term
"report" under Section 30 and the word "examination" used in Section
29 of the old law are not synonymous. "Examination" connotes in-depth
analysis, evaluation, inquiry or investigation while "report" connotes a
simple disclosure or narration of facts for informative purposes. 21
Petitioners’ contention has no merit. Banco Filipino and other cases
petitioners cited22 were decided using Section 29 of the old law (RA
265):
34
Banking Laws under Atty. Fontanilla
SECTION 29. Proceedings upon insolvency. — Whenever, upon
examination by the head of the appropriate supervising or
examining department or his examiners or agents into the condition
of any bank or non-bank financial intermediary performing quasi-
banking functions, it shall be disclosed that the condition of the same is
one of insolvency, or that its continuance in business would involve
probable loss to its depositors or creditors, it shall be the duty of the
department head concerned forthwith, in writing, to inform the
Monetary Board of the facts. The Board may, upon finding the
statements of the department head to be true, forbid the institution to do
business in the Philippines and designate an official of the Central Bank
or a person of recognized competence in banking or finance, as receiver
to immediately take charge of its assets and liabilities, as expeditiously
as possible collect and gather all the assets and administer the same for
the benefits of its creditors, and represent the bank personally or through
counsel as he may retain in all actions or proceedings for or against the
institution, exercising all the powers necessary for these purposes
including, but not limited to, bringing and foreclosing mortgages in the
name of the bank or non-bank financial intermediary performing quasi-
banking functions. (Emphasis supplied)
xxx xxx xxx
Thus in Banco Filipino, we ruled that an "examination [conducted] by
the head of the appropriate supervising or examining department or his
examiners or agents into the condition of the bank"23 is necessary before
the MB can order its closure.
However, RA 265, including Section 29 thereof, was expressly repealed
by RA 7653 which took effect in 1993. Resolution No. 105 was issued
on January 21, 2000. Hence, petitioners’ reliance on Banco Filipino
which was decided under RA 265 was misplaced.
In RA 7653, only a "report of the head of the supervising or examining
department" is necessary. It is an established rule in statutory
construction that where the words of a statute are clear, plain and free
from ambiguity, it must be given its literal meaning and applied without
attempted interpretation:24
This plain meaning rule or verba legis derived from the maxim index
animi sermo est (speech is the index of intention) rests on the valid
presumption that the words employed by the legislature in a statute
correctly express its intention or will and preclude the court from
construing it differently. The legislature is presumed to know the
meaning of the words, to have used words advisedly, and to have
expressed its intent by use of such words as are found in the statute.
Verba legis non est recedendum, or from the words of a statute there
should be no departure.25
The word "report" has a definite and unambiguous meaning which is
clearly different from "examination." A report, as a noun, may be
defined as "something that gives information" or "a usually detailed
account or statement."26 On the other hand, an examination is "a search,
investigation or scrutiny."27
This Court cannot look for or impose another meaning on the term
"report" or to construe it as synonymous with "examination." From the
words used in Section 30, it is clear that RA 7653 no longer requires that
an examination be made before the MB can issue a closure order. We
cannot make it a requirement in the absence of legal basis.
Indeed, the court may consider the spirit and reason of the statute, where
a literal meaning would lead to absurdity, contradiction, injustice, or
would defeat the clear purpose of the lawmakers. 28 However, these
problems are not present here. Using the literal meaning of "report" does
not lead to absurdity, contradiction or injustice. Neither does it defeat
the intent of the legislators. The purpose of the law is to make the closure
of a bank summary and expeditious in order to protect public interest.
This is also why prior notice and hearing are no longer required before
a bank can be closed.29
Laying down the requisites for the closure of a bank under the law is the
prerogative of the legislature and what its wisdom dictates. The
lawmakers could have easily retained the word "examination" (and in
the process also preserved the jurisprudence attached to it) but they did
not and instead opted to use the word "report." The insistence on an
examination is not sanctioned by RA 7653 and we would be guilty of
judicial legislation were we to make it a requirement when such is not
supported by the language of the law.
What is being raised here as grave abuse of discretion on the part of the
respondents was the lack of an examination and not the supposed
arbitrariness with which the conclusions of the director of the
Department of Rural Banks Supervision and Examination Sector had
been reached in the report which became the basis of Resolution No.
105.1awphi1.net
The absence of an examination before the closure of RBSM did not
mean that there was no basis for the closure order. Needless to say, the
decision of the MB and BSP, like any other administrative body, must
have something to support itself and its findings of fact must be
supported by substantial evidence. But it is clear under RA 7653 that the
basis need not arise from an examination as required in the old law.
We thus rule that the MB had sufficient basis to arrive at a sound
conclusion that there were grounds that would justify RBSM’s closure.
It relied on the report of Mr. Domo-ong, the head of the supervising or
examining department, with the findings that: (1) RBSM was unable to
pay its liabilities as they became due in the ordinary course of business
and (2) that it could not continue in business without incurring probable
losses to its depositors and creditors.30 The report was a 50-page
memorandum detailing the facts supporting those grounds, an extensive
chronology of events revealing the multitude of problems which faced
RBSM and the recommendations based on those findings.
In short, MB and BSP complied with all the requirements of RA 7653.
By relying on a report before placing a bank under receivership, the MB
and BSP did not only follow the letter of the law, they were also faithful
to its spirit, which was to act expeditiously. Accordingly, the issuance
of Resolution No. 105 was untainted with arbitrariness.
Having dispensed with the issue decisive of this case, it becomes
unnecessary to resolve the other minor issues raised. 31
WHEREFORE, the petition is hereby DENIED. The March 28, 2000 Section 15. Exercise of Authority - In the exercise of its authority, the
decision and November 13, 2001 resolution of the Court of Appeals in Monetary Board shall:
CA-G.R. SP No. 57112 are AFFIRMED.
xxx xxx xxx
Costs against petitioners. (c) establish a human resource management system which shall govern
the selection, hiring, appointment, transfer, promotion, or dismissal of
all personnel. Such system shall aim to establish professionalism and
SO ORDERED.
excellence at all levels of the Bangko Sentral in accordance with sound
principles of management.
A compensation structure, based on job evaluation studies and wage
surveys and subject to the Board's approval, shall be instituted as an
integral component of the Bangko Sentral's human resource
development program: Provided, That the Monetary Board shall make
its own system conform as closely as possible with the principles
provided for under Republic Act No. 6758 [Salary Standardization
Act]. Provided, however, That compensation and wage structure of
employees whose positions fall under salary grade 19 and below
shall be in accordance with the rates prescribed under Republic Act
15. No. 6758. [emphasis supplied]
G.R. No. 148208 December 15, 2004 The thrust of petitioner's challenge is that the above proviso makes
an unconstitutional cut between two classes of employees in the
CENTRAL BANK (now Bangko Sentral ng Pilipinas) BSP, viz: (1) the BSP officers or those exempted from the coverage of
EMPLOYEES ASSOCIATION, INC., petitioner, the Salary Standardization Law (SSL) (exempt class); and (2) the rank-
vs. and-file (Salary Grade [SG] 19 and below), or those not exempted from
BANGKO SENTRAL NG PILIPINAS and the EXECUTIVE the coverage of the SSL (non-exempt class). It is contended that this
SECRETARY, respondents. classification is "a classic case of class legislation," allegedly not based
on substantial distinctions which make real differences, but solely on
DECISION the SG of the BSP personnel's position. Petitioner also claims that it is
not germane to the purposes of Section 15(c), Article II of R.A. No.
PUNO, J.: 7653, the most important of which is to establish professionalism and
excellence at all levels in the BSP.1 Petitioner offers the following sub-
Can a provision of law, initially valid, set of arguments:
become subsequently unconstitutional, on the ground that
its continued operation would violate the equal protection of the law? a. the legislative history of R.A. No. 7653 shows that the
We hold that with the passage of the subsequent laws amending the questioned proviso does not appear in the original and amended
charter of seven (7) other governmental financial institutions (GFIs), the versions of House Bill No. 7037, nor in the original version of Senate
continued operation of the last proviso of Section 15(c), Article II of Bill No. 1235; 2
Republic Act (R.A.) No. 7653, constitutes invidious discrimination on
b. subjecting the compensation of the BSP rank-and-file employees to
the 2,994 rank-and-file employees of the Bangko Sentral ng
the rate prescribed by the SSL actually defeats the purpose of the law3 of
Pilipinas (BSP).
establishing professionalism and excellence at all levels in the
BSP; 4 (emphasis supplied)
I.
c. the assailed proviso was the product of amendments introduced
The Case
during the deliberation of Senate Bill No. 1235, without showing its
relevance to the objectives of the law, and even admitted by one senator
First the facts.
as discriminatory against low-salaried employees of the BSP;5
On July 3, 1993, R.A. No. 7653 (the New Central Bank Act) took effect.
d. GSIS, LBP, DBP and SSS personnel are all exempted from the
It abolished the old Central Bank of the Philippines, and created a new
BSP. coverage of the SSL; thus within the class of rank-and-file personnel of
government financial institutions (GFIs), the BSP rank-and-file are also
On June 8, 2001, almost eight years after the effectivity of R.A. No. discriminated upon;6 and
7653, petitioner Central Bank (now BSP) Employees Association, Inc.,
filed a petition for prohibition against BSP and the Executive Secretary e. the assailed proviso has caused the demoralization among the BSP
of the Office of the President, to restrain respondents from further rank-and-file and resulted in the gross disparity between their
implementing the last proviso in Section 15(c), Article II of R.A. No. compensation and that of the BSP officers'. 7
7653, on the ground that it is unconstitutional.
In sum, petitioner posits that the classification is not reasonable but
Article II, Section 15(c) of R.A. No. 7653 provides: arbitrary and capricious, and violates the equal protection clause of the
Constitution.8 Petitioner also stresses: (a) that R.A. No. 7653 has a
separability clause, which will allow the declaration of the
35
Banking Laws under Atty. Fontanilla
unconstitutionality of the proviso in question without affecting the other
provisions; and (b) the urgency and propriety of the petition, as
some 2,994 BSP rank-and-file employees have been prejudiced since
1994 when the proviso was implemented. Petitioner concludes that: (1)
since the inequitable proviso has no force and effect of law, respondents'
implementation of such amounts to lack of jurisdiction; and (2) it has no
appeal nor any other plain, speedy and adequate remedy in the ordinary
course except through this petition for prohibition, which this Court
should take cognizance of, considering the transcendental importance of
the legal issue involved.9
Respondent BSP, in its comment,10 contends that the provision does not
violate the equal protection clause and can stand the constitutional test,
provided it is construed in harmony with other provisions of the same
law, such as "fiscal and administrative autonomy of BSP," and the
mandate of the Monetary Board to "establish professionalism and
excellence at all levels in accordance with sound principles of
management."
The Solicitor General, on behalf of respondent Executive Secretary,
also defends the validity of the provision. Quite simplistically, he argues
that the classification is based on actual and real differentiation, even as
it adheres to the enunciated policy of R.A. No. 7653 to establish
professionalism and excellence within the BSP subject to prevailing
laws and policies of the national government.11
II.
Issue
Thus, the sole - albeit significant - issue to be resolved in this case is
whether the last paragraph of Section 15(c), Article II of R.A. No. 7653,
runs afoul of the constitutional mandate that "No person shall be. . .
denied the equal protection of the laws."12
III.
Ruling
A. UNDER THE PRESENT STANDARDS OF EQUAL
PROTECTION,
SECTION 15(c), ARTICLE II OF R.A. NO. 7653 IS VALID.
Jurisprudential standards for equal protection challenges indubitably
show that the classification created by the questioned proviso, on its face
and in its operation, bears no constitutional infirmities.
It is settled in constitutional law that the "equal protection" clause does
not prevent the Legislature from establishing classes of individuals or
objects upon which different rules shall operate - so long as the
classification is not unreasonable. As held in Victoriano v. Elizalde
Rope Workers' Union,13 and reiterated in a long line of cases:14
The guaranty of equal protection of the laws is not a guaranty of equality
in the application of the laws upon all citizens of the state. It is not,
therefore, a requirement, in order to avoid the constitutional prohibition
against inequality, that every man, woman and child should be affected
alike by a statute. Equality of operation of statutes does not mean
indiscriminate operation on persons merely as such, but on persons
according to the circumstances surrounding them. It guarantees equality,
not identity of rights. The Constitution does not require that things
which are different in fact be treated in law as though they were the
same. The equal protection clause does not forbid discrimination as to
things that are different. It does not prohibit legislation which is limited
either in the object to which it is directed or by the territory within which
it is to operate.
The equal protection of the laws clause of the Constitution allows
classification. Classification in law, as in the other departments of
knowledge or practice, is the grouping of things in speculation or
practice because they agree with one another in certain particulars. A
law is not invalid because of simple inequality. The very idea of
classification is that of inequality, so that it goes without saying that the
mere fact of inequality in no manner determines the matter of
constitutionality. All that is required of a valid classification is that it be
reasonable, which means that the classification should be based on
substantial distinctions which make for real differences, that it must be
germane to the purpose of the law; that it must not be limited to existing
conditions only; and that it must apply equally to each member of the
class. This Court has held that the standard is satisfied if the
classification or distinction is based on a reasonable foundation or
rational basis and is not palpably arbitrary.
In the exercise of its power to make classifications for the purpose of
enacting laws over matters within its jurisdiction, the state is recognized
as enjoying a wide range of discretion. It is not necessary that the
classification be based on scientific or marked differences of things or
in their relation. Neither is it necessary that the classification be made
with mathematical nicety. Hence, legislative classification may in many
cases properly rest on narrow distinctions, for the equal protection
guaranty does not preclude the legislature from recognizing degrees of
evil or harm, and legislation is addressed to evils as they may appear.
(citations omitted)
Congress is allowed a wide leeway in providing for a valid
classification.15 The equal protection clause is not infringed by
legislation which applies only to those persons falling within a specified
class.16 If the groupings are characterized by substantial distinctions that
make real differences, one class may be treated and regulated differently
from another.17 The classification must also be germane to the purpose
of the law and must apply to all those belonging to the same class. 18
In the case at bar, it is clear in the legislative deliberations that the
exemption of officers (SG 20 and above) from the SSL was intended to
address the BSP's lack of competitiveness in terms of attracting
competent officers and executives. It was not intended to discriminate
against the rank-and-file. If the end-result did in fact lead to a disparity
of treatment between the officers and the rank-and-file in terms of
salaries and benefits, the discrimination or distinction has a rational
basis and is not palpably, purely, and entirely arbitrary in the legislative
sense. 19
That the provision was a product of amendments introduced during the
deliberation of the Senate Bill does not detract from its validity. As early
as 1947 and reiterated in subsequent cases, 20 this Court has subscribed
to the conclusiveness of an enrolled bill to refuse invalidating a
provision of law, on the ground that the bill from which it originated
contained no such provision and was merely inserted by the bicameral
conference committee of both Houses.
Moreover, it is a fundamental and familiar teaching that all reasonable
doubts should be resolved in favor of the constitutionality of a
statute.21 An act of the legislature, approved by the executive, is
presumed to be within constitutional limitations.22 To justify the
nullification of a law, there must be a clear and unequivocal breach of
the Constitution, not a doubtful and equivocal breach.23
B. THE ENACTMENT, HOWEVER, OF SUBSEQUENT LAWS -
EXEMPTING ALL OTHER RANK-AND-FILE EMPLOYEES
OF GFIs FROM THE SSL - RENDERS THE CONTINUED
APPLICATION OF THE CHALLENGED PROVISION
A VIOLATION OF THE EQUAL PROTECTION CLAUSE.
While R.A. No. 7653 started as a valid measure well within the
legislature's power, we hold that the enactment of subsequent laws
exempting all rank-and-file employees of other GFIs leeched all
validity out of the challenged proviso.
1. The concept of relative constitutionality.
The constitutionality of a statute cannot, in every instance, be
determined by a mere comparison of its provisions with applicable
provisions of the Constitution, since the statute may be constitutionally
valid as applied to one set of facts and invalid in its application to
another.24
A statute valid at one time may become void at another time because
of altered circumstances.25 Thus, if a statute in its practical operation
becomes arbitrary or confiscatory, its validity, even though affirmed by
a former adjudication, is open to inquiry and investigation in the light
of changed conditions.26
Demonstrative of this doctrine is Vernon Park Realty v. City of
Mount Vernon,27 where the Court of Appeals of New York declared as
unreasonable and arbitrary a zoning ordinance which placed the
plaintiff's property in a residential district, although it was located in the
center of a business area. Later amendments to the ordinance then
prohibited the use of the property except for parking and storage of
automobiles, and service station within a parking area. The Court found
the ordinance to constitute an invasion of property rights which was
contrary to constitutional due process. It ruled:
While the common council has the unquestioned right to enact zoning
laws respecting the use of property in accordance with a well-considered
and comprehensive plan designed to promote public health, safety and
general welfare, such power is subject to the constitutional limitation
that it may not be exerted arbitrarily or unreasonably and this is so
whenever the zoning ordinance precludes the use of the property for any
purpose for which it is reasonably adapted. By the same token, an
ordinance valid when adopted will nevertheless be stricken down as
invalid when, at a later time, its operation under changed conditions
proves confiscatory such, for instance, as when the greater part of its
value is destroyed, for which the courts will afford relief in an
appropriate case.28 (citations omitted, emphasis supplied)
In the Philippine setting, this Court declared the continued
enforcement of a valid law as unconstitutional as a consequence
of significant changes in circumstances. Rutter v. Esteban29 upheld
the constitutionality of the moratorium law - its enactment and operation
being a valid exercise by the State of its police power30 - but also ruled
that the continued enforcement of the otherwise valid law would be
unreasonable and oppressive. It noted the subsequent changes in the
country's business, industry and agriculture. Thus, the law was set aside
because its continued operation would be grossly discriminatory and
lead to the oppression of the creditors. The landmark ruling states:31
The question now to be determined is, is the period of eight (8)
years which Republic Act No. 342 grants to debtors of a monetary
obligation contracted before the last global war and who is a war sufferer
with a claim duly approved by the Philippine War Damage Commission
reasonable under the present circumstances?
It should be noted that Republic Act No. 342 only extends relief to
debtors of prewar obligations who suffered from the ravages of the last
war and who filed a claim for their losses with the Philippine War
Damage Commission. It is therein provided that said obligation shall not
be due and demandable for a period of eight (8) years from and after
settlement of the claim filed by the debtor with said Commission. The
purpose of the law is to afford to prewar debtors an opportunity to
rehabilitate themselves by giving them a reasonable time within which
to pay their prewar debts so as to prevent them from being victimized
by their creditors. While it is admitted in said law that since liberation
conditions have gradually returned to normal, this is not so with regard
to those who have suffered the ravages of war and so it was therein
declared as a policy that as to them the debt moratorium should be
continued in force (Section 1).
But we should not lose sight of the fact that these obligations had been
pending since 1945 as a result of the issuance of Executive Orders Nos.
25 and 32 and at present their enforcement is still inhibited because of
the enactment of Republic Act No. 342 and would continue to be
unenforceable during the eight-year period granted to prewar debtors to
afford them an opportunity to rehabilitate themselves, which in plain
language means that the creditors would have to observe a vigil of at
least twelve (12) years before they could effect a liquidation of their
investment dating as far back as 1941. his period seems to us
unreasonable, if not oppressive. While the purpose of Congress is
plausible, and should be commended, the relief accorded works injustice
to creditors who are practically left at the mercy of the debtors. Their
hope to effect collection becomes extremely remote, more so if the
credits are unsecured. And the injustice is more patent when, under the
law, the debtor is not even required to pay interest during the operation
of the relief, unlike similar statutes in the United States.
xxx xxx xxx
In the face of the foregoing observations, and consistent with what we
believe to be as the only course dictated by justice, fairness and
righteousness, we feel that the only way open to us under the present
circumstances is to declare that the continued operation and
enforcement of Republic Act No. 342 at the present time is
unreasonable and oppressive, and should not be prolonged a minute
longer, and, therefore, the same should be declared null and void
and without effect. (emphasis supplied, citations omitted)
2. Applicability of the equal protection clause.
In the realm of equal protection, the U.S. case of Atlantic Coast Line
R. Co. v. Ivey32 is illuminating. The Supreme Court of Florida ruled
against the continued application of statutes authorizing the recovery of
double damages plus attorney's fees against railroad companies, for
animals killed on unfenced railroad right of way without proof of
negligence. Competitive motor carriers, though creating greater
hazards, were not subjected to similar liability because they were not
yet in existence when the statutes were enacted. The Court ruled that
the statutes became invalid as denying "equal protection of the law," in
view of changed conditions since their enactment.
In another U.S. case, Louisville & N.R. Co. v. Faulkner,33 the Court of
Appeals of Kentucky declared unconstitutional a provision of a statute
which imposed a duty upon a railroad company of proving that it was
free from negligence in the killing or injury of cattle by its engine or
cars. This, notwithstanding that the constitutionality of the statute,
enacted in 1893, had been previously sustained. Ruled the Court:
36
Banking Laws under Atty. Fontanilla
The constitutionality of such legislation was sustained because it applied
to all similar corporations and had for its object the safety of persons on
a train and the protection of property…. Of course, there were no
automobiles in those days. The subsequent inauguration and
development of transportation by motor vehicles on the public highways
by common carriers of freight and passengers created even greater risks
to the safety of occupants of the vehicles and of danger of injury and
death of domestic animals. Yet, under the law the operators of that mode
of competitive transportation are not subject to the same extraordinary
legal responsibility for killing such animals on the public roads as are
railroad companies for killing them on their private rights of way.
The Supreme Court, speaking through Justice Brandeis in Nashville, C.
& St. L. Ry. Co. v. Walters, 294 U.S. 405, 55 S.Ct. 486, 488, 79 L.Ed.
949, stated, "A statute valid when enacted may become invalid by
change in the conditions to which it is applied. The police power is
subject to the constitutional limitation that it may not be exerted
arbitrarily or unreasonably." A number of prior opinions of that court
are cited in support of the statement. The State of Florida for many years
had a statute, F.S.A. § 356.01 et seq. imposing extraordinary and special
duties upon railroad companies, among which was that a railroad
company was liable for double damages and an attorney's fee for killing
livestock by a train without the owner having to prove any act of
negligence on the part of the carrier in the operation of its train. In
Atlantic Coast Line Railroad Co. v. Ivey, it was held that the changed
conditions brought about by motor vehicle transportation rendered the
statute unconstitutional since if a common carrier by motor vehicle had
killed the same animal, the owner would have been required to prove
negligence in the operation of its equipment. Said the court, "This
certainly is not equal protection of the law."34 (emphasis supplied)
Echoes of these rulings resonate in our case law, viz:
[C]ourts are not confined to the language of the statute under challenge
in determining whether that statute has any discriminatory effect. A
statute nondiscriminatory on its face may be grossly discriminatory
in its operation. Though the law itself be fair on its face and impartial
in appearance, yet, if it is applied and administered by public authority
with an evil eye and unequal hand, so as practically to make unjust and
illegal discriminations between persons in similar circumstances,
material to their rights, the denial of equal justice is still within the
prohibition of the Constitution.35 (emphasis supplied, citations omitted)
[W]e see no difference between a law which denies equal protection
and a law which permits of such denial. A law may appear to be fair
on its face and impartial in appearance, yet, if it permits of unjust and
illegal discrimination, it is within the constitutional prohibition….. In
other words, statutes may be adjudged unconstitutional because of their
effect in operation…. If a law has the effect of denying the equal
protection of the law it is unconstitutional. …. 36 (emphasis supplied,
citations omitted
3. Enactment of R.A. Nos. 7907 + 8282 + 8289 + 8291 + 8523 + 8763
+ 9302 = consequential unconstitutionality of challenged proviso.
According to petitioner, the last proviso of Section 15(c), Article II of
R.A. No. 7653 is also violative of the equal protection clause because
after it was enacted, the charters of the GSIS, LBP, DBP and SSS were
also amended, but the personnel of the latter GFIs were all exempted
from the coverage of the SSL.37 Thus, within the class of rank-and-file
personnel of GFIs, the BSP rank-and-file are also discriminated upon.
Indeed, we take judicial notice that after the new BSP charter was
enacted in 1993, Congress also undertook the amendment of the charters
of the GSIS, LBP, DBP and SSS, and three other GFIs, from 1995 to
2004, viz:
1. R.A. No. 7907 (1995) for Land Bank of the Philippines (LBP);
2. R.A. No. 8282 (1997) for Social Security System (SSS);
3. R.A. No. 8289 (1997) for Small Business Guarantee and Finance
Corporation, (SBGFC);
4. R.A. No. 8291 (1997) for Government Service Insurance System
(GSIS);
5. R.A. No. 8523 (1998) for Development Bank of the Philippines
(DBP);
6. R.A. No. 8763 (2000) for Home Guaranty Corporation (HGC);38 and
7. R.A. No. 9302 (2004) for Philippine Deposit Insurance Corporation
(PDIC).
It is noteworthy, as petitioner points out, that the subsequent charters
of the seven other GFIs share this common proviso: a blanket
exemption of all their employees from the coverage of the SSL,
expressly or impliedly, as illustrated below:
1. LBP (R.A. No. 7907)
Section 10. Section 90 of [R.A. No. 3844] is hereby amended to read as
follows:
Section 90. Personnel. -
xxx xxx xxx
All positions in the Bank shall be governed by a compensation, position
classification system and qualification standards approved by the Bank's
Board of Directors based on a comprehensive job analysis and audit of
actual duties and responsibilities. The compensation plan shall be
comparable with the prevailing compensation plans in the private sector
and shall be subject to periodic review by the Board no more than once
every two (2) years without prejudice to yearly merit reviews or
increases based on productivity and profitability. The Bank shall
therefore be exempt from existing laws, rules and regulations on
compensation, position classification and qualification standards. It
shall however endeavor to make its system conform as closely as
possible with the principles under Republic Act No. 6758. (emphasis
supplied)
xxx xxx xxx
2. SSS (R.A. No. 8282)
Section 1. [Amending R.A. No. 1161, Section 3(c)]:
xxx xxx xxx
(c)The Commission, upon the recommendation of the SSS President,
shall appoint an actuary and such other personnel as may [be] deemed
necessary; fix their reasonable compensation, allowances and other
benefits; prescribe their duties and establish such methods and
procedures as may be necessary to insure the efficient, honest and
economical administration of the provisions and purposes of this
Act: Provided, however, That the personnel of the SSS below the rank
of Vice President shall be appointed by the SSS President: Provided,
further, That the personnel appointed by the SSS President, except those
below the rank of assistant manager, shall be subject to the confirmation
by the Commission; Provided further, That the personnel of the SSS
shall be selected only from civil service eligibles and be subject to civil
service rules and regulations: Provided, finally, That the SSS shall be
exempt from the provisions of Republic Act No. 6758 and Republic
Act No. 7430. (emphasis supplied)
3. SBGFC (R.A. No. 8289)
Section 8. [Amending R.A. No. 6977, Section 11]:
xxx xxx xxx
The Small Business Guarantee and Finance Corporation shall:
xxx xxx xxx
(e) notwithstanding the provisions of Republic Act No. 6758, and
Compensation Circular No. 10, series of 1989 issued by the
Department of Budget and Management, the Board of Directors of
SBGFC shall have the authority to extend to the employees and
personnel thereof the allowance and fringe benefits similar to those
extended to and currently enjoyed by the employees and personnel
of other government financial institutions. (emphases supplied)
4. GSIS (R.A. No. 8291)
Section 1. [Amending Section 43(d)].
xxx xxx xxx
Sec. 43. Powers and Functions of the Board of Trustees. - The Board of
Trustees shall have the following powers and functions:
xxx xxx xxx
(d) upon the recommendation of the President and General Manager, to
approve the GSIS' organizational and administrative structures and
staffing pattern, and to establish, fix, review, revise and adjust the
appropriate compensation package for the officers and employees of the
GSIS with reasonable allowances, incentives, bonuses, privileges and
other benefits as may be necessary or proper for the effective
management, operation and administration of the GSIS, which shall be
exempt from Republic Act No. 6758, otherwise known as the Salary
Standardization Law and Republic Act No. 7430, otherwise known
as the Attrition Law. (emphasis supplied)
xxx xxx xxx
5. DBP (R.A. No. 8523)
Section 6. [Amending E.O. No. 81, Section 13]:
Section 13. Other Officers and Employees. - The Board of Directors
shall provide for an organization and staff of officers and employees of
the Bank and upon recommendation of the President of the Bank, fix
their remunerations and other emoluments. All positions in the Bank
shall be governed by the compensation, position classification system
and qualification standards approved by the Board of Directors based on
a comprehensive job analysis of actual duties and responsibilities. The
compensation plan shall be comparable with the prevailing
compensation plans in the private sector and shall be subject to periodic
review by the Board of Directors once every two (2) years, without
prejudice to yearly merit or increases based on the Bank's productivity
and profitability. The Bank shall, therefore, be exempt from existing
laws, rules, and regulations on compensation, position classification
and qualification standards. The Bank shall however, endeavor to
make its system conform as closely as possible with the principles
under Compensation and Position Classification Act of 1989
(Republic Act No. 6758, as amended). (emphasis supplied)
6. HGC (R.A. No. 8763)
Section 9. Powers, Functions and Duties of the Board of Directors. -
The Board shall have the following powers, functions and duties:
xxx xxx xxx
(e) To create offices or positions necessary for the efficient
management, operation and administration of the
Corporation: Provided, That all positions in the Home Guaranty
Corporation (HGC) shall be governed by a compensation and position
classification system and qualifications standards approved by the
Corporation's Board of Directors based on a comprehensive job analysis
and audit of actual duties and responsibilities: Provided, further, That
the compensation plan shall be comparable with the prevailing
compensation plans in the private sector and which shall be exempt
from Republic Act No. 6758, otherwise known as the Salary
Standardization Law, and from other laws, rules and regulations on
salaries and compensations; and to establish a Provident Fund and
determine the Corporation's and the employee's contributions to the
Fund; (emphasis supplied)
xxx xxx xxx
7. PDIC (R.A. No. 9302)
Section 2. Section 2 of [Republic Act No. 3591, as amended] is hereby
further amended to read:
xxx xxx xxx
3.
xxx xxx xxx
A compensation structure, based on job evaluation studies and wage
surveys and subject to the Board's approval, shall be instituted as an
integral component of the Corporation's human resource development
program: Provided, That all positions in the Corporation shall be
governed by a compensation, position classification system and
qualification standards approved by the Board based on a
comprehensive job analysis and audit of actual duties and
responsibilities. The compensation plan shall be comparable with
the prevailing compensation plans of other government financial
institutions and shall be subject to review by the Board no more than
once every two (2) years without prejudice to yearly merit reviews or
increases based on productivity and profitability. The Corporation
shall therefore be exempt from existing laws, rules and regulations
on compensation, position classification and qualification
standards. It shall however endeavor to make its system conform as
closely as possible with the principles under Republic Act No. 6758, as
amended. (emphases supplied)
Thus, eleven years after the amendment of the BSP charter, the
rank-and-file of seven other GFIs were granted the exemption that
37
Banking Laws under Atty. Fontanilla
was specifically denied to the rank-and-file of the BSP. And as if to
add insult to petitioner's injury, even the Securities and Exchange
Commission (SEC) was granted the same blanket exemption from the
SSL in 2000!39
The prior view on the constitutionality of R.A. No. 7653 was confined
to an evaluation of its classification between the rank-and-file and
the officers of the BSP, found reasonable because there were
substantial distinctions that made real differences between the two
classes.
The above-mentioned subsequent enactments, however, constitute
significant changes in circumstance that considerably alter the
reasonability of the continued operation of the last proviso of
Section 15(c), Article II of Republic Act No. 7653, thereby exposing
the proviso to more serious scrutiny. This time, the scrutiny relates to
the constitutionality of the classification - albeit made indirectly as a
consequence of the passage of eight other laws - between the rank-
and-file of the BSP and the seven other GFIs. The classification must
not only be reasonable, but must also apply equally to all members of
the class. The proviso may be fair on its face and impartial in
appearance but it cannot be grossly discriminatory in its operation,
so as practically to make unjust distinctions between persons who are
without differences.40
Stated differently, the second level of inquiry deals with the following
questions: Given that Congress chose to exempt other GFIs (aside the
BSP) from the coverage of the SSL, can the exclusion of the rank-and-
file employees of the BSP stand constitutional scrutiny in the light of
the fact that Congress did not exclude the rank-and-file employees of
the other GFIs? Is Congress' power to classify so unbridled as to
sanction unequal and discriminatory treatment, simply because the
inequity manifested itself, not instantly through a single overt act, but
gradually and progressively, through seven separate acts of Congress?
Is the right to equal protection of the law bounded in time and space
that: (a) the right can only be invoked against a classification made
directly and deliberately, as opposed to a discrimination that arises
indirectly, or as a consequence of several other acts; and (b) is the legal
analysis confined to determining the validity within the parameters of
the statute or ordinance (where the inclusion or exclusion is articulated),
thereby proscribing any evaluation vis-à-vis the grouping, or the lack
thereof, among several similar enactments made over a period of time?
In this second level of scrutiny, the inequality of treatment cannot be
justified on the mere assertion that each exemption (granted to the seven
other GFIs) rests "on a policy determination by the legislature." All
legislative enactments necessarily rest on a policy determination -
even those that have been declared to contravene the Constitution.
Verily, if this could serve as a magic wand to sustain the validity of a
statute, then no due process and equal protection challenges would ever
prosper. There is nothing inherently sacrosanct in a policy determination
made by Congress or by the Executive; it cannot run riot and overrun
the ramparts of protection of the Constitution.
In fine, the "policy determination" argument may support the inequality
of treatment between the rank-and-file and the officers of the BSP, but
it cannot justify the inequality of treatment between BSP rank-and-file
and other GFIs' who are similarly situated. It fails to appreciate that what
is at issue in the second level of scrutiny is not the declared policy of
each law per se, but the oppressive results of Congress' inconsistent
and unequal policy towards the BSP rank-and-file and those of the
seven other GFIs. At bottom, the second challenge to the
constitutionality of Section 15(c), Article II of Republic Act No. 7653 is
premised precisely on the irrational discriminatory policy adopted
by Congress in its treatment of persons similarly situated. In the
field of equal protection, the guarantee that "no person shall be …
denied the equal protection of the laws" includes the prohibition against
enacting laws that allow invidious discrimination, directly or
indirectly. If a law has the effect of denying the equal protection of the
law, or permits such denial, it is unconstitutional.41
It is against this standard that the disparate treatment of the BSP rank-
and-file from the other GFIs cannot stand judicial scrutiny. For as
regards the exemption from the coverage of the SSL, there exist no
substantial distinctions so as to differentiate, the BSP rank-and-file from
the other rank-and-file of the seven GFIs. On the contrary, our legal
history shows that GFIs have long been recognized as comprising
one distinct class, separate from other governmental entities.
Before the SSL, Presidential Decree (P.D.) No. 985 (1976) declared it
as a State policy (1) to provide equal pay for substantially equal work,
and (2) to base differences in pay upon substantive differences in duties
and responsibilities, and qualification requirements of the positions.
P.D. No. 985 was passed to address disparities in pay among similar or
comparable positions which had given rise to dissension among
government employees. But even then, GFIs and government-owned
and/or controlled corporations (GOCCs) were already identified as
a distinct class among government employees. Thus, Section 2 also
provided, "[t]hat notwithstanding a standardized salary system
established for all employees, additional financial incentives may be
established by government corporation and financial institutions for
their employees to be supported fully from their corporate funds and for
such technical positions as may be approved by the President in critical
government agencies."42
The same favored treatment is made for the GFIs and the GOCCs under
the SSL. Section 3(b) provides that one of the principles governing the
Compensation and Position Classification System of the Government is
that: "[b]asic compensation for all personnel in the government and
government-owned or controlled corporations and financial institutions
shall generally be comparable with those in the private sector doing
comparable work, and must be in accordance with prevailing laws on
minimum wages."
Thus, the BSP and all other GFIs and GOCCs were under the unified
Compensation and Position Classification System of the SSL, 43 but rates
of pay under the SSL were determined on the basis of, among others,
prevailing rates in the private sector for comparable work. Notably, the
Compensation and Position Classification System was to be governed
by the following principles: (a) just and equitable wages, with the ratio
of compensation between pay distinctions maintained at equitable
levels;44 and (b) basic compensation generally comparable with the
private sector, in accordance with prevailing laws on minimum
wages.45 Also, the Department of Budget and Management was directed
to use, as guide for preparing the Index of Occupational Services, the
Benchmark Position Schedule, and the following factors:46
(1) the education and experience required to perform the duties and
responsibilities of the positions;
(2) the nature and complexity of the work to be performed;
(3) the kind of supervision received;
(4) mental and/or physical strain required in the completion of the work;
(5) nature and extent of internal and external relationships;
(6) kind of supervision exercised;
(7) decision-making responsibility;
(8) responsibility for accuracy of records and reports;
(9) accountability for funds, properties and equipment; and
(10) hardship, hazard and personal risk involved in the job.
The Benchmark Position Schedule enumerates the position titles that
fall within Salary Grades 1 to 20.
Clearly, under R.A. No. 6758, the rank-and-file of all GFIs were
similarly situated in all aspects pertaining to compensation and position
classification, in consonance with Section 5, Article IX-B of the 1997
Constitution.47
Then came the enactment of the amended charter of the
BSP, implicitly exempting the Monetary Board from the SSL by giving
it express authority to determine and institute its own compensation and
wage structure. However, employees whose positions fall under SG 19
and below were specifically limited to the rates prescribed under the
SSL.
Subsequent amendments to the charters of other GFIs
followed. Significantly, each government financial institution (GFI)
was not only expressly authorized to determine and institute its own
compensation and wage structure, but also explicitly exempted -
without distinction as to salary grade or position - all employees of
the GFI from the SSL.
It has been proffered that legislative deliberations justify the grant or
withdrawal of exemption from the SSL, based on the perceived need "to
fulfill the mandate of the institution concerned considering, among
others, that: (1) the GOCC or GFI is essentially proprietary in
character; (2) the GOCC or GFI is in direct competition with
their [sic] counterparts in the private sector, not only in terms of the
provisions of goods or services, but also in terms of hiring and retaining
competent personnel; and (3) the GOCC or GFI are or
were [sic] experiencing difficulties filling up plantilla positions with
competent personnel and/or retaining these personnel. The need for the
scope of exemption necessarily varies with the particular circumstances
of each institution, and the corresponding variance in the benefits
received by the employees is merely incidental."
The fragility of this argument is manifest. First, the BSP is the central
monetary authority,48 and the banker of the government and all its
political subdivisions.49 It has the sole power and authority to issue
currency;50 provide policy directions in the areas of money, banking, and
credit; and supervise banks and regulate finance companies and non-
bank financial institutions performing quasi-banking
functions, including the exempted GFIs.51 Hence, the argument that
the rank-and-file employees of the seven GFIs were exempted because
of the importance of their institution's mandate cannot stand any more
than an empty sack can stand.
Second, it is certainly misleading to say that "the need for the scope of
exemption necessarily varies with the particular circumstances of each
institution." Nowhere in the deliberations is there a cogent basis for the
exclusion of the BSP rank-and-file from the exemption which was
granted to the rank-and-file of the other GFIs and the SEC. As point in
fact, the BSP and the seven GFIs are similarly situated in so far as
Congress deemed it necessary for these institutions to be exempted from
the SSL. True, the SSL-exemption of the BSP and the seven GFIs was
granted in the amended charters of each GFI, enacted separately and
over a period of time. But it bears emphasis that, while each GFI has a
mandate different and distinct from that of another, the deliberations
show that the raison d'être of the SSL-exemption was inextricably
linked to and for the most part based on factors common to the eight
GFIs, i.e., (1) the pivotal role they play in the economy; (2) the necessity
of hiring and retaining qualified and effective personnel to carry out the
GFI's mandate; and (3) the recognition that the compensation package
of these GFIs is not competitive, and fall substantially below industry
standards. Considering further that (a) the BSP was the first GFI granted
SSL exemption; and (b) the subsequent exemptions of other GFIs did
not distinguish between the officers and the rank-and-file; it is patent
that the classification made between the BSP rank-and-file and
those of the other seven GFIs was inadvertent, and NOT intended, i.e.,
it was not based on any substantial distinction vis-à-vis the particular
circumstances of each GFI. Moreover, the exemption granted to two
GFIs makes express reference to allowance and fringe benefits similar
to those extended to and currently enjoyed by the employees and
personnel of other GFIs,52 underscoring that GFIs are a particular class
within the realm of government entities.
It is precisely this unpremeditated discrepancy in treatment of the rank-
and-file of the BSP - made manifest and glaring with each and every
consequential grant of blanket exemption from the SSL to the other
GFIs - that cannot be rationalized or justified. Even more so, when the
SEC - which is not a GFI - was given leave to have a compensation plan
that "shall be comparable with the prevailing compensation plan in the
[BSP] and other [GFIs],"53 then granted a blanket exemption from the
SSL, and its rank-and-file endowed a more preferred treatment than the
rank-and-file of the BSP.
The violation to the equal protection clause becomes even more
pronounced when we are faced with this undeniable truth: that if
Congress had enacted a law for the sole purpose of exempting the eight
GFIs from the coverage of the SSL, the exclusion of the BSP rank-and-
file employees would have been devoid of any substantial or material
basis. It bears no moment, therefore, that the unlawful discrimination
was not a direct result arising from one law. "Nemo potest facere per
alium quod non potest facere per directum." No one is allowed to do
indirectly what he is prohibited to do directly.
It has also been proffered that "similarities alone are not sufficient to
support the conclusion that rank-and-file employees of the BSP may be
lumped together with similar employees of the other GOCCs for
purposes of compensation, position classification and qualification
standards. The fact that certain persons have some attributes in common
does not automatically make them members of the same class with
respect to a legislative classification." Cited is the ruling in Johnson v.
Robinson:54 "this finding of similarity ignores that a common
characteristic shared by beneficiaries and nonbeneficiaries alike, is not
sufficient to invalidate a statute when other characteristics peculiar to
only one group rationally explain the statute's different treatment of the
two groups."
The reference to Johnson is inapropos. In Johnson, the US Court
sustained the validity of the classification as there were quantitative
and qualitative distinctions, expressly recognized by Congress,
which formed a rational basis for the classification limiting
educational benefits to military service veterans as a means of helping
them readjust to civilian life. The Court listed the peculiar
characteristics as follows:
38
Banking Laws under Atty. Fontanilla
First, the disruption caused by military service is quantitatively greater
than that caused by alternative civilian service. A conscientious objector
performing alternative service is obligated to work for two years.
Service in the Armed Forces, on the other hand, involves a six-year
commitment…
xxx xxx xxx
Second, the disruptions suffered by military veterans and alternative
service performers are qualitatively different. Military veterans suffer a
far greater loss of personal freedom during their service careers.
Uprooted from civilian life, the military veteran becomes part of the
military establishment, subject to its discipline and potentially
hazardous duty. Congress was acutely aware of the peculiar disabilities
caused by military service, in consequence of which military servicemen
have a special need for readjustment benefits…55 (citations omitted)
In the case at bar, it is precisely the fact that as regards the exemption
from the SSL, there are no characteristics peculiar only to the seven
GFIs or their rank-and-file so as to justify the exemption which BSP
rank-and-file employees were denied (not to mention the anomaly of
the SEC getting one). The distinction made by the law is not only
superficial,56 but also arbitrary. It is not based on substantial distinctions
that make real differences between the BSP rank-and-file and the seven
other GFIs.
Moreover, the issue in this case is not - as the dissenting opinion of
Mme. Justice Carpio-Morales would put it - whether "being an
employee of a GOCC or GFI is reasonable and sufficient basis for
exemption" from R.A. No. 6758. It is Congress itself that
distinguished the GFIs from other government agencies, not once
but eight times, through the enactment of R.A. Nos. 7653, 7907, 8282,
8289, 8291, 8523, 8763, and 9302. These laws may have created a
"preferred sub-class within government employees," but the present
challenge is not directed at the wisdom of these laws. Rather, it is a legal
conundrum involving the exercise of legislative power, the validity of
which must be measured not only by looking at the specific exercise in
and by itself (R.A. No. 7653), but also as to the legal effects brought
about by seven separate exercises - albeit indirectly and without intent.
Thus, even if petitioner had not alleged "a comparable change in the
factual milieu as regards the compensation, position classification and
qualification standards of the employees of the BSP (whether of the
executive level or of the rank-and-file) since the enactment of the new
Central Bank Act" is of no moment. In GSIS v. Montesclaros,57 this
Court resolved the issue of constitutionality notwithstanding that
claimant had manifested that she was no longer interested in pursuing
the case, and even when the constitutionality of the said provision was
not squarely raised as an issue, because the issue involved not only the
claimant but also others similarly situated and whose claims GSIS
would also deny based on the challenged proviso. The Court held that
social justice and public interest demanded the resolution of the
constitutionality of the proviso. And so it is with the
challenged proviso in the case at bar.
It bears stressing that the exemption from the SSL is a "privilege" fully
within the legislative prerogative to give or deny. However, its
subsequent grant to the rank-and-file of the seven other GFIs and
continued denial to the BSP rank-and-file employees breached the
latter's right to equal protection. In other words, while the granting of a
privilege per se is a matter of policy exclusively within the domain and
prerogative of Congress, the validity or legality of the exercise of this
prerogative is subject to judicial review.58 So when the distinction made
is superficial, and not based on substantial distinctions that make real
differences between those included and excluded, it becomes a matter
of arbitrariness that this Court has the duty and the power to correct.59 As
held in the United Kingdom case of Hooper v. Secretary of State for
Work and Pensions,60 once the State has chosen to confer benefits,
"discrimination" contrary to law may occur where favorable treatment
already afforded to one group is refused to another, even though the
State is under no obligation to provide that favorable treatment. 61
The disparity of treatment between BSP rank-and-file and the rank-and-
file of the other seven GFIs definitely bears the unmistakable badge of
invidious discrimination - no one can, with candor and fairness, deny
the discriminatory character of the subsequent blanket and total
exemption of the seven other GFIs from the SSL when such was
withheld from the BSP. Alikes are being treated as unalikes without
any rational basis.
Again, it must be emphasized that the equal protection clause does not
demand absolute equality but it requires that all persons shall be
treated alike, under like circumstances and conditions both as to
privileges conferred and liabilities enforced. Favoritism and undue
preference cannot be allowed. For the principle is that equal protection
and security shall be given to every person under circumstances which,
if not identical, are analogous. If law be looked upon in terms of burden
or charges, those that fall within a class should be treated in the same
fashion; whatever restrictions cast on some in the group is equally
binding on the rest.62
In light of the lack of real and substantial distinctions that would justify
the unequal treatment between the rank-and-file of BSP from the seven
other GFIs, it is clear that the enactment of the seven subsequent charters
has rendered the continued application of the
challenged proviso anathema to the equal protection of the law, and the
same should be declared as an outlaw.
IV.
Equal Protection Under International Lens
In our jurisdiction, the standard and analysis of equal protection
challenges in the main have followed the "rational basis" test, coupled
with a deferential attitude to legislative classifications 63 and a reluctance
to invalidate a law unless there is a showing of a clear and unequivocal
breach of the Constitution. 64
A. Equal Protection in the United States
In contrast, jurisprudence in the U.S. has gone beyond the static
"rational basis" test. Professor Gunther highlights the development in
equal protection jurisprudential analysis, to wit: 65
Traditionally, equal protection supported only minimal judicial
intervention in most contexts. Ordinarily, the command of equal
protection was only that government must not impose differences in
treatment "except upon some reasonable differentiation fairly related to
the object of regulation." The old variety of equal protection
scrutiny focused solely on the means used by the legislature: it insisted
merely that the classification in the statute reasonably relates to the
legislative purpose. Unlike substantive due process, equal protection
scrutiny was not typically concerned with identifying "fundamental
values" and restraining legislative ends. And usually the rational
classification requirement was readily satisfied: the courts did not
demand a tight fit between classification and purpose; perfect
congruence between means and ends was not required.
xxx xxx xxx
[From marginal intervention to major cutting edge: The Warren
Court's "new equal protection" and the two-tier approach.]
From its traditional modest role, equal protection burgeoned into a
major intervention tool during the Warren era, especially in the
1960s. The Warren Court did not abandon the deferential ingredients of
the old equal protection: in most areas of economic and social
legislation, the demands imposed by equal protection remained as
minimal as ever…But the Court launched an equal protection revolution
by finding large new areas for strict rather than deferential scrutiny. A
sharply differentiated two-tier approach evolved by the late 1960s: in
addition to the deferential "old" equal protection, a "new" equal
protection, connoting strict scrutiny, arose…. The intensive review
associated with the new equal protection imposed two demands - a
demand not only as to means but also one as to ends. Legislation
qualifying for strict scrutiny required a far closer fit between
classification and statutory purpose than the rough and ready flexibility
traditionally tolerated by the old equal protection: means had to be
shown "necessary" to achieve statutory ends, not merely
"reasonably related" ones. Moreover, equal protection became a
source of ends scrutiny as well: legislation in the areas of the new equal
protection had to be justified by "compelling" state interests, not merely
the wide spectrum of "legitimate" state ends.
The Warren Court identified the areas appropriate for strict
scrutiny by searching for two characteristics: the presence of a
"suspect" classification; or an impact on "fundamental" rights or
interests. In the category of "suspect classifications," the Warren Court's
major contribution was to intensify the strict scrutiny in the traditionally
interventionist area of racial classifications. But other cases also
suggested that there might be more other suspect categories as well:
illegitimacy and wealth for example. But it was the 'fundamental
interests" ingredient of the new equal protection that proved particularly
dynamic, open-ended, and amorphous….. [Other fundamental interests
included voting, criminal appeals, and the right of interstate travel ….]
xxx xxx xxx
The Burger Court and Equal Protection.
The Burger Court was reluctant to expand the scope of the new equal
protection, although its best established ingredient retains
vitality. There was also mounting discontent with the rigid two-tier
formulations of the Warren Court's equal protection doctrine. It was
prepared to use the clause as an interventionist tool without resorting to
the strict language of the new equal protection…. [Among the
fundamental interests identified during this time were voting and access
to the ballot, while "suspect" classifications included sex, alienage and
illegitimacy.]
xxx xxx xxx
Even while the two-tier scheme has often been adhered to in form, there
has also been an increasingly noticeable resistance to the sharp
difference between deferential "old" and interventionist "new" equal
protection. A number of justices sought formulations that would blur the
sharp distinctions of the two-tiered approach or that would narrow the
gap between strict scrutiny and deferential review. The most elaborate
attack came from Justice Marshall, whose frequently stated position was
developed most elaborately in his dissent in the Rodriguez case: 66
The Court apparently seeks to establish [that] equal protection cases fall
into one of two neat categories which dictate the appropriate standard of
review - strict scrutiny or mere rationality. But this (sic) Court's
[decisions] defy such easy categorization. A principled reading of what
this Court has done reveals that it has applied a spectrum of standards in
reviewing discrimination allegedly violative of the equal protection
clause. This spectrum clearly comprehends variations in the degree of
care with which Court will scrutinize particular classification,
depending, I believe, on the constitutional and societal importance of
the interests adversely affected and the recognized invidiousness of the
basis upon which the particular classification is drawn.
Justice Marshall's "sliding scale" approach describes many of the
modern decisions, although it is a formulation that the majority refused
to embrace. But the Burger Court's results indicate at least two
significant changes in equal protection law: First, invocation of the
"old" equal protection formula no longer signals, as it did with the
Warren Court, an extreme deference to legislative classifications and a
virtually automatic validation of challenged statutes. Instead, several
cases, even while voicing the minimal "rationality" "hands-off"
standards of the old equal protection, proceed to find the statute
unconstitutional. Second, in some areas the modern Court has put
forth standards for equal protection review that, while clearly more
intensive than the deference of the "old" equal protection, are less
demanding than the strictness of the "new" equal protection. Sex
discrimination is the best established example of an "intermediate"
level of review. Thus, in one case, the Court said that "classifications by
gender must serve important governmental objectives and must
be substantially related to achievement of those objectives." That
standard is "intermediate" with respect to both ends and means: where
ends must be "compelling" to survive strict scrutiny and merely
"legitimate" under the "old" mode, "important" objectives are required
here; and where means must be "necessary" under the "new" equal
protection, and merely "rationally related" under the "old" equal
protection, they must be "substantially related" to survive the
"intermediate" level of review. (emphasis supplied, citations omitted)
B. Equal Protection in Europe
The United Kingdom and other members of the European
Community have also gone forward in discriminatory legislation and
jurisprudence. Within the United Kingdom domestic law, the most
extensive list of protected grounds can be found in Article 14 of the
European Convention on Human Rights (ECHR). It prohibits
discrimination on grounds such as "sex, race, colour, language, religion,
political or other opinion, national or social origin, association with a
national minority, property, birth or other status." This list is illustrative
and not exhaustive. Discrimination on the basis of race, sex and
religion is regarded as grounds that require strict scrutiny. A further
indication that certain forms of discrimination are regarded
as particularly suspect under the Covenant can be gleaned from Article
4, which, while allowing states to derogate from certain Covenant
articles in times of national emergency, prohibits derogation by
measures that discriminate solely on the grounds of "race, colour,
language, religion or social origin."67
Moreover, the European Court of Human Rights has developed a test
of justification which varies with the ground of discrimination. In
the Belgian Linguistics case68 the European Court set the standard of
justification at a low level: discrimination would contravene the
Convention only if it had no legitimate aim, or there was no reasonable
relationship of proportionality between the means employed and the aim
sought to be realised.69 But over the years, the European Court has
developed a hierarchy of grounds covered by Article 14 of the
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Banking Laws under Atty. Fontanilla
ECHR, a much higher level of justification being required in respect
of those regarded as "suspect" (sex, race, nationality, illegitimacy,
or sexual orientation) than of others. Thus, in Abdulaziz, 70 the
European Court declared that:
. . . [t]he advancement of the equality of the sexes is today a major goal
in the member States of the Council of Europe. This means that very
weighty reasons would have to be advanced before a difference of
treatment on the ground of sex could be regarded as compatible with the
Convention.
And in Gaygusuz v. Austria,71 the European Court held that "very
weighty reasons would have to be put forward before the Court could
regard a difference of treatment based exclusively on the ground of
nationality as compatible with the Convention."72 The European
Court will then permit States a very much narrower margin of
appreciation in relation to discrimination on grounds of sex, race, etc.,
in the application of the Convention rights than it will in relation to
distinctions drawn by states between, for example, large and small land-
owners. 73
C. Equality under International Law
The principle of equality has long been recognized under international
law. Article 1 of the Universal Declaration of Human
Rights proclaims that all human beings are born free and equal in
dignity and rights. Non-discrimination, together with equality before
the law and equal protection of the law without any discrimination,
constitutes basic principles in the protection of human rights. 74
Most, if not all, international human rights instruments include some
prohibition on discrimination and/or provisions about equality. 75 The
general international provisions pertinent to discrimination and/or
equality are the International Covenant on Civil and Political Rights
(ICCPR);76 the International Covenant on Economic, Social and
Cultural Rights (ICESCR); the International Convention on the
Elimination of all Forms of Racial Discrimination (CERD); 77 the
Convention on the Elimination of all Forms of Discrimination against
Women (CEDAW); and the Convention on the Rights of the Child
(CRC).
In the broader international context, equality is also enshrined in
regional instruments such as the American Convention on Human
Rights;78 the African Charter on Human and People's Rights;79 the
European Convention on Human Rights;80 the European Social Charter
of 1961 and revised Social Charter of 1996; and the European Union
Charter of Rights (of particular importance to European states). Even
the Council of the League of Arab States has adopted the Arab Charter
on Human Rights in 1994, although it has yet to be ratified by the
Member States of the League.81
The equality provisions in these instruments do not merely function
as traditional "first generation" rights, commonly viewed as
concerned only with constraining rather than requiring State
action. Article 26 of the ICCPR requires "guarantee[s]" of "equal and
effective protection against discrimination" while Articles 1 and 14 of
the American and European Conventions oblige States Parties "to
ensure ... the full and free exercise of [the rights guaranteed] ... without
any discrimination" and to "secure without discrimination" the
enjoyment of the rights guaranteed.82 These provisions impose a
measure of positive obligation on States Parties to take steps to
eradicate discrimination.
In the employment field, basic detailed minimum standards ensuring
equality and prevention of discrimination, are laid down in the
ICESCR83 and in a very large number of Conventions administered by
the International Labour Organisation, a United Nations
body. 84 Additionally, many of the other international and regional
human rights instruments have specific provisions relating to
employment.85
The United Nations Human Rights Committee has also gone beyond
the earlier tendency to view the prohibition against discrimination
(Article 26) as confined to the ICCPR rights. 86 In Broeks87 and Zwaan-
de Vries,88 the issue before the Committee was whether discriminatory
provisions in the Dutch Unemployment Benefits Act (WWV) fell within
the scope of Article 26. The Dutch government submitted that
discrimination in social security benefit provision was not within the
scope of Article 26, as the right was contained in the ICESCR and not
the ICCPR. They accepted that Article 26 could go beyond the rights
contained in the Covenant to other civil and political rights, such as
discrimination in the field of taxation, but contended that Article 26 did
not extend to the social, economic, and cultural rights contained in
ICESCR. The Committee rejected this argument. In its view, Article 26
applied to rights beyond the Covenant including the rights in other
international treaties such as the right to social security found in
ICESCR:
Although Article 26 requires that legislation should prohibit
discrimination, it does not of itself contain any obligation with respect
to the matters that may be provided for by legislation. Thus it does not,
for example, require any state to enact legislation to provide for social
security. However, when such legislation is adopted in the exercise of a
State's sovereign power, then such legislation must comply with Article
26 of the Covenant.89
Breaches of the right to equal protection occur directly or indirectly. A
classification may be struck down if it has the purpose or effect of
violating the right to equal protection. International law recognizes
that discrimination may occur indirectly, as the Human Rights
Committee90 took into account the definitions of discrimination adopted
by CERD and CEDAW in declaring that:
. . . "discrimination" as used in the [ICCPR] should be understood to
imply any distinction, exclusion, restriction or preference which
is based on any ground such as race, colour, sex, language, religion,
political or other opinion, national or social origin, property, birth
or other status, and which has the purpose or effect of nullifying or
impairing the recognition, enjoyment or exercise by all persons, on
an equal footing, of all rights and freedoms. 91 (emphasis supplied)
Thus, the two-tier analysis made in the case at bar of the challenged
provision, and its conclusion of unconstitutionality by subsequent
operation, are in cadence and in consonance with the progressive
trend of other jurisdictions and in international law. There should be
no hesitation in using the equal protection clause as a major cutting edge
to eliminate every conceivable irrational discrimination in our society.
Indeed, the social justice imperatives in the Constitution, coupled with
the special status and protection afforded to labor, compel this
approach.92
Apropos the special protection afforded to labor under our Constitution
and international law, we held in International School Alliance of
Educators v. Quisumbing: 93
That public policy abhors inequality and discrimination is beyond
contention. Our Constitution and laws reflect the policy against these
evils. The Constitution in the Article on Social Justice and Human
Rights exhorts Congress to "give highest priority to the enactment of
measures that protect and enhance the right of all people to human
dignity, reduce social, economic, and political inequalities." The very
broad Article 19 of the Civil Code requires every person, "in the exercise
of his rights and in the performance of his duties, [to] act with justice,
give everyone his due, and observe honesty and good faith."
International law, which springs from general principles of law, likewise
proscribes discrimination. General principles of law include principles
of equity, i.e., the general principles of fairness and justice, based on the
test of what is reasonable. The Universal Declaration of Human Rights,
the International Covenant on Economic, Social, and Cultural Rights,
the International Convention on the Elimination of All Forms of Racial
Discrimination, the Convention against Discrimination in Education,
the Convention (No. 111) Concerning Discrimination in Respect of
Employment and Occupation - all embody the general principle against
discrimination, the very antithesis of fairness and justice. The
Philippines, through its Constitution, has incorporated this principle as
part of its national laws.
In the workplace, where the relations between capital and labor are often
skewed in favor of capital, inequality and discrimination by the
employer are all the more reprehensible.
The Constitution specifically provides that labor is entitled to "humane
conditions of work." These conditions are not restricted to the physical
workplace - the factory, the office or the field - but include as well the
manner by which employers treat their employees.
The Constitution also directs the State to promote "equality of
employment opportunities for all." Similarly, the Labor Code provides
that the State shall "ensure equal work opportunities regardless of sex,
race or creed." It would be an affront to both the spirit and letter of these
provisions if the State, in spite of its primordial obligation to promote
and ensure equal employment opportunities, closes its eyes to unequal
and discriminatory terms and conditions of employment.
xxx xxx xxx
Notably, the International Covenant on Economic, Social, and Cultural
Rights, in Article 7 thereof, provides:
The States Parties to the present Covenant recognize the right of
everyone to the enjoyment of just and [favorable] conditions of work,
which ensure, in particular:
a. Remuneration which provides all workers, as a minimum, with:
i. Fair wages and equal remuneration for work of equal value without
distinction of any kind, in particular women being guaranteed conditions
of work not inferior to those enjoyed by men, with equal pay for equal
work;
xxx xxx xxx
The foregoing provisions impregnably institutionalize in this
jurisdiction the long honored legal truism of "equal pay for equal work."
Persons who work with substantially equal qualifications, skill, effort
and responsibility, under similar conditions, should be paid similar
salaries. (citations omitted)
Congress retains its wide discretion in providing for a valid
classification, and its policies should be accorded recognition and
respect by the courts of justice except when they run afoul of the
Constitution.94 The deference stops where the classification violates
a fundamental right, or prejudices persons accorded special
protection by the Constitution. When these violations arise, this Court
must discharge its primary role as the vanguard of constitutional
guaranties, and require a stricter and more exacting adherence to
constitutional limitations. Rational basis should not suffice.
Admittedly, the view that prejudice to persons accorded special
protection by the Constitution requires a stricter judicial scrutiny finds
no support in American or English jurisprudence. Nevertheless, these
foreign decisions and authorities are not per se controlling in this
jurisdiction. At best, they are persuasive and have been used to support
many of our decisions.95 We should not place undue and fawning
reliance upon them and regard them as indispensable mental crutches
without which we cannot come to our own decisions through the
employment of our own endowments. We live in a different ambience
and must decide our own problems in the light of our own interests and
needs, and of our qualities and even idiosyncrasies as a people, and
always with our own concept of law and justice.96 Our laws must be
construed in accordance with the intention of our own lawmakers and
such intent may be deduced from the language of each law and the
context of other local legislation related thereto. More importantly, they
must be construed to serve our own public interest which is the be-all
and the end-all of all our laws. And it need not be stressed that our public
interest is distinct and different from others.97
In the 2003 case of Francisco v. House of Representatives, this Court
has stated that: "[A]merican jurisprudence and authorities, much less the
American Constitution, are of dubious application for these are no
longer controlling within our jurisdiction and have only limited
persuasive merit insofar as Philippine constitutional law is
concerned....[I]n resolving constitutional disputes, [this Court] should
not be beguiled by foreign jurisprudence some of which are hardly
applicable because they have been dictated by different constitutional
settings and needs."98 Indeed, although the Philippine Constitution can
trace its origins to that of the United States, their paths of development
have long since diverged. 99
Further, the quest for a better and more "equal" world calls for the use
of equal protection as a tool of effective judicial intervention.
Equality is one ideal which cries out for bold attention and action in the
Constitution. The Preamble proclaims "equality" as an ideal precisely in
protest against crushing inequities in Philippine society. The command
to promote social justice in Article II, Section 10, in "all phases of
national development," further explicitated in Article XIII, are clear
commands to the State to take affirmative action in the direction of
greater equality.… [T]here is thus in the Philippine Constitution no lack
of doctrinal support for a more vigorous state effort towards achieving
a reasonable measure of equality.100
Our present Constitution has gone further in guaranteeing vital social
and economic rights to marginalized groups of society, including
labor.101 Under the policy of social justice, the law bends over backward
to accommodate the interests of the working class on the humane
justification that those with less privilege in life should have more in
law.102 And the obligation to afford protection to labor is incumbent not
only on the legislative and executive branches but also on the judiciary
to translate this pledge into a living reality.103 Social justice calls for the
humanization of laws and the equalization of social and economic forces
by the State so that justice in its rational and objectively secular
conception may at least be approximated. 104
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Banking Laws under Atty. Fontanilla
V.
A Final Word
Finally, concerns have been raised as to the propriety of a ruling voiding
the challenged provision. It has been proffered that the remedy of
petitioner is not with this Court, but with Congress, which alone has the
power to erase any inequity perpetrated by R.A. No. 7653. Indeed, a bill
proposing the exemption of the BSP rank-and-file from the SSL has
supposedly been filed.
Under most circumstances, the Court will exercise judicial restraint in
deciding questions of constitutionality, recognizing the broad discretion
given to Congress in exercising its legislative power. Judicial scrutiny
would be based on the "rational basis" test, and the legislative discretion
would be given deferential treatment. 105
But if the challenge to the statute is premised on the denial of a
fundamental right, or the perpetuation of prejudice against persons
favored by the Constitution with special protection, judicial
scrutiny ought to be more strict. A weak and watered down view
would call for the abdication of this Court's solemn duty to strike down
any law repugnant to the Constitution and the rights it enshrines. This is
true whether the actor committing the unconstitutional act is a private
person or the government itself or one of its instrumentalities.
Oppressive acts will be struck down regardless of the character or nature
of the actor. 106
Accordingly, when the grant of power is qualified, conditional or subject
to limitations, the issue on whether or not the prescribed qualifications
or conditions have been met, or the limitations respected, is justiciable
or non-political, the crux of the problem being one of legality or validity
of the contested act, not its wisdom. Otherwise, said qualifications,
conditions or limitations - particularly those prescribed or imposed by
the Constitution - would be set at naught. What is more, the judicial
inquiry into such issue and the settlement thereof are the main functions
of courts of justice under the Presidential form of government adopted
in our 1935 Constitution, and the system of checks and balances, one of
its basic predicates. As a consequence, We have neither the authority
nor the discretion to decline passing upon said issue, but are under
the ineluctable obligation - made particularly more exacting and
peremptory by our oath, as members of the highest Court of the
land, to support and defend the Constitution - to settle it. This
explains why, in Miller v. Johnson, it was held that courts have a "duty,
rather than a power", to determine whether another branch of the
government has "kept within constitutional limits." Not satisfied with
this postulate, the court went farther and stressed that, if the Constitution
provides how it may be amended - as it is in our 1935 Constitution -
"then, unless the manner is followed, the judiciary as the interpreter of
that constitution, will declare the amendment invalid." In fact, this very
Court - speaking through Justice Laurel, an outstanding authority on
Philippine Constitutional Law, as well as one of the highly respected
and foremost leaders of the Convention that drafted the 1935
Constitution - declared, as early as July 15, 1936, that "(i)n times of
social disquietude or political excitement, the great landmarks of the
Constitution are apt to be forgotten or marred, if not entirely obliterated.
In cases of conflict, the judicial department is the only constitutional
organ which can be called upon to determine the proper allocation of
powers between the several departments" of the
government.107 (citations omitted; emphasis supplied)
In the case at bar, the challenged proviso operates on the basis of the
salary grade or officer-employee status. It is akin to a distinction based
on economic class and status, with the higher grades as recipients of a
benefit specifically withheld from the lower grades. Officers of the BSP
now receive higher compensation packages that are competitive with the
industry, while the poorer, low-salaried employees are limited to the
rates prescribed by the SSL. The implications are quite disturbing: BSP
rank-and-file employees are paid the strictly regimented rates of the SSL
while employees higher in rank - possessing higher and better education
and opportunities for career advancement - are given higher
compensation packages to entice them to stay. Considering that
majority, if not all, the rank-and-file employees consist of people
whose status and rank in life are less and limited, especially in terms
of job marketability, it is they - and not the officers - who have the
real economic and financial need for the adjustment This is in accord
with the policy of the Constitution "to free the people from poverty,
provide adequate social services, extend to them a decent standard of
living, and improve the quality of life for all."108 Any act of Congress
that runs counter to this constitutional desideratum deserves strict
scrutiny by this Court before it can pass muster.
To be sure, the BSP rank-and-file employees merit greater concern
from this Court. They represent the more impotent rank-and-file
government employees who, unlike employees in the private sector,
have no specific right to organize as a collective bargaining unit and
negotiate for better terms and conditions of employment, nor the power
to hold a strike to protest unfair labor practices. Not only are they
impotent as a labor unit, but their efficacy to lobby in Congress is almost
nil as R.A. No. 7653 effectively isolated them from the other GFI rank-
and-file in compensation. These BSP rank-and-file employees
represent the politically powerless and they should not be compelled
to seek a political solution to their unequal and iniquitous
treatment. Indeed, they have waited for many years for the legislature
to act. They cannot be asked to wait some more for discrimination
cannot be given any waiting time. Unless the equal protection clause of
the Constitution is a mere platitude, it is the Court's duty to save them
from reasonless discrimination.
IN VIEW WHEREOF, we hold that the continued operation and
implementation of the last proviso of Section 15(c), Article II of
Republic Act No. 7653 is unconstitutional.
16.
G.R. No. 169334 September 8, 2006
LETICIA G. MIRANDA, petitioner,
vs.
PHILIPPINE DEPOSIT INSURANCE CORPORATION,
BANGKO SENTRAL NG PILIPINAS and PRIME SAVINGS
BANK, Respondents.
DECISION
YNARES-SANTIAGO, J.:
This Petition for Review on Certiorari under Rule 45 of the Rules of
Court seeks a reversal of the Decision1 of the Court of Appeals dated
February 23, 2005 in CA-G.R. CV No. 77556 which reversed and set
aside the Decision2 of the Regional Trial Court of Santiago City, Branch
35, in Civil Case No. 35-2844 and the July 7, 2005 Resolution denying
petitioner's Motion for Reconsideration. 3
Petitioner Leticia G. Miranda was a depositor of Prime Savings Bank,
Santiago City Branch. On June 3, 1999, she withdrew substantial
amounts from her account, but instead of cash she opted to be issued a
crossed cashier's check. She was thus issued cashier's check no.
0000000518 in the sum of P2,500,000.00 and cashier's check no.
0000000514 in the amount of P3,002,000.00.4
Petitioner deposited the two checks into her account in another bank on
the same day, however, Bangko Sentral ng Pilipinas (BSP) suspended
the clearing privileges of Prime Savings Bank effective 2:00 p.m. of
June 3, 1999. The two checks of petitioner were returned to her unpaid. 5
On June 4, 1999, Prime Savings Bank declared a bank holiday. On
January 7, 2000, the BSP placed Prime Savings Bank under the
receivership of the Philippine Deposit Insurance Corporation (PDIC). 6
Petitioner filed a civil action for sum of money in the Regional Trial
Court of Santiago City, Isabela to recover the funds from her unpaid
checks against Prime Savings Bank, PDIC and the BSP. Judgment on
the pleadings was rendered on March 1, 2001, the dispositive portion of
which reads:
WHEREFORE, judgment is rendered against defendants namely:
Philippine Deposit Insurance Corporation, Bangko Sentral ng Pilipinas
and Prime Bank, to pay jointly and solidarily the amount of
P5,502,000.00 to the plaintiff.
SO ORDERED.7
On appeal, the Court of Appeals reversed the trial court and ruled in
favor of the PDIC and BSP, dismissing the case against them, without
prejudice to the right of petitioner to file her claim before the court
designated to adjudicate on claims against Prime Savings Bank. The
dispositive portion of the appellate court's decision dated February 23,
2005 thus reads:
WHEREFORE, the appeal is GRANTED and the decision appealed
from is REVERSED and SET ASIDE and the case is DISMISSED,
without prejudice to the right of Miranda to file her claim before the
court designated to adjudicate on claims against Prime Savings Bank.
SO ORDERED.8
Petitioner's motion for reconsideration was denied,9 hence, this petition.
The issues presented by the petitioner before this Court can be
summarized as follows: (1) Whether the two cashier's checks operate as
an assignment of funds in the hands of the petitioner; (2) Whether the
claim lodged by the petitioner is a disputed claim under Section 30 of
Republic Act (R.A.) No. 7653, otherwise known as the New Central
Bank Act, and therefore, under the jurisdiction of the liquidation court;
and (3) Whether the respondents are solidarily liable to the petitioner.
Petitioner contends that she ceased to be a depositor upon withdrawal of
her deposit and the issuance of the two cashier's checks to her. As a
holder in due course of the cashier's checks as defined under Sections
52 and 191 of the Negotiable Instruments Law, she is an assignee of the
funds of Prime Savings Bank as drawer thereof and entitled to its
immediate payment.10
Petitioner next argues that the present claim is not a disputed claim in
contemplation of Section 30 of the New Central Bank Act. Since
disputed claims refer to all claims, whether they be against the assets of
the insolvent bank, for specific performance, breach of contract, or
damages, it is manifest that petitioner's claim cannot fall within the
purview of a disputed claim because she is recovering assigned funds
which are segregated monies of Prime Savings Bank.11
Petitioner further states that by the mere issuance of the cashier's check,
the funds represented by the check are transferred from the credit of the
maker to that of the payee or holder. Hence, petitioner alleges that she
cannot be placed on the same footing with the ordinary creditors of the
bank because Section 30 of R.A. No. 7653 is for equality among
creditors. She avers that she is not a creditor thus is entitled to the
immediate payment of her claim, pursuant to Section 189 of the
Negotiable Instruments Law and existing jurisprudence. She argues that
putting her on equal footing with ordinary creditors, would contravene
the provisions of the Negotiable Instruments Law and would greatly
diminish her rights as a holder in due course of said two cashier's
checks.12
Petitioner also argues that respondents PDIC and BSP contrary to
Sections 185 and 189 of the Negotiable Instruments Law have caused
damage to the petitioner and should be held solidarily liable by
indemnifying the petitioner for the value of the two cashier's checks. 13
Respondents, on the other hand, state that the mere issuance of the
cashier's checks did not operate as assignment of funds in favor of the
petitioner. They argue that even prior to the issuance of the cashier's
checks, the bank was already cash-strapped, which negates petitioner's
claim that there was an assignment of funds in her favor.14 There can be
no assignment of funds when there is no funds to speak of in the first
place.
They likewise argue that the cashier's checks issued to petitioner were
not certified but crossed, hence, there was no assignment of funds made
by the cashier or manager of respondent Prime Savings Bank-Santiago
City Branch as it had insufficient funds to meet the said checks either in
its cash vault or with respondent BSP to clear the said checks. 15
Respondents argue that the instant case involves a disputed claim of sum
of money against a closed financial institution. Sections 30 and 31 of
R.A. No. 7653, exclusively vests the authority to assess, evaluate and
determine the condition of any bank with the BSP, while the PDIC has
the primary responsibility of acting as receiver or liquidator of the
closed financial institution.16 Since the relationship between petitioner
and Prime Savings Bank is one of creditor and debtor, petitioner should
file her claim with the liquidation court constituted precisely for
purposes of adjudicating claims against the bank in accordance with the
rules on concurrence and preference of credits.17
Respondent PDIC alleges that it was impleaded in its representative
capacity as the receiver/liquidator of the closed institution, therefore, it
has no direct, personal and solidary liability for the payment of the two
cashier's checks. Its involvement came about only because a bank under
receivership or liquidation cannot sue or be sued except through its
receiver or liquidator.18
Respondent BSP also insists that not being a party to the said checks nor
for imposing sanctions on co-respondent Prime Savings Bank, is not
liable on the said crossed cashier's checks. 19
Anent the first issue, the two cashier's checks issued by Prime Savings
Bank do not constitute an assignment of funds in the hands of the
petitioner as there were no funds to speak of in the first place. The bank
was financially insolvent for sometime, even before the issuance of the
checks on June 3, 1999. As the Court of Appeals correctly ruled, the
issuance of the cashier's checks to petitioner did not constitute an
assignment of funds, of which there was practically none at the time
41
Banking Laws under Atty. Fontanilla
these were issued, as the bank was in dire financial straits for some
time.20
As regards the second issue, the claim lodged by the petitioner qualifies
as a disputed claim subject to the jurisdiction of the liquidation court.
Regular courts do not have jurisdiction over actions filed by claimants
against an insolvent bank, unless there is a clear showing that the action
taken by the BSP, through the Monetary Board in the closure of financial
institutions was in excess of jurisdiction, or with grave abuse of
discretion.
The power and authority of the Monetary Board to close banks and
liquidate them thereafter when public interest so requires is an exercise
of the police power of the State. Police power, however, is subject to
judicial inquiry. It may not be exercised arbitrarily or unreasonably and
could be set aside if it is either capricious, discriminatory, whimsical,
arbitrary, unjust, or is tantamount to a denial of due process and equal
protection clauses of the Constitution.21
"Disputed claims" refer to all claims, whether they be against the assets
of the insolvent bank, for specific performance, breach of contract,
damages, or whatever.22 Petitioner's claim which involved the payment
of the two cashier's checks that were not honored by Prime Savings
Bank due to its closure falls within the ambit of a claim against the assets
of the insolvent bank. The issuance of the cashier's checks by Prime
Savings Bank to the petitioner created a debtor/creditor relationship
between them. This disputed claim should therefore be lodged in the
liquidation proceedings by the petitioner as creditor, since the closure of
Prime Savings Bank has rendered all claims subsisting at that time moot
which can best be threshed out by the liquidation court and not the
regular courts.
It is well-settled in both law and jurisprudence that the Central Monetary
Authority, through the Monetary Board, is vested with exclusive
authority to assess, evaluate and determine the condition of any bank,
and finding such condition to be one of insolvency, or that its
continuance in business would involve a probable loss to its depositors
or creditors, forbid bank or non-bank financial institution to do business
in the Philippines; and shall designate an official of the BSP or other
competent person as receiver to immediately take charge of its assets
and liabilities.23
In Central Bank of the Philippines v. De la Cruz,24 we held that the
actions of the Monetary Board in proceedings on insolvency are
explicitly declared by law to be "final and executory." They may not be
set aside, or restrained, or enjoined by the courts, except upon
"convincing proof that the action is plainly arbitrary and made in bad
faith.
Hence, as clearly laid down in Ong v. Court of Appeals,25 the rationale
behind judicial liquidation is intended to prevent multiplicity of actions
against the insolvent bank. It is a pragmatic arrangement designed to
establish due process and orderliness in the liquidation of the bank, to
obviate the proliferation of litigations and to avoid injustice and
arbitrariness. The lawmaking body contemplated that for convenience,
only one court, if possible, should pass upon the claims against the
insolvent bank and that the liquidation court should assist the
Superintendent of Banks and regulate his operations.
Regarding the third issue, it is only Prime Savings Bank that is liable to
pay for the amount of the two cashier's checks. Solidary liability cannot
attach to the BSP, in its capacity as government regulator of banks, and
the PDIC as statutory receiver under R.A. No. 7653, because they are
the principal government agencies mandated by law to determine the
financial viability of banks and quasi-banks, and facilitate receivership
and liquidation of closed financial institutions, upon a factual
determination of the latter's insolvency.
As correctly pointed out by the Court of Appeals, the BSP should not be
held liable on the crossed cashier's checks for it was not a party to the
issuance of the same; nor can it be held liable for imposing the sanctions
on Prime Savings Bank which indirectly affected Miranda, since it is
mandated under Sec. 37 of R.A. No. 7653 to act accordingly.26 The BSP,
through the Monetary Board was well within its discretion to exercise
this power granted by law to issue a resolution suspending the interbank
clearing privileges of Prime Savings Bank, having made a factual
determination that the bank had deficient cash reserves deposited before
the BSP. There is no showing that the BSP abused this discretionary
power conferred upon it by law.
In addition, co-respondent PDIC was impleaded as a party-litigant only
in its representative capacity as the receiver/liquidator of Prime Savings
Bank. Both BSP and PDIC cannot therefore be held directly and
solidarily liable for the payment of the two cashier's checks. Sole
liability rests with Prime Savings Bank.
In the absence of fraud, the purchase of a cashier's check, like the
purchase of a draft on a correspondent bank, creates the relation of
creditor and debtor, not that of principal and agent, with the result that
the purchaser or holder thereof is not entitled to a preference over
general creditors in the assets of the bank issuing the check, when it fails
before payment of the check. However, in a situation involving the
element of fraud, where a cashier's check is purchased from a bank
at a time when it is insolvent, as its officers know or are bound to know
by the exercise of reasonable diligence, it has been held that the
purchase is entitled to a preference in the assets of the bank on its
liquidation before the check is paid.27
As correctly found by the Court of Appeals:
Prime Savings as a bank did not collapse overnight but was
hemorrhaging and in financial extremis for some time, a fact which
could not have gone unnoticed by the bank officers. They could not have
issued in good faith checks for the total sum of P5,502,000.00 knowing
that the bank's coffers could not meet this. 28
Clearly, there was fraud or the intent to deceive when the two cashier's
checks dated June 3, 1999 were issued by Prime Savings Bank to the
petitioner.
In the distribution of assets of Prime Savings Bank, Section 31 of the
New Central Bank Act which provides that "[i]n case of liquidation of a
bank or quasi-bank, after payment of the cost of proceedings, including
reasonable expenses and fees of the receiver to be allowed by the court,
the receiver shall pay the debts of such institution, under order of the
court, in accordance with the rules on concurrence and preference of
credit as provided in the Civil Code," should apply.
WHEREFORE, the petition is DENIED. The Decision of the Court of
Appeals dated February 23, 2005 and the Resolution dated July 7, 2005,
in CA-G.R. CV No. 77556, are AFFIRMED with
the MODIFICATION that petitioner Leticia G. Miranda is entitled to
a preference in the assets of Prime Savings Bank in its liquidation for
the amounts of P3,002,000.00 and P2,500,000.00, respectively stated in
Cashier's Check No. 0000000514 and 0000000518 dated June 3, 1999
in the proceedings before the liquidation court designated to adjudicate
on all claims against Prime Savings Bank, in accordance with the rules
on concurrence and preference of credits as provided in the Civil Code.
SO ORDERED.
17.
G.R. No. 162336 February 1, 2010
HILARIO P. SORIANO, Petitioner,
vs.
PEOPLE OF THE PHILIPPINES, BANGKO SENTRAL NG
PILIPINAS (BSP), PHILIPPINE DEPOSIT INSURANCE
CORPORATION (PDIC), PUBLIC PROSECUTOR ANTONIO
C.BUAN, and STATE PROSECUTOR ALBERTO R.
FONACIER, Respondents.
DECISION
DEL CASTILLO, J.:
A bank officer violates the DOSRI2 law when he acquires bank funds
for his personal benefit, even if such acquisition was facilitated by a
fraudulent loan application. Directors, officers, stockholders, and their
related interests cannot be allowed to interpose the fraudulent nature of
the loan as a defense to escape culpability for their circumvention of
Section 83 of Republic Act (RA) No. 337.3
Before us is a Petition for Review on Certiorari4 under Rule 45 of the
Rules of Court, assailing the September 26, 2003 Decision5 and the
February 5, 2004 Resolution6 of the Court of Appeals (CA) in CA-G.R.
SP No. 67657. The challenged Decision disposed as follows:
WHEREFORE, premises considered, the instant petition for certiorari
is hereby DENIED.7
Factual Antecedents
Sometime in 2000, the Office of Special Investigation (OSI) of
the Bangko Sentral ng Pilipinas (BSP), through its officers,8 transmitted
a letter9 dated March 27, 2000 to Jovencito Zuño, Chief State Prosecutor
of the Department of Justice (DOJ). The letter attached as annexes five
affidavits,10 which would allegedly serve as bases for filing criminal
charges for Estafa thru Falsification of Commercial Documents, in
relation to Presidential Decree (PD) No. 1689,11 and for Violation of
Section 83 of RA 337, as amended by PD 1795,12 against, inter
alia, petitioner herein Hilario P. Soriano. These five affidavits, along
with other documents, stated that spouses Enrico and Amalia Carlos
appeared to have an outstanding loan of ₱8 million with the Rural Bank
of San Miguel (Bulacan), Inc. (RBSM), but had never applied for nor
received such loan; that it was petitioner, who was then president of
RBSM, who had ordered, facilitated, and received the proceeds of the
loan; and that the ₱8 million loan had never been authorized by RBSM's
Board of Directors and no report thereof had ever been submitted to the
Department of Rural Banks, Supervision and Examination Sector of the
BSP. The letter of the OSI, which was not subscribed under oath, ended
with a request that a preliminary investigation be conducted and the
corresponding criminal charges be filed against petitioner at his last
known address.
Acting on the letter-request and its annexes, State Prosecutor Albert R.
Fonacier proceeded with the preliminary investigation. He issued a
subpoena with the witnesses’ affidavits and supporting documents
attached, and required petitioner to file his counter-affidavit. In due
course, the investigating officer issued a Resolution finding probable
cause and correspondingly filed two separate informations against
petitioner before the Regional Trial Court (RTC) of Malolos, Bulacan. 13
The first Information,14 dated November 14, 2000 and docketed as
Criminal Case No. 237-M-2001, was for estafa through falsification of
commercial documents, under Article 315, paragraph 1(b), of the
Revised Penal Code (RPC), in relation to Article 172 of the RPC and
PD 1689. It basically alleged that petitioner and his co-accused, in abuse
of the confidence reposed in them as RBSM officers, caused the
falsification of a number of loan documents, making it appear that one
Enrico Carlos filled up the same, and thereby succeeded in securing a
loan and converting the loan proceeds for their personal gain and
benefit.15 The information reads:
That in or about the month of April, 1997, and thereafter, in San Miguel,
Bulacan, and within the jurisdiction of this Honorable Court, the said
accused HILARIO P. SORIANO and ROSALINDA ILAGAN, as
principals by direct participation, with unfaithfulness or abuse of
confidence and taking advantage of their position as President of the
Rural Bank of San Miguel (Bulacan), Inc. and Branch Manager of the
Rural Bank of San Miguel – San Miguel Branch [sic], a duly organized
banking institution under Philippine Laws, conspiring, confederating
and mutually helping one another, did then and there, willfully and
feloniously falsify loan documents consisting of undated loan
application/information sheet, credit proposal dated April 14, 1997,
credit proposal dated April 22, 1997, credit investigation report dated
April 15, 1997, promissory note dated April 23, 1997, disclosure
statement on loan/credit transaction dated April 23, 1997, and other
related documents, by making it appear that one Enrico Carlos filled up
the application/information sheet and filed the aforementioned loan
documents when in truth and in fact Enrico Carlos did not participate in
the execution of said loan documents and that by virtue of said
falsification and with deceit and intent to cause damage, the accused
succeeded in securing a loan in the amount of eight million pesos
(PhP8,000,000.00) from the Rural Bank of San Miguel – San Ildefonso
branch in the name of Enrico Carlos which amount of PhP8 million
representing the loan proceeds the accused thereafter converted the
same amount to their own personal gain and benefit, to the damage and
prejudice of the Rural Bank of San Miguel – San Ildefonso branch, its
creditors, the Bangko Sentral ng Pilipinas, and the Philippine Deposit
Insurance Corporation.
CONTRARY TO LAW.16
The other Information17 dated November 10, 2000 and docketed as
Criminal Case No. 238-M-2001, was for violation of Section 83 of RA
337, as amended by PD 1795. The said provision refers to the
prohibition against the so-called DOSRI loans. The information alleged
that, in his capacity as President of RBSM, petitioner indirectly secured
an ₱8 million loan with RBSM, for his personal use and benefit, without
the written consent and approval of the bank's Board of Directors,
without entering the said transaction in the bank's records, and without
transmitting a copy of the transaction to the supervising department of
the bank. His ruse was facilitated by placing the loan in the name of an
unsuspecting RBSM depositor, one Enrico Carlos. 18 The information
reads:
That in or about the month of April, 1997, and thereafter, and within the
jurisdiction of this Honorable Court, the said accused, in his capacity as
President of the Rural Bank of San Miguel (Bulacan), Inc., did then and
there, willfully and feloniously indirectly borrow or secure a loan with
the Rural Bank of San Miguel – San Ildefonso branch, a domestic rural
banking institution created, organized and existing under Philippine
laws, amounting to eight million pesos (PhP8,000,000.00), knowing
fully well that the same has been done by him without the written
consent and approval of the majority of the board of directors of the said
bank, and which consent and approval the said accused deliberately
42
Banking Laws under Atty. Fontanilla
failed to obtain and enter the same upon the records of said banking
institution and to transmit a copy thereof to the supervising department
of the said bank, as required by the General Banking Act, by using the
name of one depositor Enrico Carlos of San Miguel, Bulacan, the latter
having no knowledge of the said loan, and one in possession of the said
amount of eight million pesos (PhP8,000,000.00), accused converted
the same to his own personal use and benefit, in flagrant violation of the
said law.
CONTRARY TO LAW.19
Both cases were raffled to Branch 79 of the RTC of Malolos, Bulacan. 20
On June 8, 2001, petitioner moved to quash21 these informations on two
grounds: that the court had no jurisdiction over the offense charged, and
that the facts charged do not constitute an offense.
On the first ground, petitioner argued that the letter transmitted by the
BSP to the DOJ constituted the complaint and hence was defective for
failure to comply with the mandatory requirements of Section 3(a), Rule
112 of the Rules of Court, such as the statement of address of petitioner
and oath and subscription.22 Moreover, petitioner argued that the
officers of OSI, who were the signatories to the "letter-complaint," were
not authorized by the BSP Governor, much less by the Monetary Board,
to file the complaint. According to petitioner, this alleged fatal oversight
violated Section 18, pars. (c) and (d) of the New Central Bank Act (RA
7653).
On the second ground, petitioner contended that the commission of
estafa under paragraph 1(b) of Article 315 of the RPC is inherently
incompatible with the violation of DOSRI law (as set out in Section
8323 of RA 337, as amended by PD 1795), 24 hence a person cannot be
charged for both offenses. He argued that a violation of DOSRI law
requires the offender to obtain a loan from his bank, without complying
with procedural, reportorial, or ceiling requirements. On the other hand,
estafa under par. 1(b), Article 315 of the RPC requires the offender to
misappropriate or convert something that he holds in trust, or on
commission, or for administration, or under any other obligation
involving the duty to return the same.25
Essentially, the petitioner theorized that the characterization of
possession is different in the two offenses. If petitioner acquired the loan
as DOSRI, he owned the loaned money and therefore, cannot
misappropriate or convert it as contemplated in the offense of estafa.
Conversely, if petitioner committed estafa, then he merely held the
money in trust for someone else and therefore, did not acquire a loan in
violation of DOSRI rules.
Ruling of the Regional Trial Court
In an Order26 dated August 8, 2001, the trial court denied petitioner's
Motion to Quash for lack of merit. The lower court agreed with the
prosecution that the assailed OSI letter was not the complaint-affidavit
itself; thus, it need not comply with the requirements under the Rules of
Court. The trial court held that the affidavits, which were attached to the
OSI letter, comprised the complaint-affidavit in the case. Since these
affidavits were duly subscribed and sworn to before a notary public,
there was adequate compliance with the Rules. The trial court further
held that the two offenses were separate and distinct violations, hence
the prosecution of one did not pose a bar to the other. 27
Petitioner’s Motion for Reconsideration was likewise denied in an Order
dated September 5, 2001.28
Aggrieved, petitioner filed a Petition for Certiorari29 with the CA,
reiterating his arguments before the trial court.
Ruling of the Court of Appeals
The CA denied the petition on both issues presented by petitioner.
On the first issue, the CA determined that the BSP letter, which
petitioner characterized to be a fatally infirm complaint, was not actually
a complaint, but a transmittal or cover letter only. This transmittal letter
merely contained a summary of the affidavits which were attached to it.
It did not contain any averment of personal knowledge of the events and
transactions that constitute the elements of the offenses charged. Being
a mere transmittal letter, it need not comply with the requirements of
Section 3(a) of Rule 112 of the Rules of Court. 30
The CA further determined that the five affidavits attached to the
transmittal letter should be considered as the complaint-affidavits that
charged petitioner with violation of Section 83 of RA 337 and for Estafa
thru Falsification of Commercial Documents. These complaint-
affidavits complied with the mandatory requirements set out in the Rules
of Court – they were subscribed and sworn to before a notary public and
subsequently certified by State Prosecutor Fonacier, who personally
examined the affiants and was convinced that the affiants fully
understood their sworn statements.31
Anent the second ground, the CA found no merit in petitioner's
argument that the violation of the DOSRI law and the commission of
estafa thru falsification of commercial documents are inherently
inconsistent with each other. It explained that the test in considering a
motion to quash on the ground that the facts charged do not constitute
an offense, is whether the facts alleged, when hypothetically admitted,
constitute the elements of the offense charged. The appellate court held
that this test was sufficiently met because the allegations in the assailed
informations, when hypothetically admitted, clearly constitute the
elements of Estafa thru Falsification of Commercial Documents and
Violation of DOSRI law.32
Petitioner’s Motion for Reconsideration was likewise denied for lack
33
of merit.
Hence, this petition.
Issues
Restated, petitioner raises the following issues 34 for our consideration:
I filing of corresponding criminal charges against petitioner Soriano.
Whether the complaint complied with the mandatory requirements
provided under Section 3(a), Rule 112 of the Rules of Court and Section
18, paragraphs (c) and (d) of RA 7653.
II
Whether a loan transaction within the ambit of the DOSRI law (violation
of Section 83 of RA 337, as amended) could also be the subject of Estafa
under Article 315 (1) (b) of the Revised Penal Code.
III
Is a petition for certiorari under Rule 65 the proper remedy against an
Order denying a Motion to Quash?
IV
Whether petitioner is entitled to a writ of injunction.
Our Ruling
The petition lacks merit.
First Issue:
Whether the complaint complied with the mandatory requirements
provided under Section 3(a), Rule 112 of the Rules of Court and
Section 18, paragraphs (c) and (d) of
Republic Act No. 7653
Petitioner moved to withdraw the first issue from the instant petition
On March 5, 2007, the Court noted35 petitioner's Manifestation and
Motion for Partial Withdrawal of the Petition36 dated February 7, 2007.
In the said motion, petitioner informed the Court of the promulgation of
a Decision entitled Soriano v. Hon. Casanova,37 which also involved
petitioner and similar BSP letters to the DOJ. According to petitioner,
the said Decision allegedly ruled squarely on the nature of the BSP
letters and the validity of the sworn affidavits attached thereto. For this
reason, petitioner moved for the partial withdrawal of the instant petition
insofar as it involved the issue of "whether or not a court can legally
acquire jurisdiction over a complaint which failed to comply with the
mandatory requirements provided under Section 3(a), Rule 112 of the
Rules of Court and Section 18, paragraphs (c) and (d) of RA 7653". 38
Given that the case had already been submitted for resolution of the
Court when petitioner filed his latest motion, and that all respondents
had presented their positions and arguments on the first issue, the Court
deems it proper to rule on the same.
In Soriano v. Hon. Casanova, the Court held that the affidavits attached
to the BSP transmittal letter complied with the mandatory requirements
under the Rules of Court.
To be sure, the BSP letters involved in Soriano v. Hon.
Casanova39 are not the same as the BSP letter involved in the instant
case. However, the BSP letters in Soriano v. Hon. Casanova and the
BSP letter subject of this case are similar in the sense that they are all
signed by the OSI officers of the BSP, they were not sworn to by the
said officers, they all contained summaries of their attached affidavits,
and they all requested the conduct of a preliminary investigation and the
Thus, the principle of stare decisis dictates that the ruling in Soriano v.
Hon. Casanova be applied in the instant case – once a question of law
has been examined and decided, it should be deemed settled and closed
to further argument.40
We held in Soriano v. Hon. Casanova, after a close scrutiny of the letters
transmitted by the BSP to the DOJ, that these were not intended to be
the complaint, as envisioned under the Rules. They did not contain
averments of personal knowledge of the events and transactions
constitutive of any offense. The letters merely transmitted for
preliminary investigation the affidavits of people who had personal
knowledge of the acts of petitioner. We ruled that these affidavits, not
the letters transmitting them, initiated the preliminary investigation.
Since these affidavits were subscribed under oath by the witnesses who
executed them before a notary public, then there was substantial
compliance with Section 3(a), Rule 112 of the Rules of Court.
Anent the contention that there was no authority from the BSP Governor
or the Monetary Board to file a criminal case against Soriano, we held
that the requirements of Section 18, paragraphs (c) and (d) of RA 7653
did not apply because the BSP did not institute the complaint but merely
transmitted the affidavits of the complainants to the DOJ.
We further held that since the offenses for which Soriano was charged
were public crimes, authority holds that it can be initiated by "any
competent person" with personal knowledge of the acts committed by
the offender. Thus, the witnesses who executed the affidavits clearly fell
within the purview of "any competent person" who may institute the
complaint for a public crime.
The ruling in Soriano v. Hon. Casanova has been adopted and elaborated
upon in the recent case of Santos-Concio v. Department of
Justice.41 Instead of a transmittal letter from the BSP, the Court in
Santos-Concio was faced with an NBI-NCR Report, likewise with
affidavits of witnesses as attachments. Ruling on the validity of the
witnesses’ sworn affidavits as bases for a preliminary investigation, we
held:
The Court is not unaware of the practice of incorporating all allegations
in one document denominated as "complaint-affidavit." It does not
pronounce strict adherence to only one approach, however, for there are
cases where the extent of one’s personal knowledge may not cover the
entire gamut of details material to the alleged offense. The private
offended party or relative of the deceased may not even have witnessed
the fatality, in which case the peace officer or law enforcer has to rely
chiefly on affidavits of witnesses. The Rules do not in fact preclude the
attachment of a referral or transmittal letter similar to that of the NBI-
NCR. Thus, in Soriano v. Casanova, the Court held:
A close scrutiny of the letters transmitted by the BSP and PDIC to the
DOJ shows that these were not intended to be the complaint envisioned
under the Rules. It may be clearly inferred from the tenor of the letters
that the officers merely intended to transmit the affidavits of the bank
employees to the DOJ. Nowhere in the transmittal letters is there any
averment on the part of the BSP and PDIC officers of personal
knowledge of the events and transactions constitutive of the criminal
violations alleged to have been made by the accused. In fact, the letters
clearly stated that what the OSI of the BSP and the LIS of the PDIC did
was to respectfully transmit to the DOJ for preliminary investigation the
affidavits and personal knowledge of the acts of the petitioner. These
affidavits were subscribed under oath by the witnesses who executed
them before a notary public. Since the affidavits, not the letters
transmitting them, were intended to initiate the preliminary
investigation, we hold that Section 3(a), Rule 112 of the Rules of Court
was substantially complied with.
Citing the ruling of this Court in Ebarle v. Sucaldito, the Court of
Appeals correctly held that a complaint for purposes of preliminary
investigation by the fiscal need not be filed by the offended party. The
rule has been that, unless the offense subject thereof is one that
cannot be prosecuted de oficio, the same may be filed, for preliminary
investigation purposes, by any competent person. The crime of estafa
is a public crime which can be initiated by "any competent person." The
witnesses who executed the affidavits based on their personal
knowledge of the acts committed by the petitioner fall within the
purview of "any competent person" who may institute the complaint for
a public crime. x x x (Emphasis and italics supplied)
A preliminary investigation can thus validly proceed on the basis of an
affidavit of any competent person, without the referral document, like
the NBI-NCR Report, having been sworn to by the law enforcer as the
43
Banking Laws under Atty. Fontanilla
nominal complainant. To require otherwise is a needless exercise. The
cited case of Oporto, Jr. v. Judge Monserate does not appear to dent this
proposition. After all, what is required is to reduce the evidence into
affidavits, for while reports and even raw information may justify the
initiation of an investigation, the preliminary investigation stage can be
held only after sufficient evidence has been gathered and evaluated
which may warrant the eventual prosecution of the case in court.42
Following the foregoing rulings in Soriano v. Hon. Casanova and
Santos-Concio v. Department of Justice, we hold that the BSP letter,
taken together with the affidavits attached thereto, comply with the
requirements provided under Section 3(a), Rule 112 of the Rules of
Court and Section 18, paragraphs (c) and (d) of RA 7653.
Second Issue:
Whether a loan transaction within the ambit of the DOSRI law (violation
of Section 83 of RA 337, as amended) could be the subject of Estafa
under Article 315 (1) (b) of the
Revised Penal Code
The second issue was raised by petitioner in the context of his Motion
to Quash Information on the ground that the facts charged do not
constitute an offense.43 It is settled that in considering a motion to quash
on such ground, the test is "whether the facts alleged, if hypothetically
admitted, would establish the essential elements of the offense charged
as defined by law. The trial court may not consider a situation contrary
to that set forth in the criminal complaint or information. Facts that
constitute the defense of the petitioner[s] against the charge under the
information must be proved by [him] during trial. Such facts or
circumstances do not constitute proper grounds for a motion to quash
the information on the ground that the material averments do not
constitute the offense". 44
We have examined the two informations against petitioner and we find
that they contain allegations which, if hypothetically admitted, would
establish the essential elements of the crime of DOSRI violation and
estafa thru falsification of commercial documents.
In Criminal Case No. 238-M-2001 for violation of DOSRI rules, the
information alleged that petitioner Soriano was the president of RBSM;
that he was able to indirectly obtain a loan from RBSM by putting the
loan in the name of depositor Enrico Carlos; and that he did this without
complying with the requisite board approval, reportorial, and ceiling
requirements.
In Criminal Case No. 237-M-2001 for estafa thru falsification of
commercial documents, the information alleged that petitioner, by
taking advantage of his position as president of RBSM, falsified various
loan documents to make it appear that an Enrico Carlos secured a loan
of ₱8 million from RBSM; that petitioner succeeded in obtaining the
loan proceeds; that he later converted the loan proceeds to his own
personal gain and benefit; and that his action caused damage and
prejudice to RBSM, its creditors, the BSP, and the PDIC.
Significantly, this is not the first occasion that we adjudge the
sufficiency of similarly worded informations. In Soriano v.
People,45 involving the same petitioner in this case (but different
transactions), we also reviewed the sufficiency of informations for
DOSRI violation and estafa thru falsification of commercial documents,
which were almost identical, mutatis mutandis, with the subject
informations herein. We held in Soriano v. People that there is no basis
for the quashal of the informations as "they contain material allegations
charging Soriano with violation of DOSRI rules and estafa thru
falsification of commercial documents".
Petitioner raises the theory that he could not possibly be held liable for
estafa in concurrence with the charge for DOSRI violation. According
to him, the DOSRI charge presupposes that he acquired a loan, which
would make the loan proceeds his own money and which he could
neither possibly misappropriate nor convert to the prejudice of another,
as required by the statutory definition of estafa. 46 On the other hand, if
petitioner did not acquire any loan, there can be no DOSRI violation to
speak of. Thus, petitioner posits that the two offenses cannot co-exist.
This theory does not persuade us.
Petitioner’s theory is based on the false premises that the loan was
extended to him by the bank in his own name, and that he became the
owner of the loan proceeds. Both premises are wrong.
The bank money (amounting to ₱8 million) which came to the
possession of petitioner was money held in trust or administration by
him for the bank, in his
fiduciary capacity as the President of said bank.47 It is not accurate to
say that petitioner became the owner of the ₱8 million because it was
the proceeds of a loan. That would have been correct if the bank
knowingly extended the loan to petitioner himself. But that is not the
case here. According to the information for estafa, the loan was
supposed to be for another person, a certain "Enrico Carlos"; petitioner,
through falsification, made it appear that said "Enrico Carlos" applied
for the loan when in fact he ("Enrico Carlos") did not. Through such
fraudulent device, petitioner obtained the loan proceeds and converted
the same. Under these circumstances, it cannot be said that petitioner
became the legal owner of the ₱8 million. Thus, petitioner remained the
bank’s fiduciary with respect to that money, which makes it capable of
misappropriation or conversion in his hands.
The next question is whether there can also be, at the same time, a charge
for DOSRI violation in such a situation wherein the accused bank officer
did not secure a loan in his own name, but was alleged to have used the
name of another person in order to indirectly secure a loan from the
bank. We answer this in the affirmative. Section 83 of RA 337 reads:
Section 83. No director or officer of any banking institution shall, either
directly or indirectly, for himself or as the representative or agent of
others, borrow any of the deposits of funds of such bank, nor shall he
become a guarantor, indorser, or surety for loans from such bank to
others, or in any manner be an obligor for moneys borrowed from the
bank or loaned by it, except with the written approval of the majority of
the directors of the bank, excluding the director concerned. Any such
approval shall be entered upon the records of the corporation and a copy
of such entry shall be transmitted forthwith to the Superintendent of
Banks. The office of any director or officer of a bank who violates the
provisions of this section shall immediately become vacant and the
director or officer shall be punished by imprisonment of not less than
one year nor more than ten years and by a fine of not less than one
thousand nor more than ten thousand pesos. x x x
The prohibition in Section 83 is broad enough to cover various modes
of borrowing.[48] It covers loans by a bank director or officer (like
herein petitioner) which are made either: (1) directly, (2) indirectly, (3)
for himself, (4) or as the representative or agent of others. It applies even
if the director or officer is a mere guarantor, indorser or surety for
someone else's loan or is in any manner an obligor for money borrowed
from the bank or loaned by it. The covered transactions are prohibited
unless the approval, reportorial and ceiling requirements under Section
83 are complied with. The prohibition is intended to protect the public,
especially the depositors,[49] from the overborrowing of bank funds by
bank officers, directors, stockholders and related interests, as such
overborrowing may lead to bank failures.[50] It has been said that
"banking institutions are not created for the benefit of the directors [or
officers]. While directors have great powers as directors, they have no
special privileges as individuals. They cannot use the assets of the bank
for their own benefit except as permitted by law. Stringent restrictions
are placed about them so that when acting both for the bank and for one
of themselves at the same time, they must keep within certain prescribed
lines regarded by the legislature as essential to safety in the banking
business".51
A direct borrowing is obviously one that is made in the name of the
DOSRI himself or where the DOSRI is a named party, while an indirect
borrowing includes one that is made by a third party, but the DOSRI has
a stake in the transaction.52 The latter type – indirect borrowing – applies
here. The information in Criminal Case 238-M-2001 alleges that
petitioner "in his capacity as President of Rural Bank of San Miguel –
San Ildefonso branch x x x indirectly borrow[ed] or secure[d] a loan with
[RBSM] x x x knowing fully well that the same has been done by him
without the written consent and approval of the majority of the board of
directors x x x, and which consent and approval the said accused
deliberately failed to obtain and enter the same upon the records of said
banking institution and to transmit a copy thereof to the supervising
department of the said bank x x x by using the name of one depositor
Enrico Carlos x x x, the latter having no knowledge of the said loan, and
once in possession of the said amount of eight million pesos (₱8
million), [petitioner] converted the same to his own personal use and
benefit".53
The foregoing information describes the manner of securing the loan
as indirect; names petitioner as the benefactor of the indirect loan; and
states that the requirements of the law were not complied with. It
contains all the required elements54 for a violation of Section 83, even if
petitioner did not secure the loan in his own name.
The broad interpretation of the prohibition in Section 83 is justified by
the fact that it even expressly covers loans to third parties where the third
parties are aware of the transaction (such as principals represented by
the DOSRI), and where the DOSRI’s interest does not appear to be
beneficial but even burdensome (such as in cases when the DOSRI acts
as a mere guarantor or surety). If the law finds it necessary to protect the
bank and the banking system in such situations, it will surely be illogical
for it to exclude a case like this where the DOSRI acted for his own
benefit, using the name of an unsuspecting person. A contrary
interpretation will effectively allow a DOSRI to use dummies to
circumvent the requirements of the law.
In sum, the informations filed against petitioner do not negate each
other.
Third Issue:
Is a Rule 65 petition for certiorari the proper remedy against an
Order denying a Motion to Quash?
This issue may be speedily resolved by adopting our ruling in Soriano
v. People,55 where we held:
In fine, the Court has consistently held that a special civil action
for certiorari is not the proper remedy to assail the denial of a motion to
quash an information. The proper procedure in such a case is for the
accused to enter a plea, go to trial without prejudice on his part to present
the special defenses he had invoked in his motion to quash and if after
trial on the merits, an adverse decision is rendered, to appeal therefrom
in the manner authorized by law. Thus, petitioners should not have
forthwith filed a special civil action for certiorari with the CA and
instead, they should have gone to trial and reiterated the special defenses
contained in their motion to quash. There are no special or exceptional
circumstances in the present case that would justify immediate resort to
a filing of a petition for certiorari. Clearly, the CA did not commit any
reversible error, much less, grave abuse of discretion in dismissing the
petition.56
Fourth Issue:
Whether petitioner is entitled to a writ of injunction
The requisites to justify an injunctive relief are: (1) the right of the
complainant is clear and unmistakable; (2) the invasion of the right
sought to be protected is material and substantial; and (3) there is an
urgent and paramount necessity for the writ to prevent serious damage.
A clear legal right means one clearly founded in or granted by law or is
"enforceable as a matter of law." Absent any clear and unquestioned
legal right, the issuance of an injunctive writ would constitute grave
abuse of discretion.57 Caution and prudence must, at all times, attend the
issuance of an injunctive writ because it effectively disposes of the main
case without trial and/or due process.58 In Olalia v. Hizon,59 the Court
held as follows:
It has been consistently held that there is no power the exercise of which
is more delicate, which requires greater caution, deliberation and sound
discretion, or more dangerous in a doubtful case, than the issuance of an
injunction. It is the strong arm of equity that should never be extended
unless to cases of great injury, where courts of law cannot afford an
adequate or commensurate remedy in damages.
Every court should remember that an injunction is a limitation upon the
freedom of action of the [complainant] and should not be granted lightly
or precipitately. It should be granted only when the court is fully
satisfied that the law permits it and the emergency demands it.
Given this Court's findings in the earlier issues of the instant case, we
find no compelling reason to grant the injunctive relief sought by
petitioner.
WHEREFORE, the petition is DENIED. The assailed September 26,
2003 Decision as well as the February 5, 2004 Resolution of the Court
of Appeals in CA-G.R. SP No. 67657 are AFFIRMED. Costs against
petitioner.
SO ORDERED.
44
Banking Laws under Atty. Fontanilla
18.
G.R. No. 200238 : November 20, 2012
PHILIPPINE SAVINGS BANK (PSBANK) and PASCUAL M.
GARCIA III, as representative of Philippine Savings Bank and in
his personal capacity, Petitioners, v. SENATE IMPEACHMENT
COURT, consisting of the senators of the republic of the philippines
acting as senator judges, namely: JUAN PONCE ENRILE,
JINGGOY EJERCITO ESTRADA, VICENTE C. SOTTO III,
ALAN PETER S. CAYETANO, EDGARDO J. ANGARA, JOKER
P. ARROYO, PIA S. CAYETANO, FRANKLIN M. DRILON,
FRANCIS G. ESCUDERO, TEOFISTO GUINGONA III,
GREGORIO B. HONASAN II, PANFILO M. LACSON, MANUEL
M. LAPID, LOREN B. LEGARDA, FERDINAND R. MARCOS,
JR., SERGIO R. OSMENA III, FRANCIS "KIKO"
PANGILINAN, AQUILINO PIMENTEL III, RALPH G. RECTO,
RAMON REVILLA, JR., ANTONIO F. TRILLANES IV, MANNY
VILLAR; and THE HONORABLE MEMBERS OF THE
PROSECUTION PANEL OF THE HOUSE OF
REPRESENTATIVES, Respondents.
RESOLUTION
PERLAS-BERNABE, J.:
Petitioners Philippine Savings Bank (PSBank) and Pascual M. Garcia
III, as President of PSBank, filed a Petition for Certiorari and
Prohibition seeking to nullity and set aside the Resolution1ςrνll of
respondent Senate of the Republic of the Philippines, sitting as an
Impeachment Court, which granted the prosecution's requests for
subpoena duces tecum ad testificandum2ςrνll to PSBank and/or its
representatives requiring them to testify and produce before the
Impeachment Court documents relative to the foreign currency accounts
that were alleged to belong to then Suprerpe Court Chief Justice Renato
C. Corona.
On November 5, 2012, and during the pendency of this petition,
petitioners filed a Motion with Leave of Court to Withdraw the
Petition3ςrνll averring that subsequent events have overtaken the
petition and that, with the termination of the impeachment proceedings
against former Chief Justice Corona, they are no longer faced with the
dilemma of either violating Republic Act No. 6426 (RA 6426) or being
held in contempt of court for refusing to disclose the details of the
subject foreign currency deposits.
It is well-settled that courts will not determine questions that have
become moot and academic because there is no longer any justiciable
controversy to speak of. The judgment will not serve any useful purpose
or have any practical legal effect because, in the nature of things, it
cannot be enforced.4ςrνll In Gancho-on v. Secretary of Labor and
Employment,5ςrνll the Court ruled:
It is a rule of universal application that courts of justice constituted to
pass upon substantial rights will not consider questions in which no
actual interests are involved; they decline jurisdiction of moot cases.
And where the issue has become moot and academic, there is no
justiciable controversy, so that a declaration thereon would be of no
practical use or value. There is no actual substantial relief to which
petitioners would be entitled and which would be negated by the
dismissal of the petition. (Citations omitted)
Indeed, the main issue of whether the Impeachment Court acted
arbitrarily when it issued the assailed subpoena to obtain information
concerning the subject foreign currency deposits notwithstanding the
confidentiality of such deposits under RA 6426 has been overtaken by
events. The supervening conviction of Chief Justice Corona on May 29,
2012, as well as his execution of a waiver against the confidentiality of
all his bank accounts, whether in peso or foreign currency, has rendered
the present petition moot and academic.
On the basis of the foregoing, the Court finds it appropriate to abstain
from passing upon the merits of this case where legal relief is no longer
needed nor called for.ςηαοblενιrυαllαωlιbrαr
WHEREFORE, the petition is DISMISSED for having become moot
and academic and the temporary restraining order issued by the Court
on February 9, 2012 is LIFTED.ςrαlαωlιbrαr
SO ORDERED.
19.
G.R. No. 168644 February 16, 2010
BSB GROUP, INC., represented by its President, Mr. RICARDO
BANGAYAN, Petitioner,
vs.
SALLY GO a.k.a. SALLY GO-BANGAYAN, Respondent.
DECISION
PERALTA, J.:
This is a Petition for Review under Rule 45 of the Rules of Court
assailing the Decision of the Court of Appeals in CA-G.R. SP No.
876001 dated April 20, 2005, which reversed and set aside the
September 13, 20042 and November 5, 20043 Orders issued by the
Regional Trial Court of Manila, Branch 364 in Criminal Case No. 02-
202158 for qualified theft. The said orders, in turn, respectively denied
the motion filed by herein respondent Sally Go for the suppression of
the testimonial and documentary evidence relative to a Security Bank
account, and denied reconsideration.
The basic antecedents are no longer disputed.
Petitioner, the BSB Group, Inc., is a duly organized domestic
corporation presided by its herein representative, Ricardo Bangayan
(Bangayan). Respondent Sally Go, alternatively referred to as Sally Sia
Go and Sally Go-Bangayan, is Bangayan’s wife, who was employed in
the company as a cashier, and was engaged, among others, to receive
and account for the payments made by the various customers of the
company.
In 2002, Bangayan filed with the Manila Prosecutor’s Office a
complaint for estafa and/or qualified theft5 against respondent, alleging
that several checks6 representing the aggregate amount of
₱1,534,135.50 issued by the company’s customers in payment of their
obligation were, instead of being turned over to the company’s coffers,
indorsed by respondent who deposited the same to her personal banking
account maintained at Security Bank and Trust Company (Security
Bank) in Divisoria, Manila Branch.7 Upon a finding that the evidence
adduced was uncontroverted, the assistant city prosecutor recommended
the filing of the Information for qualified theft against respondent. 8
Accordingly, respondent was charged before the Regional Trial Court
of Manila, Branch 36, in an Information, the inculpatory portion of
which reads:
That in or about or sometime during the period comprised (sic) between
January 1988 [and] October 1989, inclusive, in the City of Manila,
Philippines, the said accused did then and there willfully, unlawfully
and feloniously with intent [to] gain and without the knowledge and
consent of the owner thereof, take, steal and carry away cash money in
the total amount of ₱1,534,135.50 belonging to BSB GROUP OF
COMPANIES represented by RICARDO BANGAYAN, to the damage
and prejudice of said owner in the aforesaid amount of ₱1,534,135.50,
Philippine currency.
That in the commission of the said offense, said accused acted with
grave abuse of confidence, being then employed as cashier by said
complainant at the time of the commission of the said offense and as
such she was entrusted with the said amount of money.
Contrary to law.9
Respondent entered a negative plea when arraigned.10 The trial ensued.
On the premise that respondent had allegedly encashed the subject
checks and deposited the corresponding amounts thereof to her personal
banking account, the prosecution moved for the issuance of subpoena
duces tecum /ad testificandum against the respective managers or
records custodians of Security Bank’s Divisoria Branch, as well as of
the Asian Savings Bank (now Metropolitan Bank & Trust Co.
[Metrobank]), in Jose Abad Santos, Tondo, Manila Branch. 11 The trial
court granted the motion and issued the corresponding subpoena. 12
Respondent filed a motion to quash the subpoena dated November 4,
2003, addressed to Metrobank, noting to the court that in the complaint-
affidavit filed with the prosecutor, there was no mention made of the
said bank account, to which respondent, in addition to the Security Bank
account identified as Account No. 01-14-006, allegedly deposited the
proceeds of the supposed checks. Interestingly, while respondent
characterized the Metrobank account as irrelevant to the case, she, in the
same motion, nevertheless waived her objection to the irrelevancy of the
Security Bank account mentioned in the same complaint-affidavit,
inasmuch as she was admittedly willing to address the allegations with
respect thereto.13
Petitioner, opposing respondent’s move, argued for the relevancy of the
Metrobank account on the ground that the complaint-affidavit showed
that there were two checks which respondent allegedly deposited in an
account with the said bank.14 To this, respondent filed a supplemental
motion to quash, invoking the absolutely confidential nature of the
Metrobank account under the provisions of Republic Act (R.A.) No.
1405.15 The trial court did not sustain respondent; hence, it denied the
motion to quash for lack of merit.16
Meanwhile, the prosecution was able to present in court the testimony
of Elenita Marasigan (Marasigan), the representative of Security Bank.
In a nutshell, Marasigan’s testimony sought to prove that between 1988
and 1989, respondent, while engaged as cashier at the BSB Group, Inc.,
was able to run away with the checks issued to the company by its
customers, endorse the same, and credit the corresponding amounts to
her personal deposit account with Security Bank. In the course of the
testimony, the subject checks were presented to Marasigan for
identification and marking as the same checks received by respondent,
endorsed, and then deposited in her personal account with Security
Bank.17 But before the testimony could be completed, respondent filed
a Motion to Suppress,18 seeking the exclusion of Marasigan’s testimony
and accompanying documents thus far received, bearing on the subject
Security Bank account. This time respondent invokes, in addition to
irrelevancy, the privilege of confidentiality under R.A. No. 1405.
The trial court, nevertheless, denied the motion in its September 13,
2004 Order.19 A motion for reconsideration was subsequently filed, but
it was also denied in the Order dated November 5, 2004. 20 These two
orders are the subject of the instant case.
Aggrieved, and believing that the trial court gravely abused its
discretion in acting the way it did, respondent elevated the matter to the
Court of Appeals via a petition for certiorari under Rule 65. Finding
merit in the petition, the Court of Appeals reversed and set aside the
assailed orders of the trial court in its April 20, 2005 Decision. 21 The
decision reads:
WHEREFORE, the petition is hereby GRANTED. The assailed orders
dated September 13, 2004 and November 5, 2004 are REVERSED and
SET ASIDE. The testimony of the SBTC representative is ordered
stricken from the records.
SO ORDERED.22
With the denial of its motion for reconsideration,23 petitioner is now
before the Court pleading the same issues as those raised before the
lower courts.
In this Petition24 under Rule 45, petitioner averred in the main that the
Court of Appeals had seriously erred in reversing the assailed orders of
the trial court, and in effect striking out Marasigan’s testimony dealing
with respondent’s deposit account with Security Bank. 25 It asserted that
apart from the fact that the said evidence had a direct relation to the
subject matter of the case for qualified theft and, hence, brings the case
under one of the exceptions to the coverage of confidentiality under
R.A. 1405.26 Petitioner believed that what constituted the subject matter
in litigation was to be determined by the allegations in the information
and, in this respect, it alluded to the assailed November 5, 2004 Order
of the trial court, which declared to be erroneous the limitation of the
present inquiry merely to what was contained in the information. 27
For her part, respondent claimed that the money represented by the
Security Bank account was neither relevant nor material to the case,
because nothing in the criminal information suggested that the money
therein deposited was the subject matter of the case. She invited
particular attention to that portion of the criminal Information which
averred that she has stolen and carried away cash money in the total
amount of ₱1,534,135.50. She advanced the notion that the term "cash
money" stated in the Information was not synonymous with the checks
she was purported to have stolen from petitioner and deposited in her
personal banking account. Thus, the checks which the prosecution had
Marasigan identify, as well as the testimony itself of Marasigan, should
be suppressed by the trial court at least for violating respondent’s right
to due process.28 More in point, respondent opined that admitting the
testimony of Marasigan, as well as the evidence pertaining to the
Security Bank account, would violate the secrecy rule under R.A. No.
1405.29
In its reply, petitioner asserted the sufficiency of the allegations in the
criminal Information for qualified theft, as the same has sufficiently
alleged the elements of the offense charged. It posits that through
Marasigan’s testimony, the Court would be able to establish that the
checks involved, copies of which were attached to the complaint-
affidavit filed with the prosecutor, had indeed been received by
respondent as cashier, but were, thereafter, deposited by the latter to her
personal account with Security Bank. Petitioner held that the checks
represented the cash money stolen by respondent and, hence, the subject
matter in this case is not only the cash amount represented by the checks
supposedly stolen by respondent, but also the checks themselves. 30
45
Banking Laws under Atty. Fontanilla
We derive from the conflicting advocacies of the parties that the issue
for resolution is whether the testimony of Marasigan and the
accompanying documents are irrelevant to the case, and whether they
are also violative of the absolutely confidential nature of bank deposits
and, hence, excluded by operation of R.A. No. 1405. The question of
admissibility of the evidence thus comes to the fore. And the Court, after
deliberative estimation, finds the subject evidence to be indeed
inadmissible.
Prefatorily, fundamental is the precept in all criminal prosecutions, that
the constitutive acts of the offense must be established with unwavering
exactitude and moral certainty because this is the critical and only
requisite to a finding of guilt. 31 Theft is present when a person, with
intent to gain but without violence against or intimidation of persons or
force upon things, takes the personal property of another without the
latter’s consent. It is qualified when, among others, and as alleged in the
instant case, it is committed with abuse of confidence. 32 The prosecution
of this offense necessarily focuses on the existence of the following
elements: (a) there was taking of personal property belonging to another;
(b) the taking was done with intent to gain; (c) the taking was done
without the consent of the owner; (d) the taking was done without
violence against or intimidation of persons or force upon things; and (e)
it was done with abuse of confidence. 33 In turn, whether these elements
concur in a way that overcomes the presumption of guiltlessness, is a
question that must pass the test of relevancy and competency in
accordance with Section 334 Rule 128 of the Rules of Court.
Thus, whether these pieces of evidence sought to be suppressed in this
case the testimony of Marasigan, as well as the checks purported to
have been stolen and deposited in respondent’s Security Bank account
are relevant, is to be addressed by considering whether they have such
direct relation to the fact in issue as to induce belief in its existence or
non-existence; or whether they relate collaterally to a fact from which,
by process of logic, an inference may be made as to the existence or
non-existence of the fact in issue.35
The fact in issue appears to be that respondent has taken away cash in
the amount of ₱1,534,135.50 from the coffers of petitioner. In support
of this allegation, petitioner seeks to establish the existence of the
elemental act of taking by adducing evidence that respondent, at several
times between 1988 and 1989, deposited some of its checks to her
personal account with Security Bank. Petitioner addresses the
incongruence between the allegation of theft of cash in the Information,
on the one hand, and the evidence that respondent had first stolen the
checks and deposited the same in her banking account, on the other
hand, by impressing upon the Court that there obtains no difference
between cash and check for purposes of prosecuting respondent for theft
of cash. Petitioner is mistaken.
In theft, the act of unlawful taking connotes deprivation of personal
property of one by another with intent to gain, and it is immaterial that
the offender is able or unable to freely dispose of the property stolen
because the deprivation relative to the offended party has already ensued
from such act of execution.36 The allegation of theft of money, hence,
necessitates that evidence presented must have a tendency to prove that
the offender has unlawfully taken money belonging to another.
Interestingly, petitioner has taken pains in attempting to draw a
connection between the evidence subject of the instant review, and the
allegation of theft in the Information by claiming that respondent had
fraudulently deposited the checks in her own name. But this line of
argument works more prejudice than favor, because it in effect, seeks to
establish the commission, not of theft, but rather of some other crime
probably estafa.
Moreover, that there is no difference between cash and check is true in
other instances. In estafa by conversion, for instance, whether the thing
converted is cash or check, is immaterial in relation to the formal
allegation in an information for that offense; a check, after all, while not
regarded as legal tender, is normally accepted under commercial usage
as a substitute for cash, and the credit it represents in stated monetary
value is properly capable of appropriation. And it is in this respect that
what the offender does with the check subsequent to the act of
unlawfully taking it becomes material inasmuch as this offense is a
continuing one.37 In other words, in pursuing a case for this offense, the
prosecution may establish its cause by the presentation of the checks
involved. These checks would then constitute the best evidence to
establish their contents and to prove the elemental act of conversion in
support of the proposition that the offender has indeed indorsed the same
in his own name.38
Theft, however, is not of such character. Thus, for our purposes, as the
Information in this case accuses respondent of having stolen cash, proof
tending to establish that respondent has actualized her criminal intent by
indorsing the checks and depositing the proceeds thereof in her personal
account, becomes not only irrelevant but also immaterial and, on that
score, inadmissible in evidence.
We now address the issue of whether the admission of Marasigan’s
testimony on the particulars of respondent’s account with Security
Bank, as well as of the corresponding evidence of the checks allegedly
deposited in said account, constitutes an unallowable inquiry under R.A.
1405.
It is conceded that while the fundamental law has not bothered with the
triviality of specifically addressing privacy rights relative to banking
accounts, there, nevertheless, exists in our jurisdiction a legitimate
expectation of privacy governing such accounts. The source of this right
of expectation is statutory, and it is found in R.A. No. 1405, 39 otherwise
known as the Bank Secrecy Act of 1955. 40
R.A. No. 1405 has two allied purposes. It hopes to discourage private
hoarding and at the same time encourage the people to deposit their
money in banking institutions, so that it may be utilized by way of
authorized loans and thereby assist in economic development. 41 Owing
to this piece of legislation, the confidentiality of bank deposits remains
to be a basic state policy in the Philippines. 42 Section 2 of the law
institutionalized this policy by characterizing as absolutely confidential
in general all deposits of whatever nature with banks and other financial
institutions in the country. It declares:
Section 2. All deposits of whatever nature with banks or banking
institutions in the Philippines including investments in bonds issued by
the Government of the Philippines, its political subdivisions and its
instrumentalities, are hereby considered as of an absolutely confidential
nature and may not be examined, inquired or looked into by any person,
government official, bureau or office, except upon written permission
of the depositor, or in cases of impeachment, or upon order of a
competent court in cases of bribery or dereliction of duty of public
officials, or in cases where the money deposited or invested is the
subject matter of the litigation.1avvphi1
Subsequent statutory enactments43 have expanded the list of exceptions
to this policy yet the secrecy of bank deposits still lies as the general
rule, falling as it does within the legally recognized zones of
privacy.44 There is, in fact, much disfavor to construing these primary
and supplemental exceptions in a manner that would authorize unbridled
discretion, whether governmental or otherwise, in utilizing these
exceptions as authority for unwarranted inquiry into bank accounts. It is
then perceivable that the present legal order is obliged to conserve the
absolutely confidential nature of bank deposits.45
The measure of protection afforded by the law has been explained in
China Banking Corporation v. Ortega.46 That case principally addressed
the issue of whether the prohibition against an examination of bank
deposits precludes garnishment in satisfaction of a judgment. Ruling on
that issue in the negative, the Court found guidance in the relevant
portions of the legislative deliberations on Senate Bill No. 351 and
House Bill No. 3977, which later became the Bank Secrecy Act, and it
held that the absolute confidentiality rule in R.A. No. 1405 actually aims
at protection from unwarranted inquiry or investigation if the purpose of
such inquiry or investigation is merely to determine the existence and
nature, as well as the amount of the deposit in any given bank account.
Thus,
x x x The lower court did not order an examination of or inquiry into the
deposit of B&B Forest Development Corporation, as contemplated in
the law. It merely required Tan Kim Liong to inform the court whether
or not the defendant B&B Forest Development Corporation had a
deposit in the China Banking Corporation only for purposes of the
garnishment issued by it, so that the bank would hold the same intact
and not allow any withdrawal until further order. It will be noted from
the discussion of the conference committee report on Senate Bill No.
351 and House Bill No. 3977which later became Republic Act No.
1405, that it was not the intention of the lawmakers to place banks
deposits beyond the reach of execution to satisfy a final judgmentThus:
x x x Mr. Marcos: Now, for purposes of the record, I should like the
Chairman of the Committee on Ways and Means to clarify this further.
Suppose an individual has a tax case. He is being held liable by the
Bureau of Internal Revenue [(BIR)] or, say, ₱1,000.00 worth of tax
liability, and because of this the deposit of this individual [has been]
attached by the [BIR].
Mr. Ramos: The attachment will only apply after the court has
pronounced sentence declaring the liability of such person. But where
the primary aim is to determine whether he has a bank deposit in order
to bring about a proper assessment by the [BIR], such inquiry is not
allowed by this proposed law.
Mr. Marcos: But under our rules of procedure and under the Civil Code,
the attachment or garnishment of money deposited is allowed. Let us
assume for instance that there is a preliminary attachment which is for
garnishment or for holding liable all moneys deposited belonging to a
certain individual, but such attachment or garnishment will bring out
into the open the value of such deposit. Is that prohibited by... the law?
Mr. Ramos: It is only prohibited to the extent that the inquiry... is made
only for the purpose of satisfying a tax liability already declared for the
protection of the right in favor of the government; but when the object
is merely to inquire whether he has a deposit or not for purposes of
taxation, then this is fully covered by the law. x x x
Mr. Marcos: The law prohibits a mere investigation into the existence
and the amount of the deposit.
Mr. Ramos: Into the very nature of such deposit. x x x47
In taking exclusion from the coverage of the confidentiality rule,
petitioner in the instant case posits that the account maintained by
respondent with Security Bank contains the proceeds of the checks that
she has fraudulently appropriated to herself and, thus, falls under one of
the exceptions in Section 2 of R.A. No. 1405 that the money kept in
said account is the subject matter in litigation. To highlight this thesis,
petitioner avers, citing Mathay v. Consolidated Bank and Trust
Co.,48 that the subject matter of the action refers to the physical facts;
the things real or personal; the money, lands, chattels and the like, in
relation to which the suit is prosecuted, which in the instant case should
refer to the money deposited in the Security Bank account. 49 On the
surface, however, it seems that petitioner’s theory is valid to a point, yet
a deeper treatment tends to show that it has argued quite off-tangentially.
This, because, while Mathay did explain what the subject matter of an
action is, it nevertheless did so only to determine whether the class suit
in that case was properly brought to the court.
What indeed constitutes the subject matter in litigation in relation to
Section 2 of R.A. No. 1405 has been pointedly and amply addressed in
Union Bank of the Philippines v. Court of Appeals,50 in which the Court
noted that the inquiry into bank deposits allowable under R.A. No. 1405
must be premised on the fact that the money deposited in the account is
itself the subject of the action.51 Given this perspective, we deduce that
the subject matter of the action in the case at bar is to be determined
from the indictment that charges respondent with the offense, and not
from the evidence sought by the prosecution to be admitted into the
records. In the criminal Information filed with the trial court,
respondent, unqualifiedly and in plain language, is charged with
qualified theft by abusing petitioner’s trust and confidence and stealing
cash in the amount of ₱1,534,135.50. The said Information makes no
factual allegation that in some material way involves the checks subject
of the testimonial and documentary evidence sought to be suppressed.
Neither do the allegations in said Information make mention of the
supposed bank account in which the funds represented by the checks
have allegedly been kept.
In other words, it can hardly be inferred from the indictment itself that
the Security Bank account is the ostensible subject of the prosecution’s
inquiry. Without needlessly expanding the scope of what is plainly
alleged in the Information, the subject matter of the action in this case
is the money amounting to ₱1,534,135.50 alleged to have been stolen
by respondent, and not the money equivalent of the checks which are
sought to be admitted in evidence. Thus, it is that, which the prosecution
is bound to prove with its evidence, and no other.
It comes clear that the admission of testimonial and documentary
evidence relative to respondent’s Security Bank account serves no other
purpose than to establish the existence of such account, its nature and
the amount kept in it. It constitutes an attempt by the prosecution at an
impermissible inquiry into a bank deposit account the privacy and
confidentiality of which is protected by law. On this score alone, the
objection posed by respondent in her motion to suppress should have
indeed put an end to the controversy at the very first instance it was
raised before the trial court.
In sum, we hold that the testimony of Marasigan on the particulars of
respondent’s supposed bank account with Security Bank and the
documentary evidence represented by the checks adduced in support
thereof, are not only incompetent for being excluded by operation of
R.A. No. 1405. They are likewise irrelevant to the case, inasmuch as
they do not appear to have any logical and reasonable connection to the
prosecution of respondent for qualified theft. We find full merit in and
affirm respondent’s objection to the evidence of the prosecution. The
Court of Appeals was, therefore, correct in reversing the assailed orders
of the trial court.
A final note. In any given jurisdiction where the right of privacy extends
its scope to include an individual’s financial privacy rights and personal
financial matters, there is an intermediate or heightened scrutiny given
46
Banking Laws under Atty. Fontanilla
by courts and legislators to laws infringing such rights. 52 Should there
be doubts in upholding the absolutely confidential nature of bank
deposits against affirming the authority to inquire into such accounts,
then such doubts must be resolved in favor of the former. This attitude
persists unless congress lifts its finger to reverse the general state policy
respecting the absolutely confidential nature of bank deposits. 53
WHEREFORE, the petition is DENIED. The Decision of the Court of
Appeals in CA-G.R. SP No. 87600 dated April 20, 2005, reversing the
September 13, 2004 and November 5, 2004 Orders of the Regional Trial
Court of Manila, Branch 36 in Criminal Case No. 02-202158, is
AFFIRMED.
SO ORDERED.
20.
G.R. No. 189206 June 8, 2011
GOVERNMENT SERVICE INSURANCE SYSTEM, Petitioner,
vs.
THE HONORABLE 15th DIVISION OF THE COURT OF
APPEALS and INDUSTRIAL BANK OF KOREA, TONG YANG
MERCHANT BANK, HANAREUM BANKING CORP., LAND
BANK OF THE PHILIPPINES, WESTMONT BANK and
DOMSAT HOLDINGS, INC., Respondents.
DECISION
PEREZ, J.:
The subject of this petition for certiorari is the Decision1 of the Court of
Appeals in CA-G.R. SP No. 82647 allowing the quashal by the Regional
Trial Court (RTC) of Makati of a subpoena for the production of bank
ledger. This case is incident to Civil Case No. 99-1853, which is the
main case for collection of sum of money with damages filed by
Industrial Bank of Korea, Tong Yang Merchant Bank, First Merchant
Banking Corporation, Land Bank of the Philippines, and Westmont
Bank (now United Overseas Bank), collectively known as "the Banks"
against Domsat Holdings, Inc. (Domsat) and the Government Service
Insurance System (GSIS). Said case stemmed from a Loan
Agreement,2 whereby the Banks agreed to lend United States (U.S.) $11
Million to Domsat for the purpose of financing the lease and/or purchase
of a Gorizon Satellite from the International Organization of Space
Communications (Intersputnik).3
The controversy originated from a surety agreement by which Domsat
obtained a surety bond from GSIS to secure the payment of the loan
from the Banks. We quote the terms of the Surety Bond in its entirety. 4
Republic of the Philippines
GOVERNMENT SERVICE INSURANCE SYSTEM
GENERAL INSURANCE FUND
GSIS Headquarters, Financial Center
Roxas Boulevard, Pasay City
G(16) GIF Bond 027461
SURETYBOND
KNOW ALL MEN BY THESE PRESENTS:
That we, DOMSAT HOLDINGS, INC., represented by its President as
PRINCIPAL, and the GOVERNMENT SERVICE INSURANCE
SYSTEM, as Administrator of the GENERAL INSURANCE FUND, a
corporation duly organized and existing under and by virtue of the laws
of the Philippines, with principal office in the City of Pasay, Metro
Manila, Philippines as SURETY, are held and firmly bound unto the
OBLIGEES: LAND BANK OF THE PHILIPPINES, 7th Floor, Land
Bank Bldg. IV. 313 Sen. Gil J. Puyat Avenue, Makati City;
WESTMONT BANK, 411 Quintin Paredes St., Binondo, Manila:
TONG YANG MERCHANT BANK, 185, 2-Ka, Ulchi-ro, Chungk-ku,
Seoul, Korea; INDUSTRIAL BANK OF KOREA, 50, 2-Ga, Ulchi-ro,
Chung-gu, Seoul, Korea; and FIRST MERCHANT BANKING
CORPORATION, 199-40, 2-Ga, Euliji-ro, Jung-gu, Seoul, Korea, in the
sum, of US $ ELEVEN MILLION DOLLARS ($11,000,000.00) for the
payment of which sum, well and truly to be made, we bind ourselves,
our heirs, executors, administrators, successors and assigns, jointly and
severally, firmly by these presents.
THE CONDITIONS OF THE OBLIGATION ARE AS FOLLOWS:
WHEREAS, the above bounden PRINCIPAL, on the 12th day of
December, 1996 entered into a contract agreement with the
aforementioned OBLIGEES to fully and faithfully
Guarantee the repayment of the principal and interest on the loan
granted the PRINCIPAL to be used for the financing of the two (2) year
lease of a Russian Satellite from INTERSPUTNIK, in accordance with
the terms and conditions of the credit package entered into by the parties.
This bond shall remain valid and effective until the loan including
interest has been fully paid and liquidated,
a copy of which contract/agreement is hereto attached and made part
hereof;
WHEREAS, the aforementioned OBLIGEES require said PRINCIPAL
to give a good and sufficient bond in the above stated sum to secure the
full and faithful performance on his part of said contract/agreement.
NOW, THEREFORE, if the PRINCIPAL shall well and truly perform
and fulfill all the undertakings, covenants, terms, conditions, and
agreements stipulated in said contract/agreements, then this obligation
shall be null and void; otherwise, it shall remain in full force and effect.
WITNESS OUR HANDS AND SEALS this 13th day of December
1996 at Pasay City, Philippines.
DOMSAT GOVERNMENT SERVICE
HOLDINGS, INC. INSURANCE SYSTEM
Principal General Insurance Fund
By: By:
CAPT. RODRIGO A. AMALIO A. MALLARI
SILVERIO Senior Vice-President
President General Insurance Group
When Domsat failed to pay the loan, GSIS refused to comply with its
obligation reasoning that Domsat did not use the loan proceeds for the
payment of rental for the satellite. GSIS alleged that Domsat, with
Westmont Bank as the conduit, transferred the U.S. $11 Million loan
proceeds from the Industrial Bank of Korea to Citibank New York
account of Westmont Bank and from there to the Binondo Branch of
Westmont Bank.5 The Banks filed a complaint before the RTC of
Makati against Domsat and GSIS.
In the course of the hearing, GSIS requested for the issuance of a
subpoena duces tecum to the custodian of records of Westmont Bank to
produce the following documents:
1. Ledger covering the account of DOMSAT Holdings, Inc. with
Westmont Bank (now United Overseas Bank), any and all documents,
records, files, books, deeds, papers, notes and other data and materials
relating to the account or transactions of DOMSAT Holdings, Inc. with
or through the Westmont Bank (now United Overseas Bank) for the
period January 1997 to December 2002, in his/her direct or indirect
possession, custody or control (whether actual or constructive), whether
in his/her capacity as Custodian of Records or otherwise;
2. All applications for cashier’s/ manager’s checks and bank transfers
funded by the account of DOMSAT Holdings, Inc. with or through the
Westmont Bank (now United Overseas Bank) for the period January
1997 to December 2002, and all other data and materials covering said
applications, in his/her direct or indirect possession, custody or control
(whether actual or constructive), whether in his/her capacity as
Custodian of Records or otherwise;
3. Ledger covering the account of Philippine Agila Satellite, Inc. with
Westmont Bank (now United Overseas Bank), any and all documents,
records, files, books, deeds, papers, notes and other data and materials
relating to the account or transactions of Philippine Agila Satellite, Inc.
with or through the Westmont bank (now United Overseas Bank) for the
period January 1997 to December 2002, in his/her direct or indirect
possession, custody or control (whether actual or constructive), whether
in his/her capacity as Custodian of Records or otherwise;
4. All applications for cashier’s/manager’s checks funded by the account
of Philippine Agila Satellite, Inc. with or through the Westmont Bank
(now United Overseas Bank) for the period January 1997 to December
2002, and all other data and materials covering said applications, in
his/her direct or indirect possession, custody or control (whether actual
or constructive), whether in his/her capacity as Custodian of Records or
otherwise.6
The RTC issued a subpoena decus tecum on 21 November 2002.7 A
motion to quash was filed by the banks on three grounds: 1) the
subpoena is unreasonable, oppressive and does not establish the
relevance of the documents sought; 2) request for the documents will
violate the Law on Secrecy of Bank Deposits; and 3) GSIS failed to
advance the reasonable cost of production of the documents. 8 Domsat
also joined the banks’ motion to quash through its
Manifestation/Comment.9 On 9 April 2003, the RTC issued an Order
denying the motion to quash for lack of merit. We quote the pertinent
portion of the Order, thus:
After a careful consideration of the arguments of the parties, the Court
did not find merit in the motion.
The serious objection appears to be that the subpoena is violative of the
Law on Secrecy of Bank Deposit, as amended. The law declares bank
deposits to be "absolutely confidential" except: x x x (6) In cases where
the money deposited or invested is the subject matter of the litigation.
The case at bench is for the collection of a sum of money from
defendants that obtained a loan from the plaintiff. The loan was secured
by defendant GSIS which was the surety. It is the contention of
defendant GSIS that the proceeds of the loan was deviated to purposes
other than to what the loan was extended. The quashal of the subpoena
would deny defendant GSIS its right to prove its defenses.
WHEREFORE, for lack of merit the motion is DENIED. 10
On 26 June 2003, another Order was issued by the RTC denying the
motion for reconsideration filed by the banks.11 On 1 September 2003
however, the trial court granted the second motion for reconsideration
filed by the banks. The previous subpoenas issued were consequently
quashed.12 The trial court invoked the ruling in Intengan v. Court of
Appeals,13 where it was ruled that foreign currency deposits are
absolutely confidential and may be examined only when there is a
written permission from the depositor. The motion for reconsideration
filed by GSIS was denied on 30 December 2003.
Hence, these assailed orders are the subject of the petition for certiorari
before the Court of Appeals. GSIS raised the following arguments in
support of its petition:
I.
Respondent Judge acted with grave abuse of discretion when it
favorably considered respondent banks’ (second) Motion for
Reconsideration dated July 9, 2003 despite the fact that it did not contain
a notice of hearing and was therefore a mere scrap of paper.
II.
Respondent judge capriciously and arbitrarily ignored Section 2 of the
Foreign Currency Deposit Act (RA 6426) in ruling in his Orders dated
September 1 and December 30, 2003 that the US$11,000,000.00 deposit
in the account of respondent Domsat in Westmont Bank is covered by
the secrecy of bank deposit.
III.
Since both respondent banks and respondent Domsat have disclosed
during the trial the US$11,000,000.00 deposit, it is no longer secret and
confidential, and petitioner GSIS’ right to inquire into what happened to
such deposit can not be suppressed.14
The Court of Appeals addressed these issues in seriatim.
The Court of Appeals resorted to a liberal interpretation of the rules to
avoid miscarriage of justice when it allowed the filing and acceptance
of the second motion for reconsideration. The appellate court also
underscored the fact that GSIS did not raise the defect of lack of notice
in its opposition to the second motion for reconsideration. The appellate
court held that failure to timely object to the admission of a defective
motion is considered a waiver of its right to do so.
The Court of Appeals declared that Domsat’s deposit in Westmont Bank
is covered by Republic Act No. 6426 or the Bank Secrecy Law. We
quote the pertinent portion of the Decision:
It is our considered opinion that Domsat’s deposit of $11,000,000.00 in
Westmont Bank is covered by the Bank Secrecy Law, as such it cannot
be examined, inquired or looked into without the written consent of its
owner. The ruling in Van Twest vs. Court of Appeals was rendered
during the effectivity of CB Circular No. 960, Series of 1983, under Sec.
102 thereof, transfer to foreign currency deposit account or receipt from
another foreign currency deposit account, whether for payment of
legitimate obligation or otherwise, are not eligible for deposit under the
System.
47
Banking Laws under Atty. Fontanilla
CB Circular No. 960 has since been superseded by CB Circular 1318
and later by CB Circular 1389. Section 102 of Circular 960 has not been
re-enacted in the later Circulars. What is applicable now is the decision
in Intengan vs. Court of Appeals where the Supreme Court has ruled
that the under R.A. 6426 there is only a single exception to the secrecy
of foreign currency deposits, that is, disclosure is allowed only upon the
written permission of the depositor. Petitioner, therefore, had
inappropriately invoked the provisions of Central Bank (CB) Circular
Nos. 343 which has already been superseded by more recently issued
CB Circulars. CB Circular 343 requires the surrender to the banking
system of foreign exchange, including proceeds of foreign borrowings.
This requirement, however, can no longer be found in later circulars.
In its Reply to respondent banks’ comment, petitioner appears to have
conceded that what is applicable in this case is CB Circular 1389.
Obviously, under CB 1389, proceeds of foreign borrowings are no
longer required to be surrendered to the banking system.
Undaunted, petitioner now argues that paragraph 2, Section 27 of CB
Circular 1389 is applicable because Domsat’s $11,000,000.00 loan from
respondent banks was intended to be paid to a foreign supplier
Intersputnik and, therefore, should have been paid directly to
Intersputnik and not deposited into Westmont Bank. The fact that it was
deposited to the local bank Westmont Bank, petitioner claims violates
the circular and makes the deposit lose its confidentiality status under
R.A. 6426. However, a reading of the entire Section 27 of CB Circular
1389 reveals that the portion quoted by the petitioner refers only to the
procedure/conditions of drawdown for service of debts using foreign
exchange. The above-said provision relied upon by the petitioner does
not in any manner prescribe the conditions before any foreign currency
deposit can be entitled to the confidentiality provisions of R.A. 6426. 15
Anent the third issue, the Court of Appeals ruled that the testimony of
the incumbent president of Westmont Bank is not the written consent
contemplated by Republic Act No. 6426.
The Court of Appeals however upheld the issuance of subpoena praying
for the production of applications for cashier’s or manager’s checks by
Domsat through Westmont Bank, as well as a copy of an Agreement
and/or Contract and/or Memorandum between Domsat and/or
Philippine Agila Satellite and Intersputnik for the acquisition and/or
lease of a Gorizon Satellite. The appellate court believed that the
production of these documents does not involve the examination of
Domsat’s account since it will never be known how much money was
deposited into it or withdrawn therefrom and how much remains therein.
On 29 February 2008, the Court of Appeals rendered the assailed
Decision, the decretal portion of which reads:
WHEREFORE, the petition is partially GRANTED. Accordingly, the
assailed Order dated December 30, 2003 is hereby modified in that the
quashal of the subpoena for the production of Domsat’s bank ledger in
Westmont Bank is upheld while respondent court is hereby ordered to
issue subpoena duces tecum ad testificandum directing the records
custodian of Westmont Bank to bring to court the following documents:
a) applications for cashier’s or manager’s checks by respondent Domsat
through Westmont Bank from January 1997 to December 2002;
b) bank transfers by respondent Domsat through Westmont Bank from
January 1997 to December 2002; and
c) copy of an agreement and/or contract and/or memorandum between
respondent Domsat and/or Philippine Agila Satellite and Intersputnik
for the acquisition and/or lease of a Gorizon satellite.
No pronouncement as to costs.16
GSIS filed a motion for reconsideration which the Court of Appeals
denied on 19 June 2009. Thus, the instant petition ascribing grave abuse
of discretion on the part of the Court of Appeals in ruling that Domsat’s
deposit with Westmont Bank cannot be examined and in finding that the
banks’ second motion for reconsideration in Civil Case No. 99-1853 is
procedurally acceptable.17
This Court notes that GSIS filed a petition for certiorari under Rule 65
of the Rules of Court to assail the Decision and Resolution of the Court
of Appeals. Petitioner availed of the improper remedy as the appeal from
a final disposition of the Court of Appeals is a petition for review under
Rule 45 and not a special civil action under Rule 65. 18 Certiorari under
Rule 65 lies only when there is no appeal, nor plain, speedy and adequate
remedy in the ordinary course of law. That action is not a substitute for
a lost appeal in general; it is not allowed when a party to a case fails to
appeal a judgment to the proper forum.19 Where an appeal is available,
certiorari will not prosper even if the ground therefor is grave abuse of
discretion. Accordingly, when a party adopts an improper remedy, his
petition may be dismissed outright.20lauuphil
Yet, even if this procedural infirmity is discarded for the broader interest
of justice, the petition sorely lacks merit.
GSIS insists that Domsat’s deposit with Westmont Bank can be
examined and inquired into. It anchored its argument on Republic Act
No. 1405 or the "Law on Secrecy of Bank Deposits," which allows the
disclosure of bank deposits in cases where the money deposited is the
subject matter of the litigation. GSIS asserts that the subject matter of
the litigation is the U.S. $11 Million obtained by Domsat from the Banks
to supposedly finance the lease of a Russian satellite from Intersputnik.
Whether or not it should be held liable as a surety for the principal
amount of U.S. $11 Million, GSIS contends, is contingent upon whether
Domsat indeed utilized the amount to lease a Russian satellite as agreed
in the Surety Bond Agreement. Hence, GSIS argues that the
whereabouts of the U.S. $11 Million is the subject matter of the case and
the disclosure of bank deposits relating to the U.S. $11 Million should
be allowed.
GSIS also contends that the concerted refusal of Domsat and the banks
to divulge the whereabouts of the U.S. $11 Million will greatly prejudice
and burden the GSIS pension fund considering that a substantial portion
of this fund is earmarked every year to cover the surety bond issued.
Lastly, GSIS defends the acceptance by the trial court of the second
motion for reconsideration filed by the banks on the grounds that it is
pro forma and did not conform to the notice requirements of Section 4,
Rule 15 of the Rules of Civil Procedure. 21
Domsat denies the allegations of GSIS and reiterates that it did not give
a categorical or affirmative written consent or permission to GSIS to
examine its bank statements with Westmont Bank.
The Banks maintain that Republic Act No. 1405 is not the applicable
law in the instant case because the Domsat deposit is a foreign currency
deposit, thus covered by Republic Act No. 6426. Under said law, only
the consent of the depositor shall serve as the exception for the
disclosure of his/her deposit.
The Banks counter the arguments of GSIS as a mere rehash of its
previous arguments before the Court of Appeals. They justify the
issuance of the subpoena as an interlocutory matter which may be
reconsidered anytime and that the pro forma rule has no application to
interlocutory orders.
It appears that only GSIS appealed the ruling of the Court of Appeals
pertaining to the quashal of the subpoena for the production of Domsat’s
bank ledger with Westmont Bank. Since neither Domsat nor the Banks
interposed an appeal from the other portions of the decision, particularly
for the production of applications for cashier’s or manager’s checks by
Domsat through Westmont Bank, as well as a copy of an agreement
and/or contract and/or memorandum between Domsat and/or Philippine
Agila Satellite and Intersputnik for the acquisition and/or lease of a
Gorizon satellite, the latter became final and executory.
GSIS invokes Republic Act No. 1405 to justify the issuance of the
subpoena while the banks cite Republic Act No. 6426 to oppose it. The
core issue is which of the two laws should apply in the instant case.
Republic Act No. 1405 was enacted in 1955. Section 2 thereof was first
amended by Presidential Decree No. 1792 in 1981 and further amended
by Republic Act No. 7653 in 1993. It now reads:
Section 2. All deposits of whatever nature with banks or banking
institutions in the Philippines including investments in bonds issued by
the Government of the Philippines, its political subdivisions and its
instrumentalities, are hereby considered as of an absolutely confidential
nature and may not be examined, inquired or looked into by any person,
government official, bureau or office, except upon written permission
of the depositor, or in cases of impeachment, or upon order of a
competent court in cases of bribery or dereliction of duty of public
officials, or in cases where the money deposited or invested is the
subject matter of the litigation.
Section 8 of Republic Act No. 6426, which was enacted in 1974, and
amended by Presidential Decree No. 1035 and later by Presidential
Decree No. 1246, provides:
Section 8. Secrecy of Foreign Currency Deposits. – All foreign currency
deposits authorized under this Act, as amended by Presidential Decree
No. 1035, as well as foreign currency deposits authorized under
Presidential Decree No. 1034, are hereby declared as and considered of
an absolutely confidential nature and, except upon the written
permission of the depositor, in no instance shall foreign currency
deposits be examined, inquired or looked into by any person,
government official, bureau or office whether judicial or administrative
or legislative or any other entity whether public or private; Provided,
however, That said foreign currency deposits shall be exempt from
attachment, garnishment, or any other order or process of any court,
legislative body, government agency or any administrative body
whatsoever. (As amended by PD No. 1035, and further amended by PD
No. 1246, prom. Nov. 21, 1977.)
On the one hand, Republic Act No. 1405 provides for four (4)
exceptions when records of deposits may be disclosed. These are under
any of the following instances: a) upon written permission of the
depositor, (b) in cases of impeachment, (c) upon order of a competent
court in the case of bribery or dereliction of duty of public officials or,
(d) when the money deposited or invested is the subject matter of the
litigation, and e) in cases of violation of the Anti-Money Laundering
Act (AMLA), the Anti-Money Laundering Council (AMLC) may
inquire into a bank account upon order of any competent court.22 On the
other hand, the lone exception to the non-disclosure of foreign currency
deposits, under Republic Act No. 6426, is disclosure upon the written
permission of the depositor.
These two laws both support the confidentiality of bank deposits. There
is no conflict between them. Republic Act No. 1405 was enacted for the
purpose of giving encouragement to the people to deposit their money
in banking institutions and to discourage private hoarding so that the
same may be properly utilized by banks in authorized loans to assist in
the economic development of the country.23 It covers all bank deposits
in the Philippines and no distinction was made between domestic and
foreign deposits. Thus, Republic Act No. 1405 is considered a law of
general application. On the other hand, Republic Act No. 6426 was
intended to encourage deposits from foreign lenders and investors.24 It
is a special law designed especially for foreign currency deposits in the
Philippines. A general law does not nullify a specific or special law.
Generalia specialibus non derogant.25 Therefore, it is beyond cavil that
Republic Act No. 6426 applies in this case.
Intengan v. Court of Appeals affirmed the above-cited principle and
categorically declared that for foreign currency deposits, such as U.S.
dollar deposits, the applicable law is Republic Act No. 6426.
In said case, Citibank filed an action against its officers for persuading
their clients to transfer their dollar deposits to competitor banks. Bank
records, including dollar deposits of petitioners, purporting to establish
the deception practiced by the officers, were annexed to the complaint.
Petitioners now complained that Citibank violated Republic Act No.
1405. This Court ruled that since the accounts in question are U.S. dollar
deposits, the applicable law therefore is not Republic Act No. 1405 but
Republic Act No. 6426.
The above pronouncement was reiterated in China Banking Corporation
v. Court of Appeals,26 where respondent accused his daughter of
stealing his dollar deposits with Citibank. The latter allegedly received
the checks from Citibank and deposited them to her account in China
Bank. The subject checks were presented in evidence. A subpoena was
issued to employees of China Bank to testify on these checks. China
Bank argued that the Citibank dollar checks with both respondent and/or
her daughter as payees, deposited with China Bank, may not be looked
into under the law on secrecy of foreign currency deposits. This Court
highlighted the exception to the non-disclosure of foreign currency
deposits, i.e., in the case of a written permission of the depositor, and
ruled that respondent, as owner of the funds unlawfully taken and which
are undisputably now deposited with China Bank, he has the right to
inquire into the said deposits.
Applying Section 8 of Republic Act No. 6426, absent the written
permission from Domsat, Westmont Bank cannot be legally compelled
to disclose the bank deposits of Domsat, otherwise, it might expose itself
to criminal liability under the same act.27
The basis for the application of subpoena is to prove that the loan
intended for Domsat by the Banks and guaranteed by GSIS, was
diverted to a purpose other than that stated in the surety bond. The
Banks, however, argue that GSIS is in fact liable to them for the proper
applications of the loan proceeds and not vice-versa. We are however
not prepared to rule on the merits of this case lest we pre-empt the
findings of the lower courts on the matter.
The third issue raised by GSIS was properly addressed by the appellate
court. The appellate court maintained that the judge may, in the exercise
of his sound discretion, grant the second motion for reconsideration
despite its being pro forma. The appellate court correctly relied on
precedents where this Court set aside technicality in favor of substantive
48
Banking Laws under Atty. Fontanilla
justice. Furthermore, the appellate court accurately pointed out that
petitioner did not assail the defect of lack of notice in its opposition to
the second motion of reconsideration, thus it can be considered a waiver
of the defect.
WHEREFORE, the petition for certiorari is DISMISSED. The Decision
dated 29 February 2008 and 19 June 2009 Resolution of the Court of
Appeals are hereby AFFIRMED.
SO ORDERED.
21.
[G.R. NOS. 157294-95 : November 30, 2006]
JOSEPH VICTOR G.
EJERCITO, Petitioner, v. SANDIGANBAYAN (Special Division)
and PEOPLE OF THE PHILIPPINES, Respondents.
DECISION
CARPIO MORALES, J.:
The present petition for certiorari under Rule 65 assails the
Sandiganbayan Resolutions dated February 7 and 12, 2003 denying
petitioner Joseph Victor G. Ejercito's Motions to Quash Subpoenas
Duces Tecum/Ad Testificandum, and Resolution dated March 11, 2003
denying his Motion for Reconsideration of the first two resolutions.
The three resolutions were issued in Criminal Case No. 26558, "People
of the Philippines v. Joseph Ejercito Estrada, et al.," for plunder, defined
and penalized in R.A. 7080, "AN ACT DEFINING AND
PENALIZING THE CRIME OF PLUNDER."
In above-stated case of People v. Estrada, et al., the Special Prosecution
Panel1 filed on January 20, 2003 before the Sandiganbayan a Request
for Issuance of Subpoena Duces Tecum for the issuance of a subpoena
directing the President of Export and Industry Bank (EIB, formerly
Urban Bank) or his/her authorized representative to produce the
following documents during the hearings scheduled on January 22 and
27, 2003:
I. For Trust Account No. 858;
1. Account Opening Documents;
2. Trading Order No. 020385 dated January 29, 1999;
3. Confirmation Advice TA 858;
4. Original/Microfilm copies, including the dorsal side, of the following:
A. Bank of Commerce MC # 0256254 in the amount of P2,000,000.00;
b. Urban bank Corp. MC # 34181 dated November 8, 1999 in the
amount of P10,875,749.43;
c. Urban Bank MC # 34182 dated November 8, 1999 in the amount
of P42,716,554.22;
d. Urban Bank Corp. MC # 37661 dated November 23, 1999 in the
amount of P54,161,496.52;
5. Trust Agreement dated January 1999:
Trustee: Joseph Victor C. Ejercito
Nominee: URBAN BANK-TRUST DEPARTMENT
Special Private Account No. (SPAN) 858; and
6. Ledger of the SPAN # 858.
II. For Savings Account No. 0116-17345-9
SPAN No. 858
1. Signature Cards; and
2. Statement of Account/Ledger
III. Urban Bank Manager's Check and their corresponding Urban Bank
Manager's Check Application Forms, as follows:
1. MC # 039975 dated January 18, 2000 in the amount
of P70,000,000.00;
2. MC # 039976 dated January 18, 2000 in the amount
of P2,000,000.00;
3. MC # 039977 dated January 18, 2000 in the amount
of P2,000,000.00;
4. MC # 039978 dated January 18, 2000 in the amount
of P1,000,000.00;
The Special Prosecution Panel also filed on January 20, 2003, a Request
for Issuance of Subpoena Duces Tecum/Ad Testificandum directed to
the authorized representative of Equitable-PCI Bank to produce
statements of account pertaining to certain accounts in the name of "Jose
Velarde" and to testify thereon.
The Sandiganbayan granted both requests by Resolution of January 21,
2003 and subpoenas were accordingly issued.
The Special Prosecution Panel filed still another Request for Issuance of
Subpoena Duces Tecum/Ad Testificandum dated January 23, 2003 for
the President of EIB or his/her authorized representative to produce the
same documents subject of the Subpoena Duces Tecum dated January
21, 2003 and to testify thereon on the hearings scheduled on January 27
and 29, 2003 and subsequent dates until completion of the testimony.
The request was likewise granted by the Sandiganbayan. A Subpoena
Duces Tecum/Ad Testificandum was accordingly issued on January 24,
2003.
Petitioner, claiming to have learned from the media that the Special
Prosecution Panel had requested for the issuance of subpoenas for the
examination of bank accounts belonging to him, attended the hearing of
the case on January 27, 2003 and filed before the Sandiganbayan a letter
of even date expressing his concerns as follows, quoted verbatim:
Your Honors:
It is with much respect that I write this court relative to the concern of
subpoenaing the undersigned's bank account which I have learned
through the media.
I am sure the prosecution is aware of our banking secrecy laws everyone
supposed to observe. But, instead of prosecuting those who may have
breached such laws, it seems it is even going to use supposed evidence
which I have reason to believe could only have been illegally obtained.
The prosecution was not content with a general request. It even lists and
identifies specific documents meaning someone else in the bank
illegally released confidential information.
If this can be done to me, it can happen to anyone. Not that anything can
still shock our family. Nor that I have anything to hide. Your Honors.
But, I am not a lawyer and need time to consult one on a situation that
affects every bank depositor in the country and should interest the bank
itself, the Bangko Sentral ng Pilipinas, and maybe the Ombudsman
himself, who may want to investigate, not exploit, the serious breach
that can only harm the economy, a consequence that may have been
overlooked. There appears to have been deplorable connivance.
xxx
I hope and pray, Your Honors, that I will be given time to retain the
services of a lawyer to help me protect my rights and those of every
banking depositor. But the one I have in mind is out of the country right
now.
May I, therefore, ask your Honors, that in the meantime, the issuance of
the subpoena be held in abeyance for at least ten (10) days to enable me
to take appropriate legal steps in connection with the prosecution's
request for the issuance of subpoena concerning my accounts.
(Emphasis supplied)
From the present petition, it is gathered that the "accounts" referred to
by petitioner in his above-quoted letter are Trust Account No.
858 and Savings Account No. 0116-17345-9.2
In open court, the Special Division of the Sandiganbayan, through
Associate Justice Edilberto Sandoval, advised petitioner that his remedy
was to file a motion to quash, for which he was given up to 12:00 noon
the following day, January 28, 2003.
Petitioner, unassisted by counsel, thus filed on January 28, 2003 a
Motion to Quash Subpoena Duces Tecum/Ad Testificandum praying
that the subpoenas previously issued to the President of the EIB dated
January 21 and January 24, 2003 be quashed.3
In his Motion to Quash, petitioner claimed that his bank accounts are
covered by R.A. No. 1405 (The Secrecy of Bank Deposits Law) and do
not fall under any of the exceptions stated therein. He further claimed
that the specific identification of documents in the questioned
subpoenas, including details on dates and amounts, could only have
been made possible by an earlier illegal disclosure thereof by the EIB
and the Philippine Deposit Insurance Corporation (PDIC) in its capacity
as receiver of the then Urban Bank.
The disclosure being illegal, petitioner concluded, the prosecution in the
case may not be allowed to make use of the information.
Before the Motion to Quash was resolved by the Sandiganbayan, the
prosecution filed another Request for the Issuance of Subpoena Duces
Tecum/Ad Testificandum dated January 31, 2003, again to direct the
President of the EIB to produce, on the hearings scheduled on February
3 and 5, 2003, the same documents subject of the January 21 and 24,
2003 subpoenas with the exception of the Bank of Commerce MC
#0256254 in the amount of P2,000,000 as Bank of Commerce MC
#0256256 in the amount of P200,000,000 was instead requested.
Moreover, the request covered the following additional documents:
IV. For Savings Account No. 1701-00646-1:
1. Account Opening Forms;
2. Specimen Signature Card/s; and
3. Statements of Account.
The prosecution also filed a Request for the Issuance of Subpoena Duces
Tecum/Ad Testificandum bearing the same date, January 31, 2003,
directed to Aurora C. Baldoz, Vice President-CR-II of the PDIC for her
to produce the following documents on the scheduled hearings on
February 3 and 5, 2003:
1. Letter of authority dated November 23, 1999 re: SPAN [Special
Private Account Number] 858;
2. Letter of authority dated January 29, 2000 re: SPAN 858;
3. Letter of authority dated April 24, 2000 re: SPAN 858;
4. Urban Bank check no. 052092 dated April 24, 2000 for the amount
of P36, 572, 315.43;
5. Urban Bank check no. 052093 dated April 24, 2000 for the amount
of P107,191,780.85; and
6. Signature Card Savings Account No. 0116-17345-9. (Underscoring
supplied)
The subpoenas prayed for in both requests were issued by the
Sandiganbayan on January 31, 2003.
On February 7, 2003, petitioner, this time assisted by counsel, filed an
Urgent Motion to Quash Subpoenae Duces Tecum/Ad Testificandum
praying that the subpoena dated January 31, 2003 directed to Aurora
Baldoz be quashed for the same reasons which he cited in the Motion to
Quash4 he had earlier filed.
On the same day, February 7, 2003, the Sandiganbayan issued a
Resolution denying petitioner's Motion to Quash Subpoenae Duces
Tecum/Ad Testificandum dated January 28, 2003.
Subsequently or on February 12, 2003, the Sandiganbayan issued a
Resolution denying petitioner's Urgent Motion to Quash Subpoena
Duces Tecum/Ad Testificandum dated February 7, 2003.
Petitioner's Motion for Reconsideration dated February 24, 2003
seeking a reconsideration of the Resolutions of February 7 and 12, 2003
having been denied by Resolution of March 11, 2003, petitioner filed
the present petition.
Raised as issues are:
1. Whether petitioner's Trust Account No. 858 is covered by the term
"deposit" as used in R.A. 1405;
2. Whether petitioner's Trust Account No. 858 and Savings Account No.
0116-17345-9 are excepted from the protection of R.A. 1405; and
49
Banking Laws under Atty. Fontanilla
3. Whether the "extremely-detailed" information contained in the
Special Prosecution Panel's requests for subpoena was obtained through
a prior illegal disclosure of petitioner's bank accounts, in violation of the
"fruit of the poisonous tree" doctrine.
Respondent People posits that Trust Account No. 8585 may be inquired
into, not merely because it falls under the exceptions to the coverage of
R.A. 1405, but because it is not even contemplated therein. For, to
respondent People, the law applies only to "deposits" which strictly
means the money delivered to the bank by which a creditor-debtor
relationship is created between the depositor and the bank.
The contention that trust accounts are not covered by the term
"deposits," as used in R.A. 1405, by the mere fact that they do not entail
a creditor-debtor relationship between the trustor and the bank, does not
lie. An examination of the law shows that the term "deposits" used
therein is to be understood broadly and not limited only to accounts
which give rise to a creditor-debtor relationship between the depositor
and the bank.
The policy behind the law is laid down in Section 1:
SECTION 1. It is hereby declared to be the policy of the Government to
give encouragement to the people to deposit their money in banking
institutions and to discourage private hoarding so that the same may be
properly utilized by banks in authorized loans to assist in the economic
development of the country. (Underscoring supplied)
If the money deposited under an account may be used by banks for
authorized loans to third persons, then such account, regardless of
whether it creates a creditor-debtor relationship between the depositor
and the bank, falls under the category of accounts which the law
precisely seeks to protect for the purpose of boosting the economic
development of the country.
Trust Account No. 858 is, without doubt, one such account. The Trust
Agreement between petitioner and Urban Bank provides that the trust
account covers "deposit, placement or investment of funds" by Urban
Bank for and in behalf of petitioner.6 The money deposited under Trust
Account No. 858, was, therefore, intended not merely to remain with
the bank but to be invested by it elsewhere. To hold that this type of
account is not protected by R.A. 1405 would encourage private hoarding
of funds that could otherwise be invested by banks in other ventures,
contrary to the policy behind the law.
Section 2 of the same law in fact even more clearly shows that the term
"deposits" was intended to be understood broadly:
SECTION 2. All deposits of whatever nature with banks or banking
institutions in the Philippines including investments in bonds issued by
the Government of the Philippines, its political subdivisions and its
instrumentalities, are hereby considered as of an absolutely confidential
nature and may not be examined, inquired or looked into by any person,
government official, bureau or office, except upon written permission
of the depositor, or in cases of impeachment, or upon order of a
competent court in cases of bribery or dereliction of duty of public
officials, or in cases where the money deposited or invested is the
subject matter of the litigation. (Emphasis and underscoring supplied)
The phrase "of whatever nature" proscribes any restrictive interpretation
of "deposits." Moreover, it is clear from the immediately quoted
provision that, generally, the law applies not only to money which is
deposited but also to those which are invested. This further shows that
the law was not intended to apply only to "deposits" in the strict sense
of the word. Otherwise, there would have been no need to add the phrase
"or invested."
Clearly, therefore, R.A. 1405 is broad enough to cover Trust Account
No. 858.
The protection afforded by the law is, however, not absolute, there being
recognized exceptions thereto, as above-quoted Section 2 provides. In
the present case, two exceptions apply, to wit: (1) the examination of
bank accounts is upon order of a competent court in cases of bribery or
dereliction of duty of public officials, and (2) the money deposited or
invested is the subject matter of the litigation.
Petitioner contends that since plunder is neither bribery nor dereliction
of duty, his accounts are not excepted from the protection of R.A.
1405. Philippine National Bank v. Gancayco7 holds otherwise:
Cases of unexplained wealth are similar to cases of bribery or
dereliction of duty and no reason is seen why these two classes of cases
cannot be excepted from the rule making bank deposits
confidential. The policy as to one cannot be different from the policy as
to the other. This policy expresses the notion that a public office is a
public trust and any person who enters upon its discharge does so with
the full knowledge that his life, so far as relevant to his duty, is open to
public scrutiny.
Undoubtedly, cases for plunder involve unexplained wealth. Section 2
of R.A. No. 7080 states so.
SECTION 2. Definition of the Crime of Plunder; Penalties.
- Any public officer who, by himself or in connivance with members of
his family, relatives by affinity or consanguinity, business associates,
subordinates or other persons, amasses, accumulates or acquires ill-
gotten wealth through a combination or series of overt or criminal
acts as described in Section 1(d) hereof, in the aggregate amount or total
value of at least Seventy-five million pesos (P75,000,000.00), shall
be guilty of the crime of plunder and shall be punished by life
imprisonment with perpetual absolute disqualification from holding any
public office. Any person who participated with said public officer in
the commission of plunder shall likewise be punished. In the imposition
of penalties, the degree of participation and the attendance of mitigating
and extenuating circumstances shall be considered by the court. The
court shall declare any and all ill-gotten wealth and their interests and
other incomes and assets including the properties and shares of stock
derived from the deposit or investment thereof forfeited in favor of the
State. (Emphasis and underscoring supplied)
An examination of the "overt or criminal acts as described in Section
1(d)" of R.A. No. 7080 would make the similarity between plunder and
bribery even more pronounced since bribery is essentially included
among these criminal acts. Thus Section 1(d) states:
d) "Ill-gotten wealth" means any asset, property, business enterprise or
material possession of any person within the purview of Section Two
(2) hereof, acquired by him directly or indirectly through dummies,
nominees, agents, subordinates and or business associates by any
combination or series of the following means or similar schemes.
1) Through misappropriation, conversion, misuse, or malversation of
public funds or raids on the public treasury;
2) By receiving, directly or indirectly, any commission, gift, share,
percentage, kickbacks or any other form of pecuniary benefit from
any person and/or entity in connection with any government
contract or project or by reason of the office or position of the public
officer concerned;
3) By the illegal or fraudulent conveyance or disposition of assets
belonging to the National Government or any of its subdivisions,
agencies or instrumentalities or government-owned or -controlled
corporations and their subsidiaries;
4) By obtaining, receiving or accepting directly or indirectly any shares
of stock, equity or any other form of interest or participation including
promise of future employment in any business enterprise or
undertaking;
5) By establishing agricultural, industrial or commercial monopolies or
other combinations and/or implementation of decrees and orders
intended to benefit particular persons or special interests; or
6) By taking undue advantage of official position, authority,
relationship, connection or influence to unjustly enrich himself or
themselves at the expense and to the damage and prejudice of the
Filipino people and the Republic of the Philippines. (Emphasis supplied)
Indeed, all the above-enumerated overt acts are similar to bribery such
that, in each case, it may be said that "no reason is seen why these two
classes of cases cannot be excepted from the rule making bank deposits
confidential."8
The crime of bribery and the overt acts constitutive of plunder are crimes
committed by public officers, and in either case the noble idea that "a
public office is a public trust and any person who enters upon its
discharge does so with the full knowledge that his life, so far as relevant
to his duty, is open to public scrutiny" applies with equal force.
Plunder being thus analogous to bribery, the exception to R.A. 1405
applicable in cases of bribery must also apply to cases of plunder.
Respecting petitioner's claim that the money in his bank accounts is not
the "subject matter of the litigation," the meaning of the phrase "subject
matter of the litigation" as used in R.A. 1405 is explained in Union Bank
of the Philippines v. Court of Appeals,9 thus:
Petitioner contends that the Court of Appeals confuses the "cause of
action" with the "subject of the action". In Yusingco v. Ong Hing Lian,
petitioner points out, this Court distinguished the two concepts.
x x x "The cause of action is the legal wrong threatened or committed,
while the object of the action is to prevent or redress the wrong by
obtaining some legal relief; but the subject of the action is neither of
these since it is not the wrong or the relief demanded, the subject of the
action is the matter or thing with respect to which the controversy has
arisen, concerning which the wrong has been done, and this ordinarily
is the property or the contract and its subject matter, or the thing in
dispute."
The argument is well-taken. We note with approval the difference
between the 'subject of the action' from the 'cause of action.' We also
find petitioner's definition of the phrase 'subject matter of the action' is
consistent with the term 'subject matter of the litigation', as the latter is
used in the Bank Deposits Secrecy Act.
In Mellon Bank, N.A. v. Magsino, where the petitioner bank
inadvertently caused the transfer of the amount of US$1,000,000.00
instead of only US$1,000.00, the Court sanctioned the examination of
the bank accounts where part of the money was subsequently caused to
be deposited:
'x x x Section 2 of [Republic Act No. 1405] allows the disclosure of
bank deposits in cases where the money deposited is the subject matter
of the litigation. Inasmuch as Civil Case No. 26899 is aimed at
recovering the amount converted by the Javiers for their own
benefit, necessarily, an inquiry into the whereabouts of the illegally
acquired amount extends to whatever is concealed by being held or
recorded in the name of persons other than the one responsible for
the illegal acquisition."
Clearly, Mellon Bank involved a case where the money deposited was
the subject matter of the litigation since the money deposited was the
very thing in dispute. x x x" (Emphasis and underscoring supplied)
The plunder case now pending with the Sandiganbayan necessarily
involves an inquiry into the whereabouts of the amount purportedly
acquired illegally by former President Joseph Estrada.
In light then of this Court's pronouncement in Union Bank, the subject
matter of the litigation cannot be limited to bank accounts under the
name of President Estrada alone, but must include those accounts to
which the money purportedly acquired illegally or a portion thereof was
alleged to have been transferred. Trust Account No. 858 and Savings
Account No. 0116-17345-9 in the name of petitioner fall under this
description and must thus be part of the subject matter of the litigation.
In a further attempt to show that the subpoenas issued by the
Sandiganbayan are invalid and may not be enforced, petitioner
contends, as earlier stated, that the information found therein, given their
"extremely detailed" character, could only have been obtained by the
Special Prosecution Panel through an illegal disclosure by the bank
officials concerned. Petitioner thus claims that, following the "fruit of
the poisonous tree" doctrine, the subpoenas must be quashed.
Petitioner further contends that even if, as claimed by respondent
People, the "extremely-detailed" information was obtained by the
Ombudsman from the bank officials concerned during a previous
investigation of the charges against President Estrada, such inquiry into
his bank accounts would itself be illegal.
Petitioner relies on Marquez v. Desierto10 where the Court held:
We rule that before an in camera inspection may be allowed there must
be a pending case before a court of competent jurisdiction. Further, the
account must be clearly identified, the inspection limited to the subject
matter of the pending case before the court of competent jurisdiction.
The bank personnel and the account holder must be notified to be
present during the inspection, and such inspection may cover only the
account identified in the pending case. (Underscoring supplied)
As no plunder case against then President Estrada had yet been filed
before a court of competent jurisdiction at the time the Ombudsman
conducted an investigation, petitioner concludes that the information
about his bank accounts were acquired illegally, hence, it may not be
lawfully used to facilitate a subsequent inquiry into the same bank
accounts.
Petitioner's attempt to make the exclusionary rule applicable to the
instant case fails. R.A. 1405, it bears noting, nowhere provides that an
50
Banking Laws under Atty. Fontanilla
unlawful examination of bank accounts shall render the evidence
obtained therefrom inadmissible in evidence. Section 5 of R.A. 1405
only states that "[a]ny violation of this law will subject the offender upon
conviction, to an imprisonment of not more than five years or a fine of
not more than twenty thousand pesos or both, in the discretion of the
court."
The case of U.S. v. Frazin,11 involving the Right to Financial Privacy
Act of 1978 (RFPA) of the United States, is instructive.
Because the statute, when properly construed, excludes a suppression
remedy, it would not be appropriate for us to provide one in the exercise
of our supervisory powers over the administration of justice. Where
Congress has both established a right and provided exclusive remedies
for its violation, we would "encroach upon the prerogatives" of
Congress were we to authorize a remedy not provided for by
statute. United States v. Chanen, 549 F.2d 1306, 1313 (9th Cir.), cert.
denied, 434 U.S. 825, 98 S.Ct. 72, 54 L.Ed.2d 83 (1977).
The same principle was reiterated in U.S. v. Thompson:12
x x x When Congress specifically designates a remedy for one of its acts,
courts generally presume that it engaged in the necessary balancing of
interests in determining what the appropriate penalty should
be. See Michaelian, 803 F.2d at 1049 (citing cases); Frazin, 780 F.2d at
1466. Absent a specific reference to an exclusionary rule, it is not
appropriate for the courts to read such a provision into the act.
Even assuming arguendo, however, that the exclusionary rule applies in
principleto cases involving R.A. 1405, the Court finds no reason to
apply the same in this particular case.
Clearly, the "fruit of the poisonous tree" doctrine 13 presupposes a
violation of law. If there was no violation of R.A. 1405 in the instant
case, then there would be no "poisonous tree" to begin with, and, thus,
no reason to apply the doctrine.
How the Ombudsman conducted his inquiry into the bank accounts of
petitioner is recounted by respondent People of the Philippines, viz:
x x x [A]s early as February 8, 2001, long before the issuance of
the Marquez ruling, the Office of the Ombudsman, acting under the
powers granted to it by the Constitution and R.A. No. 6770, and acting
on information obtained from various sources, including impeachment
(of then Pres. Joseph Estrada) related reports, articles and investigative
journals, issued a Subpoena Duces Tecum addressed to Urban Bank.
(Attachment "1-b") It should be noted that the description of the
documents sought to be produced at that time included that of numbered
accounts 727, 737, 747, 757, 777 and 858 and included such names as
Jose Velarde, Joseph E. Estrada, Laarni Enriquez, Guia Gomez, Joy
Melendrez, Peachy Osorio, Rowena Lopez, Kevin or Kelvin Garcia.
The subpoena did not single out account 858.
xxx
Thus, on February 13, 2001, PDIC, as receiver of Urban Bank, issued
a certification as to the availability of bank documents relating to A/C
858 and T/A 858 and the non-availability of bank records as to the other
accounts named in the subpoena. (Attachments "2", "2-1" and "2-b)
Based on the certification issued by PDIC, the Office of the Ombudsman
on February 16, 2001 again issued a Subpoena Duces Tecum directed
to Ms. Corazon dela Paz, as Interim Receiver, directing the production
of documents pertinent to account A/C 858 and T/C 858. (Attachment
"3")
In compliance with the said subpoena dated February 16, 2001, Ms.
Dela Paz, as interim receiver, furnished the Office of the Ombudsman
certified copies of documents under cover latter dated February 21,
2001:
1. Transaction registers dated 7-02-99, 8-16-99, 9-17-99, 10-18-99, 11-
22-99, 1-07-00, 04-03-00 and 04-24-00;
2. Report of Unregularized TAFs & TDs for UR COIN A & B
Placements of Various Branches as of February 29, 2000 and as of
December 16, 1999; and
3. Trading Orders Nos. A No. 78102 and A No. 078125.
Trading Order A No. 07125 is filed in two copies - a white copy which
showed "set up" information; and a yellow copy which showed
"reversal" information. Both copies have been reproduced and are
enclosed with this letter.
We are continuing our search for other records and documents pertinent
to your request and we will forward to you on Friday, 23 February 2001,
such additional records and documents as we might find until then.
(Attachment "4")
The Office of the Ombudsman then requested for the manger's checks,
detailed in the Subpoena Duces Tecum dated March 7, 2001.
(Attachment "5")
PDIC again complied with the said Subpoena Duces Tecum dated
March 7, 2001 and provided copies of the manager's checks thus
requested under cover letter dated March 16, 2001. (Attachment
"6")14 (Emphasis in the original)
The Sandiganbayan credited the foregoing account of respondent
People.15 The Court finds no reason to disturb this finding of fact by the
Sandiganbayan.
The Marquez ruling notwithstanding, the above-described examination
by the Ombudsman of petitioner's bank accounts, conducted before a
case was filed with a court of competent jurisdiction, was lawful.
For the Ombudsman issued the subpoenas bearing on the bank accounts
of petitioner about four months before Marquez was promulgated on
June 27, 2001.
While judicial interpretations of statutes, such as that made
in Marquez with respect to R.A. No. 6770 or the Ombudsman Act of
1989, are deemed part of the statute as of the date it was originally
passed, the rule is not absolute.
Columbia Pictures, Inc. v. Court of Appeals16 teaches:
It is consequently clear that a judicial interpretation becomes a part of
the law as of the date that law was originally passed, subject only to the
qualification that when a doctrine of this Court is overruled and a
different view is adopted, and more so when there is
a reversal thereof, the new doctrine should be
applied prospectively and should not apply to parties who relied on the
old doctrine and acted in good faith. (Emphasis and underscoring
supplied)
When this Court construed the Ombudsman Act of 1989, in light of the
Secrecy of Bank Deposits Law in Marquez, that "before an in camera
inspection may be allowed there must be a pending case before a court
of competent jurisdiction", it was, in fact, reversing an earlier doctrine
found in Banco Filipino Savings and Mortgage Bank v. Purisima17 .
Banco Filipino involved subpoenas duces tecum issued by the Office of
the Ombudsman, then known as the Tanodbayan,18 in the course of
its preliminary investigation of a charge of violation of the Anti-Graft
and Corrupt Practices Act.
While the main issue in Banco Filipino was whether R.A. 1405
precluded the Tanodbayan's issuance of subpoena duces tecum of bank
records in the name of persons other than the one who was charged, this
Court, citing P.D. 1630,19 Section 10, the relevant part of which states:
(d) He may issue a subpoena to compel any person to appear, give sworn
testimony, or produce documentary or other evidence the Tanodbayan
deems relevant to a matter under his inquiry,
held that "The power of the Tanodbayan to issue subpoenae ad
testificandum and subpoenae duces tecum at the time in question is
not disputed, and at any rate does not admit of doubt."20
As the subpoenas subject of Banco Filipino were issued during a
preliminary investigation, in effect this Court upheld the power of the
Tandobayan under P.D. 1630 to issue subpoenas duces tecum for bank
documents prior to the filing of a case before a court of competent
jurisdiction.
Marquez, on the other hand, practically reversed this ruling in Banco
Filipino despite the fact that the subpoena power of the Ombudsman
under R.A. 6770 was essentially the same as that under P.D. 1630. Thus
Section 15 of R.A. 6770 empowers the Office of the Ombudsman to
(8) Administer oaths, issue subpoena and subpoena duces tecum, and
take testimony in any investigation or inquiry, including the power to
examine and have access to bank accounts and records;
A comparison of this provision with its counterpart in Sec. 10(d) of P.D.
1630 clearly shows that it is only more explicit in stating that the power
of the Ombudsman includes the power to examine and have access to
bank accounts and records which power was recognized with respect to
the Tanodbayan through Banco Filipino.
The Marquez ruling that there must be a pending case in order for the
Ombudsman to validly inspect bank records in camera thus reversed a
prevailing doctrine.21 Hence, it may not be retroactively applied.
The Ombudsman's inquiry into the subject bank accounts prior to the
filing of any case before a court of competent jurisdiction was therefore
valid at the time it was conducted.
Likewise, the Marquez ruling that "the account holder must be notified
to be present during the inspection" may not be applied retroactively to
the inquiry of the Ombudsman subject of this case. This ruling is not a
judicial interpretation either of R.A. 6770 or R.A. 1405, but a "judge-
made" law which, as People v. Luvendino22 instructs, can only be given
prospective application:
x x x The doctrine that an uncounselled waiver of the right to
counsel is not to be given legal effect was initially a judge-made one
and was first announced on 26 April 1983 in Morales v. Enrile and
reiterated on 20 March 1985 in People v. Galit. x x x
While the Morales-Galit doctrine eventually became part of Section
12(1) of the 1987 Constitution, that doctrine affords no comfort to
appellant Luvendino for the requirements and restrictions outlined
in Morales and Galit have no retroactive effect and do not reach
waivers made prior to 26 April 1983 the date of promulgation
of Morales. (Emphasis supplied)
In fine, the subpoenas issued by the Ombudsman in this case were legal,
hence, invocation of the "fruit of the poisonous tree" doctrine is
misplaced.
At all events, even if the challenged subpoenas are quashed, the
Ombudsman is not barred from requiring the production of the same
documents based solely on information obtained by it from
sources independent of its previous inquiry.
In particular, the Ombudsman, even before its inquiry, had already
possessed information giving him grounds to believe that (1) there are
bank accounts bearing the number "858," (2) that such accounts are in
the custody of Urban Bank, and (3) that the same are linked with the
bank accounts of former President Joseph Estrada who was then under
investigation for plunder.
Only with such prior independent information could it have been
possible for the Ombudsman to issue the February 8, 2001 subpoena
duces tecum addressed to the President and/or Chief Executive Officer
of Urban Bank, which described the documents subject thereof as
follows:
(a) bank records and all documents relative thereto pertaining to all
bank accounts (Savings, Current, Time Deposit, Trust, Foreign
Currency Deposits, etc' ) under the account names of Jose Velarde,
Joseph E. Estrada, Laarni Enriquez, Guia Gomez, Joy Melendrez, Peach
Osorio, Rowena Lopez, Kevin or Kelvin Garcia, 727, 737, 747, 757, 777
and 858. (Emphasis and underscoring supplied)
The information on the existence of Bank Accounts bearing number
"858" was, according to respondent People of the Philippines, obtained
from various sources including the proceedings during the impeachment
of President Estrada, related reports, articles and investigative
journals.23 In the absence of proof to the contrary, this explanation
proffered by respondent must be upheld. To presume that the
information was obtained in violation of R.A. 1405 would infringe the
presumption of regularity in the performance of official functions.
Thus, with the filing of the plunder case against former President
Estrada before the Sandiganbayan, the Ombudsman, using the above
independent information, may now proceed to conduct the same
investigation it earlier conducted, through which it can eventually obtain
the same information previously disclosed to it by the PDIC, for it is an
inescapable fact that the bank records of petitioner are no longer
protected by R.A. 1405 for the reasons already explained
above.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
Since conducting such an inquiry would, however, only result in the
disclosure of the same documents to the Ombudsman, this Court, in
avoidance of what would be a time-wasteful and circuitous way of
administering justice,24 upholds the challenged subpoenas.
Respecting petitioner's claim that the Sandiganbayan violated his right
to due process as he was neither notified of the requests for the issuance
of the subpoenas nor of the grant thereof, suffice it to state that the
defects were cured when petitioner ventilated his arguments against the
issuance thereof through his earlier quoted letter addressed to the
51
Banking Laws under Atty. Fontanilla
Sandiganbayan and when he filed his motions to quash before the
Sandiganbayan.
IN SUM, the Court finds that the Sandiganbayan did not commit grave
abuse of discretion in issuing the challenged subpoenas for documents
pertaining to petitioner's Trust Account No. 858 and Savings Account
No. 0116-17345-9 for the following reasons:
1. These accounts are no longer protected by the Secrecy of Bank
Deposits Law, there being two exceptions to the said law applicable in
this case, namely: (1) the examination of bank accounts is upon order of
a competent court in cases of bribery or dereliction of duty of public
officials, and (2) the money deposited or invested is the subject matter
of the litigation. Exception (1) applies since the plunder case pending
against former President Estrada is analogous to bribery or dereliction
of duty, while exception (2) applies because the money deposited in
petitioner's bank accounts is said to form part of the subject matter of
the same plunder case.
2. The "fruit of the poisonous tree" principle, which states that once the
primary source (the "tree") is shown to have been unlawfully obtained,
any secondary or derivative evidence (the "fruit") derived from it is also
inadmissible, does not apply in this case. In the first place, R.A. 1405
does not provide for the application of this rule. Moreover, there is no
basis for applying the same in this case since the primary source for the
detailed information regarding petitioner's bank accounts - the
investigation previously conducted by the Ombudsman - was lawful.
3. At all events, even if the subpoenas issued by the Sandiganbayan were
quashed, the Ombudsman may conduct on its own the same inquiry into
the subject bank accounts that it earlier conducted last February-March
2001, there being a plunder case already pending against former
President Estrada. To quash the challenged subpoenas would, therefore,
be pointless since the Ombudsman may obtain the same documents by
another route. Upholding the subpoenas avoids an unnecessary delay in
the administration of justice.
WHEREFORE, the petition is DISMISSED. The Sandiganbayan
Resolutions dated February 7 and 12, 2003 and March 11, 2003 are
upheld.
The Sandiganbayan is hereby directed, consistent with this Court's
ruling in Marquez v. Desierto, to notify petitioner as to the date the
subject bank documents shall be presented in court by the persons
subpoenaed.SO ORDERED.
22.
G.R. No. 170290 April 11, 2012
PHILIPPINE DEPOSIT INSURANCE
CORPORATION, Petitioner,
vs.
CITIBANK, N.A. and BANK OF AMERICA, S.T. & assessments issued by PDIC were improper and erroneous. Therefore,
N.A., Respondents.
DECISION
MENDOZA, J.:
This is a petition for review under Rule 45 of the 1997 Revised Rules of
Civil Procedure, assailing the October 27, 2005 Decision1 of the Court
of Appeals (CA) in CA-G.R. CV No. 61316, entitled "Citibank, N.A.
and Bank of America, S.T. & N.A. v. Philippine Deposit Insurance
Corporation."
The Facts
Petitioner Philippine Deposit Insurance Corporation (PDIC) is a
government instrumentality created by virtue of Republic
Act (R.A.) No. 3591, as amended by R.A. No. 9302.2
Respondent Citibank, N.A. (Citibank) is a banking corporation while
respondent Bank of America, S.T. & N.A. (BA) is a national banking
association, both of which are duly organized and existing under the
laws of the United States of America and duly licensed to do business
in the Philippines, with offices in Makati City.3
In 1977, PDIC conducted an examination of the books of account of
Citibank. It discovered that Citibank, in the course of its banking
business, from September 30, 1974 to June 30, 1977, received from its
head office and other foreign branches a total of ₱11,923,163,908.00 in
dollars, covered by Certificates of Dollar Time Deposit that were
interest-bearing with corresponding maturity dates.4 These funds, which
were lodged in the books of Citibank under the account "Their Account-
Head Office/Branches-Foreign Currency," were not reported to PDIC as
deposit liabilities that were subject to assessment for insurance. 5 As
such, in a letter dated March 16, 1978, PDIC assessed Citibank for
deficiency in the sum of ₱1,595,081.96.6
Similarly, sometime in 1979, PDIC examined the books of accounts of
BA which revealed that from September 30, 1976 to June 30, 1978, BA
received from its head office and its other foreign branches a total of
₱629,311,869.10 in dollars, covered by Certificates of Dollar Time
Deposit that were interest-bearing with corresponding maturity dates
and lodged in their books under the account "Due to Head
Office/Branches."7 Because BA also excluded these from its deposit
liabilities, PDIC wrote to BA on October 9, 1979, seeking the remittance
of ₱109,264.83 representing deficiency premium assessments for dollar
deposits.8
Believing that litigation would inevitably arise from this dispute,
Citibank and BA each filed a petition for declaratory relief before the
Court of First Instance (now the Regional Trial Court) of Rizal on July
19, 1979 and December 11, 1979, respectively.9 In their petitions,
Citibank and BA sought a declaratory judgment stating that the money
placements they received from their head office and other foreign
branches were not deposits and did not give rise to insurable deposit
liabilities under Sections 3 and 4 of R.A. No. 3591 (the PDIC
Charter) and, as a consequence, the deficiency assessments made by
PDIC were improper and erroneous. 10 The cases were then
consolidated.11
On June 29, 1998, the Regional Trial Court, Branch 163, Pasig
City (RTC) promulgated its Decision12 in favor of Citibank and BA,
ruling that the subject money placements were not deposits and did not
give rise to insurable deposit liabilities, and that the deficiency
Citibank and BA were not liable to pay the same. The RTC reasoned out
that the money placements subject of the petitions were not assessable
for insurance purposes under the PDIC Charter because said placements
were deposits made outside of the Philippines and, under Section
3.05(b) of the PDIC Rules and Regulations,13 such deposits are excluded
from the computation of deposit liabilities. Section 3(f) of the PDIC
Charter likewise excludes from the definition of the term "deposit" any
obligation of a bank payable at the office of the bank located outside the
Philippines. The RTC further stated that there was no depositor-
depository relationship between the respondents and their head office or
other branches. As a result, such deposits were not included as third-
party deposits that must be insured. Rather, they were considered inter-
branch deposits which were excluded from the assessment base, in
accordance with the practice of the United States Federal Deposit
Insurance Corporation (FDIC) after which PDIC was patterned.
Aggrieved, PDIC appealed to the CA which affirmed the ruling of the
RTC in its October 27, 2005 Decision. In so ruling, the CA found that
the money placements were received as part of the bank’s internal
dealings by Citibank and BA as agents of their respective head offices.
This showed that the head office and the Philippine branch were
considered as the same entity. Thus, no bank deposit could have arisen
from the transactions between the Philippine branch and the head office
because there did not exist two separate contracting parties to act as
depositor and depositary.14 Secondly, the CA called attention to the
purpose for the creation of PDIC which was to protect the deposits of
depositors in the Philippines and not the deposits of the same bank
through its head office or foreign branches.15 Thirdly, because there was
no law or jurisprudence on the treatment of inter-branch deposits
between the Philippine branch of a foreign bank and its head office and
other branches for purposes of insurance, the CA was guided by the
procedure observed by the FDIC which considered inter-branch deposits
as non-assessable.16 Finally, the CA cited Section 3(f) of R.A. No. 3591,
which specifically excludes obligations payable at the office of the bank
located outside the Philippines from the definition of a deposit or an
insured deposit. Since the subject money placements were made in the
respective head offices of Citibank and BA located outside the
Philippines, then such placements could not be subject to assessment
under the PDIC Charter.17
Hence, this petition.
The Issues
PDIC raises the issue of whether or not the subject dollar deposits are
assessable for insurance purposes under the PDIC Charter with the
following assigned errors:
A.
The appellate court erred in ruling that the subject dollar deposits
are money placements, thus, they are not subject to the provisions
of Republic Act No. 6426 otherwise known as the "Foreign
Currency Deposit Act of the Philippines."
B.
The appellate court erred in ruling that the subject dollar deposits
are not covered by the PDIC insurance.18
Respondents similarly identify only one issue in this case:
Whether or not the money placements subject matter of these
petitions are assessable for insurance purposes under the PDIC
Act.19
The sole question to be resolved in this case is whether the funds placed
in the Philippine branch by the head office and foreign branches of
Citibank and BA are insurable deposits under the PDIC Charter and, as
such, are subject to assessment for insurance premiums.
The Court’s Ruling
The Court rules in the negative.
A branch has no separate legal personality;
Purpose of the PDIC
PDIC argues that the head offices of Citibank and BA and their
individual foreign branches are separate and independent entities. It
insists that under American jurisprudence, a bank’s head office and its
branches have a principal-agent relationship only if they operate in the
same jurisdiction. In the case of foreign branches, however, no such
relationship exists because the head office and said foreign branches are
deemed to be two distinct entities.20 Under Philippine law, specifically,
Section 3(b) of R.A. No. 3591, which defines the terms "bank" and
"banking institutions," PDIC contends that the law treats a branch of a
foreign bank as a separate and independent banking unit.21
The respondents, on the other hand, initially point out that the factual
findings of the RTC and the CA, with regard to the nature of the money
placements, the capacity in which the same were received by the
respondents and the exclusion of inter-branch deposits from assessment,
can no longer be disturbed and should be accorded great weight by this
Court.22 They also argue that the money placements are not deposits.
They postulate that for a deposit to exist, there must be at least two
parties – a depositor and a depository – each with a legal personality
distinct from the other. Because the respondents’ respective head offices
and their branches form only a single legal entity, there is no creditor-
debtor relationship and the funds placed in the Philippine branch belong
to one and the same bank. A bank cannot have a deposit with itself.23
This Court is of the opinion that the key to the resolution of this
controversy is the relationship of the Philippine branches of Citibank
and BA to their respective head offices and their other foreign branches.
The Court begins by examining the manner by which a foreign
corporation can establish its presence in the Philippines. It may choose
to incorporate its own subsidiary as a domestic corporation, in which
case such subsidiary would have its own separate and independent legal
personality to conduct business in the country. In the alternative, it may
create a branch in the Philippines, which would not be a legally
independent unit, and simply obtain a license to do business in the
Philippines.24
In the case of Citibank and BA, it is apparent that they both did not
incorporate a separate domestic corporation to represent its business
interests in the Philippines. Their Philippine branches are, as the name
implies, merely branches, without a separate legal personality from their
parent company, Citibank and BA. Thus, being one and the same entity,
the funds placed by the respondents in their respective branches in the
Philippines should not be treated as deposits made by third parties
subject to deposit insurance under the PDIC Charter.
For lack of judicial precedents on this issue, the Court seeks guidance
from American jurisprudence.1âwphi1 In the leading case of Sokoloff v.
The National City Bank of New York,25 where the Supreme Court of New
York held:
Where a bank maintains branches, each branch becomes a separate
business entity with separate books of account. A depositor in one
branch cannot issue checks or drafts upon another branch or demand
payment from such other branch, and in many other respects the
branches are considered separate corporate entities and as distinct from
one another as any other bank. Nevertheless, when considered with
relation to the parent bank they are not independent agencies; they
are, what their name imports, merely branches, and are subject to
52
Banking Laws under Atty. Fontanilla
the supervision and control of the parent bank, and are
instrumentalities whereby the parent bank carries on its business, and
are established for its own particular purposes, and their business
conduct and policies are controlled by the parent bank and their property
and assets belong to the parent bank, although nominally held in the
names of the particular branches. Ultimate liability for a debt of a
branch would rest upon the parent bank. [Emphases supplied]
This ruling was later reiterated in the more recent case of United States
v. BCCI Holdings Luxembourg26 where the United States Court of
Appeals, District of Columbia Circuit, emphasized that "while
individual bank branches may be treated as independent of one another,
each branch, unless separately incorporated, must be viewed as a part of
the parent bank rather than as an independent entity."
In addition, Philippine banking laws also support the conclusion that the
head office of a foreign bank and its branches are considered as one legal
entity. Section 75 of R.A. No. 8791 (The General Banking Law of 2000)
and Section 5 of R.A. No. 7221 (An Act Liberalizing the Entry of
Foreign Banks) both require the head office of a foreign bank to
guarantee the prompt payment of all the liabilities of its Philippine
branch, to wit:
Republic Act No. 8791:
Sec. 75. Head Office Guarantee. – In order to provide effective
protection of the interests of the depositors and other creditors of
Philippine branches of a foreign bank, the head office of such branches
shall fully guarantee the prompt payment of all liabilities of its
Philippine branch.
Residents and citizens of the Philippines who are creditors of a branch
in the Philippines of foreign bank shall have preferential rights to the
assets of such branch in accordance with the existing laws.
Republic Act No. 7721:
Sec. 5. Head Office Guarantee. – The head office of foreign bank
branches shall guarantee prompt payment of all liabilities of its
Philippine branches.
Moreover, PDIC must be reminded of the purpose for its creation, as
espoused in Section 1 of R.A. No. 3591 (The PDIC Charter) which
provides:
Section 1. There is hereby created a Philippine Deposit Insurance
Corporation hereinafter referred to as the "Corporation" which shall
insure, as herein provided, the deposits of all banks which are entitled
to the benefits of insurance under this Act, and which shall have the
powers hereinafter granted.
The Corporation shall, as a basic policy, promote and safeguard the
interests of the depositing public by way of providing permanent and
continuing insurance coverage on all insured deposits.
R.A. No. 9576, which amended the PDIC Charter, reaffirmed the
rationale for the establishment of the PDIC:
Section 1. Statement of State Policy and Objectives. - It is hereby
declared to be the policy of the State to strengthen the mandatory deposit
insurance coverage system to generate, preserve, maintain faith and
confidence in the country's banking system, and protect it from illegal
schemes and machinations.
Towards this end, the government must extend all means and
mechanisms necessary for the Philippine Deposit Insurance Corporation
to effectively fulfill its vital task of promoting and safeguarding the
interests of the depositing public by way of providing permanent and
continuing insurance coverage on all insured deposits, and in helping
develop a sound and stable banking system at all times.
The purpose of the PDIC is to protect the depositing public in the event
of a bank closure. It has already been sufficiently established by US
jurisprudence and Philippine statutes that the head office shall answer
for the liabilities of its branch. Now, suppose the Philippine branch of
Citibank suddenly closes for some reason. Citibank N.A. would then be
required to answer for the deposit liabilities of Citibank Philippines. If
the Court were to adopt the posture of PDIC that the head office and the
branch are two separate entities and that the funds placed by the head
office and its foreign branches with the Philippine branch are considered
deposits within the meaning of the PDIC Charter, it would result to the
incongruous situation where Citibank, as the head office, would be
placed in the ridiculous position of having to reimburse itself, as
depositor, for the losses it may incur occasioned by the closure of
Citibank Philippines. Surely our law makers could not have envisioned
such a preposterous circumstance when they created PDIC.
Finally, the Court agrees with the CA ruling that there is nothing in the
definition of a "bank" and a "banking institution" in Section 3(b) of the
PDIC Charter27 which explicitly states that the head office of a foreign
bank and its other branches are separate and distinct from their
Philippine branches.
There is no need to complicate the matter when it can be solved by
simple logic bolstered by law and jurisprudence. Based on the
foregoing, it is clear that the head office of a bank and its branches are
considered as one under the eyes of the law. While branches are treated
as separate business units for commercial and financial reporting
purposes, in the end, the head office remains responsible and answerable
for the liabilities of its branches which are under its supervision and
control. As such, it is unreasonable for PDIC to require the respondents,
Citibank and BA, to insure the money placements made by their home
office and other branches. Deposit insurance is superfluous and entirely
unnecessary when, as in this case, the institution holding the funds and
the one which made the placements are one and the same legal entity.
Funds not a deposit under the definition
of the PDIC Charter;
Excluded from assessment
PDIC avers that the funds are dollar deposits and not money placements.
Citing R.A. No. 6848, it defines money placement as a deposit which is
received with authority to invest. Because there is no evidence to
indicate that the respondents were authorized to invest the subject dollar
deposits, it argues that the same cannot be considered money
placements.28 PDIC then goes on to assert that the funds received by
Citibank and BA are deposits, as contemplated by Section 3(f) of R.A.
No. 3591, for the following reasons: (1) the dollar deposits were
received by Citibank and BA in the course of their banking operations
from their respective head office and foreign branches and were
recorded in their books as "Account-Head Office/Branches-Time
Deposits" pursuant to Central Bank Circular No. 343 which implements
R.A. No. 6426; (2) the dollar deposits were credited as dollar time
accounts and were covered by Certificates of Dollar Time Deposit
which were interest-bearing and payable upon maturity, and (3) the
respondents maintain 100% foreign currency cover for their deposit
liability arising from the dollar time deposits as required by Section 4 of
R.A. No. 6426.29
To refute PDIC’s allegations, the respondents explain the inter-branch
transactions which necessitate the creation of the accounts or
placements subject of this case. When the Philippine branch needs to
procure foreign currencies, it will coordinate with a branch in another
country which handles foreign currency purchases. Both branches have
existing accounts with their head office and when a money placement is
made in relation to the acquisition of foreign currency from the
international market, the amount is credited to the account of the
Philippine branch with its head office while the same is debited from the
account of the branch which facilitated the purchase. This is further
documented by the issuance of a certificate of time deposit with a stated
interest rate and maturity date. The interest rate represents the cost of
obtaining the funds while the maturity date represents the date on which
the placement must be returned. On the maturity date, the amount
previously credited to the account of the Philippine branch is debited,
together with the cost for obtaining the funds, and credited to the account
of the other branch. The respondents insist that the interest rate and
maturity date are simply the basis for the debit and credit entries made
by the head office in the accounts of its branches to reflect the inter-
branch accommodation.30 As regards the maintenance of currency cover
over the subject money placements, the respondents point out that they
maintain foreign currency cover in excess of what is required by law as
a matter of prudent banking practice.31
PDIC attempts to define money placement in order to impugn the
respondents’ claim that the funds received from their head office and
other branches are money placements and not deposits, as defined under
the PDIC Charter. In the process, it loses sight of the important issue in
this case, which is the determination of whether the funds in question
are subject to assessment for deposit insurance as required by the PDIC
Charter. In its struggle to find an adequate definition of "money
placement," PDIC desperately cites R.A. No. 6848, The Charter of the
Al-Amanah Islamic Investment Bank of the Philippines. Reliance on the
said law is unfounded because nowhere in the law is the term "money
placement" defined. Additionally, R.A. No. 6848 refers to the
establishment of an Islamic bank subject to the rulings of Islamic Shari’a
to assist in the development of the Autonomous Region of Muslim
Mindanao (ARMM),32 making it utterly irrelevant to the case at bench.
Since Citibank and BA are neither Islamic banks nor are they located
anywhere near the ARMM, then it should be painfully obvious that R.A.
No. 6848 cannot aid us in deciding this case.
Furthermore, PDIC heavily relies on the fact that the respondents
documented the money placements with certificates of time deposit to
simply conclude that the funds involved are deposits, as contemplated
by the PDIC Charter, and are consequently subject to assessment for
deposit insurance. It is this kind of reasoning that creates non-existent
obscurities in the law and obstructs the prompt resolution of what is
essentially a straightforward issue, thereby causing this case to drag on
for more than three decades.1âwphi1
Noticeably, PDIC does not dispute the veracity of the internal
transactions of the respondents which gave rise to the issuance of the
certificates of time deposit for the funds the subject of the present
dispute. Neither does it question the findings of the RTC and the CA
that the money placements were made, and were payable, outside of the
Philippines, thus, making them fall under the exclusions to deposit
liabilities. PDIC also fails to impugn the truth of the testimony of John
David Shaffer, then a Fiscal Agent and Head of the Assessment Section
of the FDIC, that inter-branch deposits were excluded from the
assessment base. Therefore, the determination of facts of the lower
courts shall be accepted at face value by this Court, following the well-
established principle that factual findings of the trial court, when
adopted and confirmed by the CA, are binding and conclusive on this
Court, and will generally not be reviewed on appeal.33
As explained by the respondents, the transfer of funds, which resulted
from the inter-branch transactions, took place in the books of account of
the respective branches in their head office located in the United States.
Hence, because it is payable outside of the Philippines, it is not
considered a deposit pursuant to Section 3(f) of the PDIC Charter:
Sec. 3(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 evidenced by its certificate of
deposit, and trust funds held by such bank whether retained or deposited
in any department of said bank or deposit in another bank, together with
such other obligations of a bank as the Board of Directors shall find and
shall prescribe by regulations to be deposit liabilities of the
Bank; Provided, that any obligation of a bank which is payable at
the office of the bank located outside of the Philippines shall not be
a deposit for any of the purposes of this Act or included as part of
the total deposits or of the insured deposits; Provided further, that any
insured bank which is incorporated under the laws of the Philippines
may elect to include for insurance its deposit obligation payable only at
such branch. [Emphasis supplied]
The testimony of Mr. Shaffer as to the treatment of such inter-branch
deposits by the FDIC, after which PDIC was modelled, is also
persuasive. Inter-branch deposits refer to funds of one branch deposited
in another branch and both branches are part of the same parent
company and it is the practice of the FDIC to exclude such inter-branch
deposits from a bank’s total deposit liabilities subject to assessment. 34
All things considered, the Court finds that the funds in question are not
deposits within the definition of the PDIC Charter and are, thus,
excluded from assessment.
WHEREFORE, the petition is DENIED. The October 27, 2005
Decision of the Court of Appeals in CA-G.R. CV No. 61316 is
AFFIRMED.
23.
G.R. No. 126911 April 30, 2003
PHILIPPINE DEPOSIT INSURANCE
CORPORATION, petitioner,
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, respondents.
CARPIO MORALES, J.:
The present petition for review assails the decision of the Court of
Appeals affirming that of the Regional Trial Court of Iloilo City, Branch
30, finding petitioner Philippine Deposit Insurance Corporation (PDIC)
liable, as statutory insurer, for the value of 20 Golden Time Deposits
belonging to respondents Jose Abad, Leonor Abad, Sabina Abad,
Josephine "Josie" Beata Abad-Orlina, Cecilia Abad, Pio Abad, Dominic
53
Banking Laws under Atty. Fontanilla
Abad, and Teodora Abad at the Manila Banking Corporation (MBC),
Iloilo Branch.
Prior to May 22, 1997, 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 P1,115,889.96.1
On May 22, 1987, a Friday, the Monetary Board (MB) of the Central
Bank of the Philippines, now Bangko Sentral ng Pilipinas, issued
Resolution 5052 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. 3
On May 25, 1987, the next banking day following the issuance of the
MB Resolution, respondent Jose Abad was at the MBC at 9:00 a.m. 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.4 Of the 28 new
GTDs, Jose Abad pre-terminated 8 and withdrew the value thereof in
the total amount of P320,000.00.5
Respondents thereafter filed their claims with the PDIC for the payment
of the remaining 20 insured GTDs.6
On February 11, 1988, 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 PDIC7 that there was massive
conversion and substitution of trust and deposit accounts on May 25,
1987 at MBC-Iloilo.8 The pertinent portions of the report stated:
xxx xxx xxx
On May 25, 1987 (Monday) or a day prior to the official announcement
and take-over by CB of the assets and liabilities of The Manila Banking
Corporation, the Iloilo Branch was found to have recorded an unusually
heavy movements in terms of volume and amount for all types of
deposits and trust accounts. It appears that the impending receivership
of TMBC was somehow already known to many depositors on account
of the massive withdrawals paid on this day which practically wiped out
the branch's entire cash position. . . .
xxx xxx xxx
. . . The intention was to maximize the availment of PDIC coverage
limited to P40,000 by spreading out big accounts to as many certificates
under various nominees. . . .9
xxx xxx xxx
Because of the report, PDIC entertained serious reservation in
recognizing respondents' GTDs as deposit liabilities of MBC-Iloilo.
Thus, on August 30, 1991, 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.10
In their Answer filed on October 24, 1991 and Amended Answer11 filed
on January 9, 1992, respondents set up a counterclaim against
PDIC whereby they asked for payment of their insured deposits. 12
In its Decision of February 22, 1994,13 Branch 30 of the Iloilo RTC
declared the 20 GTDs of respondents to be deposit liabilities of MBC,
hence, are liabilities of PDIC as statutory insurer. It accordingly
disposed as follows:
WHEREFORE, premises considered, judgment is hereby rendered:
1. Declaring the 28 GTDs of the Abads which were issued by the
TMBC-Iloilo on May 25, 1987 as deposits or deposit liabilities of the
bank as the term is defined under Section 3 (f) of R.A. No. 3591, as
amended;
2. Declaring PDIC, being the statutory insurer of bank deposits, liable
to the Abads for the value of the remaining 20 GTDs, the other 8 having
been paid already by TMBC Iloilo on May 25,1987;
3. Ordering PDIC to pay the Abads the value of said 20 GTDs less the
value of 3 GTDs it paid on February 11, 1988, and the amounts it may
have paid the Abads pursuant to the Order of this Court dated September
8, 1992;
4. Ordering PDIC to pay immediately the Abads the balance of its
admitted liability as contained in the aforesaid Order of September 8,
1992, should there be any, subject to liquidation when this case shall
have been finally decide; and
5. Ordering PDIC to pay legal interest on the remaining insured deposits
of the Abads from February 11, 1988 until they are fully paid.
SO ORDERED.
On appeal, the Court of Appeals, by the assailed Decision of October
21, 1996,14 affirmed the trial court's decision except as to the award of
legal interest which it deleted.
Hence, PDIC's present Petition for Review which sets forth this lone
assignment of error:
THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING
THE HOLDING OF THE TRIAL COURT THAT THE AMOUNT
REPRESENTED IN THE FACES OF THE SO CALLED "GOLDEN
TIME DEPOSITS" WERE INSURED DEPOSITS EVEN AS THEY
WERE MERE DERIVATIVES OF RESPONDENTS' PREVIOUS
ACCOUNT BALANCES WHICH WERE PRE-
TERMINATED/TERMINATED AT THE TIME THE MANILA
BANKING CORPORATION WAS ALREADY IN SERIOUS
FINANCIAL DISTRESS.
In its supplement to the petition, PDIC adds the following assignment
of error:
THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING
THE HOLDING OF THE TRIAL COURT ORDERING PETITIONER
TO PAY RESPONDENTS' CLAIMS FOR PAYMENT OF INSURED
DEPOSITS FOR THE REASON THAT AN ACTION FOR
DECLARATORY RELIEF DOES NOT ESSENTIALLY ENTAIL AN
EXECUTORY PROCESS AS THE ONLY RELIEF THAT SHOULD
HAVE BEEN GRANTED BY THE TRIAL COURT IS A
DECLARATION OF THE RIGHTS AND DUTIES OF PETITIONER
UNDER R.A. 3591, AS AMENDED, PARTICULARLY SECTION
3(F) THEREOF AS CONSIDERED AGAINST THE
SURROUNDING CIRCUMSTANCES OF THE MATTER IN ISSUE
SOUGHT TO BE CONSTRUED WITHOUT PREJUDICE TO
OTHER MATTERS THAT NEED TO BE CONSIDERED BY
PETITIONER IN THE PROCESSING OF RESPONDENTS'
CLAIMS.
Under its charter,15 PDIC (hereafter petitioner) is liable only for deposits
received by a bank "in the usual course of business."16 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.17
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.18 Hence, even if respondents had wanted to convert the
face amounts of the GTDs to cash, MBC could not have complied with
it.
Petitioner theorizes that after MBC had exhausted its cash and could no
longer sustain further withdrawal transactions, it instead issued new
GTDs as "payment" for the pre-terminated GTDs of respondents to
make sure that all the newly-issued GTDs have face amounts which are
within the statutory coverage of deposit insurance.
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.19
Petitioner's 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.20
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. One can just imagine the dire
consequences of a prior hearing: bank runs would be the order of the
day, resulting in panic and hysteria. In the process, fortunes may be
wiped out, and disillusionment will run the gamut of the entire banking
community. (Emphasis supplied).21
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.
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,
198722 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 respondent's 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,23 this Court finds that the 28 new
GTDs were deposited "in the usual course of business" of MBC.
In its second assignment of error, 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. 24
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.25
Now, there is nothing in the nature of a special civil action for
declaratory relief that proscribes the filing of a counterclaim based on
the same transaction, deed or contract subject of the complaint. A
special civil action is after all not essentially different from an ordinary
civil action, which is generally governed by Rules 1 to 56 of the Rules
of Court, except that the former deals with a special subject matter which
makes necessary some special regulation. But the identity between their
fundamental nature is such that the same rules governing ordinary civil
suits may and do apply to special civil actions if not inconsistent with or
if they may serve to supplement the provisions of the peculiar rules
governing special civil actions.26
Petitioner additionally submits that the issue of determining the amount
of deposit insurance due respondents was never tried on the merits since
the trial dwelt only on the "determination of the viability or validity of
the deposits" and no evidence on record sustains the holding that the
amount of deposit due respondents had been finally determined. 27 This
issue was not raised in the court a quo, however, hence, it cannot be
raised for the first time in the petition at bar.28
Finally, 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. 29
Good faith is presumed. This, petitioner failed to overcome since it
offered mere presumptions as evidence of bad faith.
WHEREFORE, the assailed decision of the Court of Appeals is hereby
AFFIRMED.
SO ORDERED.
54
Banking Laws under Atty. Fontanilla
24.
G.R. No. 118917 December 22, 1997
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
COTAOCO, respondents.
KAPUNAN, J.:
Petitioner Philippine Deposit Insurance Corporation (PDIC) seeks the
reversal of the decision of the Court of Appeals affirming with
modification the decision of the Regional Trial Court holding petitioner
liable for the value of thirteen (13) certificates of time deposit (CTDs)
in the possession of private respondents.
The facts, as found by the Court of Appeals, are as follows:
On September 22, 1983, 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. On the same date
(September 22, 1983), 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
with Nos. 09648 to 09660, 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;
and that the maturity date thereof is on November 3, 1983 (Exhs. "B",
"B-1 to "B-12").
On the aforesaid maturity dated (November 3, 1983), Cotaoco went to
the RSB to encash the said certificates. Thereat, RSB Executive Vice
President Jose M. Damian 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 (Exh. "D"). 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, on June 15, 1984, the Monetary Board of the Central Bank
issued Resolution No. 788 (Exh. "2", Records, p. 159) suspending the
operations of the RSB. Eventually, the records of RSB were secured and
its deposit liabilities were eventually determined. On December 7, 1984,
the Monetary Board issued Resolution No. 1496 (Exh. "1") 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.
On September 4, 1984, plaintiffs-appellees filed with the PDIC their
respective claims for the amount of the certificates (Exhs. "C," "C-1" to
"C-12"). Sabina Yu, James Ngkaion, Elaine Ngkaion and Jeffrey
Ngkaion, 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. 1
Consequently, on March 31, 1987, private respondents filed an action
for collection against PDIC, RSB and the Central Bank.
On September 14, 1987, the trial court, declared the Central Bank in
default for failing to file an answer.
On May 29, 1989, the 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
Court of Appeals praying that the writ of execution issued by the trial
court against it be set aside.
On February 8, 1995, the Court of Appeals rendered its decision
granting the Central Bank's petition but dismissing the appeals of PDIC
and RSB. Hence, this petition by PDIC assigning the following errors:
I deposit which was not made, and cannot be entitled to the benefit of a
THE CA ERRED IN HOLDING THAT THE SUBJECT CTDS ARE
NEGOTIABLE INSTRUMENTS
II
THE CA ERRED IN HOLDING THAT THE CTDS WERE
ACQUIRED FOR VALUE AND CONSIDERATION
III
THE CA ERRED WHEN IT HELD THAT BECAUSE THE CTDS
STATE THAT THESE WERE INSURED PETITIONER SHOULD BE
HELD LIABLE FOR THE SAME.
We deal jointly with petitioner's first and third assigned errors.
Relying on this Court's ruling in Caltex (Philippines), Inc. v. Court of
Appeals and Security Bank and Trust Company, 2 the Court of Appeals
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 certain in money
nor 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. 3 The liability of the PDIC
for insured deposits therefore is statutory and, under Republic Act No.
3591,4 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.
The authority for this conclusion finds support in decisions by American
state courts applying their respective bank guaranty laws. Invariably, the
plaintiffs in these cases argued that the negotiability of the certificates
of deposit in their possession entitled them to be paid out of the bank
guaranty fund, a contention that the courts uniformly rejected.
Thus, the plaintiffs in Fourth Nat. Bank of Wichita v. Wilson5 argued
that:
. . . the court should hold the certificates to be guaranteed because they
are negotiable instruments, and were acquired by the present holders in
due course; otherwise it is said certificates of deposit will be deprived
of the quality of commercial paper. Certificates of deposit have been
regarded as the highest form of collateral. They are of wide currency in
the banking and business worlds, and are particularly useful to persons
of small means, because they bear interest, and may be readily cashed;
therefore to deprive them of the benefit of the guaranty fund would be a
calamity. . . .
The Supreme Court of Kansas, however, found the plaintiffs' contention
to be without merit, ruling thus:
. . . The argument confuses negotiability of commercial paper with
statutory guaranty of deposits. The guaranty is something extrinsic to all
forms of evidence of bank obligation; and negotiability of instruments
has no dependence on existence or nonexistence of the guaranty.
. . . Whatever the status of the plaintiffs may be as holders in due course
under the Negotiable Instruments Law, they cannot be assignees of a
guaranty which did not come into existence. . . .
In arriving at the above decision, the Kansas Supreme Court relied on
its earlier ruling in American State Bank v. Foster,6 which arose from
the same facts as the Fourth National Bank case. There, the Court held:
. . . Even if the plaintiff were to be regarded as an innocent purchaser of
the certificates as negotiable instruments, its situation would be in no
wise bettered so far as relate to a claim against the guaranty fund. The
fund protects deposits only. And if no deposit is made, or no deposit
within the protection of the guaranty law, the transfer of a certificate
cannot impose a liability on the fund. . . . where a certificate of deposit
is given under such circumstances that it is not protected by the guaranty
fund, although that fact is not indicated by anything on its face, its
indorsement to an innocent holder cannot confer that quality upon it.
In like fashion did the Supreme Court of Nebraska brush aside a similar
contention in State v. Farmers' Stale Bank:7
In this contention we think the appellants fail to distinguish between the
liability of the maker of a negotiable instrument, which rests upon the
law pertaining to negotiable paper, and the liability of the guaranty fund,
which is purely statutory. The circumstances under which the guaranty
fund may be liable are entirely apart from the law pertaining to
negotiable paper. A holder of a certificate of deposit in a bank who seeks
to hold the guaranty fund liable for its payment must show that the
transaction leading up to the issuance of the certificate was such that the
law holds the guaranty fund liable for its payment. . . .
The Farmers' State Bank ruling was reiterated by the Nebraska Supreme
Court in State v. Home State Bank of Dunning 8 and in State v. Kilgore
State Bank. 9 The same ruling was adopted by the Supreme Court of
South Dakota in Mildenstein v. Hirning. 10
In the case at bar, the Court of Appeals initially found the subject CTDs
to be negotiable. Subsequently, however, respondent court deemed the
issue immaterial, albeit for entirely different reasons.
. . . Besides, whether the certificates are negotiable or not is of no
moment. The fact remains that the certificates categorically state that
their bearer [sic] have a deposit in the RSB; that the same will mature
on November 3, 1993; and that the certificates are insured by PDIC. 11
We disagree with respondent court's 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.
. . . The mere fact that a certificate recites on its face that a certain sum
has been deposited, or that officers of the bank may have stated that the
deposit is protected by the guaranty law, does not make the guaranty
fund liable for payment, if in fact a deposit has not been made . . . . The
banks have nothing to do with the guaranty fund as such. It is a fund
raised by assessments against all state banks, administered by officers
of the state to protect deposits in banks. . . . 12
We come now to petitioner's second assigned error.
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:
Sec. 1. There is hereby created a Philippine Deposit Insurance
Corporation . . . which shall insure, as provided, the deposits of all banks
which are entitled to the benefits of insurance under this Act . . . .
(Emphasis supplied).
xxx xxx xxx
Sec. 10(a) . . .
xxx xxx xxx
(c) 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 . . . .(Emphasis supplied.)
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,
55
Banking Laws under Atty. Fontanilla
savings, time or thrift account or which is evidenced by passbook, check check's dishonor, RSB cancelled the corresponding as evidence by an
and/or certificate of deposit printed or issued in accordance with Central RSB "ticket" dated November 4, 1983. 18
Bank rules and regulations and other applicable laws, together with such
other obligations of a bank which, consistent with banking usage and These pieces of evidence convincingly show that the subject CTDs were
practices, the Board of Directors shall determine and prescribe by indeed issued without RSB receiving any money therefor. No deposit,
regulations to be deposit liabilities of the Bank . . . . (Emphasis ours.) as defined in Section 3 (f) of R.A. No. 3591, therefore came into
existence. Accordingly, petitioner PDIC cannot be held liable for value
Did RSB receive money or its equivalent when it issued the certificates of the certificates of time deposit held by private respondents.
of time deposit? The Court of Appeals, in resolving who between RSB
and PFC issued the certificates to private respondents, answered this ACCORDINGLY, the instant petition is hereby GRANTED and the
question in the negative. A perusal of the impugned decision, however, decision of the Court of Appeals REVERSED. Petitioner is absolved
reveals that such finding is grounded entirely on speculation, and thus, from any liability to private respondents.
cannot bind this Court: 13
SO ORDERED.
Equally unimpressive is the contention of PDIC and RSB that the
certificates were issued to PFC which did not acquire the same for value
because the check issued by the latter for the certificates bounced for
insufficiency of funds. First, granting arguendo that the certificates
were originally issued in favor of PFC, such issuance could only give
rise to the presumption that the amount stated in the certificates have
been deposited to RSB. Had not PFC deposited the amount stated
therein, then RSB would have surely refused to issue the certificates
certifying to such fact. Second, why did not RSB demand that PFC pay
the certificates or file a claim against PFC on the ground that the latter
failed to pay for the value of the certificates? It could very well be that
the reason why RSB did not run after PFC for payment of the value of
the certificates was because the instruments were issued to the latter by
RSB for value or were already paid to RSB by plaintiffs-appellees.
Third, if it is true that at the time RSB issued the certificates to PFC, the
instruments were paid for with checks still to be encashed, then why did
not RSB specifically state in the certificates that the validity thereof
hinges on the encashment of said check? Fourth, even if it is true that
PFC did not deposit with or pay the RSB the amount stated in the
certificates, the latter is not be such reason freed from civil liability to
plaintiffs-appellees. For, by issuing the certificates, RSB bound itself to
pay the amount stated therein to whoever is the bearer upon its
presentment for encashment. Truly, there is no reason to depart from the
established principle that where a bank issues a certificate of deposit
acknowledging a deposit made with a third person or an officer of the
bank, or with another bank representing it to be the certificate of the
bank, upon which assurance the depositor accepts it, the bank is liable
for the amount of the deposit (Michis, Banks and Banking, Vol. 5A, pp.
48-49, as cited in the Decision on p. 3 thereof). 14

Moreover, 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. The first check amounted
to P159,153.93, the second, P121,665.95, and the third, P125,846.07 In
consideration of the third check, private respondents received thirteen
(13) certificates of deposit with Nos. 09648 to 09660, inclusive, with a
value of P10,000.00 each or a total of P130,000.00. To conform with
the value of the third check, CTD No. 09648 was "chopped," and only
the sum of P5,846.07 was credited in favor of private respondents. The
first two checks "made good in the clearing" while the third was returned
for being "drawn against insufficient funds."

The check in question appears on the records as Exhibit "3" (for

Regent), 15 and is described in RSB's offer or evidence as "Traders
Royal Bank Check No. 292555 dated September 22, 1983 covering the
amount or P125,846.07 . . . issued by Premiere Financing
Corporation." 16 At the back of said check are the words "Refer to
Drawer," 17 indicating that the drawee bank (Traders Royal Bank)
refused to pay the value represented by said check. By reason of the
56
Banking Laws under Atty. Fontanilla
25.
G.R. No. 170281 January 18, 2008
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.
DECISION
CORONA, J.:
This is a petition for review1 of the order2 dated October 27, 2005 of the
Regional Trial Court (RTC) of Manila, Branch 47, dismissing the
complaint for forfeiture3 filed by the Republic of the Philippines,
represented by the Anti-Money Laundering Council (AMLC) against
respondents Glasgow Credit and Collection Services, Inc. (Glasgow)
and Citystate Savings Bank, Inc. (CSBI).
On July 18, 2003, the Republic filed a complaint in the RTC Manila for
civil forfeiture of assets (with urgent plea for issuance of temporary
restraining order [TRO] and/or writ of preliminary injunction) against
the bank deposits in account number CA-005-10-000121-5 maintained
by Glasgow in CSBI. The case, filed pursuant to RA 9160 (the Anti-
Money Laundering Act of 2001), as amended, was docketed as Civil
Case No. 03-107319.
Acting on the Republic’s urgent plea for the issuance of a TRO, the
executive judge4 of RTC Manila issued a 72-hour TRO dated July 21,
2003. The case was thereafter raffled to Branch 47 and the hearing on
the application for issuance of a writ of preliminary injunction was set
on August 4, 2003.
After hearing, the trial court (through then Presiding Judge Marivic T.
Balisi-Umali) issued an order granting the issuance of a writ of
preliminary injunction. The injunctive writ was issued on August 8,
2003.
Meanwhile, summons to Glasgow was returned "unserved" as it could
no longer be found at its last known address.
On October 8, 2003, the Republic filed a verified omnibus motion for
(a) issuance of alias summons and (b) leave of court to serve summons
by publication. In an order dated October 15, 2003, the trial court
directed the issuance of alias summons. However, no mention was
made of the motion for leave of court to serve summons by publication.
In an order dated January 30, 2004, the trial court archived the case
allegedly for failure of the Republic to serve the alias summons. The
Republic filed an ex parte omnibus motion to (a) reinstate the case and
(b) resolve its pending motion for leave of court to serve summons by
publication.
In an order dated May 31, 2004, the trial court ordered the reinstatement
of the case and directed the Republic to serve the alias summons on
Glasgow and CSBI within 15 days. However, it did not resolve the
Republic’s motion for leave of court to serve summons by publication
declaring:
Until and unless a return is made on the alias summons, any action on
[the Republic’s] motion for leave of court to serve summons by
publication would be untenable if not premature.
On July 12, 2004, the Republic (through the Office of the Solicitor
General [OSG]) received a copy of the sheriff’s return dated June 30,
2004 stating that the alias summons was returned "unserved" as
Glasgow was no longer holding office at the given address since July
2002 and left no forwarding address.
Meanwhile, the Republic’s motion for leave of court to serve summons
by publication remained unresolved. Thus, on August 11, 2005, the
Republic filed a manifestation and ex parte motion to resolve its motion
for leave of court to serve summons by publication.
On August 12, 2005, the OSG received a copy of 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 CA-005-10-
000121-5.
Raising questions of law, the Republic filed this petition.
On November 23, 2005, this Court issued a TRO restraining Glasgow
and CSBI, their agents, representatives and/or persons acting upon their
orders from implementing the assailed October 27, 2005 order. It
restrained Glasgow from removing, dissipating or disposing of the funds
in account no. CA-005-10-000121-5 and CSBI from allowing any
transaction on the said account.
The petition essentially presents the following issue: whether the
complaint for civil forfeiture was correctly dismissed on grounds of
improper venue, insufficiency in form and substance and failure to
prosecute.
The Court agrees with the Republic.
The Complaint Was Filed
In The Proper Venue
In its assailed order, the trial court cited the grounds raised by Glasgow
in support of its motion to dismiss:
1. That this [c]ourt has no jurisdiction over the person of Glasgow
considering that no [s]ummons has been served upon it, and it has not
entered its appearance voluntarily;
2. That the [c]omplaint for forfeiture is premature because of the
absence of a prior finding by any tribunal that Glasgow was engaged in
unlawful activity: [i]n connection therewith[,] Glasgow argues that the
[c]omplaint states no cause of action; and
3. That there is failure to prosecute, in that, up to now, summons has yet
to be served upon Glasgow.5
But inasmuch as Glasgow never questioned the venue of the Republic’s
complaint for civil forfeiture against it, how could the trial court have
dismissed the complaint for improper venue? In Dacoycoy v.
Intermediate Appellate Court6 (reiterated in Rudolf Lietz Holdings, Inc.
v. Registry of Deeds of Parañaque City),7 this Court ruled:
The motu proprio dismissal of petitioner’s complaint by [the] trial
court on the ground of improper venue is plain error…. (emphasis
supplied)
At any rate, the trial court was a proper venue.
On November 15, 2005, this Court issued A.M. No. 05-11-04-SC, the
Rule of Procedure in Cases of Civil Forfeiture, Asset Preservation, and
Freezing of Monetary Instrument, Property, or Proceeds Representing,
Involving, or Relating to an Unlawful Activity or Money Laundering
Offense under RA 9160, as amended (Rule of Procedure in Cases of
Civil Forfeiture). The order dismissing the Republic’s complaint for
civil forfeiture of Glasgow’s account in CSBI has not yet attained
finality on account of the pendency of this appeal. Thus, the Rule of
Procedure in Cases of Civil Forfeiture applies to the Republic’s
complaint.8 Moreover, Glasgow itself judicially admitted that the Rule
of Procedure in Cases of Civil Forfeiture is "applicable to the instant
case."9
Section 3, Title II (Civil Forfeiture in the Regional Trial Court) of the
Rule of Procedure in Cases of Civil Forfeiture provides:
Sec. 3. Venue of cases cognizable by the regional trial court. – A
petition for civil forfeiture shall be filed in any regional trial court of
the judicial region where the monetary instrument, property or
proceeds representing, involving, or relating to an unlawful activity
or to a money laundering offense are located; provided, however, that
where all or any portion of the monetary instrument, property or
proceeds is located outside the Philippines, the petition may be filed in
the regional trial court in Manila or of the judicial region where any
portion of the monetary instrument, property, or proceeds is located, at
the option of the petitioner. (emphasis supplied)
Under Section 3, Title II of the Rule of Procedure in Cases of Civil
Forfeiture, therefore, the venue of civil forfeiture cases is any RTC of
the judicial region where the monetary instrument, property or proceeds
representing, involving, or relating to an unlawful activity or to a money
laundering offense are located. Pasig City, where the account sought to
be forfeited in this case is situated, is within the National Capital Judicial
Region (NCJR). Clearly, the complaint for civil forfeiture of the account
may be filed in any RTC of the NCJR. Since the RTC Manila is one of
the RTCs of the NCJR,10 it was a proper venue of the Republic’s
complaint for civil forfeiture of Glasgow’s account.
The Complaint Was Sufficient In Form And Substance
In the assailed order, the trial court evaluated the Republic’s complaint
to determine its sufficiency in form and substance:
At the outset, this [c]ourt, before it proceeds, takes the opportunity to
examine the [c]omplaint and determine whether it is sufficient in form
and substance.
Before this [c]ourt is a [c]omplaint for Civil Forfeiture of Assets filed
by the [AMLC], represented by the Office of the Solicitor General[,]
against Glasgow and [CSBI] as necessary party. The [c]omplaint
principally alleges the following:
(a) Glasgow is a corporation existing under the laws of the Philippines,
with principal office address at Unit 703, 7th Floor, Citystate Center
[Building], No. 709 Shaw Boulevard[,] Pasig City;
(b) [CSBI] is a corporation existing under the laws of the Philippines,
with principal office at Citystate Center Building, No. 709 Shaw
Boulevard, Pasig City;
(c) Glasgow has funds in the amount of P21,301,430.28 deposited with
[CSBI], under CA 005-10-000121-5;
(d) As events have proved, aforestated bank account is related to the
unlawful activities of Estafa and violation of Securities Regulation
Code;
(e) The deposit has been subject of Suspicious Transaction Reports;
(f) After appropriate investigation, the AMLC issued Resolutions No.
094 (dated July 10, 2002), 096 (dated July 12, 2002), 101 (dated July
23, 2002), and 108 (dated August 2, 2002), directing the issuance of
freeze orders against the bank accounts of Glasgow;
(g) Pursuant to said AMLC Resolutions, Freeze Orders Nos. 008-010,
011 and 013 were issued on different dates, addressed to the concerned
banks;
(h) The facts and circumstances plainly showing that defendant
Glasgow’s bank account and deposit are related to the unlawful
activities of Estafa and violation of Securities Regulation Code, as well
as to a money laundering offense [which] [has] been summarized by the
AMLC in its Resolution No. 094; and
(i) Because defendant Glasgow’s bank account and deposits are related
to the unlawful activities of Estafa and violation of Securities Regulation
Code, as well as [to] money laundering offense as aforestated, and being
the subject of covered transaction reports and eventual freeze orders, the
same should properly be forfeited in favor of the government in
accordance with Section 12, R.A. 9160, as amended. 11
In a motion to dismiss for failure to state a cause of action, the focus is
on the sufficiency, not the veracity, of the material allegations. 12 The
determination is confined to the four corners of the complaint and
nowhere else.13
In a motion to dismiss a complaint based on lack of cause of action, the
question submitted to the court for determination is the sufficiency of
the allegations made in the complaint to constitute a cause of action and
not whether those allegations of fact are true, for said motion must
hypothetically admit the truth of the facts alleged in the complaint.
The test of the sufficiency of the facts alleged in the complaint is
whether or not, admitting the facts alleged, the court could render
57
Banking Laws under Atty. Fontanilla
a valid judgment upon the same in accordance with the prayer of
the complaint.14 (emphasis ours)
In this connection, Section 4, Title II of the Rule of Procedure in Cases
of Civil Forfeiture provides:
Sec. 4. Contents of the petition for civil forfeiture. - The petition for civil
forfeiture shall be verified and contain the following allegations:
(a) The name and address of the respondent;
(b) A description with reasonable particularity of the monetary
instrument, property, or proceeds, and their location; and
(c) The acts or omissions prohibited by and the specific provisions of
the Anti-Money Laundering Act, as amended, which are alleged to be
the grounds relied upon for the forfeiture of the monetary instrument,
property, or proceeds; and
[(d)] The reliefs prayed for.
Here, the verified complaint of the Republic contained the following
allegations:
(a) the name and address of the primary defendant therein, Glasgow; 15
(b) a description of the proceeds of 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 (under Section 3(i)(9) and (13), RA 9160, as
amended); the proceeds of the unlawful activities were transacted and
deposited with CSBI in account no. CA-005-10-000121-5 thereby
making them appear to have originated from legitimate sources; as such,
Glasgow engaged in money laundering (under Section 4, RA 9160, as
amended); and the AMLC subjected the account to freeze order and
(d) the reliefs prayed for, namely, the issuance of a TRO or writ of
preliminary injunction and the forfeiture of the account in favor of the
government as well as other reliefs just and equitable under the
premises.
The form and substance of the Republic’s complaint substantially
conformed with Section 4, Title II of the Rule of Procedure in Cases of
Civil Forfeiture.
Moreover, Section 12(a) of RA 9160, as amended, provides:
SEC. 12. Forfeiture Provisions. –
(a) Civil Forfeiture. – When there is a covered transaction report made,
and the court has, in a petition filed for the purpose ordered seizure of
any monetary instrument or property, in whole or in part, directly or
indirectly, related to said report, the Revised Rules of Court on civil
forfeiture shall apply.
In relation thereto, Rule 12.2 of the Revised Implementing Rules and
Regulations of RA 9160, as amended, states:
RULE 12
Forfeiture Provisions
xxx xxx xxx
Rule 12.2. When Civil Forfeiture May be Applied. – When there is a
SUSPICIOUS TRANSACTION REPORT OR A COVERED
TRANSACTION REPORT DEEMED SUSPICIOUS AFTER
INVESTIGATION BY THE AMLC, and the court has, in a petition
filed for the purpose, ordered the seizure of any monetary instrument or
property, in whole or in part, directly or indirectly, related to said report,
the Revised Rules of Court on civil forfeiture shall apply.
RA 9160, as amended, and its implementing rules and regulations lay
down two conditions when applying for civil forfeiture:
(1) when there is a suspicious transaction report or a covered transaction
report deemed suspicious after investigation by the AMLC and
(2) the court has, in a petition filed for the purpose, ordered the seizure
of any monetary instrument or property, in whole or in part, directly or
indirectly, related to said report.
It is the preliminary seizure of the property in question which brings it
within the reach of the judicial process.16 It is actually within the court’s
possession when it is submitted to the process of the court.17 The
injunctive writ issued on August 8, 2003 removed account no. CA-005-
10-000121-5 from the effective control of either Glasgow or CSBI or
their representatives or agents and subjected it to the process of the
court.
Since account no. CA-005-10-000121-5 of Glasgow in CSBI was (1)
covered by several suspicious transaction reports and (2) placed under
the control of the trial court upon the issuance of the writ of preliminary
injunction, the conditions provided in Section 12(a) of RA 9160, as
amended, were satisfied. Hence, the Republic, represented by the
AMLC, properly instituted the complaint for civil forfeiture.
Whether or not there is truth in the allegation that account no. CA-005-
10-000121-5 contains the proceeds of unlawful activities is an
evidentiary matter that may be proven during trial. The complaint,
however, did not even have to show or allege that Glasgow had been
implicated in a conviction for, or the commission of, the unlawful
activities of estafa and violation of the Securities Regulation Code.
A criminal conviction for an unlawful activity is not a prerequisite for
the institution of a civil forfeiture proceeding. Stated otherwise, a
finding of guilt for an unlawful activity is not an essential element of
civil forfeiture.
Section 6 of RA 9160, as amended, provides:
SEC. 6. Prosecution of Money Laundering. –
(a) Any person may be charged with and convicted of both the offense
of money laundering and the unlawful activity as herein defined.
(b) Any proceeding relating to the unlawful activity shall be given
precedence over the prosecution of any offense or violation under this
Act without prejudice to the freezing and other remedies provided.
(emphasis supplied)
Rule 6.1 of the Revised Implementing Rules and Regulations of RA
9160, as amended, states:
Rule 6.1. Prosecution of Money Laundering –
(a) Any person may be charged with and convicted of both the offense
of money laundering and the unlawful activity as defined under Rule
3(i) of the AMLA.
(b) Any proceeding relating to the unlawful activity shall be given
precedence over the prosecution of any offense or violation under the
AMLA without prejudice to the application ex-parte by the AMLC to
the Court of Appeals for a freeze order with respect to the monetary
instrument or property involved therein and resort to other remedies
provided under the AMLA, the Rules of Court and other pertinent
laws and rules. (emphasis supplied)
Finally, Section 27 of the Rule of Procedure in Cases of Civil Forfeiture
provides:
Sec. 27. No prior charge, pendency or conviction necessary. – No prior
criminal charge, pendency of or conviction for an unlawful
activity or money laundering offense is necessary for the
commencement or the resolution of a petition for civil forfeiture.
(emphasis supplied)
Thus, regardless of the absence, pendency or outcome of a criminal
prosecution for the unlawful activity or for money laundering, an action
for civil forfeiture may be separately and independently prosecuted and
resolved.
There Was No Failure
To Prosecute
The trial court faulted the Republic for its alleged failure to prosecute
the case. Nothing could be more erroneous.
Immediately after the complaint was filed, the trial court ordered its
deputy sheriff/process server to serve summons and notice of the
hearing on the application for issuance of TRO and/or writ of
preliminary injunction. The subpoena to Glasgow was, however,
returned unserved as Glasgow "could no longer be found at its given
address" and had moved out of the building since August 1, 2002.
Meanwhile, after due hearing, the trial court issued a writ of preliminary
injunction enjoining Glasgow from removing, dissipating or disposing
of the subject bank deposits and CSBI from allowing any transaction on,
withdrawal, transfer, removal, dissipation or disposition thereof.
As the summons on Glasgow was returned "unserved," and considering
that its whereabouts could not be ascertained despite diligent inquiry,
the Republic filed a verified omnibus motion for (a) issuance
of alias summons and (b) leave of court to serve summons by
publication on October 8, 2003. While the trial court issued
an alias summons in its order dated October 15, 2003, it kept quiet on
the prayer for leave of court to serve summons by publication.
Subsequently, in an order dated January 30, 2004, the trial court
archived the case for failure of the Republic to cause the service
of alias summons. The Republic filed an ex parte omnibus motion to (a)
reinstate the case and (b) resolve its pending motion for leave of court
to serve summons by publication.
In an order dated May 31, 2004, the trial court ordered the reinstatement
of the case and directed the Republic to cause the service of
the alias summons on Glasgow and CSBI within 15 days. However, it
deferred its action on the Republic’s motion for leave of court to serve
summons by publication until a return was made on the alias summons.
Meanwhile, the Republic continued to exert efforts to obtain
information from other government agencies on the whereabouts or
current status of respondent Glasgow if only to save on expenses of
publication of summons. Its efforts, however, proved futile. The records
on file with the Securities and Exchange Commission provided no
information. Other inquiries yielded negative results.
On July 12, 2004, the Republic received a copy of the sheriff’s return
dated June 30, 2004 stating that the alias summons had been returned
"unserved" as Glasgow was no longer holding office at the given address
since July 2002 and left no forwarding address. Still, no action was taken
by the trial court on the Republic’s motion for leave of court to serve
summons by publication. Thus, on August 11, 2005, the Republic filed
a manifestation and ex parte motion to resolve its motion for leave of
court to serve summons by publication.
It was at that point that Glasgow filed a motion to dismiss by way of
special appearance which the Republic vigorously opposed. Strangely,
to say the least, the trial court issued the assailed order granting
Glasgow’s motion.
Given these circumstances, how could the Republic be faulted for
failure to prosecute the complaint for civil forfeiture? While there was
admittedly a delay in the proceeding, it could not be entirely or primarily
ascribed to the Republic. That 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 (like the Bureau of Internal Revenue or the Department
of Trade and Industry) of its new address. Moreover, as early as October
8, 2003, the Republic was already seeking leave of court to serve
summons by publication.
In Marahay v. Melicor,18 this Court ruled:
While a court can dismiss a case on the ground of non prosequitur, the
real test for the exercise of such power is whether, under the
circumstances, plaintiff is chargeable with want of due diligence in
failing to proceed with reasonable promptitude. In the absence of a
pattern or scheme to delay the disposition of the case or a wanton
failure to observe the mandatory requirement of the rules on the
part of the plaintiff, as in the case at bar, courts should decide to
dispense with rather than wield their authority to dismiss. (emphasis
supplied)
We see no pattern or scheme on the part of the Republic to delay the
disposition of the case or a wanton failure to observe the mandatory
requirement of the rules. The trial court should not have so eagerly
wielded its power to dismiss the Republic’s complaint.
Service Of Summons
May Be By Publication
In Republic v. Sandiganbayan,19 this Court declared that the rule is
settled that forfeiture proceedings are actions in rem. While that case
involved forfeiture proceedings under RA 1379, the same principle
applies in cases for civil forfeiture under RA 9160, as amended, since
both cases do not terminate in the imposition of a penalty but merely in
the forfeiture of the properties either acquired illegally or related to
unlawful activities in favor of the State.
58
Banking Laws under Atty. Fontanilla
As an action in rem, it is a proceeding against the thing itself instead of
against the person.20 In actions in rem or quasi in rem, jurisdiction over
the person of the defendant is not a prerequisite to conferring
jurisdiction on the court, provided that the court acquires jurisdiction
over the res.21 Nonetheless, summons must be served upon the
defendant in order to satisfy the requirements of due process. 22 For this
purpose, service may be made by publication as such mode of service is
allowed in actions in rem and quasi in rem.23
In this connection, Section 8, Title II of the Rule of Procedure in Cases
of Civil Forfeiture provides:
Sec. 8. Notice and manner of service. - (a) The respondent shall be given
notice of the petition in the same manner as service of summons under
Rule 14 of the Rules of Court and the following rules:
1. The notice shall be served on respondent personally, or by any other
means prescribed in Rule 14 of the Rules of Court;
2. The notice shall contain: (i) the title of the case; (ii) the docket
number; (iii) the cause of action; and (iv) the relief prayed for; and
3. The notice shall likewise contain a proviso that, if no comment or
opposition is filed within the reglementary period, the court shall hear
the case ex parte and render such judgment as may be warranted by the
facts alleged in the petition and its supporting evidence.
(b) Where the respondent is designated as an unknown owner
or whenever his whereabouts are unknown and cannot be
ascertained by diligent inquiry, service may, by leave of court, be
effected upon him by publication of the notice of the petition in a
newspaper of general circulation in such places and for such time
as the court may order. In the event that the cost of publication exceeds
the value or amount of the property to be forfeited by ten percent,
publication shall not be required. (emphasis supplied)
WHEREFORE, the petition is hereby GRANTED. The October 27,
2005 order of the Regional Trial Court of Manila, Branch 47, in Civil
Case No. 03-107319 is SET ASIDE. The August 11, 2005 motion to
dismiss of Glasgow Credit and Collection Services, Inc.
is DENIED. And the complaint for forfeiture of the Republic of the
Philippines, represented by the Anti-Money Laundering Council,
is REINSTATED.
The case is hereby REMANDED to the Regional Trial Court of Manila,
Branch 47 which shall forthwith proceed with the case pursuant to the
provisions of A.M. No. 05-11-04-SC. Pending final determination of the
case, the November 23, 2005 temporary restraining order issued by this
Court is hereby MAINTAINED.
SO ORDERED.
26.
G.R. No. 174629 February 14, 2008
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.
DECISION
TINGA, J.:
The present petition for certiorari and prohibition under Rule 65 assails
the orders and resolutions issued by two different courts in two different
cases. The courts and cases in question are the Regional Trial Court of
Manila, Branch 24, which heard SP Case No. 06-1142001 and the Court
of Appeals, Tenth Division, which heared CA-G.R. SP No.
95198.2 Both cases arose as part of the aftermath of the ruling of this
Court in Agan v. PIATCO3 nullifying the concession agreement
awarded to the Philippine International Airport Terminal Corporation
(PIATCO) over the Ninoy Aquino International Airport – International
Passenger Terminal 3 (NAIA 3) Project.
I.
Following the promulgation of Agan, 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). On
24 May 2005, 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," and also noting that petitioner Republic of the
Philippines was presently defending itself in two international
arbitration cases filed in relation to the NAIA 3 Project. 4 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 PBAC
Technical Committee, NAIA-IPT3 Project.5 By this time, Alvarez had
already been charged by the Ombudsman with violation of Section 3(j)
of R.A. No. 3019.6 The search revealed that Alvarez maintained eight
(8) bank accounts with six (6) different banks.7
On 27 June 2005, the AMLC issued Resolution No. 75, Series of
2005,8 whereby the Council resolved to authorize 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, and their
related web of accounts wherever these may be found, as defined under
Rule 10.4 of the Revised Implementing Rules and Regulations;" and to
authorize the AMLC Secretariat "to conduct an inquiry into subject
accounts once the Regional Trial Court grants the application to inquire
into and/or examine the bank accounts" of those four individuals. 9 The
resolution enumerated the particular bank accounts of Alvarez, Wilfredo
Trinidad (Trinidad), Alfredo Liongson (Liongson) and Cheng Yong
which were to be the subject of the inquiry. 10 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.11 The Resolution also noted that "[b]y
awarding the contract to PIATCO despite its lack of financial capacity,
Pantaleon Alvarez caused undue injury to the government by giving
PIATCO unwarranted benefits, advantage, or preference in the
discharge of his official administrative functions through manifest
partiality, evident bad faith, or gross inexcusable negligence, in
violation of Section 3(e) of Republic Act No. 3019."12
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, Branch 138, presided by Judge (now Court of Appeals Justice)
Sixto Marella, Jr. The application was docketed as AMLC No. 05-
005.13 The Makati RTC heard the testimony of the Deputy Director of
the AMLC, Richard David C. Funk II, and received the documentary
evidence of the AMLC.14 Thereafter, on 4 July 2005, the Makati RTC
rendered an Order (Makati RTC 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 "[p]robable 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 now the subject of criminal prosecution
before the Sandiganbayan as attested to by the Informations, Exhibits C,
D, E, F, and G."15 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.16
Meanwhile, the Special Prosecutor of the Office of the Ombudsman,
Dennis Villa-Ignacio, wrote a letter dated 2 November 2005, requesting
the AMLC to investigate the accounts of Alvarez, PIATCO, and several
other entities involved in the nullified contract. The letter adverted to
probable cause to believe that the bank accounts "were used in the
commission of unlawful activities that were committed" in relation to
the criminal cases then pending before the Sandiganbayan.17 Attached
to the letter was a memorandum "on why the investigation of the
[accounts] is necessary in the prosecution of the above criminal cases
before the Sandiganbayan."18
In response to the letter of the Special Prosecutor, the AMLC
promulgated on 9 December 2005 Resolution No. 121 Series of
2005,19 which authorized the executive director of the AMLC to inquire
into and examine the accounts named in the letter, including one
maintained by Alvarez with DBS Bank and two other accounts in the
name of Cheng Yong with Metrobank. The Resolution characterized the
memorandum attached to the Special Prosecutor’s letter as "extensively
justif[ying] the existence of probable cause that the bank accounts of the
persons and entities mentioned in the letter are related to the unlawful
activity of violation of Sections 3(g) and 3(e) of Rep. Act No. 3019, as
amended."20
Following the December 2005 AMLC Resolution, the Republic,
through the AMLC, filed an application21 before the Manila RTC to
inquire into and/or examine thirteen (13) accounts and two (2) related
web of accounts alleged as having been used to facilitate corruption in
the NAIA 3 Project. Among said accounts were the DBS Bank account
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., and docketed as SP Case No. 06-114200.
On 12 January 2006, 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
and Rules 11.1 and 11.2 of the Revised Implementing Rules and
Regulations."22 Authority was thus granted to the AMLC to inquire into
the bank accounts listed therein.
On 25 January 2006, Alvarez, through counsel, entered his
appearance23 before the Manila RTC in SP Case No. 06-114200 and
filed an Urgent Motion to Stay Enforcement of Order of January 12,
2006.24 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.25 The day after Alvarez
filed his motion, 26 January 2006, the Manila RTC issued an
Order26 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 Reconsideration27 of the 26
January 2006 Manila RTC Order and likewise sought to strike out
Alvarez’s motion that led to the issuance of said order. For his part,
Alvarez filed a Reply and Motion to Dismiss28 the application for bank
inquiry order. On 2 May 2006, the Manila RTC issued an Omnibus
Order29 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."30
Alvarez filed on 10 May 2006 an Urgent Motion31 expressing his
apprehension that the AMLC would immediately enforce the omnibus
order and would thereby render the motion for reconsideration he
intended to file as moot and academic; thus he sought that the Republic
be refrained from enforcing the omnibus order in the meantime. Acting
on this motion, the Manila RTC, on 11 May 2006, issued an
Order32 requiring the OSG to file a comment/opposition and reminding
the parties that judgments and orders become final and executory upon
the expiration of fifteen (15) days from receipt thereof, as it is the period
within which a motion for reconsideration could be filed. Alvarez filed
his Motion for Reconsideration33 of the omnibus order on 15 May 2006,
but the motion was denied by the Manila RTC in an Order34 dated 5 July
2006.
On 11 July 2006, Alvarez filed an Urgent Motion and
Manifestation35 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.
On 12 July 2006, the Manila RTC, acting on Alvarez’s latest motion,
issued an Order36 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 Appeal37 with the Manila RTC.
On 24 July 2006, Alvarez filed an Urgent Ex Parte Motion for
Clarification.38 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.39 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; and that the AMLC be directed to refrain from
using, disclosing or publishing in any proceeding or venue any
information or document obtained in violation of the 11 May 2006 RTC
Order.40
On 25 July 2006, or one day after Alvarez filed his motion, the Manila
RTC issued an Order41 wherein it clarified that "the Ex Parte Order of
this Court dated January 12, 2006 can not be implemented against the
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Banking Laws under Atty. Fontanilla
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."42 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."43 The Manila RTC reasoned that
the other persons mentioned in AMLC’s application were not served
with the court’s 12 January 2006 Order. This 25 July 2006 Manila RTC
Order is the first of the four rulings being assailed through this petition.
In response, the Republic filed an Urgent Omnibus Motion for
Reconsideration44 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 Injunction45 dated 10 July 2006,
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 Yong46 with 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. 47
On 1 August 2006, the Court of Appeals, acting on Lilia Cheng’s
petition, issued a Temporary Restraining Order48 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. On even date, the Manila RTC
issued an Order49 resolving to hold in abeyance the resolution of the
urgent omnibus motion for reconsideration then pending before it until
the resolution of Lilia Cheng’s petition for certiorari with the Court of
Appeals. The Court of Appeals Resolution directing the issuance of the
temporary restraining order is the second of the four rulings assailed in
the present petition.
The third assailed ruling50 was issued on 15 August 2006 by the Manila
RTC, acting on the Urgent Motion for Clarification51 dated 14 August
2006 filed by Alvarez. It appears that the 1 August 2006 Manila RTC
Order had amended its previous 25 July 2006 Order by deleting the last
paragraph which stated that the AMLC "should not disclose or publish
any information or document found or obtained in violation of the May
11, 2006 Order of this Court."52 In this new motion, Alvarez argued that
the deletion of that paragraph would allow the AMLC to implement the
bank inquiry orders and publish whatever information it might obtain
thereupon even before the final orders of the Manila RTC could become
final and executory.53 In the 15 August 2006 Order, the Manila RTC
reiterated that the bank inquiry order it had issued could not be
implemented or enforced by the AMLC or any of its representatives
until the appeal therefrom was finally resolved and that any enforcement
thereof would be unauthorized.54
The present Consolidated Petition55 for certiorari and prohibition under
Rule 65 was filed on 2 October 2006, assailing the two Orders of the
Manila RTC dated 25 July and 15 August 2006 and the Temporary
Restraining Order dated 1 August 2006 of the Court of Appeals.
Through an Urgent Manifestation and Motion56 dated 9 October 2006,
petitioner informed the Court that on 22 September 2006, the Court of
Appeals hearing Lilia Cheng’s petition had granted a writ of preliminary
injunction in her favor.57 Thereafter, petitioner sought as well the
nullification of the 22 September 2006 Resolution of the Court of
Appeals, thereby constituting the fourth ruling assailed in the instant
petition.58
The Court had initially granted a Temporary Restraining Order59 dated
6 October 2006 and later on a Supplemental Temporary Restraining
Order60 dated 13 October 2006 in petitioner’s favor, enjoining the
implementation of the assailed rulings of the Manila RTC and the Court
of Appeals. However, on respondents’ motion, the Court, through a
Resolution61 dated 11 December 2006, suspended the implementation
of the restraining orders it had earlier issued.
Oral arguments were held on 17 January 2007. The Court consolidated
the issues for argument as follows:
1. Did the RTC-Manila, in issuing the Orders dated 25 July 2006 and 15
August 2006 which deferred the implementation of its Order dated 12
January 2006, and the Court of Appeals, in issuing its Resolution dated
1 August 2006, which ordered the status quo in relation to the 1 July
2005 Order of the RTC-Makati and the 12 January 2006 Order of the
RTC-Manila, both of which authorized the examination of bank
accounts under Section 11 of Rep. Act No. 9160 (AMLA), commit
grave abuse of discretion?
(a) Is an application for an order authorizing inquiry into or examination
of bank accounts or investments under Section 11 of the AMLA ex-
parte in nature or one which requires notice and hearing?
(b) What legal procedures and standards should be observed in the
conduct of the proceedings for the issuance of said order?
(c) Is such order susceptible to legal challenges and judicial review?
2. Is it proper for this Court at this time and in this case to inquire into
and pass upon the validity of the 1 July 2005 Order of the RTC-Makati
and the 12 January 2006 Order of the RTC-Manila, considering the
pendency of CA G.R. SP No. 95-198 (Lilia Cheng v. Republic) wherein
the validity of both orders was challenged?62
After the oral arguments, the parties were directed to file their respective
memoranda, which they did,63 and the petition was thereafter deemed
submitted for resolution.
II.
Petitioner’s general advocacy is that the bank inquiry orders issued by
the Manila and Makati RTCs are valid and immediately enforceable
whereas the assailed rulings, which effectively stayed the enforcement
of the Manila and Makati RTCs bank inquiry orders, are sullied with
grave abuse of discretion. These conclusions flow from the posture that
a bank inquiry order, issued upon a finding of probable cause, may be
issued ex parte and, once issued, is immediately executory. Petitioner
further argues that the information obtained following the bank inquiry
is necessarily beneficial, if not indispensable, to the AMLC in
discharging its awesome responsibility regarding the effective
implementation of the AMLA and that any restraint in the disclosure of
such information to appropriate agencies or other judicial fora would
render meaningless the relief supplied by the bank inquiry order.
Petitioner raises particular arguments questioning Lilia Cheng’s right to
seek injunctive relief before the Court of Appeals, noting that not one of
the bank inquiry orders is directed against her. Her "cryptic assertion"
that she is the wife of Cheng Yong cannot, according to petitioner,
"metamorphose into the requisite legal standing to seek redress for an
imagined injury or to maintain an action in behalf of another." In the
same breath, petitioner argues that Alvarez cannot assert any violation
of the right to financial privacy in behalf of other persons whose bank
accounts are being inquired into, particularly those other persons named
in the Makati RTC bank inquiry order who did not take any step to
oppose such orders before the courts.
Ostensibly, the proximate question before the Court is whether a bank
inquiry order issued in accordance with Section 10 of the AMLA may
be stayed by injunction. Yet in arguing that it does, petitioner relies on
what it posits as the final and immediately executory character of the
bank inquiry orders issued by the Manila and Makati RTCs. Implicit in
that position is the notion that the inquiry orders are valid, and such
notion is susceptible to review and validation based on what appears on
the face of the orders and the applications which triggered their issuance,
as well as the provisions of the AMLA governing the issuance of such
orders. Indeed, to test the viability of petitioner’s argument, the Court
will have to be satisfied that the subject inquiry orders are valid in the
first place. However, even from a cursory examination of the
applications for inquiry order and the orders themselves, it is evident
that the orders are not in accordance with law.
III.
A brief overview of the AMLA is called for.
Money laundering has been generally defined by the International
Criminal Police Organization (Interpol) `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."64 Even before
the passage of the AMLA, the problem was addressed by the Philippine
government through the issuance of various circulars by the Bangko
Sentral ng Pilipinas. Yet ultimately, legislative proscription was
necessary, especially with the inclusion of the Philippines in the
Financial Action Task Force’s list of non-cooperative countries and
territories in the fight against money laundering.65 The original AMLA,
Republic Act (R.A.) No. 9160, was passed in 2001. It was amended by
R.A. No. 9194 in 2003.
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."66 The section further provides the three modes
through which the crime of money laundering is committed. Section 7
creates the AMLC and defines its powers, which generally relate to the
enforcement of the AMLA provisions and the initiation of legal actions
authorized in the AMLA such as civil forefeiture proceedings and
complaints for the prosecution of money laundering offenses. 67
In addition to providing for the definition and penalties for the crime of
money laundering, 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. 69 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. After all, under such set-up
the preferred strategy would be to allow or even encourage the
indiscriminate filing of complaints under the AMLA with the hope or
expectation that the evidence of money laundering would somehow
surface during the trial. Since the AMLC could not make use of the bank
inquiry order to determine whether there is evidentiary basis to
prosecute the suspected malefactors, not filing any case at all would not
be an alternative. Such unwholesome set-up should not come to pass.
Thus Section 11 cannot be interpreted in a way that would emasculate
the remedy it has established and encourage the unfounded initiation of
complaints for money laundering.
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.
IV.
It is evident that Section 11 does not specifically authorize, as a general
rule, the issuance ex parte of the bank inquiry order. We quote the
provision in full:
SEC. 11. Authority to Inquire into Bank Deposits. ― Notwithstanding
the provisions of Republic Act No. 1405, as amended, Republic Act No.
6426, as amended, Republic Act No. 8791, and other laws, 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).
To ensure compliance with this Act, the Bangko Sentral ng Pilipinas
(BSP) may inquire into or examine any deposit of investment with any
banking institution or non bank financial institution when the
examination is made in the course of a periodic or special examination,
in accordance with the rules of examination of the BSP. 70 (Emphasis
supplied)
Of course, Section 11 also allows the AMLC to inquire into bank
accounts without having to obtain a judicial order in cases where there
60
Banking Laws under Atty. Fontanilla
is probable cause that the deposits or investments are related to
kidnapping for ransom,71 certain violations of the Comprehensive
Dangerous Drugs Act of 2002,72 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. Suffice it to say, the proviso contemplates a
situation distinct from that which presently confronts us, and for
purposes of the succeeding discussion, our reference to Section 11 of
the AMLA excludes said 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. It might be argued that this
silence does not preclude the ex parte issuance of the bank inquiry order
since the same is not prohibited under Section 11. Yet this argument
falls when the immediately preceding provision, Section 10, is
examined.
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.73
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.
Even more tellingly, the current language of Sections 10 and 11 of the
AMLA was crafted at the same time, through the passage of R.A. No.
9194. Prior to the amendatory law, it was the AMLC, not the Court of
Appeals, which had authority to issue a freeze order, whereas a bank
inquiry order always then required, without exception, an order from a
competent court.74 It was through the same enactment that ex
parte proceedings were introduced for the first time into the AMLA, in
the case of the freeze order which now can only be issued by the Court
of Appeals. It certainly would have been convenient, through the same
amendatory law, to allow a similar ex parte procedure in the case of a
bank inquiry order had Congress been so minded. Yet nothing in the
provision itself, or even the available legislative record, explicitly points
to an ex parte judicial procedure in the application for a bank inquiry
order, unlike in the case of the freeze order.
That the AMLA does not contemplate ex parte proceedings in
applications for bank inquiry orders is confirmed by the present
implementing rules and regulations of the AMLA, promulgated upon
the passage of R.A. No. 9194. With respect to freeze orders under
Section 10, the implementing rules do expressly provide that the
applications for freeze orders be filed ex parte,75 but no similar
clearance is granted in the case of inquiry orders under Section
11.76 These implementing rules were promulgated by the Bangko
Sentral ng Pilipinas, the Insurance Commission and the Securities and
Exchange Commission,77 and if it was the true belief of these
institutions that inquiry orders could be issued ex parte similar to freeze
orders, language to that effect would have been incorporated in the said
Rules. This is stressed not because the implementing rules could
authorize ex parte applications for inquiry orders despite the absence of
statutory basis, but rather because the framers of the law had no intention
to allow such ex parte applications.
Even the Rules of Procedure adopted by this Court in A.M. No. 05-11-
04-SC78 to enforce the provisions of the AMLA specifically
authorize ex parte applications with respect to freeze orders under
Section 1079 but make no similar authorization with respect to bank
inquiry orders under Section 11.
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 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.
Interestingly, petitioner’s memorandum does not attempt to demonstrate
before the Court that the bank inquiry order under Section 11 may be
issued ex parte, although the petition itself did devote some space for
that argument. The petition argues that the bank inquiry order is "a
special and peculiar remedy, drastic in its name, and made necessary
because of a public necessity… [t]hus, by its very nature, the application
for an order or inquiry must necessarily, be ex parte." This argument is
insufficient justification in light of the clear disinclination of Congress
to allow the issuance ex parte of bank inquiry orders under Section 11,
in contrast to the legislature’s clear inclination to allow the ex
parte grant of freeze orders under Section 10.
Without doubt, a requirement that the application for a bank inquiry
order be done with notice to the account holder will alert the latter that
there is a plan to inspect his bank account on the belief that the funds
therein are involved in an unlawful activity or money laundering
offense.80 Still, the account holder so alerted will in fact be unable to do
anything to conceal or cleanse his bank account records of suspicious or
anomalous transactions, at least not without the whole-hearted
cooperation of the bank, which inherently has no vested interest to aid
the account holder in such manner.
V.
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.
There certainly is fertile ground to contest the issuance of an ex
parte order. Section 11 itself requires that it be established that "there is
probable cause that the deposits or investments are related to unlawful
activities," and it obviously is the court which stands as arbiter whether
there is indeed such probable cause. The process of inquiring into the
existence of probable cause would involve the function of determination
reposed on the trial court. Determination clearly implies a function of
adjudication on the part of the trial court, and not a mechanical
application of a standard pre-determination by some other body. The
word "determination" implies deliberation and is, in normal legal
contemplation, equivalent to "the decision of a court of justice."81
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.
Petitioner argues that a bank inquiry order necessitates a finding of
probable cause, a characteristic similar to a search warrant which is
applied to and heard ex parte. We have examined the supposed analogy
between a search warrant and a bank inquiry order yet we remain to be
unconvinced by petitioner.
The Constitution and the Rules of Court prescribe particular
requirements attaching to search warrants that are not imposed by the
AMLA with respect to bank inquiry orders. A constitutional warrant
requires that the judge personally examine under oath or affirmation the
complainant and the witnesses he may produce,82 such examination
being in the form of searching questions and answers. 83 Those are
impositions which the legislative did not specifically prescribe as to the
bank inquiry order under the AMLA, and we cannot find sufficient legal
basis to apply them to Section 11 of the AMLA. Simply put, a bank
inquiry order is not a search warrant or warrant of arrest as it
contemplates a direct object but not the seizure of persons or property.
Even as the Constitution and the Rules of Court impose a high
procedural standard for the determination of probable cause for the
issuance of search warrants which Congress chose not to prescribe for
the bank inquiry order under the AMLA, Congress nonetheless
disallowed ex parte applications for the inquiry order. We can discern
that in exchange for these procedural standards normally applied to
search warrants, Congress chose instead to legislate a right to notice and
a right to be heard— characteristics of judicial proceedings which are
not ex parte. Absent any demonstrable constitutional infirmity, there is
no reason for us to dispute such legislative policy choices.
VI.
The Court’s construction of Section 11 of the AMLA is undoubtedly
influenced by right to privacy considerations. If sustained, petitioner’s
argument that a bank account may be inspected by the government
following an ex parte proceeding about which the depositor would
know nothing would have significant implications on the right to
privacy, a right innately cherished by all notwithstanding the legally
recognized exceptions thereto. The notion that the government could be
so empowered is cause for concern of any individual who values the
right to privacy which, after all, embodies even the right to be "let
alone," the most comprehensive of rights and the right most valued by
civilized people.84
One might assume that the constitutional dimension of the right to
privacy, as applied to bank deposits, warrants our present inquiry. We
decline to do so. Admittedly, that question has proved controversial in
American jurisprudence. Notably, the United States Supreme Court
in U.S. v. Miller85 held that there was no legitimate expectation of
privacy as to the bank records of a depositor.86 Moreover, the text of our
Constitution has not bothered with the triviality of allocating specific
rights peculiar to bank deposits.
However, sufficient for our purposes, we can assert there is a right to
privacy governing bank accounts in the Philippines, and that such right
finds application to the case at bar. The source of such right is statutory,
expressed as it is in 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:
SECTION 2. All deposits of whatever nature with banks or banking
institutions in the Philippines including investments in bonds issued
by the Government of the Philippines, its political subdivisions and
its instrumentalities, are hereby considered as of an absolutely
confidential nature and may not be examined, inquired or looked into
by any person, government official, bureau or office, except upon
written permission of the depositor, or in cases of impeachment, or upon
order of a competent court in cases of bribery or dereliction of duty of
public officials, or in cases where the money deposited or invested is the
subject matter of the litigation. (Emphasis supplied)
Because of the Bank Secrecy Act, the confidentiality of bank deposits
remains a basic state policy in the Philippines. 87 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. It falls
within the zones of privacy recognized by our laws.88 The framers of the
1987 Constitution likewise recognized that bank accounts are not
covered by either the right to information89 under Section 7, Article III
or under the requirement of full public disclosure90 under Section 28,
Article II.91 Unless the Bank Secrecy Act is repealed or
amended, the legal order is obliged to conserve the absolutely
confidential nature of Philippine bank deposits.
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
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Banking Laws under Atty. Fontanilla
exception to the rule of absolute confidentiality,92 and there have been
other similar recognitions as well.93
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,94 certain violations of the
Comprehensive Dangerous Drugs Act of 2002,95 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."96 Indeed, by force of statute, all bank deposits are absolutely
confidential, and that nature is unaltered even by the legislated
exceptions referred to above. There is disfavor towards construing these
exceptions in such a manner that would authorize unlimited discretion
on the part of the government or of any party seeking to enforce those
exceptions and inquire into bank deposits. If there are doubts in
upholding the absolutely confidential nature of bank deposits against
affirming the authority to inquire into such accounts, then such doubts
must be resolved in favor of the former. Such a stance would persist
unless Congress passes a law reversing the general state policy of
preserving the absolutely confidential nature of Philippine bank
accounts.
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. AMLC Resolution No. 75, which served
as the basis in the successful application for the Makati inquiry order,
expressly adverts to Citibank Account No. 88576248 "owned by Cheng
Yong and/or Lilia G. Cheng with Citibank N.A.,"97 whereas Lilia
Cheng’s petition before the Court of Appeals is accompanied by a
certification from Metrobank that Account Nos. 300852436-0 and
700149801-7, both of which are among the subjects of the Manila
inquiry order, are accounts in the name of "Yong Cheng or Lilia
Cheng."98 Petitioner does not specifically deny that Lilia Cheng holds
rights of ownership over the three said accounts, laying focus instead on
the fact that she was not named as a subject of either the Makati or
Manila RTC inquiry 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.
VII.
There is a final 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.
No ex post facto law may be enacted,99 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.
Does the proscription against ex post facto laws apply to the
interpretation of Section 11, a provision which does not provide for a
penal sanction but which merely authorizes the inspection of suspect
accounts and deposits? The answer is in the affirmative. In this
jurisdiction, we have defined an ex post facto law as one which either:
(1) makes criminal an act done before the passage of the law and which
was innocent when done, and punishes such an act;
(2) aggravates a crime, or makes it greater than it was, when committed;
(3) changes the punishment and inflicts a greater punishment than the
law annexed to the crime when committed;
(4) alters the legal rules of evidence, and authorizes conviction upon less
or different testimony than the law required at the time of the
commission of the offense;
(5) assuming to regulate civil rights and remedies only, in effect imposes
penalty or deprivation of a right for something which when done was
lawful; and
(6) deprives a person accused of a crime of some lawful protection
to which he has become entitled, such as the protection of a former
conviction or acquittal, or a proclamation of amnesty. (Emphasis
supplied)100
Prior to the enactment of the AMLA, the fact that bank accounts or
deposits were involved in activities later on enumerated in Section 3 of
the law did not, by itself, remove such accounts from the shelter of
absolute confidentiality. Prior to the AMLA, in order that bank accounts
could be examined, there was need to secure either the written
permission of the depositor or a court order authorizing such
examination, assuming that they were involved in cases of bribery or
dereliction of duty of public officials, or in a case where the money
deposited or invested was itself the subject matter of the litigation. The
passage of the AMLA stripped another layer off the rule on absolute
confidentiality that provided a measure of lawful protection to the
account holder. For that reason, the application of the bank inquiry order
as a means of inquiring into records of transactions entered into prior to
the passage of the AMLA would be constitutionally infirm, offensive as
it is to the ex post facto clause.
Still, we must note that the position submitted by Lilia Cheng is much
broader than what we are willing to affirm. She argues that the
proscription against ex post facto laws goes as far as to prohibit any
inquiry into deposits or investments included in bank accounts opened
prior to the effectivity of the AMLA even if the suspect transactions
were entered into when the law had already taken effect. The Court
recognizes that if this argument were to be affirmed, it would create a
horrible loophole in the AMLA that would in turn supply the means to
fearlessly engage in money laundering in the Philippines; all that the
criminal has to do is to make sure that the money laundering activity is
facilitated through a bank account opened prior to 2001. Lilia Cheng
admits that "actual money launderers could utilize the ex post
facto provision of the Constitution as a shield" but that the remedy lay
with Congress to amend the law. We can hardly presume that Congress
intended to enact a self-defeating law in the first place, and the courts
are inhibited from such a construction by the cardinal rule that "a law
should be interpreted with a view to upholding rather than destroying
it."101
Besides, nowhere in the legislative record cited by Lilia Cheng does it
appear that there was an unequivocal intent to exempt from the bank
inquiry order all bank accounts opened prior to the passage of the
AMLA. There is a cited exchange between Representatives Ronaldo
Zamora and Jaime Lopez where the latter confirmed to the former that
"deposits are supposed to be exempted from scrutiny or monitoring if
they are already in place as of the time the law is enacted."102 That
statement does indicate that transactions already in place when the
AMLA was passed are indeed exempt from scrutiny through a bank
inquiry order, but it cannot yield any interpretation that records of
transactions undertaken after the enactment of the AMLA are similarly
exempt. Due to the absence of cited authority from the legislative record
that unqualifiedly supports respondent Lilia Cheng’s thesis, there is no
cause for us to sustain her interpretation of the AMLA, fatal as it is to
the anima of that law.
IX.
We are well aware that Lilia Cheng’s petition presently pending before
the Court of Appeals likewise assails the validity of the subject bank
inquiry orders and precisely seeks the annulment of said orders. Our
current declarations may indeed have the effect of preempting that0
petition. Still, in order for this Court to rule on the petition at bar which
insists on the enforceability of the said bank inquiry orders, it is
necessary for us to consider and rule on the same question which after
all is a pure question of law.
WHEREFORE, the PETITION is DISMISSED. No pronouncement
as to costs.
SO ORDERED.
27.
[G.R. NOS. 164368-69 : April 2, 2009]
PEOPLE OF THE PHILIPPINES, Petitioner, v. JOSEPH
EJERCITO ESTRADA and THE HONORABLE SPECIAL
DIVISION OF THE SANDIGANBAYAN, Respondents.
DECISION
BRION, J.:
The People of the Philippines (the People) filed this Petition for Review
on Certiorari1 to seek the reversal of the Sandiganbayan's Joint
Resolution dated July 12, 2004, granting respondent Joseph Ejercito
Estrada's (Estrada) demurrer to evidence in Crim. Case No. 26565. 2
THE FACTS
On April 4, 2001, an Information for plunder (docketed as Crim. Case
No. 26558) was filed with the Sandiganbayan against respondent
Estrada, among other accused. A separate Information for illegal use of
alias, docketed as Crim. Case No. 26565, was likewise filed against
Estrada. The Amended Information in Crim. Case No. 26565 reads:
That on or about 04 February 2000, or sometime prior or subsequent
thereto, in the City of Manila, Philippines and within the jurisdiction of
this Honorable Court, the above-named accused, being then President
of the Republic of the Philippines, without having been duly authorized,
judicially or administratively, taking advantage of his position and
committing the offense in relation to office, i.e., in order to CONCEAL
THE ill-gotten wealth HE ACQUIRED during his tenure and his true
identity as THE President of the Republic of the Philippines, did then
and there, willfully, unlawfully and criminally REPRESENT HIMSELF
AS 'JOSE VELARDE' IN SEVERAL TRANSACTIONS AND use and
employ the SAID alias "Jose Velarde" which IS neither his registered
name at birth nor his baptismal name, in signing documents with
Equitable PCI Bank and/or other corporate entities.
CONTRARY TO LAW.
Crim. Case Nos. 26565 and 26558 were subsequently consolidated for
joint trial. Still another Information, this time for perjury and docketed
as Crim. Case No. 26905, was filed with the Sandiganbayan against
Estrada. This was later consolidated, too, with Crim. Cases No. 26558
and 26565.
Estrada was subsequently arrested on the basis of a warrant of arrest that
the Sandiganbayan issued.
On January 11, 2005, we ordered the creation of a Special Division in
the Sandiganbayan to try, hear, and decide the charges of plunder and
related cases (illegal use of alias and perjury) against respondent
Estrada.3
At the trial, the People presented testimonial and documentary evidence
to prove the allegations of the Informations for plunder, illegal use of
alias, and perjury. The People's evidence for the illegal alias charge, as
summarized by the Sandiganbayan, consisted of:
A. The testimonies of Philippine Commercial and Industrial Bank
(PCIB) officers Clarissa G. Ocampo (Ocampo) and Atty. Manuel Curato
(Curato) who commonly declared that on February 4, 2000, Estrada
opened a numbered trust account (Trust Account C-163) with PCIB and
62
Banking Laws under Atty. Fontanilla
signed as "Jose Velarde" in the account opening documents; both
Ocampo and Curato also testified that Aprodicio Lacquian and
Fernando Chua were present on that occasion;
B. (1) The testimony of PCIB-Greenhills Branch Manager Teresa
Barcelan, who declared that a certain Baby Ortaliza (Ortaliza) transacted
several times with her; that Ortaliza deposited several checks in PCIB
Savings Account No. 0160-62502-5 under the account name "Jose
Velarde" on the following dates (as evidenced by deposit receipts duly
marked in evidence):
A. 20 October 1999 (Exh. "MMMMM")
b. 8 November 1999 (Exh. "LLLLL")
c. 22 November 1999 (Exh. "NNNNN")
d. 24 November 1999 (Exh. "OOOOO")
e. 25 November 1999 (Exh. "PPPPP")
f. 20 December 1999 (Exh. "QQQQQ")
g. 21 December 1999 (Exh. "RRRRR")
h. 29 December 1999 (Exh. "SSSSS")
i. 4 January 2000 (Exh. "TTTTT")
j. 10 May 2000 (Exh. "UUUUU")
k. 6 June 2000 (Exh. "VVVVV")
l. 25 July 2000 (Exh. "WWWWW")
(2) Documents duly identified by witnesses showing that Lucena
Ortaliza was employed in the Office of the Vice President and, later on,
in the Office of the President when Estrada occupied these positions and
when deposits were made to the Jose Velarde Savings Account No.
0160-62502-5.
The People filed its Formal Offer of Exhibits in the consolidated cases,
which the Sandiganbayan admitted into evidence in a Resolution dated
October 13, 2003.4 The accused separately moved to reconsider the
Sandiganbayan Resolution;5 the People, on the other hand, filed its
Consolidated Comment/Opposition to the motions.6 The
Sandiganbayan denied the motions in its Resolution dated November
17, 2003.7
After the People rested in all three cases, the defense moved to be
allowed to file a demurrer to evidence in these cases.8 In its Joint
Resolution dated March 10, 2004,9 the Sandiganbayan only granted the
defense leave to file demurrers in Crim. Case Nos. 26565 (illegal use of
alias) and 26905 (perjury).
Estrada filed separate Demurrers to Evidence for Crim. Case Nos. 26565
and 26905.10 His demurrer to evidence for Crim. Case No. 26565
(illegal use of alias) was anchored on the following grounds 11 :
1. Of the thirty-five (35) witnesses presented by the prosecution, only
two (2) witnesses, Ms. Clarissa Ocampo and Atty. Manuel Curato,
testified that on one occasion (4 February 2000), they saw movant use
the name "Jose Velarde";
2. The use of numbered accounts and the like was legal and was
prohibited only in late 2001 as can be gleaned from Bangko Sentral
Circular No. 302, series of 2001, dated 11 October 2001;
3. There is no proof of public and habitual use of alias as the documents
offered by the prosecution are banking documents which, by their
nature, are confidential and cannot be revealed without following proper
procedures; and
4. The use of alias is absorbed in plunder.
The People opposed the demurrers through a Consolidated Opposition
that presented the following arguments:12
1. That the use of fictitious names in bank transaction was not expressly
prohibited until BSP No. 302 is of no moment considering that as early
as Commonwealth Act No. 142, the use of alias was already prohibited.
Movant is being prosecuted for violation of C.A. No. 142 and not BSP
Circular No. 302;
2. Movant's reliance on Ursua v. Court of Appeals (256 SCRA 147
[1996]) is misplaced;
3. Assuming arguendo that C.A. No. 142, as amended, requires
publication of the alias and the habitual use thereof, the prosecution has
presented more than sufficient evidence in this regard to convict movant
for illegal use of alias; and
4. Contrary to the submission of movant, the instant case of illegal use
of alias is not absorbed in plunder.
Estrada replied to the Consolidated Opposition through a Consolidated
Reply Opposition.
THE ASSAILED SANDIGANBAYAN'S RULING
The Sandiganbayan issued on July 12, 2004 the Resolution now assailed
in this petition. The salient points of the assailed resolution are:
First - the coverage of Estrada's indictment. The Sandiganbayan found
that the only relevant evidence for the indictment are those relating to
what is described in the Information - i.e., the testimonies and
documents on the opening of Trust Account C-163 on February 4, 2000.
The Sandiganbayan reasoned out that the use of the disjunctive "or"
between "on or about 04 February 2000" and "sometime prior or
subsequent thereto" means that the act/s allegedly committed on
February 4, 2000 could have actually taken place prior to or subsequent
thereto; the use of the conjunctive was simply the prosecution's
procedural tool to guard against any variance between the date stated in
the Information and that proved during the trial in a situation in which
time was not a material ingredient of the offense; it does not mean and
cannot be read as a roving commission that includes acts and/or events
separate and distinct from those that took place on the single date "on or
about 04 February 2000 or sometime prior or subsequent thereto." The
Sandiganbayan ruled that the use of the disjunctive "or" prevented it
from interpreting the Information any other way.
Second - the People's failure to present evidence that proved Estrada's
commission of the offense. The Sandiganbayan found that the People
failed to present evidence that Estrada committed the crime punished
under Commonwealth Act No. 142, as amended by Republic Act (R.A.)
No. 6085 (CA 142), as interpreted by the Supreme Court in Ursua v.
Court of Appeals.13 It ruled that there is an illegal use of alias within the
context of CA 142 only if the use of the alias is public and habitual. In
Estrada's case, the Sandiganbayan noted, the application of the
principles was not as simple because of the complications resulting from
the nature of the transaction involved - the alias was used in connection
with the opening of a numbered trust account made during the
effectivity of R.A. No. 1405, as amended, 14 and prior to the enactment
of Republic R.A. No. 9160.15
Estrada did not publicly use the alias "Jose Velarde":
A. Estrada's use of the alias "Jose Velarde" in his dealings with Dichavez
and Ortaliza after February 4, 2000 is not relevant in light of the
conclusion that the acts imputed to Estrada under the Information were
the act/s committed on February 4, 2000 only. Additionally, the phrase,
"Estrada did - represent himself as 'Jose Velarde' in several
transactions," standing alone, violates Estrada's right to be informed of
the nature and the cause of the accusation, because it is very general and
vague. This phrase is qualified and explained by the succeeding phrase
- "and use and employ the said alias 'Jose Velarde' " - which "is neither
his registered name at birth nor his baptismal name, in signing
documents with Equitable PCI Bank and/or other corporate entities."
Thus, Estrada's representations before persons other than those
mentioned in the Information are immaterial; Ortaliza and Dichavez do
not fall within the "Equitable PCI Bank and/or other corporate entities"
specified in the Information. Estrada's representations with Ortaliza and
Dichavez are not therefore covered by the indictment.
b. The Sandiganbayan rejected the application of the principle in the law
of libel that mere communication to a third person is publicity; it
reasoned out that that the definition of publicity is not limited to the way
it is defined under the law on libel; additionally, the application of the
libel law definition is onerous to the accused and is precluded by the
ruling in Ursua that CA No. 142, as a penal statute, should be construed
strictly against the State and favorably for the accused. It ruled that the
definition under the law on libel, even if it applies, considers a
communication to a third person covered by the privileged
communication rule to be non-actionable. Estrada's use of the alias in
front of Ocampo and Curato is one such privileged communication
under R.A. No. 1405, as amended. The Sandiganbayan said:
Movant's act of signing "Jose Velarde" in bank documents being
absolutely confidential, the witnessing thereof by bank officers who
were likewise sworn to secrecy by the same law cannot be considered
as 'public' as to fall within the ambit of CA 142 as amended. On account
of the absolute confidentiality of the transaction, it cannot be said that
movant intended to be known by this name in addition to his real name.
Confidentiality and secrecy negate publicity. Ursua instructs:
Hence, the use of a fictitious name or a different name belonging to
another person in a single instance without any sign or indication that
the user intends to be known by this name in addition to his real name
from that day forth does not fall within the prohibition in C.A. No. 142
as amended.
c. The Sandiganbayan further found that the intention not to be publicly
known by the name "Jose Velarde" is shown by the nature of a numbered
account - a perfectly valid banking transaction at the time Trust Account
C-163 was opened. The opening, too, of a numbered trust account, the
Sandiganbayan further ruled, did not impose on Estrada the obligation
to disclose his real identity - the obligation R.A. No. 6713 imposes is to
file under oath a statement of assets and liabilities.16 Reading CA No.
142, R.A. No. 1405 and R.A. No. 6713 together, Estrada had the
absolute obligation to disclose his assets including the amount of his
bank deposits, but he was under no obligation at all to disclose the other
particulars of the bank account (such as the name he used to open it).
Third - the effect of the enactment of R.A. No. 9160.17 The
Sandiganbayan said that the absolute prohibition in R.A. No. 9160
against the use of anonymous accounts, accounts under fictitious names,
and all other similar accounts, is a legislative acknowledgment that a
gaping hole previously existed in our laws that allowed depositors to
hide their true identities. The Sandiganbayan noted that the prohibition
was lifted from Bangko Sentral ng Pilipinas (BSP) Circular No. 251
dated July 7, 2000 - another confirmation that the opening of a numbered
trust account was perfectly legal when it was opened on February 4,
2000.
The Sandiganbayan ruled that the provisions of CA No. 142, as
interpreted in Ursua, must necessarily be harmonized with the
provisions of R.A. No.1405 and R.A. No. 9160 under the principle that
every statute should be construed in a way that will harmonize it with
existing laws. A reasonable scrutiny, the Sandiganbayan said, of all
these laws in relation to the present case, led it to conclude that the use
of an alias within the context of a bank transaction (specifically, the
opening of a numbered account made before bank officers) is protected
by the secrecy provisions of R.A. No. 1405, and is thus outside the
coverage of CA No. 142 until the passage into law of R.A. No. 9160.
THE PETITION
The People filed this petition raising the following issues:
1. Whether the court a quo gravely erred and abused its discretion in
dismissing Crim. Case No. 26565 and in holding that the use by
respondent Joseph Estrada of his alias "Jose Velarde" was not public
despite the presence of Messrs. Aprodicio Laquian and Fernando Chua
on 4 February 2000;
2. Whether the court a quo gravely erred and abused its discretion in
dismissing Crim. Case No. 26565 and in holding that the use by
respondent Joseph Estrada of his alias "Jose Velarde" was allowable
under banking rules, despite the clear prohibition under Commonwealth
Act No. 142;
3. Whether the court a quo gravely erred and abused its discretion in
dismissing Crim. Case No. 26565 and in applying R.A. No. 1405 as an
exception to the illegal use of alias punishable under Commonwealth
Act No. 142;
4. Whether the alleged harmonization and application made by the
court a quo of R.A. No.1405 and Commonwealth Act No. 142 were
proper;
5. Whether the court a quo gravely erred and abused its discretion in
limiting the coverage of the amended Information in Crim. Case No.
26565 to the use of the alias "Jose Velarde" by respondent Joseph
Estrada on February 4, 2000;
6. Whether the court a quo gravely erred and abused its discretion in
departing from its earlier final finding on the non-applicability of Ursua
v. Court of Appeals and forcing its application to the instant case.
THE COURT'S RULING
The petition has no merit.
The Law on Illegal Use of Alias and the Ursua Ruling
Sections 1 and 2 of CA No. 142, as amended, read:
63
Banking Laws under Atty. Fontanilla
Section 1. Except as a pseudonym solely for literary, cinema, television,
radio or other entertainment purposes and in athletic events where the
use of pseudonym is a normally accepted practice, no person shall use
any name different from the one with which he was registered at birth
in the office of the local civil registry or with which he was baptized for
the first time, or in case of an alien, with which he was registered in the
bureau of immigration upon entry; or such substitute name as may have
been authorized by a competent court: Provided, That persons whose
births have not been registered in any local civil registry and who have
not been baptized, have one year from the approval of this act within
which to register their names in the civil registry of their residence. The
name shall comprise the patronymic name and one or two surnames.
Section 2. Any person desiring to use an alias shall apply for authority
therefor in proceedings like those legally provided to obtain judicial
authority for a change of name and no person shall be allowed to secure
such judicial authority for more than one alias. The petition for an alias
shall set forth the person's baptismal and family name and the name
recorded in the civil registry, if different, his immigrant's name, if an
alien, and his pseudonym, if he has such names other than his original
or real name, specifying the reason or reasons for the desired alias. The
judicial authority for the use of alias, the Christian name and the alien
immigrant's name shall be recorded in the proper local civil registry, and
no person shall use any name or names other than his original or real
name unless the same is or are duly recorded in the proper local civil
registry.
How this law is violated has been answered by the Ursua definition of
an alias - "a name or names used by a person or intended to be used by
him publicly and habitually usually in business transactions in addition
to his real name by which he is registered at birth or baptized the first
time or substitute name authorized by a competent authority." There
must be, in the words of Ursua, a "sign or indication that the user intends
to be known by this name (the alias) in addition to his real name from
that day forth - [for the use of alias to] fall within the prohibition
contained in C.A. No. 142 as amended."18
Ursua further relates the historical background and rationale that led to
the enactment of CA No. 142, as follows:
The enactment of C.A. No. 142 was made primarily to curb the common
practice among the Chinese of adopting scores of different names and
aliases which created tremendous confusion in the field of trade. Such a
practice almost bordered on the crime of using fictitious names which
for obvious reasons could not be successfully maintained against the
Chinese who, rightly or wrongly, claimed they possessed a thousand and
one names. C.A. No. 142 thus penalized the act of using an alias name,
unless such alias was duly authorized by proper judicial proceedings and
recorded in the civil register.19
Following the doctrine of stare decisis,20 we are guided by the Ursua
ruling on how the crime punished under CA No. 142 may be committed.
Close adherence to this ruling, in other words, is unavoidable in the
application of and the determination of criminal liability under CA No.
142.
Among the many grounds the People invokes to avoid the application
of the Ursua ruling proceeds from Estrada's position in the government;
at the time of the commission of the offense, he was the President of the
Republic who is required by law to disclose his true name. We do not
find this argument sufficient to justify a distinction between a man on
the street, on one hand, and the President of the Republic, on the other,
for purposes of applying CA No. 142. In the first place, the law does not
make any distinction, expressly or impliedly, that would justify a
differential treatment. CA No. 142 as applied to Estrada, in fact allows
him to use his cinema or screen name of Joseph Estrada, which name he
has used even when he was already the President of the Philippines.
Even the petitioner has acquiesced to the use of the screen name of the
accused, as shown by the title of the present petition. Additionally, any
distinction we make based on the People's claim unduly prejudices
Estrada; this is proscribed by the Ursua dictum that CA No. 142, as a
penal statute, should be construed strictly against the State and in favor
of the accused.21 The mode of violating CA No. 142 is therefore the
same whoever the accused may be.
The People also calls our attention to an earlier Sandiganbayan ruling
(Resolution dated February 6, 2002) denying Estrada's motion to quash
the Information. This earlier Resolution effectively rejected the
application of Ursua under the following tenor:
The use of the term "alias" in the Amended Information in itself serves
to bring this case outside the ambit of the ruling in the case of Ursua v.
Court of Appeals (256 SCRA 147 [1996]), on which the accused heavily
relies in his motion to quash. The term "alias" means "otherwise known
as" (Webster Third New International Dictionary, 1993 ed., p. 53). The
charge of using an "alias" logically implies that another name has been
used publicly and habitually. Otherwise, he will not be known by such
name. In any case, the amended information adverts to "several
transactions" and signing of documents with the Equitable PCI Bank
and/or other corporate entities where the above-mentioned alias was
allegedly employed by the accused.
The facts alleged in the information are distinctly different from facts
established in the Ursua case where another name was used by the
accused in a single instance without any sign or indication that that [sic]
he intended to be known from that day by this name in addition to his
real name.22
The People argues that the Sandiganbayan gravely abused its discretion
in applying Ursua notwithstanding this earlier final ruling on its non-
applicability - a ruling that binds the parties in the present case. The
People thus claims that the Sandiganbayan erred to the point of gravely
abusing its discretion when it resurrected the application of Ursua,
resulting in the reversal of its earlier final ruling.
We find no merit in this argument for two reasons. First, the cited
Sandiganbayan resolution is a mere interlocutory order - a ruling
denying a motion to quash23 - that cannot be given the attributes of
finality and immutability that are generally accorded to judgments or
orders that finally dispose of the whole, of or particular matters in, a
case.24 The Sandiganbayan resolution is a mere interlocutory order
because its effects would only be provisional in character, and would
still require the issuing court to undertake substantial proceedings in
order to put the controversy to rest.25 It is basic remedial law that an
interlocutory order is always under the control of the court and may be
modified or rescinded upon sufficient grounds shown at any time before
final judgment.26 Perez v. Court of Appeals,27 albeit a civil case,
instructively teaches that an interlocutory order carries no res adjudicata
effects. Says Perez:
The Decision in CA-G.R. No. 10415 having resolved only an
interlocutory matter, the principle of res judicatacannot be applied in
this case. There can be no res judicata where the previous order in
question was not an order or judgment determinative of an issue of fact
pending before the court but was only an interlocutory order because it
required the parties to perform certain acts for final adjudication. In this
case, the lifting of the restraining order paved the way for the possession
of the fishpond on the part of petitioners and/or their representatives
pending the resolution of the main action for injunction. In other words,
the main issue of whether or not private respondent may be considered
a sublessee or a transferee of the lease entitled to possess the fishpond
under the circumstances of the case had yet to be resolved when the
restraining order was lifted.28
Second, in the earlier motion to quash, the Sandiganbayan solely looked
at the allegations of the Information to determine the sufficiency of these
allegations and did not consider any evidence aliunde. This is far
different from the present demurrer to evidence where the
Sandiganbayan had a fuller view of the prosecution's case, and was
faced with the issue of whether the prosecution's evidence was sufficient
to prove the allegations of the Information. Under these differing views,
the Sandiganbayan may arrive at a different conclusion on the
application of Ursua, the leading case in the application of CA 142, and
the change in ruling is not per se indicative of grave abuse of discretion.
That there is no error of law is strengthened by our consideration of the
Sandiganbayan ruling on the application of Ursua.
In an exercise of caution given Ursua's jurisprudential binding effect,
the People also argues in its petition that Estrada's case is different from
Ursua's for the following reasons: (1) respondent Estrada used and
intended to continually use the alias "Jose Velarde" in addition to the
name "Joseph Estrada"; (2) Estrada's use of the alias was not isolated or
limited to a single transaction; and (3) the use of the alias "Jose Velarde"
was designed to cause and did cause "confusion and fraud in business
transactions" which the anti-alias law and its related statutes seek to
prevent. The People also argues that the evidence it presented more than
satisfied the requirements of CA No. 142, as amended, and Ursua, as it
was also shown or established that Estrada's use of the alias was public.
In light of our above conclusions and based on the parties' expressed
positions, we shall now examine within the Ursua framework the
assailed Sandiganbayan Resolution granting the demurrer to evidence.
The prosecution has the burden of proof to show that the evidence it
presented with the Sandiganbayan satisfied the Ursua requirements,
particularly on the matter of publicity and habituality in the use of an
alias.
What is the coverage of the indictment?
The People argues that the Sandiganbayan gravely erred and abused its
discretion in limiting the coverage of the amended Information in Crim.
Case No. 26565 to Estrada's use of the alias "Jose Velarde" on February
4, 2000. It posits that there was a main transaction - one that took place
on February 4, 2000 - but there were other transactions covered by the
phrase "prior to or subsequent thereto; the Information specifically
referred to "several transactions" - "with Equitable PCI Bank and/or
other corporate entities." To the People, the restrictive finding - that the
phrase "prior to or subsequent thereto" is absorbed by the phrase "on or
about 04 February 2000" - drastically amends the succeeding main
allegations on the constitutive criminal acts by removing the plurality of
both the transactions involved and the documents signed with various
entities; there is the undeniable essential relationship between the
allegations of the multiplicity of transactions, on one hand, and the
additional antecedent of "prior to or subsequent thereto," on the other. It
argues that the Sandiganbayan reduced the phrase "prior to or
subsequent thereto" into a useless appendage, providing Estrada with a
convenient and totally unwarranted escape route.
The People further argues that the allegation of time is the least exacting
in satisfying the constitutional requirement that the accused has to be
informed of the accusation against him. Section 6 of Rule 110 of the
Revised Rules of Court provides that an allegation of the approximate
date of the commission of the offense will suffice, while Section 11 of
the same Rule provides that it is not necessary to state in the complaint
or information the precise date the offense was committed except when
it is a material ingredient of the crime. This liberality allegedly shaped
the time-tested rule that when the "time" given in the complaint is not
of the essence of the offense, the time of the commission of the offense
does not need to be proven as alleged, and that the complaint will be
sustained if the proof shows that the offense was committed at any time
within the period of the statute of limitations and before the
commencement of the action (citing People v. Bugayong [299 SCRA
528, 537] that in turn cited US v. Smith [3 Phil. 20, 22]). Since
allegations of date of the commission of an offense are liberally
interpreted, the People posits that the Sandiganbayan gravely abused its
discretion in disregarding the additional clause "prior to or subsequent
thereto"; under the liberality principle, the allegations of the acts
constitutive of the offense finally determine the sufficiency of the
allegations of time. The People thus claims that no surprise could have
taken place that would prevent Estrada from properly defending
himself; the information fully notified him that he was being accused of
using the alias Jose Velarde in more than just one instance.
We see no merit in these arguments.
At its core, the issue is constitutional in nature - the right of Estrada to
be informed of the nature and cause of the accusation against him. Under
the provisions of the Rules of Court implementing this constitutional
right, a complaint or information is sufficient if it states the name of the
accused; the designation of the offense given by the statute; the acts or
omissions complained of as constituting the offense in the name of the
offended party; the approximate date of the commission of the offense;
and the place where the offense was committed. 29 As to the cause of
accusation, the acts or omissions complained of as constituting the
offense and the qualifying and aggravating circumstances must be stated
in ordinary and concise language and not necessarily in the language
used in the statute, but in terms sufficient to enable a person of common
understanding to know the offense charged and the qualifying and
aggravating circumstances, and for the court to pronounce
judgment.30 The date of the commission of the offense need not be
precisely stated in the complaint or information except when the precise
date is a material ingredient of the offense. The offense may be alleged
to have been committed on a date as near as possible to the actual date
of its commission.31
The information must at all times embody the essential elements of the
crime charged by setting forth the facts and circumstances that bear on
the culpability and liability of the accused so that he can properly
prepare for and undertake his defense.32 In short, the allegations in the
complaint or information, as written, must fully inform or acquaint the
accused - the primary reader of and the party directly affected by the
complaint or information - of the charge/s laid.
The heretofore cited Information states that "' on or about 04 February
2000, or sometime prior or subsequent thereto, in the City of Manila,
Philippines and within the jurisdiction of this Honorable Court, the
above-named accused [did] - willfully, unlawfully and criminally
REPRESENT HIMSELF AS 'JOSE VELARDE' IN SEVERAL
TRANSACTIONS AND use and employ the SAID alias "Jose Velarde"
which IS neither his registered name at birth nor his baptismal name, in
signing documents with Equitable PCI Bank and/or other corporate
entities."
We fully agree with the disputed Sandiganbayan's reading of the
Information, as this was how the accused might have similarly read and
understood the allegations in the Information and, on this basis, prepared
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Banking Laws under Atty. Fontanilla
his defense. Broken down into its component parts, the allegation of
time in the Information plainly states that (1) ON February 4, 2000; (2)
OR before February 4, 2000; (3) OR sometime prior or subsequent to
February 4, 2000, in the City of Manila, Estrada represented himself as
"Jose Velarde" in several transactions in signing documents with
Equitable PCI Bank and/or other corporate entities.
Under this analysis, the several transactions involving the signing of
documents with Equitable PCI Bank and/or other corporate entities all
had their reference to February 4, 2000; they were all made on or about
or prior or subsequent to that date, thus plainly implying that all these
transactions took place only on February 4, 2000 or on another single
date sometime before or after February 4, 2000. To be sure, the
Information could have simply said "on or about February 4, 2000" to
capture all the alternative approximate dates, so that the phrase
"sometime prior or subsequent thereto" would effectively be a
surplusage that has no meaning separately from the "on or about"
already expressed. This consequent uselessness of the "prior or
subsequent thereto" phrase cannot be denied, but it is a direct and
necessary consequence of the use of the "OR" between the two phrases
and the "THERETO" that referred back to February 4, 2000 in the
second phrase. Of course, the reading would have been very different
(and would have been clearly in accord with the People's present
interpretation) had the Information simply used "AND" instead of "OR"
to separate the phrases; the intent to refer to various transactions
occurring on various dates and occasions all proximate to February 4,
2000 could not be disputed. Unfortunately for the People, the
imprecision in the use of "OR" is the reality the case has to live with. To
act contrary to this reality would violate Estrada's right to be informed
of the nature and cause of accusation against him; the multiple
transactions on several separate days that the People claims would result
in surprise and denial of an opportunity to prepare for Estrada, who has
a right to rely on the single day mentioned in the Information.
Separately from the constitutional dimension of the allegation of time in
the Information, another issue that the allegation of time and our above
conclusion raise relates to what act or acts, constituting a violation of
the offense charged, were actually alleged in the Information.
The conclusion we arrived at necessarily impacts on the People's case,
as it deals a fatal blow on the People's claim that Estrada habitually used
the Jose Velarde alias. For, to our mind, the repeated use of an alias
within a single day cannot be deemed "habitual," as it does not amount
to a customary practice or use. This reason alone dictates the dismissal
of the petition under CA No. 142 and the terms of Ursua.
The issues of publicity, numbered accounts, and
the application of CA No. 142, R.A. No. 1405,
and R.A. No. 9160.
We shall jointly discuss these interrelated issues.
The People claims that even on the assumption that Ocampo and Curato
are bank officers sworn to secrecy under the law, the presence of two
other persons who are not bank officers - Aprodicio Laquian and
Fernando Chua - when Estrada's signed the bank documents as "Jose
Velarde" amounted to a "public" use of an alias that violates CA No.
142.
On the issue of numbered accounts, the People argues that to premise
the validity of Estrada's prosecution for violation of CA No. 142 on a
mere banking practice is gravely erroneous, improper, and constitutes
grave abuse of discretion; no banking law provision allowing the use of
aliases in the opening of bank accounts existed; at most, it was allowed
by mere convention or industry practice, but not by a statute enacted by
the legislature. Additionally, that Estrada's prosecution was supposedly
based on BSP Circular No. 302 dated October 11, 2001 is wrong and
misleading, as Estrada stands charged with violation of CA No. 142,
penalized since 1936, and not with a violation of a mere BSP Circular.
That the use of alias in bank transactions prior to BSP Circular No. 302
is allowed is inconsequential because as early as CA No. 142, the use of
an alias (except for certain purposes which do not include banking) was
already prohibited. Nothing in CA No. 142 exempted the use of aliases
in banking transactions, since the law did not distinguish or limit its
application; it was therefore grave error for the Sandiganbayan to have
done so. Lastly on this point, bank regulations being mere issuances
cannot amend, modify or prevail over the effective, subsisting and
enforceable provision of CA No. 142.
On the issue of the applicability of R.A. No. 1405 and its relationship
with CA No. 142, that since nothing in CA No. 142 excuses the use of
an alias, the Sandiganbayan gravely abused its discretion when it ruled
that R.A. No. 1405 is an exception to CA No. 142's coverage.
Harmonization of laws, the People posits, is allowed only if the laws
intended to be harmonized refer to the same subject matter, or are at
least related with one another. The three laws which the Sandiganbayan
tried to harmonize are not remotely related to one another; they each
deal with a different subject matter, prohibits a different act, governs a
different conduct, and covers a different class of persons, 33 and there
was no need to force their application to one another. Harmonization of
laws, the People adds, presupposes the existence of conflict or
incongruence between or among the provisions of various laws, a
situation not obtaining in the present case.
The People posits, too, that R.A. No. 1405 does not apply to trust
transactions, such as Trust Account No. C-163, as it applies only to
traditional deposits (simple loans). A trust account, according to the
People, may not be considered a deposit because it does not create the
juridical relation of creditor and debtor; trust and deposit operations are
treated separately and are different in legal contemplation; trust
operation is separate and distinct from banking and requires a grant of
separate authority, and trust funds are not covered by deposit insurance
under the Philippine Deposit Insurance Corporation law (R.A. No. 3591,
as amended).
The People further argues that the Sandiganbayan's conclusion that the
transaction or communication was privileged in nature was erroneous -
a congruent interpretation of CA No. 142 and R.A. No. 1405 shows that
a person who signs in a public or private transaction a name or alias,
other than his original name or the alias he is authorized to use, shall be
held liable for violation of CA No. 142, while the bank employees are
bound by the confidentiality of bank transactions except in the
circumstances enumerated in R.A. No. 1405. At most, the People
argues, the prohibition in R.A. No. 1405 covers bank employees and
officers only, and not Estrada; the law does not prohibit Estrada from
disclosing and making public his use of an alias to other people,
including Ocampo and Curato, as he did when he made a public exhibit
and use of the alias before Messrs. Lacquian and Chua.
Finally, the People argues that the Sandiganbayan ruling that the use of
an alias before bank officers does not violate CA No. 142 effectively
encourages the commission of wrongdoing and the concealment of ill-
gotten wealth under pseudonyms; it sustains an anomalous and
prejudicial policy that uses the law to silence bank officials and
employees from reporting the commission of crimes. The People
contends that the law - R.A. No. 1405 - was not intended by the
Legislature to be used as a subterfuge or camouflage for the commission
of crimes and cannot be so interpreted; the law can only be interpreted,
understood and applied so that right and justice would prevail.
We see no merit in these arguments.
We agree, albeit for a different reason, with the Sandiganbayan position
that the rule in the law of libel - that mere communication to a third
person is publicity - does not apply to violations of CA No. 142. Our
close reading of Ursua - particularly, the requirement that there be
intention by the user to be culpable and the historical reasons we cited
above - tells us that the required publicity in the use of alias is more than
mere communication to a third person; the use of the alias, to be
considered public, must be made openly, or in an open manner or place,
or to cause it to become generally known. In order to be held liable for
a violation of CA No. 142, the user of the alias must have held himself
out as a person who shall publicly be known under that other name. In
other words, the intent to publicly use the alias must be manifest.
To our mind, the presence of Lacquian and Chua when Estrada signed
as Jose Velarde and opened Trust Account No. C-163 does not
necessarily indicate his intention to be publicly known henceforth as
Jose Velarde. In relation to Estrada, Lacquian and Chua were not part
of the public who had no access to Estrada's privacy and to the
confidential matters that transpired in Malacañan where he sat as
President; Lacquian was the Chief of Staff with whom he shared matters
of the highest and strictest confidence, while Chua was a lawyer-friend
bound by his oath of office and ties of friendship to keep and maintain
the privacy and secrecy of his affairs. Thus, Estrada could not be said to
have intended his signing as Jose Velarde to be for public consumption
by the fact alone that Lacquian and Chua were also inside the room at
that time. The same holds true for Estrada's alleged representations with
Ortaliza and Dichavez, assuming the evidence for these representations
to be admissible. All of Estrada's representations to these people were
made in privacy and in secrecy, with no iota of intention of publicity.
The nature, too, of the transaction on which the indictment rests, affords
Estrada a reasonable expectation of privacy, as the alleged criminal act
related to the opening of a trust account - a transaction that R.A. No.
1405 considers absolutely confidential in nature.34 We previously
rejected, in Ejercito v. Sandiganbayan,35 the People's nitpicking
argument on the alleged dichotomy between bank deposits and trust
transactions, when we said:
The contention that trust accounts are not covered by the term
"deposits," as used in R.A. 1405, by the mere fact that they do not entail
a creditor-debtor relationship between the trustor and the bank, does not
lie. An examination of the law shows that the term "deposits" used
therein is to be understood broadly and not limited only to accounts
which give rise to a creditor-debtor relationship between the depositor
and the bank.
The policy behind the law is laid down in Section 1:
SECTION 1. It is hereby declared to be the policy of the Government to
give encouragement to the people to deposit their money in banking
institutions and to discourage private hoarding so that the same may be
properly utilized by banks in authorized loans to assist in the economic
development of the country. (Underscoring supplied)
If the money deposited under an account may be used by bank for
authorized loans to third persons, then such account, regardless of
whether it creates a creditor-debtor relationship between the depositor
and the bank, falls under the category of accounts which the law
precisely seeks to protect for the purpose of boosting the economic
development of the country.
Trust Account No. 858 is, without doubt, one such account. The Trust
Agreement between petitioner and Urban Bank provides that the trust
account covers "deposit, placement or investment of funds" by Urban
Bank for and in behalf of petitioner. The money deposited under Trust
Account No. 858, was, therefore, intended not merely to remain with
the bank but to be invested by it elsewhere. To hold that this type of
account is not protected by R.A. 1405 would encourage private hoarding
of funds that could otherwise be invested by bank in other ventures,
contrary to the policy behind the law.
Section 2 of the same law in fact even more clearly shows that the term
"deposits" was intended to be understood broadly:
SECTION 2. All deposits of whatever nature with bank or banking
institutions in the Philippines including investments in bonds issued by
the Government of the Philippines, its political subdivisions and its
instrumentalities, are hereby considered as of an absolutely confidential
nature and may not be examined, inquired or looked into by any person,
government official, bureau or office, except upon written permission
of the depositor, or in cases of impeachment, or upon order of a
competent court in cases of bribery or dereliction of duty of public
officials, or in cases where the money deposited or invested is the
subject matter of the litigation. (Emphasis and underscoring supplied)
The phrase "of whatever nature" proscribes any restrictive interpretation
of "deposits." Moreover, it is clear from the immediately quoted
provision that, generally, the law applies not only to money which is
deposited but also to those which are invested. This further shows that
the law was not intended to apply only to "deposits" in the strict sense
of the word.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
Otherwise, there would have been no need to add the phrase "or
invested.
Clearly, therefore, R.A. 1405 is broad enough to cover Trust Account
No. 858.36
We have consistently ruled that bank deposits under R.A. No. 1405 (the
Secrecy of Bank Deposits Law) are statutorily protected or recognized
zones of privacy.37 Given the private nature of Estrada's act of signing
the documents as "Jose Velarde" related to the opening of the trust
account, the People cannot claim that there was already a public use of
alias when Ocampo and Curato witnessed the signing. We need not even
consider here the impact of the obligations imposed by R.A. No.1405
on the bank officers; what is essentially significant is the privacy
situation that is necessarily implied in these kinds of transactions. This
statutorily guaranteed privacy and secrecy effectively negate a
conclusion that the transaction was done publicly or with the intent to
use the alias publicly.
The enactment of R.A. No.9160, on the other hand, is a significant
development only because it clearly manifests that prior to its
enactment, numbered accounts or anonymous accounts were permitted
banking transactions, whether they be allowed by law or by a mere
banking regulation. To be sure, an indictment against Estrada using this
relatively recent law cannot be maintained without violating the
constitutional prohibition on the enactment and use of ex post facto
laws.38
We hasten to add that this holistic application and interpretation of these
various laws is not an attempt to harmonize these laws. A finding of
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Banking Laws under Atty. Fontanilla
commission of the offense punished under CA No. 142 must necessarily
rest on the evidence of the requisites for culpability, as amplified in
Ursua. The application of R.A. No. 1405 is significant only because
Estrada's use of the alias was pursuant to a transaction that the law
considers private or, at the very least, where the law guarantees a
reasonable expectation of privacy to the parties to the transactions; it is
at this point that R.A. No. 1405 tangentially interfaces with an
indictment under CA 142. In this light, there is no actual frontal clash
between CA No. 142 and R.A. No. 1405 that requires harmonization.
Each operates within its own sphere, but must necessarily be read
together when these spheres interface with one another. Finally, R.A.
No. 9160, as a law of recent vintage in relation to the indictment against
Estrada, cannot be a source or an influencing factor in his indictment.

In finding the absence of the requisite publicity, we simply looked at the

totality of the circumstances obtaining in Estrada's use of the alias "Jose
Velarde" vis - à-vis the Ursua requisites. We do not decide here whether
Estrada's use of an alias when he occupied the highest executive position
in the land was valid and legal; we simply determined, as the
Sandiganbayan did, whether he may be made liable for the offense
charged based on the evidence the People presented. As with any other
accused, his guilt must be based on the evidence and proof beyond
reasonable doubt that a finding of criminal liability requires. If the
People fails to discharge this burden, as they did fail in this case, the rule
of law requires that we so declare. We do so now in this review and
accordingly find no reversible error of law in the assailed
Sandiganbayan ruling.

WHEREFORE, premises considered, we DENY the petition for lack of

merit.

SO ORDERED.

66