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1. GENERAL BANKING LAW.

1.Definition and classification of banks


2.Distinction of banks from quasi-banks and trust entities
3.Bank powers and liabilities
a) Corporate powers
b) Banking and incidental powers
4.Diligence required of banks
2. NEW CENTRAL BANK ACT
1. State policies
2. Creation of the Bangko Sentral ng Pilipinas (BSP)
3. Responsibility and primary objective
4. Monetary board - powers and functions
5. How the BSP handles banks in distress
a) Conservatorship
b) Closure
c) Receivership
d) Liquidation
6. How the BSP handles exchange crisis
a) Legal tender power
b) Rate of exchange
SELF STUDY: READ THESE CASES:
¢ First Philippine International Bank vs. Court of Appeals, GR No.115849; Jan. 23, 1996
FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of the Philippines) and
MERCURIO RIVERA vs. CA, CARLOS EJERCITO in substitution of DEMETRIO DEMETRIA, and JOSE
JANOLO
G.R. No. 115849
January 24, 1996
J. PANGANIBAN

FACTS: Producer Bank of the Philippines acquired 6 parcels of land at Laguna. The property used to be
owned by BYME Investment and Development Corporation which had them mortgaged with the bank as
collateral for a loan. Demetrio Demetria and Jose O. Janolo wanted to purchase the property and thus
initiated negotiations for that purpose.

In August 1987, Demetria and Janolo met with Mercurio Rivera, Manager of the Property Management
Department of the Bank to discuss their plan to buy the property. Thereafter, they had a series of letters
where parties accepted the offer of Demetria and Janolo. Later in October, the conservator of the bank
(which has been placed under conservatorship by the Central Bank since 1984) was replaced; and
subsequently the proposal of Demetria and Janolo to buy the properties was under study pursuant to the
new conservator’s mandate. After which, a series of demands ensued.

ISSUE: WON the conservator may revoke a perfected and enforceable contract. NO.

RULING: Section 28-A of Republic Act No. 265 (otherwise known as the Central Bank Act) as follows:
Section 28-A - Whenever, on the basis of a report submitted by the appropriate supervising or examining
department, the Monetary Board finds that a bank or a non-bank financial intermediary performing quasi-
banking functions is in a state of continuing inability or unwillingness to maintain a state of liquidity
deemed adequate to protect the interest of depositors and creditors, the Monetary Board may appoint a
conservator to take charge of the assets, liabilities, and the management of that institution, collect all
monies and debts due said institution and exercise all powers necessary to preserve the assets of the
institution, reorganize the management thereof, and restore its viability. He shall have the power to
overrule or revoke the actions of the previous management and board of directors of the bank or non-
bank financial intermediary performing quasi-banking functions, any provision of law to the contrary
notwithstanding, and such other powers as the Monetary Board shall deem necessary.

While admittedly, the Central Bank law gives vast and far-reaching powers to the conservator of a bank, it
must be pointed out that such powers must be related to the "(preservation of) the assets of the bank,
(the reorganization of) the management thereof and (the restoration of) its viability." Such powers,
enormous and extensive as they are, cannot extend to the post-facto repudiation of perfected
transactions, otherwise they would infringe against the non-impairment clause of the Constitution.

Section 28-A merely gives the conservator power to revoke contracts that are, under existing law, deemed
to be defective. Hence, the conservator merely takes the place of a bank's board of directors, so what the
board cannot do; the conservator cannot do either. His power is however, not unilateral as he cannot
simply repudiate valid obligations of the Bank. His authority would be only to bring court actions to assail
such contracts.
In the case, it is not disputed that the bank was under a conservator placed by the Central Bank of the
Philippines during the time that the negotiation and perfection of the contract of sale took place. Moreover,
there was absolutely no evidence that the Conservator, at the time the contract was perfected, actually
repudiated or overruled said contract of sale. The bank never objected to the sale, what it unilaterally
repudiated was—not the contract —but the authority of Rivera to make a binding offer —and which
unarguably came months after the perfection of the contract.

The conservator’s authority would be only to bring court actions to assail such contracts —as he has
already done so in the instant case. A contrary understanding of the law would simply not be permitted by
the Constitution. Neither by common sense. To rule otherwise would be to enable a failing bank to
become solvent, at the expense of third parties, by simply getting the conservator to unilaterally revoke all
previous dealings which had one way or another or come to be considered unfavorable to the Bank,
yielding nothing to perfected contractual rights nor vested interests of the third parties who had dealt with
the Bank.

G.R. No. 115849 January 24, 1996

FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of the Philippines) and
MERCURIO RIVERA, petitioners,
vs.
COURT OF APPEALS, CARLOS EJERCITO, in substitution of DEMETRIO DEMETRIA, and
JOSE JANOLO,respondents.

DECISION

PANGANIBAN, J.:

In the absence of a formal deed of sale, may commitments given by bank officers in an exchange of
letters and/or in a meeting with the buyers constitute a perfected and enforceable contract of sale
over 101 hectares of land in Sta. Rosa, Laguna? Does the doctrine of "apparent authority" apply in
this case? If so, may the Central Bank-appointed conservator of Producers Bank (now First
Philippine International Bank) repudiate such "apparent authority" after said contract has been
deemed perfected? During the pendency of a suit for specific performance, does the filing of a
"derivative suit" by the majority shareholders and directors of the distressed bank to prevent the
enforcement or implementation of the sale violate the ban against forum-shopping?

Simply stated, these are the major questions brought before this Court in the instant Petition for
review on certiorariunder Rule 45 of the Rules of Court, to set aside the Decision promulgated
January 14, 1994 of the respondent Court of Appeals in CA-G.R CV No. 35756 and the Resolution
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promulgated June 14, 1994 denying the motion for reconsideration. The dispositive portion of the
said Decision reads:

WHEREFORE, the decision of the lower court is MODIFIED by the elimination of the
damages awarded under paragraphs 3, 4 and 6 of its dispositive portion and the reduction of
the award in paragraph 5 thereof to P75,000.00, to be assessed against defendant bank. In
all other aspects, said decision is hereby AFFIRMED.

All references to the original plaintiffs in the decision and its dispositive portion are deemed,
herein and hereafter, to legally refer to the plaintiff-appellee Carlos C. Ejercito.

Costs against appellant bank.

The dispositive portion of the trial court's decision dated July 10, 1991, on the other hand, is as
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follows:

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


and against the defendants as follows:

1. Declaring the existence of a perfected contract to buy and sell over the six (6) parcels of
land situated at Don Jose, Sta. Rosa, Laguna with an area of 101 hectares, more or less,
covered by and embraced in Transfer Certificates of Title Nos. T-106932 to T-106937,
inclusive, of the Land Records of Laguna, between the plaintiffs as buyers and the defendant
Producers Bank for an agreed price of Five and One Half Million (P5,500,000.00) Pesos;

2. Ordering defendant Producers Bank of the Philippines, upon finality of this decision and
receipt from the plaintiffs the amount of P5.5 Million, to execute in favor of said plaintiffs a
deed of absolute sale over the aforementioned six (6) parcels of land, and to immediately
deliver to the plaintiffs the owner's copies of T.C.T. Nos. T-106932 to T- 106937, inclusive, for
purposes of registration of the same deed and transfer of the six (6) titles in the names of the
plaintiffs;

3. Ordering the defendants, jointly and severally, to pay plaintiffs Jose A. Janolo and
Demetrio Demetria the sums of P200,000.00 each in moral damages;

4. Ordering the defendants, jointly and severally, to pay plaintiffs the sum of P100,000.00 as
exemplary damages ;

5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of
P400,000.00 for and by way of attorney's fees;

6. Ordering the defendants to pay the plaintiffs, jointly and severally, actual and moderate
damages in the amount of P20,000.00;

With costs against the defendants.

After the parties filed their comment, reply, rejoinder, sur-rejoinder and reply to sur-rejoinder, the
petition was given due course in a Resolution dated January 18, 1995. Thence, the parties filed their
respective memoranda and reply memoranda. The First Division transferred this case to the Third
Division per resolution dated October 23, 1995. After carefully deliberating on the aforesaid
submissions, the Court assigned the case to the undersigned ponentefor the writing of this Decision.
The Parties

Petitioner First Philippine International Bank (formerly Producers Bank of the Philippines; petitioner
Bank, for brevity) is a banking institution organized and existing under the laws of the Republic of the
Philippines. Petitioner Mercurio Rivera (petitioner Rivera, for brevity) is of legal age and was, at all
times material to this case, Head-Manager of the Property Management Department of the petitioner
Bank.

Respondent Carlos Ejercito (respondent Ejercito, for brevity) is of legal age and is the assignee of
original plaintiffs-appellees Demetrio Demetria and Jose Janolo.

Respondent Court of Appeals is the court which issued the Decision and Resolution sought to be set
aside through this petition.

The Facts

The facts of this case are summarized in the respondent Court's Decision as follows:
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(1) In the course of its banking operations, the defendant Producer Bank of the Philippines
acquired six parcels of land with a total area of 101 hectares located at Don Jose, Sta. Rose,
Laguna, and covered by Transfer Certificates of Title Nos. T-106932 to T-106937. The
property used to be owned by BYME Investment and Development Corporation which had
them mortgaged with the bank as collateral for a loan. The original plaintiffs, Demetrio
Demetria and Jose O. Janolo, wanted to purchase the property and thus initiated
negotiations for that purpose.

(2) In the early part of August 1987 said plaintiffs, upon the suggestion of BYME investment's
legal counsel, Jose Fajardo, met with defendant Mercurio Rivera, Manager of the Property
Management Department of the defendant bank. The meeting was held pursuant to plaintiffs'
plan to buy the property (TSN of Jan. 16, 1990, pp. 7-10). After the meeting, plaintiff Janolo,
following the advice of defendant Rivera, made a formal purchase offer to the bank through a
letter dated August 30, 1987 (Exh. "B"), as follows:

August 30, 1987

The Producers Bank of the Philippines


Makati, Metro Manila

Attn. Mr. Mercurio Q. Rivera


Manager, Property Management Dept.

Gentleman:

I have the honor to submit my formal offer to purchase your properties covered by titles listed
hereunder located at Sta. Rosa, Laguna, with a total area of 101 hectares, more or less.

TCT NO. AREA


T-106932 113,580 sq. m.

T-106933 70,899 sq. m.

T-106934 52,246 sq. m.

T-106935 96,768 sq. m.

T-106936 187,114 sq. m.

T-106937 481,481 sq. m.

My offer is for PESOS: THREE MILLION FIVE HUNDRED THOUSAND (P3,500,000.00)


PESOS, in cash.

Kindly contact me at Telephone Number 921-1344.

(3) On September 1, 1987, defendant Rivera made on behalf of the bank a formal reply by
letter which is hereunder quoted (Exh. "C"):

September 1, 1987

JP M-P GUTIERREZ ENTERPRISES


142 Charisma St., Doña Andres II
Rosario, Pasig, Metro Manila

Attention: JOSE O. JANOLO

Dear Sir:

Thank you for your letter-offer to buy our six (6) parcels of acquired lots at Sta. Rosa, Laguna
(formerly owned by Byme Industrial Corp.). Please be informed however that the bank's
counter-offer is at P5.5 million for more than 101 hectares on lot basis.
We shall be very glad to hear your position on the on the matter.

Best regards.

(4) On September 17, 1987, plaintiff Janolo, responding to Rivera's aforequoted reply, wrote
(Exh. "D"):

September 17, 1987

Producers Bank
Paseo de Roxas
Makati, Metro Manila

Attention: Mr. Mercurio Rivera

Gentlemen:

In reply to your letter regarding my proposal to purchase your 101-hectare lot located at Sta.
Rosa, Laguna, I would like to amend my previous offer and I now propose to buy the said lot
at P4.250 million in CASH..

Hoping that this proposal meets your satisfaction.

(5) There was no reply to Janolo's foregoing letter of September 17, 1987. What took place
was a meeting on September 28, 1987 between the plaintiffs and Luis Co, the Senior Vice-
President of defendant bank. Rivera as well as Fajardo, the BYME lawyer, attended the
meeting. Two days later, or on September 30, 1987, plaintiff Janolo sent to the bank, through
Rivera, the following letter (Exh. "E"):

The Producers Bank of the Philippines


Paseo de Roxas, Makati
Metro Manila

Attention: Mr. Mercurio Rivera

Re: 101 Hectares of Land


in Sta. Rosa, Laguna

Gentlemen:

Pursuant to our discussion last 28 September 1987, we are pleased to inform you that we
are accepting your offer for us to purchase the property at Sta. Rosa, Laguna, formerly
owned by Byme Investment, for a total price of PESOS: FIVE MILLION FIVE HUNDRED
THOUSAND (P5,500,000.00).

Thank you.
(6) On October 12, 1987, the conservator of the bank (which has been placed under
conservatorship by the Central Bank since 1984) was replaced by an Acting Conservator in
the person of defendant Leonida T. Encarnacion. On November 4, 1987, defendant Rivera
wrote plaintiff Demetria the following letter (Exh. "F"):

Attention: Atty. Demetrio Demetria

Dear Sir:

Your proposal to buy the properties the bank foreclosed from Byme investment Corp. located
at Sta. Rosa, Laguna is under study yet as of this time by the newly created committee for
submission to the newly designated Acting Conservator of the bank.

For your information.

(7) What thereafter transpired was a series of demands by the plaintiffs for compliance by
the bank with what plaintiff considered as a perfected contract of sale, which demands were
in one form or another refused by the bank. As detailed by the trial court in its decision, on
November 17, 1987, plaintiffs through a letter to defendant Rivera (Exhibit "G") tendered
payment of the amount of P5.5 million "pursuant to (our) perfected sale agreement."
Defendants refused to receive both the payment and the letter. Instead, the parcels of land
involved in the transaction were advertised by the bank for sale to any interested buyer (Exh,
"H" and "H-1"). Plaintiffs demanded the execution by the bank of the documents on what was
considered as a "perfected agreement." Thus:

Mr. Mercurio Rivera


Manager, Producers Bank
Paseo de Roxas, Makati
Metro Manila

Dear Mr. Rivera:

This is in connection with the offer of our client, Mr. Jose O. Janolo, to purchase your 101-
hectare lot located in Sta. Rosa, Laguna, and which are covered by TCT No. T-106932 to
106937.

From the documents at hand, it appears that your counter-offer dated September 1, 1987 of
this same lot in the amount of P5.5 million was accepted by our client thru a letter dated
September 30, 1987 and was received by you on October 5, 1987.

In view of the above circumstances, we believe that an agreement has been perfected. We
were also informed that despite repeated follow-up to consummate the purchase, you now
refuse to honor your commitment. Instead, you have advertised for sale the same lot to
others.

In behalf of our client, therefore, we are making this formal demand upon you to
consummate and execute the necessary actions/documentation within three (3) days from
your receipt hereof. We are ready to remit the agreed amount of P5.5 million at your advice.
Otherwise, we shall be constrained to file the necessary court action to protect the interest of
our client.
We trust that you will be guided accordingly.

(8) Defendant bank, through defendant Rivera, acknowledged receipt of the foregoing letter
and stated, in its communication of December 2, 1987 (Exh. "I"), that said letter has been
"referred . . . to the office of our Conservator for proper disposition" However, no response
came from the Acting Conservator. On December 14, 1987, the plaintiffs made a second
tender of payment (Exh. "L" and "L-1"), this time through the Acting Conservator, defendant
Encarnacion. Plaintiffs' letter reads:

PRODUCERS BANK OF
THE PHILIPPINES
Paseo de Roxas,
Makati, Metro Manila

Attn.: Atty. NIDA ENCARNACION


Central Bank Conservator

We are sending you herewith, in - behalf of our client, Mr. JOSE O. JANOLO, MBTC Check
No. 258387 in the amount of P5.5 million as our agreed purchase price of the 101-hectare lot
covered by TCT Nos. 106932, 106933, 106934, 106935, 106936 and 106937 and registered
under Producers Bank.

This is in connection with the perfected agreement consequent from your offer of P5.5 Million
as the purchase price of the said lots. Please inform us of the date of documentation of the
sale immediately.

Kindly acknowledge receipt of our payment.

(9) The foregoing letter drew no response for more than four months. Then, on May 3, 1988,
plaintiff, through counsel, made a final demand for compliance by the bank with its
obligations under the considered perfected contract of sale (Exhibit "N"). As recounted by the
trial court (Original Record, p. 656), in a reply letter dated May 12, 1988 (Annex "4" of
defendant's answer to amended complaint), the defendants through Acting Conservator
Encarnacion repudiated the authority of defendant Rivera and claimed that his dealings with
the plaintiffs, particularly his counter-offer of P5.5 Million are unauthorized or illegal. On that
basis, the defendants justified the refusal of the tenders of payment and the non-compliance
with the obligations under what the plaintiffs considered to be a perfected contract of sale.

(10) On May 16, 1988, plaintiffs filed a suit for specific performance with damages against
the bank, its Manager Rivers and Acting Conservator Encarnacion. The basis of the suit was
that the transaction had with the bank resulted in a perfected contract of sale, The
defendants took the position that there was no such perfected sale because the defendant
Rivera is not authorized to sell the property, and that there was no meeting of the minds as to
the price.

On March 14, 1991, Henry L. Co (the brother of Luis Co), through counsel Sycip Salazar
Hernandez and Gatmaitan, filed a motion to intervene in the trial court, alleging that as
owner of 80% of the Bank's outstanding shares of stock, he had a substantial interest in
resisting the complaint. On July 8, 1991, the trial court issued an order denying the motion to
intervene on the ground that it was filed after trial had already been concluded. It also denied
a motion for reconsideration filed thereafter. From the trial court's decision, the Bank,
petitioner Rivera and conservator Encarnacion appealed to the Court of Appeals which
subsequently affirmed with modification the said judgment. Henry Co did not appeal the
denial of his motion for intervention.

In the course of the proceedings in the respondent Court, Carlos Ejercito was substituted in place of
Demetria and Janolo, in view of the assignment of the latters' rights in the matter in litigation to said
private respondent.

On July 11, 1992, during the pendency of the proceedings in the Court of Appeals, Henry Co and
several other stockholders of the Bank, through counsel Angara Abello Concepcion Regala and
Cruz, filed an action (hereafter, the "Second Case") — purportedly a "derivative suit" — with the
Regional Trial Court of Makati, Branch 134, docketed as Civil Case No. 92-1606, against
Encarnacion, Demetria and Janolo "to declare any perfected sale of the property as unenforceable
and to stop Ejercito from enforcing or implementing the sale" In his answer, Janolo argued that the
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Second Case was barred by litis pendentia by virtue of the case then pending in the Court of
Appeals. During the pre-trial conference in the Second Case, plaintiffs filed a Motion for Leave of
Court to Dismiss the Case Without Prejudice. "Private respondent opposed this motion on the
ground, among others, that plaintiff's act of forum shopping justifies the dismissal of both cases, with
prejudice." Private respondent, in his memorandum, averred that this motion is still pending in the
5

Makati RTC.

In their Petition and Memorandum , petitioners summarized their position as follows:


6 7

I.

The Court of Appeals erred in declaring that a contract of sale was perfected between
Ejercito (in substitution of Demetria and Janolo) and the bank.

II.

The Court of Appeals erred in declaring the existence of an enforceable contract of sale
between the parties.

III.

The Court of Appeals erred in declaring that the conservator does not have the power to
overrule or revoke acts of previous management.

IV.

The findings and conclusions of the Court of Appeals do not conform to the evidence on
record.

On the other hand, petitioners prayed for dismissal of the instant suit on the ground that:
8

I.

Petitioners have engaged in forum shopping.

II.
The factual findings and conclusions of the Court of Appeals are supported by the evidence
on record and may no longer be questioned in this case.

III.

The Court of Appeals correctly held that there was a perfected contract between Demetria
and Janolo (substituted by; respondent Ejercito) and the bank.

IV.

The Court of Appeals has correctly held that the conservator, apart from being estopped from
repudiating the agency and the contract, has no authority to revoke the contract of sale.

The Issues

From the foregoing positions of the parties, the issues in this case may be summed up as follows:

1) Was there forum-shopping on the part of petitioner Bank?

2) Was there a perfected contract of sale between the parties?

3) Assuming there was, was the said contract enforceable under the statute of frauds?

4) Did the bank conservator have the unilateral power to repudiate the authority of the bank
officers and/or to revoke the said contract?

5) Did the respondent Court commit any reversible error in its findings of facts?

The First Issue: Was There Forum-Shopping?

In order to prevent the vexations of multiple petitions and actions, the Supreme Court promulgated
Revised Circular No. 28-91 requiring that a party "must certify under oath . . . [that] (a) he has not
(t)heretofore commenced any other action or proceeding involving the same issues in the Supreme
Court, the Court of Appeals, or any other tribunal or agency; (b) to the best of his knowledge, no
such action or proceeding is pending" in said courts or agencies. A violation of the said circular
entails sanctions that include the summary dismissal of the multiple petitions or complaints. To be
sure, petitioners have included a VERIFICATION/CERTIFICATION in their Petition stating "for the
record(,) the pendency of Civil Case No. 92-1606 before the Regional Trial Court of Makati, Branch
134, involving a derivative suit filed by stockholders of petitioner Bank against the conservator and
other defendants but which is the subject of a pending Motion to Dismiss Without Prejudice. 9

Private respondent Ejercito vigorously argues that in spite of this verification, petitioners are guilty of
actual forum shopping because the instant petition pending before this Court involves "identical
parties or interests represented, rights asserted and reliefs sought (as that) currently pending before
the Regional Trial Court, Makati Branch 134 in the Second Case. In fact, the issues in the two cases
are so interwined that a judgement or resolution in either case will constitute res judicata in the
other."10

On the other hand, petitioners explain that there is no forum-shopping because:


11
1) In the earlier or "First Case" from which this proceeding arose, the Bank was impleaded
as a defendant, whereas in the "Second Case" (assuming the Bank is the real party in
interest in a derivative suit), it wasplaintiff;

2) "The derivative suit is not properly a suit for and in behalf of the corporation under the
circumstances";

3) Although the CERTIFICATION/VERIFICATION (supra) signed by the Bank president and


attached to the Petition identifies the action as a "derivative suit," it "does not mean that it is
one" and "(t)hat is a legal question for the courts to decide";

4) Petitioners did not hide the Second Case at they mentioned it in the said
VERIFICATION/CERTIFICATION.

We rule for private respondent.

To begin with, forum-shopping originated as a concept in private international law. , where non-
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resident litigants are given the option to choose the forum or place wherein to bring their suit for
various reasons or excuses, including to secure procedural advantages, to annoy and harass the
defendant, to avoid overcrowded dockets, or to select a more friendly venue. To combat these less
than honorable excuses, the principle of forum non conveniens was developed whereby a court, in
conflicts of law cases, may refuse impositions on its jurisdiction where it is not the most "convenient"
or available forum and the parties are not precluded from seeking remedies elsewhere.

In this light, Black's Law Dictionary says that forum shopping "occurs when a party attempts to have
13

his action tried in a particular court or jurisdiction where he feels he will receive the most favorable
judgment or verdict." Hence, according to Words and Phrases , "a litigant is open to the charge of
14

"forum shopping" whenever he chooses a forum with slight connection to factual circumstances
surrounding his suit, and litigants should be encouraged to attempt to settle their differences without
imposing undue expenses and vexatious situations on the courts".

In the Philippines, forum shopping has acquired a connotation encompassing not only a choice of
venues, as it was originally understood in conflicts of laws, but also to a choice of remedies. As to
the first (choice of venues), the Rules of Court, for example, allow a plaintiff to commence personal
actions "where the defendant or any of the defendants resides or may be found, or where the plaintiff
or any of the plaintiffs resides, at the election of the plaintiff" (Rule 4, Sec, 2 [b]). As to remedies,
aggrieved parties, for example, are given a choice of pursuing civil liabilities independently of the
criminal, arising from the same set of facts. A passenger of a public utility vehicle involved in a
vehicular accident may sue on culpa contractual, culpa aquiliana or culpa criminal — each remedy
being available independently of the others — although he cannot recover more than once.

In either of these situations (choice of venue or choice of remedy), the litigant actually shops
for a forum of his action, This was the original concept of the term forum shopping.

Eventually, however, instead of actually making a choice of the forum of their actions,
litigants, through the encouragement of their lawyers, file their actions in all available courts,
or invoke all relevant remedies simultaneously. This practice had not only resulted to (sic)
conflicting adjudications among different courts and consequent confusion enimical (sic) to
an orderly administration of justice. It had created extreme inconvenience to some of the
parties to the action.
Thus, "forum shopping" had acquired a different concept — which is unethical professional
legal practice. And this necessitated or had given rise to the formulation of rules and canons
discouraging or altogether prohibiting the practice. 15

What therefore originally started both in conflicts of laws and in our domestic law as a legitimate
device for solving problems has been abused and mis-used to assure scheming litigants of dubious
reliefs.

To avoid or minimize this unethical practice of subverting justice, the Supreme Court, as already
mentioned, promulgated Circular 28-91. And even before that, the Court had prescribed it in the
Interim Rules and Guidelines issued on January 11, 1983 and had struck down in several cases the 16

inveterate use of this insidious malpractice. Forum shopping as "the filing of repetitious suits in
different courts" has been condemned by Justice Andres R. Narvasa (now Chief Justice) in Minister
of Natural Resources, et al., vs. Heirs of Orval Hughes, et al., "as a reprehensible manipulation of
court processes and proceedings . . ." when does forum shopping take place?
17

There is forum-shopping whenever, as a result of an adverse opinion in one forum, a party


seeks a favorable opinion (other than by appeal or certiorari) in another. The principle applies
not only with respect to suits filed in the courts but also in connection with litigations
commenced in the courts while an administrative proceeding is pending, as in this case, in
order to defeat administrative processes and in anticipation of an unfavorable administrative
ruling and a favorable court ruling. This is specially so, as in this case, where the court in
which the second suit was brought, has no jurisdiction. 18

The test for determining whether a party violated the rule against forum shopping has been laid
dawn in the 1986 case of Buan vs. Lopez , also by Chief Justice Narvasa, and that is, forum
19

shopping exists where the elements of litis pendentia are present or where a final judgment in one
case will amount to res judicata in the other, as follows:

There thus exists between the action before this Court and RTC Case No. 86-36563 identity
of parties, or at least such parties as represent the same interests in both actions, as well as
identity of rights asserted and relief prayed for, the relief being founded on the same facts,
and the identity on the two preceding particulars is such that any judgment rendered in the
other action, will, regardless of which party is successful, amount to res adjudicata in the
action under consideration: all the requisites, in fine, of auter action pendant.

xxx xxx xxx

As already observed, there is between the action at bar and RTC Case No. 86-36563, an
identity as regards parties, or interests represented, rights asserted and relief sought, as well
as basis thereof, to a degree sufficient to give rise to the ground for dismissal known
as auter action pendant or lis pendens. That same identity puts into operation the sanction of
twin dismissals just mentioned. The application of this sanction will prevent any further delay
in the settlement of the controversy which might ensue from attempts to seek reconsideration
of or to appeal from the Order of the Regional Trial Court in Civil Case No. 86-36563
promulgated on July 15, 1986, which dismissed the petition upon grounds which appear
persuasive.

Consequently, where a litigant (or one representing the same interest or person) sues the same
party against whom another action or actions for the alleged violation of the same right and the
enforcement of the same relief is/are still pending, the defense of litis pendencia in one case is bar to
the others; and, a final judgment in one would constitute res judicata and thus would cause the
dismissal of the rest. In either case, forum shopping could be cited by the other party as a ground to
ask for summary dismissal of the two (or more) complaints or petitions, and for imposition of the
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other sanctions, which are direct contempt of court, criminal prosecution, and disciplinary action
against the erring lawyer.

Applying the foregoing principles in the case before us and comparing it with the Second Case, it is
obvious that there exist identity of parties or interests represented, identity of rights or causes and
identity of reliefs sought.

Very simply stated, the original complaint in the court a quo which gave rise to the instant petition
was filed by the buyer (herein private respondent and his predecessors-in-interest) against the seller
(herein petitioners) to enforce the alleged perfected sale of real estate. On the other hand, the
complaint in the Second Case seeks to declare such purported sale involving the same real
21

property "as unenforceable as against the Bank", which is the petitioner herein. In other words, in the
Second Case, the majority stockholders, in representation of the Bank, are seeking to accomplish
what the Bank itself failed to do in the original case in the trial court. In brief, the objective or the
relief being sought, though worded differently, is the same, namely, to enable the petitioner Bank to
escape from the obligation to sell the property to respondent. In Danville Maritime, Inc. vs.
Commission on Audit. , this Court ruled that the filing by a party of two apparently different actions,
22

but with the same objective, constituted forum shopping:

In the attempt to make the two actions appear to be different, petitioner impleaded different
respondents therein — PNOC in the case before the lower court and the COA in the case
before this Court and sought what seems to be different reliefs. Petitioner asks this Court to
set aside the questioned letter-directive of the COA dated October 10, 1988 and to direct
said body to approve the Memorandum of Agreement entered into by and between the
PNOC and petitioner, while in the complaint before the lower court petitioner seeks to enjoin
the PNOC from conducting a rebidding and from selling to other parties the vessel "T/T
Andres Bonifacio", and for an extension of time for it to comply with the paragraph 1 of the
memorandum of agreement and damages. One can see that although the relief prayed for in
the two (2) actions are ostensibly different, the ultimate objective in both actions is the same,
that is, approval of the sale of vessel in favor of petitioner and to overturn the letter-directive
of the COA of October 10, 1988 disapproving the sale. (emphasis supplied).

In an earlier case but with the same logic and vigor, we held:
23

In other words, the filing by the petitioners of the instant special civil action for certiorari and
prohibition in this Court despite the pendency of their action in the Makati Regional Trial
Court, is a species of forum-shopping. Both actions unquestionably involve the same
transactions, the same essential facts and circumstances. The petitioners' claim of absence
of identity simply because the PCGG had not been impleaded in the RTC suit, and the suit
did not involve certain acts which transpired after its commencement, is specious. In the
RTC action, as in the action before this Court, the validity of the contract to purchase and sell
of September 1, 1986, i.e., whether or not it had been efficaciously rescinded, and the
propriety of implementing the same (by paying the pledgee banks the amount of their loans,
obtaining the release of the pledged shares, etc.) were the basic issues. So, too, the relief
was the same: the prevention of such implementation and/or the restoration of the status
quo ante. When the acts sought to be restrained took place anyway despite the issuance by
the Trial Court of a temporary restraining order, the RTC suit did not become functus oficio. It
remained an effective vehicle for obtention of relief; and petitioners' remedy in the premises
was plain and patent: the filing of an amended and supplemental pleading in the RTC suit, so
as to include the PCGG as defendant and seek nullification of the acts sought to be enjoined
but nonetheless done. The remedy was certainly not the institution of another action in
another forum based on essentially the same facts, The adoption of this latter recourse
renders the petitioners amenable to disciplinary action and both their actions, in this Court as
well as in the Court a quo, dismissible.

In the instant case before us, there is also identity of parties, or at least, of interests represented.
Although the plaintiffs in the Second Case (Henry L. Co. et al.) are not name parties in the First
Case, they represent the same interest and entity, namely, petitioner Bank, because:

Firstly, they are not suing in their personal capacities, for they have no direct personal interest in the
matter in controversy. They are not principally or even subsidiarily liable; much less are they direct
parties in the assailed contract of sale; and

Secondly, the allegations of the complaint in the Second Case show that the stockholders are
bringing a "derivative suit". In the caption itself, petitioners claim to have brought suit "for and in
behalf of the Producers Bank of the Philippines" . Indeed, this is the very essence of a derivative
24

suit:

An individual stockholder is permitted to institute a derivative suit on behalf of the corporation


wherein he holdsstock in order to protect or vindicate corporate rights, whenever the officials
of the corporation refuse to sue, or are the ones to be sued or hold the control of the
corporation. In such actions, the suing stockholder is regarded as a nominal party, with the
corporation as the real party in interest. (Gamboa v. Victoriano, 90 SCRA 40, 47 [1979];
emphasis supplied).

In the face of the damaging admissions taken from the complaint in the Second Case, petitioners,
quite strangely, sought to deny that the Second Case was a derivative suit, reasoning that it was
brought, not by the minority shareholders, but by Henry Co et al., who not only own, hold or control
over 80% of the outstanding capital stock, but also constitute the majority in the Board of Directors of
petitioner Bank. That being so, then they really represent the Bank. So, whether they sued
"derivatively" or directly, there is undeniably an identity of interests/entity represented.

Petitioner also tried to seek refuge in the corporate fiction that the personality Of the Bank is
separate and distinct from its shareholders. But the rulings of this Court are consistent: "When the
fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of
an existing obligation, the circumvention of statutes, the achievement or perfection of a monopoly or
generally the perpetration of knavery or crime, the veil with which the law covers and isolates the
corporation from the members or stockholders who compose it will be lifted to allow for its
consideration merely as an aggregation of individuals." 25

In addition to the many cases where the corporate fiction has been disregarded, we now add the
26

instant case, and declare herewith that the corporate veil cannot be used to shield an otherwise
blatant violation of the prohibition against forum-shopping. Shareholders, whether suing as the
majority in direct actions or as the minority in a derivative suit, cannot be allowed to trifle with court
processes, particularly where, as in this case, the corporation itself has not been remiss in vigorously
prosecuting or defending corporate causes and in using and applying remedies available to it. To
rule otherwise would be to encourage corporate litigants to use their shareholders as fronts to
circumvent the stringent rules against forum shopping.

Finally, petitioner Bank argued that there cannot be any forum shopping, even
assuming arguendo that there is identity of parties, causes of action and reliefs sought, "because it
(the Bank) was the defendant in the (first) case while it was the plaintiff in the other (Second
Case)",citing as authority Victronics Computers, Inc., vs. Regional Trial Court, Branch 63, Makati,
etc. et al., where Court held:
27

The rule has not been extended to a defendant who, for reasons known only to him,
commences a new action against the plaintiff — instead of filing a responsive pleading in the
other case — setting forth therein, as causes of action, specific denials, special and
affirmative defenses or even counterclaims, Thus, Velhagen's and King's motion to dismiss
Civil Case No. 91-2069 by no means negates the charge of forum-shopping as such did not
exist in the first place. (emphasis supplied)

Petitioner pointed out that since it was merely the defendant in the original case, it could not have
chosen the forum in said case.

Respondent, on the other hand, replied that there is a difference in factual setting
between Victronics and the present suit. In the former, as underscored in the above-quoted Court
ruling, the defendants did not file any responsive pleading in the first case. In other words, they did
not make any denial or raise any defense or counter-claim therein In the case before us however,
petitioners filed a responsive pleading to the complaint — as a result of which, the issues were
joined.

Indeed, by praying for affirmative reliefs and interposing counter–claims in their responsive
pleadings, the petitioners became plaintiffs themselves in the original case, giving unto themselves
the very remedies they repeated in the Second Case.

Ultimately, what is truly important to consider in determining whether forum-shopping exists or not is
the vexation caused the courts and parties-litigant by a party who asks different courts and/or
administrative agencies to rule on the same or related causes and/or to grant the same or
substantially the same reliefs, in the process creating the possibility of conflicting decisions being
rendered by the different fora upon the same issue. In this case, this is exactly the problem: a
decision recognizing the perfection and directing the enforcement of the contract of sale will directly
conflict with a possible decision in the Second Case barring the parties front enforcing or
implementing the said sale. Indeed, a final decision in one would constitute res judicata in the
other .
28

The foregoing conclusion finding the existence of forum-shopping notwithstanding, the only sanction
possible now is the dismissal of both cases with prejudice, as the other sanctions cannot be imposed
because petitioners' present counsel entered their appearance only during the proceedings in this
Court, and the Petition's VERIFICATION/CERTIFICATION contained sufficient allegations as to the
pendency of the Second Case to show good faith in observing Circular 28-91. The Lawyers who filed
the Second Case are not before us; thus the rudiments of due process prevent us from motu
propio imposing disciplinary measures against them in this Decision. However, petitioners
themselves (and particularly Henry Co, et al.) as litigants are admonished to strictly follow the rules
against forum-shopping and not to trifle with court proceedings and processes They are warned that
a repetition of the same will be dealt with more severely.

Having said that, let it be emphasized that this petition should be dismissed not merely because of
forum-shopping but also because of the substantive issues raised, as will be discussed shortly.

The Second Issue: Was The Contract Perfected?


The respondent Court correctly treated the question of whether or not there was, on the basis of the
facts established, a perfected contract of sale as the ultimate issue. Holding that a valid contract has
been established, respondent Court stated:

There is no dispute that the object of the transaction is that property owned by the defendant
bank as acquired assets consisting of six (6) parcels of land specifically identified under
Transfer Certificates of Title Nos. T-106932 to T-106937. It is likewise beyond cavil that the
bank intended to sell the property. As testified to by the Bank's Deputy Conservator, Jose
Entereso, the bank was looking for buyers of the property. It is definite that the plaintiffs
wanted to purchase the property and it was precisely for this purpose that they met with
defendant Rivera, Manager of the Property Management Department of the defendant bank,
in early August 1987. The procedure in the sale of acquired assets as well as the nature and
scope of the authority of Rivera on the matter is clearly delineated in the testimony of Rivera
himself, which testimony was relied upon by both the bank and by Rivera in their appeal
briefs. Thus (TSN of July 30, 1990. pp. 19-20):

A: The procedure runs this way: Acquired assets was turned over to me and then I
published it in the form of an inter-office memorandum distributed to all branches that
these are acquired assets for sale. I was instructed to advertise acquired assets for
sale so on that basis, I have to entertain offer; to accept offer, formal offer and upon
having been offered, I present it to the Committee. I provide the Committee with
necessary information about the property such as original loan of the borrower, bid
price during the foreclosure, total claim of the bank, the appraised value at the time
the property is being offered for sale and then the information which are relative to
the evaluation of the bank to buy which the Committee considers and it is the
Committee that evaluate as against the exposure of the bank and it is also the
Committee that submit to the Conservator for final approval and once approved, we
have to execute the deed of sale and it is the Conservator that sign the deed of sale,
sir.

The plaintiffs, therefore, at that meeting of August 1987 regarding their purpose of buying the
property, dealt with and talked to the right person. Necessarily, the agenda was the price of
the property, and plaintiffs were dealing with the bank official authorized to entertain offers, to
accept offers and to present the offer to the Committee before which the said official is
authorized to discuss information relative to price determination. Necessarily, too, it being
inherent in his authority, Rivera is the officer from whom official information regarding the
price, as determined by the Committee and approved by the Conservator, can be had. And
Rivera confirmed his authority when he talked with the plaintiff in August 1987. The testimony
of plaintiff Demetria is clear on this point (TSN of May 31,1990, pp. 27-28):

Q: When you went to the Producers Bank and talked with Mr. Mercurio Rivera, did
you ask him point-blank his authority to sell any property?

A: No, sir. Not point blank although it came from him, (W)hen I asked him how long it
would take because he was saying that the matter of pricing will be passed upon by
the committee. And when I asked him how long it will take for the committee to
decide and he said the committee meets every week. If I am not mistaken
Wednesday and in about two week's (sic) time, in effect what he was saying he was
not the one who was to decide. But he would refer it to the committee and he would
relay the decision of the committee to me.

Q — Please answer the question.


A — He did not say that he had the authority (.) But he said he would refer the matter
to the committee and he would relay the decision to me and he did just like that.

"Parenthetically, the Committee referred to was the Past Due Committee of which Luis Co
was the Head, with Jose Entereso as one of the members.

What transpired after the meeting of early August 1987 are consistent with the authority and
the duties of Rivera and the bank's internal procedure in the matter of the sale of bank's
assets. As advised by Rivera, the plaintiffs made a formal offer by a letter dated August 20,
1987 stating that they would buy at the price of P3.5 Million in cash. The letter was for the
attention of Mercurio Rivera who was tasked to convey and accept such offers. Considering
an aspect of the official duty of Rivera as some sort of intermediary between the plaintiffs-
buyers with their proposed buying price on one hand, and the bank Committee, the
Conservator and ultimately the bank itself with the set price on the other, and considering
further the discussion of price at the meeting of August resulting in a formal offer of P3.5
Million in cash, there can be no other logical conclusion than that when, on September 1,
1987, Rivera informed plaintiffs by letter that "the bank's counter-offer is at P5.5 Million for
more than 101 hectares on lot basis," such counter-offer price had been determined by the
Past Due Committee and approved by the Conservator after Rivera had duly presented
plaintiffs' offer for discussion by the Committee of such matters as original loan of borrower,
bid price during foreclosure, total claim of the bank, and market value. Tersely put, under the
established facts, the price of P5.5 Million was, as clearly worded in Rivera's letter (Exh. "E"),
the official and definitive price at which the bank was selling the property.

There were averments by defendants below, as well as before this Court, that the P5.5
Million price was not discussed by the Committee and that price. As correctly characterized
by the trial court, this is not credible. The testimonies of Luis Co and Jose Entereso on this
point are at best equivocal and considering the gratuitous and self-serving character of these
declarations, the bank's submission on this point does not inspire belief. Both Co ad
Entereso, as members of the Past Due Committee of the bank, claim that the offer of the
plaintiff was never discussed by the Committee. In the same vein, both Co and Entereso
openly admit that they seldom attend the meetings of the Committee. It is important to note
that negotiations on the price had started in early August and the plaintiffs had already
offered an amount as purchase price, having been made to understand by Rivera, the official
in charge of the negotiation, that the price will be submitted for approval by the bank and that
the bank's decision will be relayed to plaintiffs. From the facts, the official bank price. At any
rate, the bank placed its official, Rivera, in a position of authority to accept offers to buy and
negotiate the sale by having the offer officially acted upon by the bank. The bank cannot turn
around and later say, as it now does, that what Rivera states as the bank's action on the
matter is not in fact so. It is a familiar doctrine, the doctrine of ostensible authority, that if a
corporation knowingly permits one of its officers, or any other agent, to do acts within the
scope of an apparent authority, and thus holds him out to the public as possessing power to
do those acts, the corporation will, as against any one who has in good faith dealt with the
corporation through such agent, he estopped from denying his authority (Francisco v. GSIS,
7 SCRA 577, 583-584; PNB v. Court of Appeals, 94 SCRA 357, 369-370; Prudential Bank v.
Court of Appeals, G.R. No. 103957, June 14, 1993). 29

Article 1318 of the Civil Code enumerates the requisites of a valid and perfected contract as follows:
"(1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established."
There is no dispute on requisite no. 2. The object of the questioned contract consists of the six (6)
parcels of land in Sta. Rosa, Laguna with an aggregate area of about 101 hectares, more or less,
and covered by Transfer Certificates of Title Nos. T-106932 to T-106937. There is, however, a
dispute on the first and third requisites.

Petitioners allege that "there is no counter-offer made by the Bank, and any supposed counter-offer
which Rivera (or Co) may have made is unauthorized. Since there was no counter-offer by the Bank,
there was nothing for Ejercito (in substitution of Demetria and Janolo) to accept." They disputed the
30

factual basis of the respondent Court's findings that there was an offer made by Janolo for P3.5
million, to which the Bank counter-offered P5.5 million. We have perused the evidence but cannot
find fault with the said Court's findings of fact. Verily, in a petition under Rule 45 such as this, errors
of fact — if there be any - are, as a rule, not reviewable. The mere fact that respondent Court (and
the trial court as well) chose to believe the evidence presented by respondent more than that
presented by petitioners is not by itself a reversible error. In fact, such findings merit serious
consideration by this Court, particularly where, as in this case, said courts carefully and meticulously
discussed their findings. This is basic.

Be that as it may, and in addition to the foregoing disquisitions by the Court of Appeals, let us review
the question of Rivera's authority to act and petitioner's allegations that the P5.5 million counter-offer
was extinguished by the P4.25 million revised offer of Janolo. Here, there are questions of law which
could be drawn from the factual findings of the respondent Court. They also delve into the
contractual elements of consent and cause.

The authority of a corporate officer in dealing with third persons may be actual or apparent. The
doctrine of "apparent authority", with special reference to banks, was laid out in Prudential Bank vs.
Court of Appeals , where it was held that:
31

Conformably, we have declared in countless decisions that the principal is liable for
obligations contracted by the agent. The agent's apparent representation yields to the
principal's true representation and the contract is considered as entered into between the
principal and the third person (citing National Food Authority vs. Intermediate Appellate
Court, 184 SCRA 166).

A bank is liable for wrongful acts of its officers done in the interests of the bank or in
the course of dealings of the officers in their representative capacity but not for acts
outside the scape of their authority (9 C.J.S., p. 417). 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 (McIntosh v. Dakota Trust Co., 52 ND 752, 204 NW 818, 40 ALR
1021).

Application of these principles is especially necessary because banks have a fiduciary


relationship with the public and their stability depends on the confidence of the people in
their honesty and efficiency. Such faith will be eroded where banks do not exercise strict care
in the selection and supervision of its employees, resulting in prejudice to their depositors.
From the evidence found by respondent Court, it is obvious that petitioner Rivera has apparent or
implied authority to act for the Bank in the matter of selling its acquired assets. This evidence
includes the following:

(a) The petition itself in par. II-i (p. 3) states that Rivera was "at all times material to this case,
Manager of the Property Management Department of the Bank". By his own admission,
Rivera was already the person in charge of the Bank's acquired assets (TSN, August 6,
1990, pp. 8-9);

(b) As observed by respondent Court, the land was definitely being sold by the Bank. And
during the initial meeting between the buyers and Rivera, the latter suggested that the
buyers' offer should be no less than P3.3 million (TSN, April 26, 1990, pp. 16-17);

(c) Rivera received the buyers' letter dated August 30, 1987 offering P3.5 million (TSN, 30
July 1990, p.11);

(d) Rivera signed the letter dated September 1, 1987 offering to sell the property for P5.5
million (TSN, July 30, p. 11);

(e) Rivera received the letter dated September 17, 1987 containing the buyers' proposal to
buy the property for P4.25 million (TSN, July 30, 1990, p. 12);

(f) Rivera, in a telephone conversation, confirmed that the P5.5 million was the final price of
the Bank (TSN, January 16, 1990, p. 18);

(g) Rivera arranged the meeting between the buyers and Luis Co on September 28, 1994,
during which the Bank's offer of P5.5 million was confirmed by Rivera (TSN, April 26, 1990,
pp. 34-35). At said meeting, Co, a major shareholder and officer of the Bank, confirmed
Rivera's statement as to the finality of the Bank's counter-offer of P5.5 million (TSN, January
16, 1990, p. 21; TSN, April 26, 1990, p. 35);

(h) In its newspaper advertisements and announcements, the Bank referred to Rivera as the
officer acting for the Bank in relation to parties interested in buying assets owned/acquired by
the Bank. In fact, Rivera was the officer mentioned in the Bank's advertisements offering for
sale the property in question (cf. Exhs. "S" and "S-1").

In the very recent case of Limketkai Sons Milling, Inc. vs. Court of Appeals, et. al. , the Court,
32

through Justice Jose A. R. Melo, affirmed the doctrine of apparent authority as it held that the
apparent authority of the officer of the Bank of P.I. in charge of acquired assets is borne out by
similar circumstances surrounding his dealings with buyers.

To be sure, petitioners attempted to repudiate Rivera's apparent authority through documents and
testimony which seek to establish Rivera's actual authority. These pieces of evidence, however, are
inherently weak as they consist of Rivera's self-serving testimony and various inter-office
memoranda that purport to show his limited actual authority, of which private respondent cannot be
charged with knowledge. In any event, since the issue is apparent authority, the existence of which is
borne out by the respondent Court's findings, the evidence of actual authority is immaterial insofar as
the liability of a corporation is concerned .
33

Petitioners also argued that since Demetria and Janolo were experienced lawyers and their "law
firm" had once acted for the Bank in three criminal cases, they should be charged with actual
knowledge of Rivera's limited authority. But the Court of Appeals in its Decision (p. 12) had already
made a factual finding that the buyers had no notice of Rivera's actual authority prior to the sale. In
fact, the Bank has not shown that they acted as its counsel in respect to any acquired assets; on the
other hand, respondent has proven that Demetria and Janolo merely associated with a loose
aggrupation of lawyers (not a professional partnership), one of whose members (Atty. Susana
Parker) acted in said criminal cases.

Petitioners also alleged that Demetria's and Janolo's P4.25 million counter-offer in the letter dated
September 17, 1987 extinguished the Bank's offer of P5.5 million .They disputed the respondent
34

Court's finding that "there was a meeting of minds when on 30 September 1987 Demetria and
Janolo through Annex "L" (letter dated September 30, 1987) "accepted" Rivera's counter offer of
P5.5 million under Annex "J" (letter dated September 17, 1987)", citingthe late Justice Paras , Art.35

1319 of the Civil Code and related Supreme Court rulings starting with Beaumont vs. Prieto .
36 37

However, the above-cited authorities and precedents cannot apply in the instant case because, as
found by the respondent Court which reviewed the testimonies on this point, what was "accepted" by
Janolo in his letter dated September 30, 1987 was the Bank's offer of P5.5 million as confirmed and
reiterated to Demetria and Atty. Jose Fajardo by Rivera and Co during their meeting on September
28, 1987. Note that the said letter of September 30, 1987 begins with"(p)ursuant to our discussion
last 28 September 1987 . . .

Petitioners insist that the respondent Court should have believed the testimonies of Rivera and Co
that the September 28, 1987 meeting "was meant to have the offerors improve on their position of
P5.5. million." However, both the trial court and the Court of Appeals found petitioners' testimonial
38

evidence "not credible", and we find no basis for changing this finding of fact.

Indeed, we see no reason to disturb the lower courts' (both the RTC and the CA) common finding
that private respondents' evidence is more in keeping with truth and logic — that during the meeting
on September 28, 1987, Luis Co and Rivera "confirmed that the P5.5 million price has been passed
upon by the Committee and could no longer be lowered (TSN of April 27, 1990, pp. 34-35)" . Hence,
39

assuming arguendo that the counter-offer of P4.25 million extinguished the offer of P5.5 million, Luis
Co's reiteration of the said P5.5 million price during the September 28, 1987 meeting revived the
said offer. And by virtue of the September 30, 1987 letter accepting this revived offer, there was a
meeting of the minds, as the acceptance in said letter was absolute and unqualified.

We note that the Bank's repudiation, through Conservator Encarnacion, of Rivera's authority and
action, particularly the latter's counter-offer of P5.5 million, as being "unauthorized and illegal" came
only on May 12, 1988 or more than seven (7) months after Janolo' acceptance. Such delay, and the
absence of any circumstance which might have justifiably prevented the Bank from acting earlier,
clearly characterizes the repudiation as nothing more than a last-minute attempt on the Bank's part
to get out of a binding contractual obligation.

Taken together, the factual findings of the respondent Court point to an implied admission on the part
of the petitioners that the written offer made on September 1, 1987 was carried through during the
meeting of September 28, 1987. This is the conclusion consistent with human experience, truth and
good faith.

It also bears noting that this issue of extinguishment of the Bank's offer of P5.5 million was raised for
the first time on appeal and should thus be disregarded.

This Court in several decisions has repeatedly adhered to the principle that points of law,
theories, issues of fact and arguments not adequately brought to the attention of the trial
court need not be, and ordinarily will not be, considered by a reviewing court, as they cannot
be raised for the first time on appeal (Santos vs. IAC, No. 74243, November 14, 1986, 145
SCRA 592). 40

. . . It is settled jurisprudence that an issue which was neither averred in the complaint nor
raised during the trial in the court below cannot be raised for the first time on appeal as it
would be offensive to the basic rules of fair play, justice and due process (Dihiansan vs. CA,
153 SCRA 713 [1987]; Anchuelo vs. IAC, 147 SCRA 434 [1987]; Dulos Realty &
Development Corp. vs. CA, 157 SCRA 425 [1988]; Ramos vs. IAC, 175 SCRA 70 [1989];
Gevero vs. IAC, G.R. 77029, August 30, 1990). 41

Since the issue was not raised in the pleadings as an affirmative defense, private respondent was
not given an opportunity in the trial court to controvert the same through opposing evidence. Indeed,
this is a matter of due process. But we passed upon the issue anyway, if only to avoid deciding the
case on purely procedural grounds, and we repeat that, on the basis of the evidence already in the
record and as appreciated by the lower courts, the inevitable conclusion is simply that there was a
perfected contract of sale.

The Third Issue: Is the Contract Enforceable?

The petition alleged :


42

Even assuming that Luis Co or Rivera did relay a verbal offer to sell at P5.5 million during the
meeting of 28 September 1987, and it was this verbal offer that Demetria and Janolo
accepted with their letter of 30 September 1987, the contract produced thereby would be
unenforceable by action — there being no note, memorandum or writing subscribed by the
Bank to evidence such contract. (Please see article 1403[2], Civil Code.)

Upon the other hand, the respondent Court in its Decision (p, 14) stated:

. . . Of course, the bank's letter of September 1, 1987 on the official price and the plaintiffs'
acceptance of the price on September 30, 1987, are not, in themselves, formal contracts of
sale. They are however clear embodiments of the fact that a contract of sale was perfected
between the parties, such contract being binding in whatever form it may have been entered
into (case citations omitted). Stated simply, the banks' letter of September 1, 1987, taken
together with plaintiffs' letter dated September 30, 1987, constitute in law a sufficient
memorandum of a perfected contract of sale.

The respondent Court could have added that the written communications commenced not only from
September 1, 1987 but from Janolo's August 20, 1987 letter. We agree that, taken together, these
letters constitute sufficient memoranda — since they include the names of the parties, the terms and
conditions of the contract, the price and a description of the property as the object of the contract.

But let it be assumed arguendo that the counter-offer during the meeting on September 28, 1987 did
constitute a "new" offer which was accepted by Janolo on September 30, 1987. Still, the statute of
frauds will not apply by reason of the failure of petitioners to object to oral testimony proving
petitioner Bank's counter-offer of P5.5 million. Hence, petitioners — by such utter failure to object —
are deemed to have waived any defects of the contract under the statute of frauds, pursuant to
Article 1405 of the Civil Code:
Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of article 1403, are
ratified by the failure to object to the presentation of oral evidence to prove the same, or by
the acceptance of benefits under them.

As private respondent pointed out in his Memorandum, oral testimony on the reaffirmation of the
counter-offer of P5.5 million is a plenty — and the silence of petitioners all throughout the
presentation makes the evidence binding on them thus;

A Yes, sir, I think it was September 28, 1987 and I was again present because Atty. Demetria
told me to accompany him we were able to meet Luis Co at the Bank.

xxx xxx xxx

Q Now, what transpired during this meeting with Luis Co of the Producers Bank?

A Atty. Demetria asked Mr. Luis Co whether the price could be reduced, sir.

Q What price?

A The 5.5 million pesos and Mr. Luis Co said that the amount cited by Mr. Mercurio Rivera is
the final price and that is the price they intends (sic) to have, sir.

Q What do you mean?.

A That is the amount they want, sir.

Q What is the reaction of the plaintiff Demetria to Luis Co's statement (sic) that the defendant
Rivera's counter-offer of 5.5 million was the defendant's bank (sic) final offer?

A He said in a day or two, he will make final acceptance, sir.

Q What is the response of Mr. Luis Co?.

A He said he will wait for the position of Atty. Demetria, sir.

[Direct testimony of Atty. Jose Fajardo, TSN, January 16, 1990, at pp. 18-21.]

Q What transpired during that meeting between you and Mr. Luis Co of the defendant Bank?

A We went straight to the point because he being a busy person, I told him if the amount of
P5.5 million could still be reduced and he said that was already passed upon by the
committee. What the bank expects which was contrary to what Mr. Rivera stated. And he told
me that is the final offer of the bank P5.5 million and we should indicate our position as soon
as possible.

Q What was your response to the answer of Mr. Luis Co?

A I said that we are going to give him our answer in a few days and he said that was it. Atty.
Fajardo and I and Mr. Mercurio [Rivera] was with us at the time at his office.
Q For the record, your Honor please, will you tell this Court who was with Mr. Co in his Office
in Producers Bank Building during this meeting?

A Mr. Co himself, Mr. Rivera, Atty. Fajardo and I.

Q By Mr. Co you are referring to?

A Mr. Luis Co.

Q After this meeting with Mr. Luis Co, did you and your partner accede on (sic) the counter
offer by the bank?

A Yes, sir, we did.? Two days thereafter we sent our acceptance to the bank which offer we
accepted, the offer of the bank which is P5.5 million.

[Direct testimony of Atty. Demetria, TSN, 26 April 1990, at pp. 34-36.]

Q According to Atty. Demetrio Demetria, the amount of P5.5 million was reached by the
Committee and it is not within his power to reduce this amount. What can you say to that
statement that the amount of P5.5 million was reached by the Committee?

A It was not discussed by the Committee but it was discussed initially by Luis Co and the
group of Atty. Demetrio Demetria and Atty. Pajardo (sic) in that September 28, 1987 meeting,
sir.

[Direct testimony of Mercurio Rivera, TSN, 30 July 1990, pp. 14-15.]

The Fourth Issue: May the Conservator Revoke


the Perfected and Enforceable Contract.

It is not disputed that the petitioner Bank was under a conservator placed by the Central Bank of the
Philippines during the time that the negotiation and perfection of the contract of sale took place.
Petitioners energetically contended that the conservator has the power to revoke or overrule actions
of the management or the board of directors of a bank, under Section 28-A of Republic Act No. 265
(otherwise known as the Central Bank Act) as follows:

Whenever, on the basis of a report submitted by the appropriate supervising or examining


department, the Monetary Board finds that a bank or a non-bank financial intermediary
performing quasi-banking functions is in a state of continuing inability or unwillingness to
maintain a state of liquidity deemed adequate to protect the interest of depositors and
creditors, the Monetary Board may appoint a conservator to take charge of the assets,
liabilities, and the management of that institution, collect all monies and debts due said
institution and exercise all powers necessary to preserve the assets of the institution,
reorganize the management thereof, and restore its viability. He shall have the power to
overrule or revoke the actions of the previous management and board of directors of the
bank or non-bank financial intermediary performing quasi-banking functions, any provision of
law to the contrary notwithstanding, and such other powers as the Monetary Board shall
deem necessary.

In the first place, this issue of the Conservator's alleged authority to revoke or repudiate the
perfected contract of sale was raised for the first time in this Petition — as this was not litigated in
the trial court or Court of Appeals. As already stated earlier, issues not raised and/or ventilated in the
trial court, let alone in the Court of Appeals, "cannot be raised for the first time on appeal as it would
be offensive to the basic rules of fair play, justice and due process."43

In the second place, there is absolutely no evidence that the Conservator, at the time the contract
was perfected, actually repudiated or overruled said contract of sale. The Bank's acting conservator
at the time, Rodolfo Romey, never objected to the sale of the property to Demetria and Janolo. What
petitioners are really referring to is the letter of Conservator Encarnacion, who took over from Romey
after the sale was perfected on September 30, 1987 (Annex V, petition) which unilaterally repudiated
— not the contract — but the authority of Rivera to make a binding offer — and which unarguably
came months after the perfection of the contract. Said letter dated May 12, 1988 is reproduced
hereunder:

May 12, 1988

Atty. Noe C. Zarate


Zarate Carandang Perlas & Ass.
Suite 323 Rufino Building
Ayala Avenue, Makati, Metro-Manila

Dear Atty. Zarate:

This pertains to your letter dated May 5, 1988 on behalf of Attys. Janolo and Demetria
regarding the six (6) parcels of land located at Sta. Rosa, Laguna.

We deny that Producers Bank has ever made a legal counter-offer to any of your clients nor
perfected a "contract to sell and buy" with any of them for the following reasons.

In the "Inter-Office Memorandum" dated April 25, 1986 addressed to and approved by former
Acting Conservator Mr. Andres I. Rustia, Producers Bank Senior Manager Perfecto M.
Pascua detailed the functions of Property Management Department (PMD) staff and officers
(Annex A.), you will immediately read that Manager Mr. Mercurio Rivera or any of his
subordinates has no authority, power or right to make any alleged counter-offer. In short,
your lawyer-clients did not deal with the authorized officers of the bank.

Moreover, under Sec. 23 and 36 of the Corporation Code of the Philippines (Bates
Pambansa Blg. 68.) and Sec. 28-A of the Central Bank Act (Rep. Act No. 265, as amended),
only the Board of Directors/Conservator may authorize the sale of any property of the
corportion/bank..

Our records do not show that Mr. Rivera was authorized by the old board or by any of the
bank conservators (starting January, 1984) to sell the aforesaid property to any of your
clients. Apparently, what took place were just preliminary discussions/consultations between
him and your clients, which everyone knows cannot bind the Bank's Board or Conservator.

We are, therefore, constrained to refuse any tender of payment by your clients, as the same
is patently violative of corporate and banking laws. We believe that this is more than
sufficient legal justification for refusing said alleged tender.
Rest assured that we have nothing personal against your clients. All our acts are official,
legal and in accordance with law. We also have no personal interest in any of the properties
of the Bank.

Please be advised accordingly.

Very truly yours,

(Sgd.) Leonida T. Encarnacion


LEONIDA T. EDCARNACION
Acting Conservator

In the third place, while admittedly, the Central Bank law gives vast and far-reaching powers to the
conservator of a bank, it must be pointed out that such powers must be related to the "(preservation
of) the assets of the bank, (the reorganization of) the management thereof and (the restoration of) its
viability." Such powers, enormous and extensive as they are, cannot extend to the post-
facto repudiation of perfected transactions, otherwise they would infringe against the non-impairment
clause of the Constitution . If the legislature itself cannot revoke an existing valid contract, how can
44

it delegate such non-existent powers to the conservator under Section 28-A of said law?

Obviously, therefore, Section 28-A merely gives the conservator power to revoke contracts that are,
under existing law, deemed to be defective — i.e., void, voidable, unenforceable or rescissible.
Hence, the conservator merely takes the place of a bank's board of directors. What the said board
cannot do — such as repudiating a contract validly entered into under the doctrine of implied
authority — the conservator cannot do either. Ineluctably, his power is not unilateral and he cannot
simply repudiate valid obligations of the Bank. His authority would be only to bring court actions to
assail such contracts — as he has already done so in the instant case. A contrary understanding of
the law would simply not be permitted by the Constitution. Neither by common sense. To rule
otherwise would be to enable a failing bank to become solvent, at the expense of third parties, by
simply getting the conservator to unilaterally revoke all previous dealings which had one way or
another or come to be considered unfavorable to the Bank, yielding nothing to perfected contractual
rights nor vested interests of the third parties who had dealt with the Bank.

The Fifth Issue: Were There Reversible Errors of Facts?

Basic is the doctrine that in petitions for review under Rule 45 of the Rules of Court, findings of fact
by the Court of Appeals are not reviewable by the Supreme Court. In Andres vs. Manufacturers
Hanover & Trust Corporation, , we held:
45

. . . The rule regarding questions of fact being raised with this Court in a petition
for certiorari under Rule 45 of the Revised Rules of Court has been stated in Remalante vs.
Tibe, G.R. No. 59514, February 25, 1988, 158 SCRA 138, thus:

The rule in this jurisdiction is that only questions of law may be raised in a petition
for certiorari under Rule 45 of the Revised Rules of Court. "The jurisdiction of the Supreme
Court in cases brought to it from the Court of Appeals is limited to reviewing and revising the
errors of law imputed to it, its findings of the fact being conclusive " [Chan vs. Court of
Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 737, reiterating a long line of
decisions]. This Court has emphatically declared that "it is not the function of the Supreme
Court to analyze or weigh such evidence all over again, its jurisdiction being limited to
reviewing errors of law that might have been committed by the lower court" (Tiongco v. De la
Merced, G. R. No. L-24426, July 25, 1974, 58 SCRA 89; Corona vs. Court of Appeals, G.R.
No. L-62482, April 28, 1983, 121 SCRA 865; Baniqued vs. Court of Appeals, G. R. No. L-
47531, February 20, 1984, 127 SCRA 596). "Barring, therefore, a showing that the findings
complained of are totally devoid of support in the record, or that they are so glaringly
erroneous as to constitute serious abuse of discretion, such findings must stand, for this
Court is not expected or required to examine or contrast the oral and documentary evidence
submitted by the parties" [Santa Ana, Jr. vs. Hernandez, G. R. No. L-16394, December 17,
1966, 18 SCRA 973] [at pp. 144-145.]

Likewise, in Bernardo vs. Court of Appeals , we held:


46

The resolution of this petition invites us to closely scrutinize the facts of the case, relating to
the sufficiency of evidence and the credibility of witnesses presented. This Court so held that
it is not the function of the Supreme Court to analyze or weigh such evidence all over again.
The Supreme Court's jurisdiction is limited to reviewing errors of law that may have been
committed by the lower court. The Supreme Court is not a trier of facts. . . .

As held in the recent case of Chua Tiong Tay vs. Court of Appeals and Goldrock Construction and
Development Corp. : 47

The Court has consistently held that the factual findings of the trial court, as well as the Court
of Appeals, are final and conclusive and may not be reviewed on appeal. Among the
exceptional circumstances where a reassessment of facts found by the lower courts is
allowed are when the conclusion is a finding grounded entirely on speculation, surmises or
conjectures; when the inference made is manifestly absurd, mistaken or impossible; when
there is grave abuse of discretion in the appreciation of facts; when the judgment is premised
on a misapprehension of facts; when the findings went beyond the issues of the case and
the same are contrary to the admissions of both appellant and appellee. After a careful study
of the case at bench, we find none of the above grounds present to justify the re-evaluation
of the findings of fact made by the courts below.

In the same vein, the ruling of this Court in the recent case of South Sea Surety and Insurance
Company Inc. vs. Hon. Court of Appeals, et al. is equally applicable to the present case:
48

We see no valid reason to discard the factual conclusions of the appellate court, . . . (I)t is
not the function of this Court to assess and evaluate all over again the evidence, testimonial
and documentary, adduced by the parties, particularly where, such as here, the findings of
both the trial court and the appellate court on the matter coincide. (emphasis supplied)

Petitioners, however, assailed the respondent Court's Decision as "fraught with findings and
conclusions which were not only contrary to the evidence on record but have no bases at all,"
specifically the findings that (1) the "Bank's counter-offer price of P5.5 million had been determined
by the past due committee and approved by conservator Romey, after Rivera presented the same
for discussion" and (2) "the meeting with Co was not to scale down the price and start negotiations
anew, but a meeting on the already determined price of P5.5 million" Hence, citingPhilippine National
Bank vs. Court of Appeals , petitioners are asking us to review and reverse such factual findings.
49

The first point was clearly passed upon by the Court of Appeals , thus:
50

There can be no other logical conclusion than that when, on September 1, 1987, Rivera
informed plaintiffs by letter that "the bank's counter-offer is at P5.5 Million for more than 101
hectares on lot basis, "such counter-offer price had been determined by the Past Due
Committee and approved by the Conservator after Rivera had duly presented plaintiffs' offer
for discussion by the Committee . . . Tersely put, under the established fact, the price of P5.5
Million was, as clearly worded in Rivera's letter (Exh. "E"), the official and definitive price at
which the bank was selling the property. (p. 11, CA Decision)

xxx xxx xxx

. . . The argument deserves scant consideration. As pointed out by plaintiff, during the
meeting of September 28, 1987 between the plaintiffs, Rivera and Luis Co, the senior vice-
president of the bank, where the topic was the possible lowering of the price, the bank official
refused it and confirmed that the P5.5 Million price had been passed upon by the Committee
and could no longer be lowered (TSN of April 27, 1990, pp. 34-35) (p. 15, CA Decision).

The respondent Court did not believe the evidence of the petitioners on this point, characterizing it
as "not credible" and "at best equivocal and considering the gratuitous and self-serving character of
these declarations, the bank's submissions on this point do not inspire belief."

To become credible and unequivocal, petitioners should have presented then Conservator Rodolfo
Romey to testify on their behalf, as he would have been in the best position to establish their thesis.
Under the rules on evidence , such suppression gives rise to the presumption that his testimony
51

would have been adverse, if produced.

The second point was squarely raised in the Court of Appeals, but petitioners' evidence was deemed
insufficient by both the trial court and the respondent Court, and instead, it was respondent's
submissions that were believed and became bases of the conclusions arrived at.

In fine, it is quite evident that the legal conclusions arrived at from the findings of fact by the lower
courts are valid and correct. But the petitioners are now asking this Court to disturb these findings to
fit the conclusion they are espousing, This we cannot do.

To be sure, there are settled exceptions where the Supreme Court may disregard findings of fact by
the Court of Appeals . We have studied both the records and the CA Decision and we find no such
52

exceptions in this case. On the contrary, the findings of the said Court are supported by a
preponderance of competent and credible evidence. The inferences and conclusions are seasonably
based on evidence duly identified in the Decision. Indeed, the appellate court patiently traversed and
dissected the issues presented before it, lending credibility and dependability to its findings. The best
that can be said in favor of petitioners on this point is that the factual findings of respondent Court
did not correspond to petitioners' claims, but were closer to the evidence as presented in the trial
court by private respondent. But this alone is no reason to reverse or ignore such factual findings,
particularly where, as in this case, the trial court and the appellate court were in common agreement
thereon. Indeed, conclusions of fact of a trial judge — as affirmed by the Court of Appeals — are
conclusive upon this Court, absent any serious abuse or evident lack of basis or capriciousness of
any kind, because the trial court is in a better position to observe the demeanor of the witnesses and
their courtroom manner as well as to examine the real evidence presented.

Epilogue.

In summary, there are two procedural issues involved forum-shopping and the raising of issues for
the first time on appeal [viz., the extinguishment of the Bank's offer of P5.5 million and the
conservator's powers to repudiate contracts entered into by the Bank's officers] — which per
se could justify the dismissal of the present case. We did not limit ourselves thereto, but delved as
well into the substantive issues — the perfection of the contract of sale and its enforceability, which
required the determination of questions of fact. While the Supreme Court is not a trier of facts and as
a rule we are not required to look into the factual bases of respondent Court's decisions and
resolutions, we did so just the same, if only to find out whether there is reason to disturb any of its
factual findings, for we are only too aware of the depth, magnitude and vigor by which the parties
through their respective eloquent counsel, argued their positions before this Court.

We are not unmindful of the tenacious plea that the petitioner Bank is operating abnormally under a
government-appointed conservator and "there is need to rehabilitate the Bank in order to get it back
on its feet . . . as many people depend on (it) for investments, deposits and well as employment. As
of June 1987, the Bank's overdraft with the Central Bank had already reached P1.023 billion . . . and
there were (other) offers to buy the subject properties for a substantial amount of money." 53

While we do not deny our sympathy for this distressed bank, at the same time, the Court cannot
emotionally close its eyes to overriding considerations of substantive and procedural law, like
respect for perfected contracts, non-impairment of obligations and sanctions against forum-
shopping, which must be upheld under the rule of law and blind justice.

This Court cannot just gloss over private respondent's submission that, while the subject properties
may currently command a much higher price, it is equally true that at the time of the transaction in
1987, the price agreed upon of P5.5 million was reasonable, considering that the Bank acquired
these properties at a foreclosure sale for no more than P3.5 million . That the Bank procrastinated
54

and refused to honor its commitment to sell cannot now be used by it to promote its own advantage,
to enable it to escape its binding obligation and to reap the benefits of the increase in land values. To
rule in favor of the Bank simply because the property in question has algebraically accelerated in
price during the long period of litigation is to reward lawlessness and delays in the fulfillment of
binding contracts. Certainly, the Court cannot stamp its imprimatur on such outrageous proposition.

WHEREFORE, finding no reversible error in the questioned Decision and Resolution, the Court
hereby DENIES the petition. The assailed Decision is AFFIRMED. Moreover, petitioner Bank is
REPRIMANDED for engaging in forum-shopping and WARNED that a repetition of the same or
similar acts will be dealt with more severely. Costs against petitioners.

SO ORDERED.

¢ Abacus Real Estate Dev. Center vs. Manila Banking Corp. 452 SCRA 97 (2005)

Abacus Real Estate Development v Manila


Banking Corp G.R. No. 162270. April
06, 2005
The appointment of a receiver operates to suspend the authority of the
bank and of its directors and officers over its property and effects,
such authority being reposed in the receiver, and in this respect, the
receivership is equivalent to an injunction to restrain the bank officers
from intermeddling with the property of the bank in any way.
Facts: Manila Banking Corporation (Manila Bank, for brevity), owns a 1,435-
square meter parcel of land located along Gil Puyat Avenue Extension, Makati
City and covered by Transfer Certificate of Title (TCT) No. 132935 of the Registry
of Deeds of Makati. Prior to 1984, the bank began constructing on said land a
14-storey building. Not long after, however, the bank encountered financial
difficulties that rendered it unable to finish construction of the building. Central
Bank of the Philippines, now Bangko Sentral ng Pilipinas, ordered the closure of
Manila Bank and placed it under receivership, with Feliciano Miranda, Jr. being
initially appointed as Receiver. The legality of the closure was contested by the
bank before the proper court. Manila Bank’s then acting president, the late
Vicente G. Puyat, in a bid to save the bank’s investment, started scouting for
possible investors who could finance the completion of the building earlier
mentioned.

A group of investors, represented by Calixto Y. Laureano (hereafter referred to


as Laureano group), wrote Vicente G. Puyat offering to lease the building for ten
(10) years and to advance the cost to complete the same, with the advanced
cost to be amortized and offset against rental payments during the term of the
lease. Likewise, the letter-offer stated that in consideration of advancing the
construction cost, the group wanted to be given the “exclusive option to
purchase” the building and the lot on which it was constructed. Vicente G. Puyat
accepted the Laureano group’s offer and granted it an “exclusive option to
purchase” the lot and building for One Hundred Fifty Million Pesos
(P150,000,000.00). Later, or on October 31, 1989, the building was leased to
MEQCO for a period of ten (10) years pursuant to a contract of lease bearing
that date. MEQCO subleased the property to petitioner Abacus Real Estate
Development Center, Inc. (Abacus, for short), a corporation formed by the
Laureano group for the purpose, under identical provisions as that of the
October 31, 1989 lease contract between Manila Bank and MEQCO.

Issue: Whether or not Vicente Puyat, acting as president of Manila Bank, has the
power to sell the disputed properties.

Held: There can be no quibbling that respondent Manila Bank was under
receivership, pursuant to Central Bank’s MB Resolution No. 505 dated May 22,
1987, at the time the late Vicente G. Puyat granted the “exclusive option to
purchase” to the Laureano group of investors. Owing to this defining reality, the
appellate court was correct in declaring that Vicente G. Puyat was without
authority to grant the exclusive option to purchase the lot and building in
question. The invocation by the appellate court of the following pronouncement
inVillanueva vs. Court of Appeals was apropos, to say the least the assets of the
bank pass beyond its control into the possession and control of the receiver
whose duty it is to administer the assets for the benefit of the creditors of the
bank. Thus, the appointment of a receiver operates to suspend the authority of
the bank and of its directors and officers over its property and effects, such
authority being reposed in the receiver, and in this respect, the receivership is
equivalent to an injunction to restrain the bank officers from intermeddling with
the property of the bank in any way. With respondent bank having been already
placed under receivership, its officers, inclusive of its acting president, Vicente
G. Puyat, were no longer authorized to transact business in connection with the
bank’s assets and property. Clearly then, the “exclusive option to purchase”
granted by Vicente G. Puyat was and still is unenforceable against Manila Bank.

Concededly, a contract unenforceable for lack of authority by one of the parties


may be ratified by the person in whose name the contract was executed.
However, even assuming, in gratia argumenti, that Atty. Renan Santos, Manila
Bank’s receiver, approved the “exclusive option to purchase” granted by Vicente
G. Puyat, the same would still be of no force and effect.

ABACUS REAL ESTATE DEVELOPMENT CENTER, INC., petitioner,


vs. THE MANILA BANKING CORPORATION, respondent.

DECISION
GARCIA, J.:

Thru this appeal by way of a petition for review on certiorari under Rule 45
of the Rules of Court, petitioner Abacus Real Estate Development Center,
Inc. seeks to set aside the following issuances of the Court of Appeals in CA-
G.R. CV No. 64877, to wit:
1. Decision dated May 26, 2003,[1] reversing an earlier decision of the Regional Trial
Court at Makati City, Branch 59, in an action for specific performance and damages
thereat commenced by the petitioner against the herein respondent Manila
Banking Corporation; and
2. Resolution of February 17, 2004,[2] denying petitioners motion for reconsideration.

The petition is casts against the following factual backdrop:


Respondent Manila Banking Corporation (Manila Bank, for brevity), owns
a 1,435-square meter parcel of land located along Gil Puyat Avenue
Extension, Makati City and covered by Transfer Certificate of Title (TCT) No.
132935 of the Registry of Deeds of Makati. Prior to 1984, the bank began
constructing on said land a 14-storey building. Not long after, however, the
bank encountered financial difficulties that rendered it unable to finish
construction of the building.
On May 22, 1987, the Central Bank of the Philippines, now Bangko
Sentral ng Pilipinas, ordered the closure of Manila Bank and placed it under
receivership, with Feliciano Miranda, Jr. being initially appointed as Receiver.
The legality of the closure was contested by the bank before the proper court.
On November 11, 1988, the Central Bank, by virtue of Monetary Board
(MB) Resolution No. 505, ordered the liquidation of Manila Bank and
designated Atty. Renan V. Santos as Liquidator. The liquidation, however, was
held in abeyance pending the outcome of the earlier suit filed by Manila Bank
regarding the legality of its closure. Consequently, the designation of Atty.
Renan V. Santos as Liquidator was amended by the Central Bank on
December 22, 1988 to that of Statutory Receiver.
In the interim, Manila Banks then acting president, the late Vicente G.
Puyat, in a bid to save the banks investment, started scouting for possible
investors who could finance the completion of the building earlier mentioned.
On August 18, 1989, a group of investors, represented by Calixto Y. Laureano
(hereafter referred to as Laureano group), wrote Vicente G. Puyat offering to
lease the building for ten (10) years and to advance the cost to complete the
same, with the advanced cost to be amortized and offset against rental
payments during the term of the lease. Likewise, the letter-offer stated that in
consideration of advancing the construction cost, the group wanted to be
given the exclusive option to purchase the building and the lot on which it was
constructed.
Since no disposition of assets could be made due to the litigation
concerning Manila Banks closure, an arrangement was thought of whereby
the property would first be leased to Manila Equities Corporation (MEQCO,
for brevity), a wholly-owned subsidiary of Manila Bank, with MEQCO
thereafter subleasing the property to the Laureano group.
In a letter dated August 30, 1989, Vicente G. Puyat accepted the Laureano
groups offer and granted it an exclusive option to purchase the lot and
building for One Hundred Fifty Million Pesos (P150,000,000.00). Later, or on
October 31, 1989, the building was leased to MEQCO for a period of ten (10)
years pursuant to a contract of lease bearing that date. On March 1, 1990,
MEQCO subleased the property to petitioner Abacus Real Estate
Development Center, Inc. (Abacus, for short), a corporation formed by the
Laureano group for the purpose, under identical provisions as that of the
October 31, 1989 lease contract between Manila Bank and MEQCO.
The Laureano group was, however, unable to finish the building due to the
economic crisis brought about by the failed December 1989 coup attempt. On
account thereof, the Laureano group offered its rights in Abacus and
its exclusive option to purchase to Benjamin Bitanga (Bitanga hereinafter),
for Twenty Million Five Hundred Thousand Pesos (P20,500,000.00). Bitanga
would later allege that because of the substantial amount involved, he first
had to talk with Atty. Renan Santos, the Receiver appointed by the Central
Bank, to discuss Abacus offer. Bitanga further alleged that, over lunch, Atty.
Santos then verbally approved his entry into Abacus and his take-over of the
sublease and option to purchase.
On March 30, 1990, the Laureano group transferred and assigned to
Bitanga all of its rights in Abacus and the exclusive option to purchase the
subject land and building.
On September 16, 1994, Abacus sent a letter to Manila Bank informing the
latter of its desire to exercise its exclusive option to purchase. However,
Manila Bank refused to honor the same.
Such was the state of things when, on November 10, 1995, in the
Regional Trial Court (RTC) at Makati, Abacus Real Estate Development
Center, Inc. filed a complaint[3]for specific performance and damages against
Manila Bank and/or the Estate of Vicente G. Puyat. In its complaint, docketed
as Civil Case No. 96-1638 and raffled to Branch 59 of the court, plaintiff
Abacus prayed for a judgment ordering Manila Bank, inter alia, to sell, transfer
and convey unto it for P150,000,000.00 the land and building in dispute free
from all liens and encumbrances, plus payment of damages and attorneys
fees.
Subsequently, defendant Manila Bank, followed a month later by its co-
defendant Estate of Vicente G. Puyat, filed separate motions to dismiss the
complaint.
In an Order dated April 15, 1996, the trial court granted the motion to
dismiss filed by the Estate of Vicente G. Puyat, but denied that of Manila Bank
and directed the latter to file its answer.
Before plaintiff Abacus could adduce evidence but after pre-trial, defendant
Manila Bank filed a Motion for Partial Summary Judgment, followed by
a Supplement to Motion for Partial Summary Judgment. While initially
opposed, Abacus would later join Manila Bank in submitting the case for
summary judgment.
Eventually, in a decision dated May 27, 1999,[4] the trial court rendered
judgment for Abacus in accordance with the latters prayer in its complaint,
thus:

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


plaintiff as follows:

1. Ordering the defendant [Manila Bank] to immediately sell to plaintiff the parcel of
land and building, with an area of 1,435 square meters and covered by TCT No.
132935 of the Makati Registry of Deeds, situated along Sen. Gil J. Puyat Ave. in
Makati City, at the price of One Hundred Fifty Million (P150,000.000.00) Pesos in
accordance with the said exclusive option to purchase, and to execute the appropriate
deed of sale therefor in favor of plaintiff;
2. Ordering the defendant [Manila Bank] to pay plaintiff the amount of Two Million
(P2,000,000.00) Pesos representing reasonable attorneys fees;

3. Ordering the DISMISSAL of defendants counterclaim, for lack of merit; and

4. With costs against the defendant.

SO ORDERED.

Its motion for reconsideration of the aforementioned decision having been


denied by the trial court in its Order of August 17, 1999, [5] Manila Bank then
went on to the Court of Appeals whereat its appellate recourse was docketed
as CA-G.R. CV No. 64877.
As stated at the threshold hereof, the Court of Appeals, in a decision
dated May 26, 2003,[6] reversed and set aside the appealed decision of the
trial court, thus:

WHEREFORE, finding serious reversible error, the appeal is GRANTED.

The Decision dated May 27, 1999 of the Regional Trial Court of Makati City, Branch
59 is REVERSED and SET ASIDE.

Cost of the appeal to be paid by the appellee.

SO ORDERED.

On June 25, 2003, Abacus filed a Motion for Reconsideration, followed,


with leave of court, by an Amended Motion for Reconsideration. Pending
resolution of its motion for reconsideration, as amended, Abacus filed a
Motion to Dismiss Appeal,[7] therein praying for the dismissal of Manila Banks
appeal from the RTC decision of May 27, 1999, contending that said appeal
was filed out of time.
In its Resolution of February 17, 2004,[8] the appellate court denied
Abacus aforementioned motion for reconsideration.
Hence, this recourse by petitioner Abacus Real Estate Development
Center, Inc.
As we see it, two (2) issues commend themselves for the resolution of the
Court, namely:
WHETHER OR NOT RESPONDENT BANKS APPEAL TO THE COURT OF
APPEALS WAS FILED ON TIME; and

WHETHER OR NOT PETITIONER ABACUS HAS ACQUIRED THE RIGHT TO


PURCHASE THE LOT AND BUILDING IN QUESTION.

We rule for respondent Manila Bank on both issues.


Addressing the first issue, petitioner submits that respondent banks appeal
to the Court of Appeals from the adverse decision of the trial court was
belatedly filed. Elaborating thereon, petitioner alleges that respondent bank
received a copy of the May 27, 1999 RTC decision on June 22, 1999, hence,
petitioner had 15 days, or only up to July 7, 1999 within which to take an
appeal from the same decision or move for a reconsideration thereof.
Petitioner alleges that respondent furnished the trial court with a copy of its
Motion for Reconsideration only on July 7, 1999, the last day for filing an
appeal. Under Section 3, Rule 41 of the 1997 Rules of Civil Procedure, the
period of appeal shall be interrupted by a timely motion for new trial or
reconsideration. Since, according to petitioner, respondent filed its Motion for
Reconsideration on the last day of the period to appeal, it only had one (1)
more day within which to file an appeal, so much so that when it received on
August 23, 1999 a copy of the trial courts order denying its Motion for
Reconsideration, respondent bank had only up to August 24, 1999 within
which to file the corresponding appeal. As respondent bank appealed the
decision of the trial court only on August 25, 1999, petitioner thus argues that
respondents appeal was filed out of time.
As a counterpoint, respondent alleges that it sent the trial court a copy of
its Motion for Reconsideration on July 6, 1999, through registered mail.
Having sent a copy of its Motion for Reconsideration to the trial court with still
two (2) days left to appeal, respondent then claims that its filing of an appeal
on August 25, 1999, two (2) days after receiving the Order of the trial court
denying its Motion for Reconsideration, was within the reglementary period.
Agreeing with respondent, the appellate court declared that respondents
appeal was filed on time. Explained that court in its Resolution of February 17,
2004, denying petitioners motion for reconsideration:

Firstly, the file copy of the motion for reconsideration contains the written annotations
Registry Receipt No. 1633 Makati P.O. 7-6-99 in its page 13. The presence of the
annotations proves that the motion for reconsideration was truly filed by registered
mail on July 6, 1999 through registry receipt no. 1633.
Secondly, the appellants manifestation filed in the RTC personally on July 7, 1999
contains the following self-explanatory statements, to wit:

2. Defendant [Manila Bank] also filed with this Honorable Court a Motion for
Reconsideration of the Decision dated 27 May 1999 promulgated by this Honorable
Court in this case, and served a copy thereof to the plaintiff, by registered mail
yesterday, 6 July 1999, due to lack of material time and messenger to effect personal
service and filing.

3. In order for this Honorable Court to be able to review defendant [Manila Banks]
Motion for Reconsideration without awaiting the mailed copy, defendant [Manila
Bank] is now furnishing this Honorable Court with a copy of said motion, as well as
the entry of appearance, by personal service.

The aforecited reference in the manifestation to the mailing of the motion for
reconsideration on July 6, 1999, in light of the handwritten annotations adverted to
herein, renders beyond doubt the appellants insistence of filing through registered
mail on July 6, 1999.

Thirdly, the registry return cards attached to the envelopes separately addressed and
mailed to the RTC and the appellees counsel, found in pages 728 and 729 of the rollo,
indicate that the contents were the motion for reconsideration and the formal entry of
appearance. Although the appellee argues that the handwritten annotations of what
were contained by the envelopes at the time of mailing was easily self-serving, the
fact remains that the envelope addressed to the appellees counsel appears thereon to
have been received on July 6, 1999 (7/6/99), which enhances the probability of
the motion for reconsideration being mailed, hence filed, on July 6, 1999, as claimed
by the appellant.

Fourthly, the certification issued on October 2, 2003 by Atty. Jayme M. Luy, Branch
Clerk of Court, Branch 59, RTC in Makati City, has no consequence because Atty.
Luy based his data only on page 3 of the 1995 Civil Case Docket Book without
reference to the original records which were already with the Court of Appeals.

Fifthly, since the appellant received the denial of the motion for reconsideration on
August 23, 1999, it had until August 25, 1999 within which to perfect its appeal from
the decision of the RTC because 2 days remained in its reglementary period to appeal.
It is not disputed that the appellant filed its notice of appeal and paid the appellate
court docket fees on August 25, 1999.

These circumstances preponderantly demonstrate that the appellants appeal was not
late by one day. (Emphasis in the original)
Petitioner would, however, contest the above findings of the appellate
court, stating, among other things, that if it were true that respondent filed its
Motion for Reconsideration by registered mail and then furnished the trial
court with a copy of said Motion the very next day, then the rollo should have
had two copies of the Motion for Reconsideration in question. Respondent, on
the other hand, insists that it indeed filed a Motion for Reconsideration on July
6, 1999 through registered mail.
It is evident that the issue raised by petitioner relates to the correctness of
the factual finding of the Court of Appeals as to the precise date when
respondent filed its motion for reconsideration before the trial court. Such
issue, however, is beyond the province of this Court to review. It is not the
function of the Court to analyze or weigh all over again the evidence or
premises supportive of such factual determination.[9] The Court has
consistently held that the findings of the Court of Appeals and other lower
courts are, as a rule, accorded great weight, if not binding upon it,[10] save for
the most compelling and cogent reasons.[11] As nothing in the record indicates
any of such exceptions, the factual conclusion of the appellate court that
respondent filed its appeal on time, supported as it is by substantial evidence,
must be affirmed.
Going to the second issue, petitioner insists that the option to purchase
the lot and building in question granted to it by the late Vicente G. Puyat, then
acting president of Manila Bank, was binding upon the latter. On the other
hand, respondent has consistently maintained that the late Vicente G. Puyat
had no authority to act for and represent Manila Bank, the latter having been
placed under receivership by the Central Bank at the time of the granting of
the exclusive option to purchase.
There can be no quibbling that respondent Manila Bank was under
receivership, pursuant to Central Banks MB Resolution No. 505 dated May
22, 1987, at the time the late Vicente G. Puyat granted the exclusive option to
purchase to the Laureano group of investors. Owing to this defining reality, the
appellate court was correct in declaring that Vicente G. Puyat was without
authority to grant the exclusive option to purchase the lot and building in
question. The invocation by the appellate court of the following
pronouncement in Villanueva vs. Court of Appeals[12] was apropos, to say the
least:

the assets of the bank pass beyond its control into the possession and control of the
receiver whose duty it is to administer the assets for the benefit of the creditors of the
bank. Thus, the appointment of a receiver operates to suspend the authority of the
bank and of its directors and officers over its property and effects, such authority
being reposed in the receiver, and in this respect, the receivership is equivalent to an
injunction to restrain the bank officers from intermeddling with the property of the
bank in any way.

With respondent bank having been already placed under receivership, its
officers, inclusive of its acting president, Vicente G. Puyat, were no longer
authorized to transact business in connection with the banks assets and
property. Clearly then, the exclusive option to purchase granted by Vicente G.
Puyat was and still is unenforceable against Manila Bank.[13]
Petitioner, however, asseverates that the exclusive option to purchase was
ratified by Manila Banks receiver, Atty. Renan Santos, during a lunch meeting
held with Benjamin Bitanga in March 1990.
Petitioners argument is tenuous at best. Concededly, a contract
unenforceable for lack of authority by one of the parties may be ratified by the
person in whose name the contract was executed. However, even assuming,
in gratia argumenti, that Atty. Renan Santos, Manila Banks receiver, approved
the exclusive option to purchase granted by Vicente G. Puyat, the same would
still be of no force and effect.
Section 29 of the Central Bank Act, as amended,[14] pertinently provides:

Sec. 29. Proceedings upon insolvency. Whenever, upon examination by the head of
the appropriate supervising and examining department or his examiners or agents into
the condition of any banking institution, 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, and the Board may,
upon finding the statements of the department head to be true, forbid the institution to
do business in the Philippines and shall designate an official of the Central Bank 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 benefit of
its creditors, exercising all the powers necessary for these purposes including, but not
limited to, bringing suits and foreclosing mortgages in the name of the banking
institution. (Emphasis supplied)

Clearly, the receiver appointed by the Central Bank to take charge of the
properties of Manila Bank only had authority to administer the same for the
benefit of its creditors. Granting or approving an exclusive option to
purchase is not an act of administration, but an act of strict ownership,
involving, as it does, the disposition of property of the bank. Not being an act
of administration, the so-called approval by Atty. Renan Santos amounts to no
approval at all, a bank receiver not being authorized to do so on his own.
For sure, Congress itself has recognized that a bank receiver only has
powers of administration. Section 30 of the New Central Bank Act[15] expressly
provides that [t]he receiver shall immediately gather and take charge of all the
assets and liabilities of the institution, administer the same for the benefit of its
creditors, and exercise the general powers of a receiver under the Revised
Rules of Court but shall not, with the exception of administrative expenditures,
pay or commit any act that will involve the transfer or disposition of any asset
of the institution
In all, respondent banks receiver was without any power to approve or
ratify the exclusive option to purchase granted by the late Vicente G. Puyat,
who, in the first place, was himself bereft of any authority, to bind the bank
under such exclusive option. Respondent Manila Bank may not thus be
compelled to sell the land and building in question to petitioner Abacus under
the terms of the latters exclusive option to purchase.
WHEREFORE, the instant petition is DENIED and the challenged
issuances of the Court of Appeals AFFIRMED.
Costs against petitioner.
SO ORDERED.

¢ Rural Bank of Buhi vs. CA, 162 SCRA 288 (1988)


Rural Bank of Buhi vs CA Case Digest

GR 61689 ; June 20, 1988 ; 162 SCRA 288


DOCTRINE/S:

Banking Law

a) Conditions prerequisite to the action of the Monetary Board to forbid the institution to do business in the
Philippines and to appoint a receiver to immediately take charge of the bank's assets and liabilities:

(a) an examination made by the examining department of the Central Bank;

(b) report by said department to the Monetary Board; and

(c) prima facie showing that the bank is in a condition of insolvency or so situated that its continuance in
business would involve probable loss to its depositors or creditors
b) Whenever it shall appear prima facie that a banking institution is in "a condition of insolvency" or so
situated "that its continuance in business would involved probable loss to its depositors or creditors," the
Monetary Board has authority:

(1) Forbid the institution to do business and appoint a receiver therefor; and

(2) Determine within 60 days whether or not:

i) the institution may be reorganized and rehabilitated to such an extent as to be permitted to resume
business with safety to depositors, creditors and the general public; or

ii) it is indeed insolvent or cannot resume business with safety to depositors, creditors and the general
public, and public interest requires that it be liquidated.

-liquidation will be ordered and a liquidator appointed by the Monetary Board. The Central Bank shall
thereafter file a petition in the Regional Trial Court praying for the Court's assistance in the liquidation of
the bank." ... (Salud vs. Central Bank, 143 SCRA 590 [1986]).

c) How a banking institution should assert that a resolution of the Monetary Board under Section 29 of the
Central Bank Act should be set aside as plainly arbitrary and made in bad faith:

1) affirmative defense (Sections 1 and 4[b], Rule 6, Rules of Court)

2) counterclaim (Section 6, Rule 6; Section 2, Rule 72 of the Rules of Court)

Where:

a) In the proceedings for assistance in liquidation, or

b) as a cause of action in a separate and distinct action where the latter was filed ahead of the petition for
assistance in liquidation (Central Bank vs. Court of Appeals, 106 SCRA 143 [1981]).

Constitutional Law

a) Due process

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.

FACTS:

Short version: The bank was placed under receivership by the Monetary Board. The Bank claims that
what the Monetary Board has done was a violation of due process since they did not receive any notice
prior to the Bank being placed under receivership.
Long version: The Rural Bank of Buhi (Bank) was placed under receivership and designated respondent
Odra as Receiver pursuant to the provisions of Section 29 of Republic Act No. 265 as
amended. Odra implemented and carried out said Monetary Board Resolution No. 583 by authorizing
deputies of the receiver to take control, possession and charge of the Bank, its assets and liabilities. The
Bank filed a petition for injunction with Restraining Order against respondent Odra and DRBSLAassailing
the action of herein respondent Odra in recommending the receivership over the Bank as aviolation of the
provisions of Sections 28 and 29 of Republic Act No. 265 as amended, and Section 10 of Republic Act
No. 720 (The Rural Banks Act) and as being ultra vires and done with grave abuse of discretion and in
excess of jurisdiction. Respondents filed their motion to dismiss alleging that the petition did not allege a
cause of action and is not sufficient in form and substance. Petitioners filed anopposition to the motion to
dismiss averring that the petition alleged a valid cause of action and that respondents have violated the
due process clause of the Constitution. Thereafter the Central Bank Monetary Board issued a Resolution
ordering the liquidation of the Bank. The RTC ruled in favor of the Bank and issued a writ of execution.
The CA however restrained the enforcement of the execution.

ISSUE/S: WON due process was violated.

HELD: NO. Republic Act No. 265 does not require that a hearing be first conducted before a banking
institution may be placed under receivership. Rather it provides the conditions prerequisite to the action of
the Monetary Board to forbid the institution to do business in the Philippines and toappoint a receiver to
immediately take charge of the bank's assets and liabilities. They are: (a) anexamination made by the
examining department of the Central Bank; (b) report by said department to the Monetary Board; and
(c) prima facie showing that the bank is in a condition of insolvency or so situated that its continuance in
business would involve probable loss to its depositors or creditors.

The petitioner’s contention that no property shall be taken without due process of law is guaranteed under
the consitution is without merit. It has long been established that the closure and liquidation of a bank may
be considered as an exercise of police power. Such exercise may, however, be subject to judicial
inquiry and could be set aside if found to be capricious, discriminatory, whimsical, arbitrary, unjust or a
denial of the due process and equal protection clauses of the Constitution (Central Bank vs. Court of
Appeals, 106 SCRA 155 [1981]).

Hence, Appointment of a receiver may be made by the Monetary Board without notice and hearing but its
action is subject to judicial inquiry. Due process does not necessarily require a prior hearing; ahearing 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.
Furthermore, a banking institution's claim that a resolution of the Monetary Board under Section 29 of the
Central Bank Act should be set aside as plainly arbitrary and made in bad faith, may be assertedas
an affirmative defense (Sections 1 and 4[b], Rule 6, Rules of Court) or a counterclaim (Section 6, Rule 6;
Section 2, Rule 72 of the Rules of Court) in the proceedings for assistance in liquidation or as a cause of
action in a separate and distinct action where the latter was filed ahead of the petition for assistance in
liquidation (ibid; Central Bank vs. Court of Appeals, 106 SCRA 143 [1981]).

G.R. No. L-61689 June 20, 1988

RURAL BANK OF BUHI, INC., and HONORABLE JUDGE CARLOS R. BUENVIAJE, petitioners,
vs.
HONORABLE COURT OF APPEALS, CENTRAL BANK OF THE PHILIPPINES and
CONSOLACION ODRA, respondents.

Manuel B. Tomacruz and Rustico Pasilavan for petitioners.

I.B. Regalado, Jr. and Pacifica T. Torres for respondents.

PARAS, J.:

This is a petition for review on certiorari with preliminary mandatory injunction seeking the reversal of the orders of the Court of Appeals
dated March 19, 1982 and March 24, 1982 and its decision * (HATOL) promulgated on June 17,1982 in CA-G.R. No. 13944 entitled "Banko
Central ng Pilipinas at Consolacion Odra Laban Kina Rural Bank of Buhi (Camarines Sur), Inc." and praying for a restraining order or a
preliminary mandatory injunction to restrain respondents from enforcing aforesaid orders and decision of the respondent Court, and to give
due course to the petitioners' complaint in IR-428, pending before Hon. Judge Carlos R. Buenviaje of Branch VII, CFI, Camarines Sur.

The decretal portion of the appealed decision reads:

DAHIL DITO, ang utos ng pinasasagot sa Hukom noong ika-9 ng Marso, 1982, ay
isinasang-tabi. Kapalit nito, isang utos and ipinalabas na nag-uutos sa pinasasagot
sa Hukom na itigil ang anumang pagpapatuloy o pagdidinig kaugnay sa usaping IR-
428 na pinawawalang saysay din ng Hukumang ito.

SIYANG IPINAG-UUTOS.

The antecedent facts of the case are as follows:

The petitioner Rural Bank of Buhi, Inc. (hereinafter referred to as Buhi) is a juridical entity existing
under the laws of the Philippines. Buhi is a rural bank that started its operations only on December
26,1975 (Rollo, p. 86).

In 1980, an examination of the books and affairs of Buhi was ordered conducted by the Rural Banks
and Savings and Loan Association (DRBSLA), Central Bank of the Philippines, which by law, has
charge of the supervision and examination of rural banks and savings and loan associations in the
Philippines. However, said petitioner refused to be examined and as a result thereof, financial
assistance was suspended.

On January 10, 1980, a general examination of the bank's affairs and operations was conducted and
there were found by DRBSLA represented by herein respondent, Consolacion V. Odra, Director of
DRBSLA, among others, massive irregularities in its operations consisting of loans to unknown and
fictitious borrowers, where the sum of P 1,704,782.00 was past due and another sum
of P1,130,000.00 was also past due in favor of the Central Bank (Rollo, p. 86). The promissory notes
evidencing these loans were rediscounted with the Central Bank for cash. As a result thereof, the
bank became insolvent and prejudiced its depositors and creditors.

Respondent, Consolacion V. Odra, submitted a report recommending to the Monetary Board of the
Central Bank the placing of Buhi under receivership in accordance with Section 29 of Republic Act
No. 265, as amended, the designation of the Director, DRBSLA, as receiver thereof. On March 28,
1980, the Monetary Board, finding the report to be true, adopted Resolution No. 583
placing Buhi, petitioner herein, under receivership and designated respondent, Consolacion V. Odra,
as Receiver, pursuant to the provisions of Section 29 of Republic Act No. 265 as amended (Rollo, p.
111).

In a letter dated April 8, 1980, respondent Consolacion V. Odra, as receiver, implemented and
carried out said Monetary Board Resolution No. 583 by authorizing deputies of the receiver to take
control, possession and charge of Buhi, its assets and liabilities (Rollo, p. 109).

Imelda del Rosario, Manager of herein petitioner Buhi, filed a petition for injunction with Restraining
Order dated April 23, 1980, docketed as Special Proceedings IR-428 against respondent
Consolacion V. Odra and DRBSLA deputies in the Court of First Instance of Camarines Sur, Branch
VII, Iriga City, entitled Rural Bank of Buhi vs. Central Bank, which assailed the action of herein
respondent Odra in recommending the receivership over Buhi as a violation of the provisions of
Sections 28 and 29 of Republic Act No. 265 as amended, and Section 10 of Republic Act No. 720
(The Rural Banks Act) and as being ultra vires and done with grave abuse of discretion and in
excess of jurisdiction (Rollo, p. 120).

Respondents filed their motion to dismiss dated May 27, 1980 alleging that the petition did not allege
a cause of action and is not sufficient in form and substance and that it was filed in violation of
Section 29, Republic Act No. 265 as amended by Presidential Decree No. 1007 (Rollo, p. 36).

Petitioners, through their counsel, filed an opposition to the motion to dismiss dated June 17, 1980
averring that the petition alleged a valid cause of action and that respondents have violated the due
process clause of the Constitution (Rollo, p. 49).

Later, respondents filed a reply to the opposition dated July 1, 1980, claiming that the petition is not
proper; that Imelda del Rosario is not the proper representative of the bank; that the petition failed to
state a cause of action; and, that the provisions of Section 29 of Republic Act No. 265 had been
faithfully observed (Rollo, p. 57).

On August 22, 1980, the Central Bank Monetary Board issued a Resolution No. 1514 ordering the
liquidation of the Rural Bank of Buhi (Rollo, p. 108).

On September 1, 1981, the Office of the Solicitor General, in accordance with Republic Act No. 265,
Section 29, filed in the same Court of First Instance of Camarines Sur, Branch VII, a petition for
Assistance in the Liquidation of Buhi, which petition was docketed as SP-IR-553, pursuant to the
Monetary Board Resolution No. 1514 (Rollo, pp. 89; 264).

Meanwhile, respondent Central Bank filed on September 15, 1981, in Civil Case No. IR-428 a
Supplemental Motion To Dismiss on the ground that the receivership of Buhi, in view of the issuance
of the Monetary Board Resolution No. 1514 had completely become moot and academic (Rollo, p.
68) and the fact that Case SP-IR-553 for the liquidation of Buhi was already pending with the same
Court (Rollo, p. 69).
On October 16, 1981, petitioners herein filed their amended complaint in Civil Case No. IR-428
alleging that the issuance of Monetary Board Resolution No. 583 was plainly arbitrary and in bad
faith under aforequoted Section 29 of Republic Act No. 265 as amended, among others (Rollo, p.
28). On the same day, petitioner herein filed a rejoinder to its opposition to the motion to dismiss
(Rollo, p. 145).

On March 9,1982, herein petitioner Judge Buenviaje, issued an order denying the respondents'
motion to dismiss, supplemental motion to dismiss and granting a temporary restraining order
enjoining respondents from further managing and administering the Rural Bank of Buhi and to
deliver the possession and control thereof to the petitioner Bank under the same conditions and with
the same financial status as when the same was taken over by herein respondents (defendants) on
April 16, 1980 and further enjoining petitioner to post a bond in the amount of three hundred
thousand pesos (P300,000.00) (Rollo, p. 72).

The dispositive portion of said decision reads:

WHEREFORE, premises considered, the motion to dismiss and supplemental motion


to dismiss, in the light of petitioners' opposition, for want of sufficient merit is denied.
Respondents are hereby directed to file their answer within ten (10) days from receipt
of a copy of this order. (Rollo, p. 4).

On March 11, 1982, petitioner Buhi through counsel, conformably with the above-mentioned order,
filed a Motion to Admit Bond in the amount of P300,220.00 (Rollo, pp. 78-80).

On March 15,1982, herein petitioner Judge issued the order admitting the bond of P300,220.00 filed
by the petitioner, and directing the respondents to surrender the possession of the Rural Bank of
Buhi, together with all its equipments, accessories, etc. to the petitioners (Rollo, p. 6).

Consequently, on March 16, 1982, herein petitioner Judge issued the writ of execution directing the
Acting Provincial Sheriff of Camarines Sur to implement the Court's order of March 9, 1982 (Rollo, p.
268). Complying with the said order of the Court, the Deputy Provincial Sheriff went to the Buhi
premises to implement the writ of execution but the vault of the petitioner bank was locked and no
inventory was made, as evidenced by the Sheriffs Report (Rollo, pp. 83-84). Thus, the petitioner
herein filed with the Court an "Urgent Ex-Parte Motion to Allow Sheriff Calope to Force Open Bank
Vault" on the same day (Rollo, p. 268). Accordingly, on March 17, 1982, herein petitioner Judge
granted the aforesaid Ex-Parte Motion to Force Open the Bank Vault (Rollo, p. 269).

On March 18, 1982, counsel for petitioner filed another "Urgent Ex-Parte Motion to Order Manager of
City Trust to Allow Petitioner to Withdraw Rural Bank Deposits" while a separate "Urgent Ex-Parte
Motion to Order Manager of Metrobank to Release Deposits of Petitioners" was filed on the same
date. The motion was granted by the Court in an order directing the Manager of Metro Bank-Naga
City (Rollo, p. 269) to comply as prayed for.

In view thereof, herein respondents filed in the Court of Appeals a petition for certiorari and
prohibition with preliminary injunction docketed as CA-G.R. No. 13944 against herein petitioners,
seeking to set aside the restraining order and reiterating therein that petitioner Buhi's complaint in
the lower court be dismissed (Rollo, p. 270).

On March 19, 1982, the Court of Appeals issued a Resolution (KAPASIYAHAN) in tagalog,
restraining the Hon. Judge Carlos R. Buenviaje, from enforcing his order of March 9,1982 and
suspending further proceedings in Sp. Proc. No. IR-428 pending before him while giving the Central
Bank counsel, Atty. Ricardo Quintos, authority to carry out personally said orders and directing the
"Punong Kawani" of the Court of Appeals to send telegrams to the Office of the President and the
Supreme Court (Rollo, p. 168).

Herein petitioners did not comply with the Court of Appeals' order of March 19, 1982, but filed
instead on March 21, 1982 a motion for reconsideration of said order of the Court of Appeals,
claiming that the lower court's order of March 9, 1982 referred only to the denial of therein
respondents' motion to dismiss and supplemental motion to dismiss and that the return of Buhi to the
petitioners was already an accomplished fact. The motion was denied by the respondent court in a
resolution dated June 1, 1982 (Rollo, p. 301).

In view of petitioners' refusal to obey the Court of Appeals' Order of March 19, 1982, herein
respondents filed with the Court of Appeals a Motion to Cite Petitioners in Contempt, dated April 22,
1982 (Rollo, p. 174).

The Court of Appeals issued on May 24, 1982 an order requiring herein petitioner Rural Bank of
Buhi, Inc., through its then Acting Manager, Imelda del Rosario and herein petitioner Judge Carlos
Buenviaje, as well as Manuel Genova and Rodolfo Sosa, to show cause within ten (10) days from
notice why they should not be held in contempt of court and further directing the Ministry of National
Defense or its representative to cause the return of possession and management of the Rural Bank
to the respondents Central Bank and Consolacion Odra (Rollo, p. 180).

On June 9, 1982, petitioners filed their objection to respondents' motion for contempt dated June 5,
1982 claiming that the properties, subject of the order, had already been returned to the herein
petitioners who are the lawful owners thereof and that the returning could no longer be undone
(Rollo, p. 181).

Later, petitioners filed another motion dated June 17, 1982 for the reconsideration of the resolution
of June 1, 1982 of the Court of Appeals alleging that the same contravened and departed from the
rulings of the Supreme Court that consummated acts or acts already done could no longer be the
subject of mandatory injunction and that the respondent Court of Appeals had no jurisdiction to issue
the order unless it was in aid of its appellate jurisdiction, claiming that the case (CA-G.R. No. 13944)
did not come to it on appeal (Rollo, p. 302).

As aforestated, on June 17, 1982, respondent Court of Appeals rendered its decision (HATOL)
setting aside the lower court's restraining order dated March 9,1982 and ordering the dismissal of
herein petitioners' amended complaint in Civil Case No. IR-428 (Rollo, p. 186).

On July 9, 1982, petitioners (respondents in CA-G.R. No. 13944) filed a Motion for Reconsideration
of the Decision dated June 17, 1982 insofar as the complaint with the lower court (Civil Case No. IR-
428 was ordered dismissed (Rollo, p. 305).

On August 23, 1982, the respondent Court of Appeals issued its Resolution denying for lack of merit,
herein petitioners' motion for reconsideration of the resolution issued by the respondent Court of
Appeals on June 1, 1982 and set on August 31, 1982 the hearing of the motion to cite the
respondents in CA-G.R. No. SP-13944 (herein petitioner) for contempt (Rollo, p. 193).

At said hearing, counsel for Rural Bank of Buhi agreed and promised in open court to restore and
return to the Central Bank the possession and control of the Bank within three (3) days from August
31, 1982.
However on September 3,1982, Rosalia Guevara, Manager thereof, vigorously and adamantly
refused to surrender the premises unless she received a written order from the Court.

In a subsequent hearing of the contempt incident, the Court of Appeals issued its Order dated
October 13,1982, but Rosalia Guevara still refused to obey, whereupon she was placed under arrest
and the Court of Appeals ordered her to be detained until she decided to obey the Court's Order
(Rollo, pp. 273-274).

Earlier, on September 14, 1982 petitioners had filed this petition even while a motion for
reconsideration of the decision of June 17,1982 was still pending consideration in the Court of
Appeals.

In the resolution of October 20, 1982, the Second Division of this Court without giving due course to
the petition required respondents to COMMENT (Rollo, p. 225).

Counsel for respondents manifested (Rollo, p. 226) that they could not file the required comment
because they were not given a copy of the petition. Meanwhile, they filed an urgent motion dated
October 28, 1982 with the Court of Appeals to place the bank through its representatives in
possession of the Rural Bank of Buhi (Camarines Sur), Inc. (Rollo, p. 237).

On December 9, 1982, petitioners filed a Supplemental Petition with urgent motion for the issuance
of a restraining order dated December 2, 1982 praying that the restraining order be issued against
respondent court (Rollo, p. 229).

In the resolution of December 15,1982, the Court resolved to require petitioners to furnish the
respondents with a copy of the petition and to require the respondents to comment on both the
original and the supplemental petitions (Rollo, p. 243).

In a resolution of February 21, 1983, the Court NOTED Rosalia V. Guevara's letter dated February 4,
1983 (Rollo, p. 252) addressed to Hon. Chief Justice Enrique M. Fernando, requesting that she be
allowed to file a petition for the issuance of a writ of habeas corpus (Rollo, p. 256).

At the hearing of the said petition on February 23, 1983 where the counsel of both parties appeared,
this Court noted the Return of the Writ of Habeas Corpus as well as the release of petitioner Rosalia
V. Guevara from detention by the National Bureau of Investigation. After hearing aforesaid counsel
and petitioner herself, and it appearing that the latter had resigned since January 18,1983 as
Manager of the Rural Bank of Buhi, Inc. and that the Central Bank might avail of more than adequate
legal measures to take over the management, possession and control of the said bank (and not
through contempt proceedings and detention and confinement of petitioner), with Assistant Solicitor
General Andin manifesting that respondents were not insisting on the continued detention of
petitioner, the Court Resolved to SET the petitioner at liberty and to consider the contempt incident
closed (Rollo, p. 339).

On April 11, 1983, respondents filed their comment on the original and supplemental petitions.

Meanwhile, the Court of Appeals, acting on respondents' urgent motion filed on October 28, 1982
ordered on April 13, 1983 the return to the petitioners (herein respondents) or their duly authorized
representatives of the possession, management and control of subject Rural Bank (Rollo, p. 319),
together with its properties.
On April 28, 1983, petitioner filed an urgent motion: (1) to give due course to the petition and (2) for
immediate issuance of a Restraining Order against the respondent court to prevent it from enforcing
its aforesaid resolution dated April 13, 1983 and from further proceeding in AC-G.R. No. 13944-SP
(Rollo, p. 315).

On May 16, 1983, this Court resolved to deny the petition for lack of merit (Rollo, p. 321). On July
25, 1983, petitioners filed their verified Motion for Reconsideration (Rollo, p. 337) praying that the
HATOL dated June 17, 1982 of the Court of Appeals be set aside as null and void and that Special
Proceedings No. IR-428 of CFI-Camarines Sur, Iriga City, Branch VII, be ordered remanded to the
RTC of Camarines Sur, Iriga City, for further proceedings.

A Motion for Early Resolution was filed by herein petitioners on March 12,1984 (Rollo, p. 348).

Petitioners raised the following legal issues in their motion for reconsideration:

I. UNDER SEC. 29, R.A. 265, AS AMENDED, MAY THE MONETARY BOARD (MB) OF THE
CENTRAL BANK (CB) PLACE A RURAL BANK UNDER RECEIVERSHIP WITHOUT PRIOR
NOTICE TO SAID RURAL BANK TO ENABLE IT TO BE HEARD ON THE GROUND RELIED UPON
FOR SUCH RECEIVERSHIP?

II. UNDER THE SAME SECTION OF SAID LAW, WHERE THE MONETARY BOARD (MB) OF THE
CENTRAL BANK (CB) HAS PLACED A RURAL BANK UNDER RECEIVERSHIP, IS SUCH ACTION
OF THE MONETARY BOARD (MB) SUBJECT TO JUDICIAL REVIEW? IF SO, WHICH COURT
MAY EXERCISE SUCH POWER AND WHEN MAY IT EXERCISE THE SAME?

III. UNDER THE SAID SECTION OF THE LAW, SUPPOSE A CIVIL CASE IS INSTITUTED
SEEKING ANNULMENT OF THE RECEIVERSHIP ON THE GROUND OF ARBITRARINESS AND
BAD FAITH ON THE PART OF THE MONETARY BOARD (MB), MAY SUCH CASE BE DISMISSED
BY THE IAC (THEN CA) ON THE GROUND OF INSUFFICIENCY OF EVIDENCE EVEN IF THE
TRIAL COURT HAS NOT HAD A CHANCE YET TO RECEIVE EVIDENCE AND THE PARTIES
HAVE NOT YET PRESENTED EVIDENCE EITHER IN THE TRIAL COURT OR IN SAID
APPELLATE COURT? (Rollo, pp. 330-331).

I. Petitioner Rural Bank's position is to the effect that due process was not observed by the Monetary
Board before said bank was placed under receivership. Said Rural Bank claimed that it was not
given the chance to deny and disprove such claim of insolvency and/or any other ground which the
Monetary Board used in justification of its action.

Relative thereto, the provision of Republic Act No. 265 on the proceedings upon insolvency reads:

SEC. 29. Proceedings upon insolvency.— Whenever, upon examination by the head
of the appropriate supervising and examining department or his examiners or agents
into the condition of any banking institution, 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, and
the Board may, upon finding the statements of the department head to be true, forbid
the institution to do business in the Philippines and shall designate an official of the
Central Bank, or a person of recognized competence in banking, 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 benefit of its
creditors, exercising all the powers necessary for these purposes including, but not
limited to, bringing suits and foreclosing mortgages in the name of the banking
institution.

The Monetary Board shall thereupon determine within sixty days whether the
institution may be recognized or otherwise placed in such a condition so that it may
be permitted to resume business with safety to its depositors and creditors and the
general public and shall prescribe the conditions under which such redemption of
business shall take place as the time for fulfillment of such conditions. In such case,
the expenses and fees in the collection and administration of the assets of the
institution shall be determined by the Board and shall be paid to the Central Bank out
of the assets of such banking institution.

If the Monetary Board shall determine and confirm within the said period that the
banking institution is insolvent or cannot resume business with safety to its
depositors, creditors and the general public, it shall, if the public interest requires,
order its liquidation, indicate the manner of its liquidation and approve a liquidation
plan. The Central Bank shall, by the Solicitor General, file a petition in the Court of
First Instance reciting the proceedings which have been taken and praying the
assistance of the court in the liquidation of the banking institution. The Court shall
have jurisdiction in the same proceedings to adjudicate disputed claims against the
bank and enforce individual liabilities of the stockholders and do all that is necessary
to preserve the assets of the banking institution and to implement the liquidation plan
approved by the Monetary Board. The Monetary Board shall designate an official of
the Central Bank or a person of recognized competence in banking, as liquidator who
shall take over the functions of the receiver previously appointed by the Monetary
Board under this Section. The liquidator shall, with all convenient speed, convert the
assets of the banking institution to money or sell, assign or otherwise dispose of the
same to creditors and other parties for the purpose of paying the debts of such bank
and he may, in the name of the banking institution, institute such actions as may be
necessary in the appropriate court to collect and recover accounts and assets of the
banking institution.

The provisions of any law to the contrary notwithstanding the actions of the Monetary
Board under this Section and the second paragraph of Section 34 of this Act shall be
final and executory, and can be set aside by the court only if there is convincing proof
that the action is plainly arbitrary and made in bad faith. No restraining order or
injunction shall be issued by the court enjoining the Central Bank from implementing
its actions under this Section and the second paragraph of Section 34 of this Act,
unless there is convincing proof that the action of the Monetary Board is plainly
arbitrary and made in bad faith and the petitioner or plaintiff files with the clerk or
judge of the court in which the action is pending a bond executed in favor of the
Central Bank, in an amount to be fixed by the court. The restraining order or
injunction shall be refused or, if granted, shall be dissolved upon filing by the Central
Bank of a bond, which shall be in the form of cash or Central Bank cashier's check,
in an amount twice the amount of the bond of the petitioner, or plaintiff conditioned
that it will pay the damages which the petitioner or plaintiff may suffer by the refusal
or the dissolution of the injunction. The provisions of Rule 58 of the New Rules of
Court insofar as they are applicable and not inconsistent with the provisions of this
Section shall govern the issuance and dissolution of the restraining order or
injunction contemplated in this Section.
Insolvency, under this Act, shall be understood to mean the inability of a banking
institution to pay its liabilities as they fall due in the usual and ordinary course of
business: Provided, however, that this shall not include the inability to pay of an
otherwise non-insolvent bank caused by extraordinary demands induced by financial
panic commonly evidenced by a run on the banks in the banking community.

The appointment of a conservator under Section 28-A of this Act or the appointment
of receiver under this Section shall be vested exclusively with the Monetary Board,
the provision of any law, general or special, to the contrary not withstanding.

It will be observed from the foregoing provision of law, that there is no requirement whether express
or implied, that a hearing be first conducted before a banking institution may be placed under
receivership. On the contrary, the law is explicit as to the conditions prerequisite to the action of the
Monetary Board to forbid the institution to do business in the Philippines and to appoint a receiver to
immediately take charge of the bank's assets and liabilities. They are: (a) an examination made by
the examining department of the Central Bank; (b) report by said department to the Monetary Board;
and (c) prima facie showing that the bank is in a condition of insolvency or so situated that its
continuance in business would involve probable loss to its depositors or creditors.

Supportive of this theory is the ruling of this Court, which established the authority of the Central
Bank under the foregoing circumstances, which reads:

As will be noted, whenever it shall appear prima facie that a banking institution is in
"a condition of insolvency" or so situated "that its continuance in business would
involved probable loss to its depositors or creditors," the Monetary Board has
authority:

First, to forbid the institution to do business and appoint a receiver therefor; and

Second, to determine, within 60 days, whether or not:

1) the institution may be reorganized and rehabilitated to such an


extent as to be permitted to resume business with safety to
depositors, creditors and the general public; or

2) it is indeed insolvent or cannot resume business with safety to


depositors, creditors and the general public, and public interest
requires that it be liquidated.

In this latter case (i.e., the bank can no longer resume business with safety to depositors, creditors
and the public, etc.) its liquidation will be ordered and a liquidator appointed by the Monetary Board.
The Central Bank shall thereafter file a petition in the Regional Trial Court praying for the Court's
assistance in the liquidation of the bank." ... (Salud vs. Central Bank, 143 SCRA 590 [1986]).

Petitioner further argues, that there is also that constitutional guarantee that no property shall be
taken without due process of law, so that Section 29, R.A. 265, as amended, could not have
intended to disregard and do away with such constitutional requirement when it conferred upon the
Monetary Board the power to place Rural Banks under receivership (Rollo, p. 333).

The contention is without merit. It has long been established and recognized in this jurisdiction that
the closure and liquidation of a bank may be considered as an exercise of police power. Such
exercise may, however, be subject to judicial inquiry and could be set aside if found to be capricious,
discriminatory, whimsical, arbitrary, unjust or a denial of the due process and equal protection
clauses of the Constitution (Central Bank vs. Court of Appeals, 106 SCRA 155 [1981]).

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.

In Mendiola vs. Court of Appeals, (106 SCRA 130), the Supreme Court held:

The pivotal issue raised by petitioner is whether or not the appointment of a receiver
by the Court of First Instance on January 14, 1969 was in order.

Respondent Court correctly stated that the appointment of a receiver pendente lite is
a matter principally addressed to and resting largely on the sound discretion of the
court to which the application is made. This Tribunal has so held in a number of
cases. However, receivership being admittedly a harsh remedy, it should be granted
with extreme caution. Sound reasons for receivership must appear of record, and
there should be a clear showing of a necessity therefor. Before granting the remedy,
the court is advised to consider the consequence or effects thereof in order to avoid
irreparable injustice or injury to others who are entitled to as much consideration as
those seeking it.

xxx xxx xxx

This is not to say that a hearing is an indispensable requirement for the appointment
of a receiver. As petitioner correctly contends in his first assignment of error, courts
may appoint receivers without prior presentation of evidence and solely on the basis
of the averments of the pleadings. Rule 59 of the Revised Rules of Court allows the
appointment of a receiver upon an ex parte application.

There is no question that the action of the Monetary Board in this regard may be subject to judicial
review. Thus, it has been held that the courts may interfere with the Central Bank's exercise of
discretion in determining whether or not a distressed bank shall be supported or liquidated.
Discretion has its limits and has never been held to include arbitrariness, discrimination or bad faith
(Ramos vs. Central Bank of the Philippines, 41 SCRA 567 [1971]).

It has likewise been held that resolutions of the Monetary Board under Section 29 of the Central
Bank Act, such as: forbidding bank institutions to do business on account of a "condition of
insolvency" or because its continuance in business would involve probable loss to depositors or
creditors; or appointing a receiver to take charge of the bank's assets and liabilities, or determining
whether the bank may be rehabilitated or should be liquidated and appointing a liquidator for that
purpose, are under the law "final and executory" and may be set aside only on one ground, that is "if
there is convincing proof that the action is plainly arbitrary and made in bad faith" (Salud vs. Central
Bank, supra).

There is no dispute that under the above-quoted Section 29 of the Central Bank Act, the Regional
Trial Court has jurisdiction to adjudicate the question of whether or not the action of the Monetary
Board directing the dissolution of the subject Rural Bank is attended by arbitrariness and bad faith.
Such position has been sustained by this Court in Salud vs. Central Bank of the Philippines (supra).

In the same case, the Court ruled further that a banking institution's claim that a resolution of the
Monetary Board under Section 29 of the Central Bank Act should be set aside as plainly arbitrary
and made in bad faith, may be asserted as an affirmative defense (Sections 1 and 4[b], Rule 6,
Rules of Court) or a counterclaim (Section 6, Rule 6; Section 2, Rule 72 of the Rules of Court) in the
proceedings for assistance in liquidation or as a cause of action in a separate and distinct action
where the latter was filed ahead of the petition for assistance in liquidation (ibid; Central Bank vs.
Court of Appeals, 106 SCRA 143 [1981]).

III. It will be noted that in the issuance of the Order of the Court of First Instance of Camarines Sur,
Branch VII, Iriga City, dated March 9, 1982 (Rollo, pp. 72-77), there was no trial on the merits. Based
on the pleadings filed, the Court merely acted on the Central Bank's Motion to Dismiss and
Supplemental Motion to Dismiss, denying both for lack of sufficient merit. Evidently, the trial court
merely acted on an incident and has not as yet inquired, as mandated by Section 29 of the Central
Bank Act, into the merits of the claim that the Monetary Board's action is plainly arbitrary and made
in bad faith. It has not appreciated certain facts which would render the remedy of liquidation proper
and rehabilitation improper, involving as it does an examination of the probative value of the
evidence presented by the parties properly belonging to the trial court and not properly cognizable
on appeal (Central Bank vs. Court of Appeals, supra, p. 156).

Still further, without a hearing held for both parties to substantiate their allegations in their respective
pleadings, there is lacking that "convincing proof" prerequisite to justify the temporary restraining
order (mandatory injunction) issued by the trial court in its Order of March 9, 1982.

PREMISES CONSIDERED, the decision of the Court of Appeals is MODIFIED; We hereby order the
remand of this case to the Regional Trial Court for further proceedings, but We LIFT the temporary
restraining order issued by the trial court in its Order dated March 9, 1982.

SO ORDERED.

¢ Republic vs. Eugenio, G.R. No. 174629, February 14, 2008

Republic v Judge Eugenio G.R. No. 174629,


February 14, 2008
MARCH 16, 2014LEAVE A COMMENT
Sec. 2 of the Bank Secrecy Act itself prescribes exceptions whereby
these bank accounts may be examined by any person, government
official, bureau or offial; namely when: (1) upon written permission of
the depositor; (2) in cases of impeachment; (3) the examination of
bank accounts is upon order of a competent court in cases of bribery or
dereliction of duty of public officials; and (4) the money deposited or
invested is the subject matter of the litigation. Section 8 of R.A. Act
No. 3019, the Anti-Graft and Corrupt Practices Act, has been
recognized by this Court as constituting an additional exception to the
rule of absolute confidentiality, and there have been other similar
recognitions as well.[
Facts: 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. 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 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 a in relation to the criminal cases then pending before the
Sandiganbayan. 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. 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 Prosecutors 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.
Issue: Whether or not the bank accounts of respondents can be examined.

Held: 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 offial; namely when: (1) upon written permission of the
depositor; (2) in cases of impeachment; (3) the examination of bank accounts is
upon order of a competent court in cases of bribery or dereliction of duty of
public officials; and (4) the money deposited or invested is the subject matter of
the litigation. Section 8 of R.A. Act No. 3019, the Anti-Graft and Corrupt Practices
Act, has been recognized by this Court as constituting an additional exception to
the rule of absolute confidentiality, and there have been other similar
recognitions as well.
The AMLA also provides exceptions to the Bank Secrecy Act. Under Section 11,
the AMLC may inquire into a bank account upon order of any competent court in
cases of violation of the AMLA, it having been established that there is probable
cause that the deposits or investments are related to unlawful activities as
defined in Section 3(i) of the law, or a money laundering offense under Section 4
thereof. Further, in instances where there is probable cause that the deposits or
investments are related to kidnapping for ransom, [certain violations of the
Comprehensive Dangerous Drugs Act of 2002,hijacking and other violations
under R.A. No. 6235, destructive arson and murder, then there is no need for the
AMLC to obtain a court order before it could inquire into such accounts. It cannot
be successfully argued the proceedings relating to the bank inquiry order under
Section 11 of the AMLA is a litigation encompassed in one of the exceptions to
the Bank Secrecy Act which is when 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 all deposits of whatever nature with banks or banking institutions in the
Philippines x x x are hereby considered as of an absolutely confidential
nature. Indeed, by force of statute, all bank deposits are absolutely confidential,
and that nature is unaltered even by the legislated exceptions referred to above.
REPUBLIC OF THE PHILIPPINES, G.R. No. 174629
Represented by THE ANTI-MONEY
LAUNDERING COUNCIL (AMLC), Present:
Petitioner,

QUISUMBING, J.,
Chairperson,
- versus - AUSTRIA MARTINEZ,*
CARPIO MORALES,
TINGA, and
HON. ANTONIO M. EUGENIO, VELASCO, JR., JJ.
JR., AS PRESIDING JUDGE OF
RTC, MANILA, BRANCH 34,
PANTALEON ALVAREZ and Promulgated:
LILIA CHENG,
Respondents. February 14, 2008

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

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. 06-114200[1] 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. PIATCO[3] 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 latters 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 Prosecutors 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 application[21] 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 appearance[23] 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
Order[26] staying the enforcement of its bank inquiry order and giving the Republic
five (5) days to respond to Alvarezs motion.

The Republic filed an Omnibus Motion for Reconsideration [27] of the 26 January
2006 Manila RTC Order and likewise sought to strike out Alvarezs motion that led
to the issuance of said order. For his part, Alvarez filed a Reply and Motion to
Dismiss[28] the application for bank inquiry order. On 2 May 2006, the Manila RTC
issued an Omnibus Order[29] granting the Republics Motion for Reconsideration,
denying Alvarezs 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 Motion[31] 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 Order[32] 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
Reconsideration[33] of the omnibus order on 15 May 2006, but the motion was
denied by the Manila RTC in an Order[34] dated 5 July 2006.

On 11 July 2006, Alvarez filed an Urgent Motion and


Manifestation[35] 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 Alvarezs latest motion, issued
an Order[36] directing the AMLC to refrain from enforcing the order dated January
12, 2006 until the expiration of the period to appeal, without any appeal having
been filed. On the same day, Alvarez filed a Notice of Appeal [37] 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 AMLCs 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 Order[41] wherein it clarified that the Ex Parte Order of this Court dated
January 12, 2006 can not be implemented against the deposits or accounts of any
of the persons enumerated in the AMLC Application until the appeal of movant
Alvarez is finally resolved, otherwise, the appeal would be rendered moot and
academic or even nugatory.[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 AMLCs application were not served with the courts 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


Reconsideration[44] dated 27 July 2006, urging that it be allowed to immediately
enforce the bank inquiry order against Alvarez and that Alvarezs notice of appeal
be expunged from the records since appeal from an order of inquiry is disallowed
under the Anti money Laundering Act (AMLA).
Meanwhile, respondent Lilia Cheng filed with the Court of Appeals a
Petition for Certiorari, Prohibition and Mandamus with Application for TRO
and/or Writ of Preliminary Injunction[45] 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
Yong[46] 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 AMLCs 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 Chengs petition,


issued a Temporary Restraining Order[48] 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 Order [49] resolving to hold in
abeyance the resolution of the urgent omnibus motion for reconsideration then
pending before it until the resolution of Lilia Chengs 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 ruling[50] was issued on 15 August 2006 by the Manila
RTC, acting on the Urgent Motion for Clarification[51] 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 Petition[55] 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
Motion[56] dated 9 October 2006, petitioner informed the Court that on 22
September 2006, the Court of Appeals hearing Lilia Chengs 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 Order[59] dated 6


October 2006 and later on a Supplemental Temporary Restraining
Order[60] dated 13 October 2006 in petitioners 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 Resolution[61] 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.

Petitioners 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 Chengs 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 petitioners 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 Forces 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 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 causeexists 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-SC[78] to
enforce the provisions of the AMLA specifically authorize ex parte applications
with respect to freeze orders under Section 10 [79] 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 holders 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, petitioners 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
legislatures 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
AMLCs 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 Courts construction of Section 11 of the AMLA is undoubtedly


influenced by right to privacy considerations. If sustained, petitioners 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. Miller[85] 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
information[89] under Section 7, Article
III or under the requirement of full public disclosure[90] 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 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 Chengs 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 Chengs 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 factoclause.

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
Chengs 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 Chengs 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.

¢ Republic vs. Glasgow Credit, GR No. 170281, January 18, 2008


REPUBLIC OF THE G.R. No. 170281
PHILIPPINES, represented
by the ANTI-MONEY
LAUNDERING COUNCIL,
Petitioner, Present:

PUNO, C.J., Chairperson,


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

GLASGOW CREDIT AND


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

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

DECISION
CORONA, J.:

This is a petition for review [1] of the order[2] dated October 27, 2005 of the
Regional Trial Court (RTC) of Manila, Branch 47, dismissing the complaint for
forfeiture[3] filed by the Republic of the Philippines, represented by the Anti-Money
Laundering Council (AMLC) against respondents Glasgow Credit and Collection
Services, Inc. (Glasgow) and Citystate Savings Bank, Inc. (CSBI).
On July 18, 2003, the Republic filed a complaint in the RTC Manila for civil
forfeiture of assets (with urgent plea for issuance of temporary restraining order
[TRO] and/or writ of preliminary injunction) against the bank deposits in account
number CA-005-10-000121-5 maintained by Glasgow in CSBI. The case, filed
pursuant to RA 9160 (the Anti-Money Laundering Act of 2001), as amended, was
docketed as Civil Case No. 03-107319.
Acting on the Republics urgent plea for the issuance of a TRO, the executive
judge[4] of RTC Manila issued a 72-hour TRO dated July 21, 2003. The case was
thereafter raffled to Branch 47 and the hearing on the application for issuance of a
writ of preliminary injunction was set on August 4, 2003.

After hearing, the trial court (through then Presiding Judge Marivic T.
Balisi-Umali) issued an order granting the issuance of a writ of preliminary
injunction. The injunctive writ was issued on August 8, 2003.

Meanwhile, summons to Glasgow was returned unserved as it could no


longer be found at its last known address.

On October 8, 2003, the Republic filed a verified omnibus motion for (a)
issuance of alias summons and (b) leave of court to serve summons by publication.
In an order dated October 15, 2003, the trial court directed the issuance
of alias summons. However, no mention was made of the motion for leave of court
to serve summons by publication.

In an order dated January 30, 2004, the trial court archived the case allegedly
for failure of the Republic to serve the alias summons. The Republic filed an ex
parte omnibus motion to (a) reinstate the case and (b) resolve its pending motion
for leave of court to serve summons by publication.

In an order dated May 31, 2004, the trial court ordered the reinstatement of
the case and directed the Republic to serve the alias summons on Glasgow and
CSBI within 15 days. However, it did not resolve the Republics motion for leave of
court to serve summons by publication declaring:
Until and unless a return is made on the alias summons, any
action on [the Republics] motion for leave of court to serve summons by
publication would be untenable if not premature.

On July 12, 2004, the Republic (through the Office of the Solicitor General
[OSG]) received a copy of the sheriffs return dated June 30, 2004 stating that
the alias summons was returned unserved as Glasgow was no longer holding office
at the given address since July 2002 and left no forwarding address.

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


publication remained unresolved. Thus, on August 11, 2005, the Republic filed a
manifestation and ex parte motion to resolve its motion for leave of court to serve
summons by publication.

On August 12, 2005, the OSG received a copy of Glasgows Motion to


Dismiss (By Way of Special Appearance) dated August 11, 2005. It alleged that (1)
the court had no jurisdiction over its person as summons had not yet been served
on it; (2) the complaint was premature and stated no cause of action as there was
still no conviction for estafa or other criminal violations implicating Glasgow and
(3) there was failure to prosecute on the part of the Republic.

The Republic opposed Glasgows motion to dismiss. It contended that its suit
was an action quasi in rem where jurisdiction over the person of the defendant was
not a prerequisite to confer jurisdiction on the court. It asserted that prior
conviction for unlawful activity was not a precondition to the filing of a civil
forfeiture case and that its complaint alleged ultimate facts sufficient to establish a
cause of action. It denied that it failed to prosecute the case.
On October 27, 2005, the trial court issued the assailed order. It dismissed
the case on the following grounds: (1) improper venue as it should have been filed
in the RTC of Pasig where CSBI, the depository bank of the account sought to be
forfeited, was located; (2) insufficiency of the complaint in form and substance and
(3) failure to prosecute. It lifted the writ of preliminary injunction and directed
CSBI to release to Glasgow or its authorized representative the funds in CA-005-
10-000121-5.

Raising questions of law, the Republic filed this petition.

On November 23, 2005, this Court issued a TRO restraining Glasgow and
CSBI, their agents, representatives and/or persons acting upon their orders from
implementing the assailed October 27, 2005 order. It restrained Glasgow from
removing, dissipating or disposing of the funds in account no. CA-005-10-000121-
5 and CSBI from allowing any transaction on the said account.

The petition essentially presents the following issue: whether the complaint
for civil forfeiture was correctly dismissed on grounds of improper venue,
insufficiency in form and substance and failure to prosecute.

The Court agrees with the Republic.

THE COMPLAINT WAS FILED


IN THE PROPER VENUE

In its assailed order, the trial court cited the grounds raised by Glasgow in
support of its motion to dismiss:
1. That this [c]ourt has no jurisdiction over the person of Glasgow
considering that no [s]ummons has been served upon it, and it has
not entered its appearance voluntarily;

2. That the [c]omplaint for forfeiture is premature because of the


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

3. That there is failure to prosecute, in that, up to now, summons


has yet to be served upon Glasgow.[5]

But inasmuch as Glasgow never questioned the venue of the Republics


complaint for civil forfeiture against it, how could the trial court have dismissed
the complaint for improper venue? In Dacoycoy v. Intermediate Appellate
Court[6] (reiterated in Rudolf Lietz Holdings, Inc. v. Registry of Deeds of Paraaque
City),[7]this Court ruled:

The motu proprio dismissal of petitioners complaint by [the] trial


court on the ground of improper venue is plain error. (emphasis
supplied)

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

On November 15, 2005, this Court issued A.M. No. 05-11-04-SC, the Rule
of Procedure in Cases of Civil Forfeiture, Asset Preservation, and Freezing of
Monetary Instrument, Property, or Proceeds Representing, Involving, or Relating
to an Unlawful Activity or Money Laundering Offense under RA 9160, as
amended (Rule of Procedure in Cases of Civil
Forfeiture). The order dismissing the Republics complaint
for civil forfeiture of Glasgows account in CSBI has not yet attained finality on
account of the pendency of this appeal. Thus, the Rule of Procedure in Cases of
Civil Forfeiture applies to the Republics complaint.[8] Moreover, Glasgow itself
judicially admitted that the Rule of Procedure in Cases of Civil Forfeiture is
applicable to the instant case.[9]

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

Sec. 3. Venue of cases cognizable by the regional trial court. A petition


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

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


Forfeiture, therefore, the venue of civil forfeiture cases is any RTC of the judicial
region where the monetary instrument, property or proceeds representing,
involving, or relating to an unlawful activity or to a money laundering offense are
located. Pasig City, where the account sought to be forfeited in this case is situated,
is within the National Capital Judicial Region (NCJR). Clearly, the complaint for
civil forfeiture of the account may be filed in any RTC of the NCJR. Since the RTC
Manila is one of the RTCs of the NCJR, [10] it was a proper venue of the Republics
complaint for civil forfeiture of Glasgows account.

THE COMPLAINT WAS


SUFFICIENT IN FORM AND
SUBSTANCE
In the assailed order, the trial court evaluated the Republics complaint to
determine its sufficiency in form and substance:

At the outset, this [c]ourt, before it proceeds, takes the opportunity


to examine the [c]omplaint and determine whether it is sufficient in form
and substance.

Before this [c]ourt is a [c]omplaint for Civil Forfeiture of Assets


filed by the [AMLC], represented by the Office of the Solicitor
General[,] against Glasgow and [CSBI] as necessary party. The
[c]omplaint principally alleges the following:

(a) Glasgow is a corporation existing under the laws of the


Philippines, with principal office address at Unit 703, 7 th Floor,
Citystate Center [Building], No. 709 Shaw Boulevard[,] Pasig
City;

(b) [CSBI] is a corporation existing under the laws of the


Philippines, with principal office at Citystate Center Building, No.
709 Shaw Boulevard, Pasig City;

(c) Glasgow has funds in the amount of P21,301,430.28 deposited


with [CSBI], under CA 005-10-000121-5;

(d) As events have proved, aforestated bank account is related to the


unlawful activities of Estafa and violation of Securities Regulation
Code;

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

(f) After appropriate investigation, the AMLC issued Resolutions


No. 094 (dated July 10, 2002), 096 (dated July 12, 2002), 101
(dated July 23, 2002), and 108 (dated August 2, 2002), directing
the issuance of freeze orders against the bank accounts of
Glasgow;

(g) Pursuant to said AMLC Resolutions, Freeze Orders Nos. 008-


010, 011 and 013 were issued on different dates, addressed to the
concerned banks;
(h) The facts and circumstances plainly showing that defendant
Glasgows bank account and deposit are related to the unlawful
activities of Estafa and violation of Securities Regulation Code, as
well as to a money laundering offense [which] [has] been
summarized by the AMLC in its Resolution No. 094; and

(i) Because defendant Glasgows bank account and deposits are


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

In a motion to dismiss for failure to state a cause of action, the focus is on


the sufficiency, not the veracity, of the material allegations.[12] The determination is
confined to the four corners of the complaint and nowhere else.[13]

In a motion to dismiss a complaint based on lack of cause of


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

The test of the sufficiency of the facts alleged in the complaint


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

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


Forfeiture provides:

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

(a) The name and address of the respondent;


(b) A description with reasonable particularity of the monetary
instrument, property, or proceeds, and their location; and

(c) The acts or omissions prohibited by and the specific provisions


of the Anti-Money Laundering Act, as amended, which are
alleged to be the grounds relied upon for the forfeiture of the
monetary instrument, property, or proceeds; and

[(d)] The reliefs prayed for.

Here, the verified complaint of the Republic contained the following


allegations:
(a) the name and address of the primary defendant therein, Glasgow;[15]
(b) a description of the proceeds of Glasgows unlawful activities with
particularity, as well as the location thereof, account no. CA-005-10-
000121-5 in the amount of P21,301,430.28 maintained with CSBI;
(c) the acts prohibited by and the specific provisions of RA 9160, as
amended, constituting the grounds for the forfeiture of the said
proceeds. In particular, suspicious transaction reports showed that
Glasgow engaged in unlawful activities of estafa and violation of the
Securities Regulation Code (under Section 3(i)(9) and (13), RA 9160,
as amended); the proceeds of the unlawful activities were transacted
and deposited with CSBI in account no. CA-005-10-000121-5
thereby making them appear to have originated from legitimate
sources; as such, Glasgow engaged in money laundering (under
Section 4, RA 9160, as amended); and the AMLC subjected the
account to freeze order and
(d) the reliefs prayed for, namely, the issuance of a TRO or writ of
preliminary injunction and the forfeiture of the account in favor of the
government as well as other reliefs just and equitable under the
premises.

The form and substance of the Republics complaint substantially conformed


with Section 4, Title II of the Rule of Procedure in Cases of Civil Forfeiture.

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

SEC. 12. Forfeiture Provisions.

(a) Civil Forfeiture. When there is a covered transaction report made,


and the court has, in a petition filed for the purpose ordered seizure of
any monetary instrument or property, in whole or in part, directly or
indirectly, related to said report, the Revised Rules of Court on civil
forfeiture shall apply.

In relation thereto, Rule 12.2 of the Revised Implementing Rules and


Regulations of RA 9160, as amended, states:

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

RA 9160, as amended, and its implementing rules and regulations lay down
two conditions when applying for civil forfeiture:
(1) when there is a suspicious transaction report or a covered transaction
report deemed suspicious after investigation by the AMLC and
(2) the court has, in a petition filed for the purpose, ordered the seizure
of any monetary instrument or property, in whole or in part, directly
or indirectly, related to said report.

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


within the reach of the judicial process.[16] It is actually within the courts possession
when it is submitted to the process of the court. [17] The injunctive writ issued on
August 8, 2003 removed account no. CA-005-10-000121-5 from the effective
control of either Glasgow or CSBI or their representatives or agents and subjected
it to the process of the court.

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


covered by several suspicious transaction reports and (2) placed under the control
of the trial court upon the issuance of the writ of preliminary injunction, the
conditions provided in Section 12(a) of RA 9160, as amended, were satisfied.
Hence, the Republic, represented by the AMLC, properly instituted the complaint
for civil forfeiture.

Whether or not there is truth in the allegation that account no. CA-005-10-
000121-5 contains the proceeds of unlawful activities is an evidentiary matter that
may be proven during trial. The complaint, however, did not even have to show or
allege that Glasgow had been implicated in a conviction for, or the commission of,
the unlawful activities of estafa and violation of the Securities Regulation Code.
A criminal conviction for an unlawful activity is not a prerequisite for the
institution of a civil forfeiture proceeding. Stated otherwise, a finding of guilt for
an unlawful activity is not an essential element of civil forfeiture.
Section 6 of RA 9160, as amended, provides:

SEC. 6. Prosecution of Money Laundering.


(a) Any person may be charged with and convicted of both the
offense of money laundering and the unlawful activity as herein defined.

(b) Any proceeding relating to the unlawful activity shall be given


precedence over the prosecution of any offense or violation under this
Act without prejudice to 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
Republics motion for leave of court to serve summons by publication until a return
was made on the alias summons.

Meanwhile, the Republic continued to exert efforts to obtain information


from other government agencies on the whereabouts or current status of respondent
Glasgow if only to save on expenses of publication of summons. Its efforts,
however, proved futile. The records on file with the Securities and Exchange
Commission provided no information. Other inquiries yielded negative results.

On July 12, 2004, the Republic received a copy of the sheriffs return dated
June 30, 2004 stating that the alias summons had been returned unserved as
Glasgow was no longer holding office at the given address since July 2002 and left
no forwarding address. Still, no action was taken by the trial court on the Republics
motion for leave of court to serve summons by publication. Thus, on August 11,
2005, the Republic filed a manifestation and ex parte motion to resolve its motion
for leave of court to serve summons by publication.

It was at that point that Glasgow filed a motion to dismiss by way of special
appearance which the Republic vigorously opposed. Strangely, to say the least, the
trial court issued the assailed order granting Glasgows motion.

Given these circumstances, how could the Republic be faulted for failure to
prosecute the complaint for civil forfeiture? While there was admittedly a delay in
the proceeding, it could not be entirely or primarily ascribed to the Republic. That
Glasgows whereabouts could not be ascertained was not only beyond the
Republics control, it was also attributable to Glasgow which left its principal office
address without informing the Securities and Exchange Commission or any official
regulatory body (like the Bureau of Internal Revenue or the Department of Trade
and Industry) of its new address. Moreover, as early as October 8, 2003, the
Republic was already seeking leave of court to serve summons by publication.

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

While a court can dismiss a case on the ground of non prosequitur, the
real test for the exercise of such power is whether, under the
circumstances, plaintiff is chargeable with want of due diligence in
failing to proceed with reasonable promptitude. In the absence of a
pattern or scheme to delay the disposition of the case or a wanton
failure to observe the mandatory requirement of the rules on the
part of the plaintiff, as in the case at bar, courts should decide to
dispense with rather than wield their authority to dismiss. (emphasis
supplied)
We see no pattern or scheme on the part of the Republic to delay the
disposition of the case or a wanton failure to observe the mandatory requirement of
the rules. The trial court should not have so eagerly wielded its power to dismiss
the Republics complaint.

SERVICE OF SUMMONS
MAY BE BY PUBLICATION

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


that forfeiture proceedings are actions in rem. While that case involved forfeiture
proceedings under RA 1379, the same principle applies in cases for civil forfeiture
under RA 9160, as amended, since both cases do not terminate in the imposition of
a penalty but merely in the forfeiture of the properties either acquired illegally or
related to unlawful activities in favor of the State.

As an action in rem, it is a proceeding against the thing itself instead of


against the person.[20] In actions in rem or quasi in rem, jurisdiction over the person
of the defendant is not a prerequisite to conferring jurisdiction on the court,
provided that the court acquires jurisdiction over the res.[21] Nonetheless, summons
must be served upon the defendant in order to satisfy the requirements of due
process.[22] For this purpose, service may be made by publication as such mode of
service is allowed in actions in rem and quasi in rem.[23]

In this connection, Section 8, Title II of the Rule of Procedure in Cases of


Civil Forfeiture provides:

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

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

3. The notice shall likewise contain a proviso that, if no comment


or opposition is filed within the reglementary period, the court shall hear
the case ex parte and render such judgment as may be warranted by the
facts alleged in the petition and its supporting evidence.
(b) Where the respondent is designated as an unknown owner
or whenever his whereabouts are unknown and cannot be
ascertained by diligent inquiry, service may, by leave of court,
be effected upon him by publication of the notice of the
petition in a newspaper of general circulation in such places
and for such time as the court may order. In the event that the
cost of publication exceeds the value or amount of the property to
be forfeited by ten percent, publication shall not be required.
(emphasis supplied)

WHEREFORE, the petition is hereby GRANTED. The October 27, 2005


order of the Regional Trial Court of Manila, Branch 47, in Civil Case No. 03-
107319 is SET ASIDE. The August 11, 2005 motion to dismiss of Glasgow Credit
and Collection Services, Inc. is DENIED. And the complaint for forfeiture of the
Republic of the Philippines, represented by the Anti-Money Laundering Council,
is REINSTATED.

The case is hereby REMANDED to the Regional Trial Court of Manila,


Branch 47 which shall forthwith proceed with the case pursuant to the provisions
of A.M. No. 05-11-04-SC. Pending final determination of the case, the November
23, 2005 temporary restraining order issued by this Court is
hereby MAINTAINED.
SO ORDERED.

¢ Associated Bank vs. Tan 446 SCRA 282 (2004)

G.R. No. 156940 December 14, 2004

ASSOCIATED BANK (Now WESTMONT BANK) vs. TAN

FACTS:

Respondent Tan is a businessman and a regular depositor-creditor of the petitioner, Associated


Bank. Sometime in September 1990, he deposited a postdated check with the petitioner in the amount
of P101,000 issued to him by a certain Willy Cheng from Tarlac. The check was duly entered in his bank
record. Allegedly, upon advice and instruction of petitioner that theP101,000 check was already cleared
and backed up by sufficient funds, respondent, on the same date, withdrew the sum of P240,000 from his
account leaving a balance of P57,793.45. A day after, TAN deposited the amount of P50,000 making his
existing balance in the amount of P107,793.45, because he has issued several checks to his business
partners. However, his suppliers and business partners went back to him alleging that the checks he
issued bounced for insufficiency of funds. Thereafter, respondent informed petitioner to take positive
steps regarding the matter for he has adequate and sufficient funds to pay the amount of the subject
checks. Nonetheless, petitioner did not bother nor offer any apology regarding the incident. Respondent
Tan filed a Complaint for Damages on December 19, 1990, with the RTC against petitioner. The trial
court rendered a decision in favor of respondent and ordered petitioner to pay damages and attorney’s
fees. Appellate court affirmed the lower court’s decision. CA ruled that the bank should not have
authorized the withdrawal of the value of the deposited check prior to its clearing. Petitioner filed a
Petition for Review before the Supreme Court.

ISSUE:

W/N petitioner has the right to debit the amount of the dishonored check from the account of respondent
on the ground that the check was withdrawn by respondent prior to its clearing

HELD:

The Petition has no merit.

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. Banks are granted by law the right to debit the value of a
dishonored check from a depositor’s account but they must do so with the highest degree of care, so as
not to prejudice the depositor unduly. 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.
In this case, petitioner did not treat respondent’s account with the highest degree of care. Respondent
withdrew his money upon the advice of petitioner that his money was already cleared. It is petitioner’s
premature authorization of the withdrawal that caused the respondent’s account balance to fall to
insufficient levels, and the subsequent dishonor of his own checks for lack of funds.

[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 depositors account, they must do so with the highest degree of
care, so as not to prejudice the depositor unduly.

The Case

Before us is a Petition for Review under Rule 45 of the Rules of Court,


[1]

assailing the January 27, 2003 Decision of the Court of Appeals (CA) in CA-
[2]

GR CV No. 56292.The CA disposed as follows:

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. Costs against the [petitioner]. [3]

The Facts

The CA narrated the antecedents as follows:

Vicente Henry Tan (hereafter TAN) is a businessman and a regular depositor-creditor


of the Associated Bank (hereinafter referred to as the BANK). Sometime in
September 1990, he deposited a postdated UCPB check with the said BANK in the
amount of P101,000.00 issued to him 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 P196,000.00. Allegedly, upon advice and instruction of the BANK that
the P101,000.00 check was already cleared and backed up by sufficient funds, TAN,
on the same date, withdrew the sum of P240,000.00, leaving a balance
of P57,793.45. A day after, TAN deposited the amount of P50,000.00 making his
existing balance in the amount of P107,793.45, because he has issued several checks
to his business partners, to wit:

CHECK NUMBERS DATE AMOUNT


a. 138814 Sept. 29, 1990 P9,000.00
b. 138804 Oct. 8, 1990 9,350.00
c. 138787 Sept. 30, 1990 6,360.00
d. 138847 Sept. 29, 1990 21,850.00
e. 167054 Sept. 29, 1990 4,093.40
f. 138792 ` Sept. 29, 1990 3,546.00
g. 138774 Oct. 2, 1990 6,600.00
h. 167072 Oct. 10, 1990 9,908.00
i. 168802 Oct. 10, 1990 3,650.00

However, his suppliers and business partners went back to him alleging that the
checks he issued bounced for insufficiency of funds. Thereafter, TAN, thru his lawyer,
informed the BANK to take positive steps regarding the matter for he has adequate
and sufficient funds to pay the amount of the subject checks. Nonetheless, the BANK
did not bother nor offer any apology regarding the incident. Consequently, TAN, as
plaintiff, filed a Complaint for Damages on December 19, 1990, with the Regional
Trial Court of Cabanatuan City, Third Judicial Region, docketed as Civil Case No.
892-AF, against the BANK, as defendant.

In his [C]omplaint, [respondent] maintained that he ha[d] sufficient 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 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 continuously lost
profits in the amount of P250,000.00. [Respondent] therefore prayed for exemplary
damages and that [petitioner] be ordered 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 attorneys fees plus 25%
of the amount claimed including P1,000.00 per court appearance.

Meanwhile, [petitioner] filed a Motion to Dismiss on February 7, 1991, 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 alleged that no banking institution would give an assurance to any of
its client/depositor that the check deposited by him had already been 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, [petitioner] alleged that on October 2, 1990, it gave
notice to the [respondent] as to the return of his UCPB check deposit in the amount
of P101,000.00, hence, on even date, [respondent] deposited the amount
of P50,000.00 to cover the returned check.
By way of affirmative defense, [petitioner] averred that [respondent] had no cause of
action against it and argued that it has all the right to debit the account of the
[respondent] by reason of the dishonor of the check deposited by the [respondent]
which was withdrawn by him prior to its clearing. [Petitioner] further averred that it
has no liability with respect to the clearing of deposited checks as the clearing is being
undertaken by the Central Bank and in accepting [the] check deposit, it merely
obligates itself as depositors 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 of loss of goodwill, P7,000.00 as acceptance fee
plus P500.00 per appearance and by way of attorneys fees.

Considering that Westmont Bank has taken over the management of the
affairs/properties of the BANK, [respondent] on October 10, 1996, filed an Amended
Complaint reiterating substantially his allegations in the original complaint, except
that the name of the previous defendant ASSOCIATED BANK is now WESTMONT
BANK.

Trial ensured and thereafter, the court rendered its Decision dated December 3, 1996
in favor of the [respondent] and against the [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 attorneys fees, plus the costs of this suit. In
making said ruling, it was shown that [respondent] was not officially informed about
the debiting of the P101,000.00 [from] his existing balance and that the BANK merely
allowed the [respondent] to use the fund prior to clearing merely for accommodation
because the BANK considered him as one of its valued clients. The trial court ruled
that the bank manager was negligent in handling the particular checking account of
the [respondent] stating that such lapses caused all the inconveniences to the
[respondent]. The trial court also took into consideration that [respondents] 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 favor but in the name of another.[4]

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 respondents
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 banks negligence, the CA awarded respondent moral
damages of P100,000. It also granted him exemplary damages of P75,000
and attorneys 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 Courts Ruling

The Petition has no merit.

Sole Issue:
Debit of Depositors 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 depositors collecting agent and -- until such time
as actual payment would be made to it -- it was reserving the right to charge
against the depositors 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 courts factual findings that were
affirmed by the CA are not subject to review by this Court. As petitioner itself
[7]

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. The right of a [8]

collecting bank to debit a clients 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. Thus, legal compensation under Article
[9]

1278 of the Civil Code may take place when all the requisites mentioned in
[10]

Article 1279 are present, as follows:


[11]

(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 respondents 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 banks role and obligations, first, as respondents
depositary bank; and second, as collecting agent for the check in question.

Obligation as
Depositary Bank

In BPI v. Casa Montessori, the Court has emphasized that the banking
[14]

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 Appeals has held that the degree of diligence required of banks is
[16]

more than that of a good father of a family where the fiduciary nature of their
relationship with their depositors is concerned. Indeed, the banking business
[17]

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.
The standard applies, regardless of whether the account consists of only a
[18]

few hundred pesos or of millions. [19]

The fiduciary nature of banking, previously imposed by case law, is now


[20]

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 respondents 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; and its value can
[21]

properly be transferred to a depositors 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 depositors account; or infuse
value to that account only after the drawee bank shall have paid such amount.
Before the check shall have been cleared for deposit, the collecting bank
[23]

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. Hence, the lower courts
[24]

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 Depositors
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 Depositors 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.
It is indeed arguable that in signing the deposit slip, the depositor does so
[26]

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 respondents 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. Under Article 1909 of the
[28] [29]

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. Due to the very nature of their business, banks are expected to
[30]

exercise the highest degree of diligence in the selection and supervision of


their employees. Jurisprudence has established that the lack of diligence of a
[31]

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; in [32]

this case, the depositor.


The manager of the banks 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 respondents 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


banks 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
[petitioners] 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 [respondents] 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 managers
account, respondent was considered a valued client whose checks had
always been sufficiently funded from 1987 to 1990, until the October
[36]

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 indorser and the procedure for a notice of dishonor,
[37]

it was incumbent on the bank to give proper notice to respondent. In Gullas


[38]

v. National Bank, the Court emphasized:


[39]

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 CAs 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 attorneys fees, we will no longer address these matters.

WHEREFORE, the Petition is DENIED and the assailed


Decision AFFIRMED. Costs against petitioner.
SO ORDERED.

¢ BPI vs. CA 232 SCRA 302 (1994)


BANK OF THE PHILIPPINE ISLANDS VS. COURT OF APPEALS

232 SCRA302
G.R. NO. 104612
MAY 10, 1994

FACTS: Private respondents Eastern Plywood Corporation and Benigno Lim as officer of the
corporation, had an “AND/OR” joint account with Commercial Bank and Trust Co (CBTC), the
predecessor-in-interest of petitioner Bank of the Philippine Islands. Lim withdraw funds from such
account and used it to open a joint checking account (an “AND” account) with Mariano Velasco.
When Velasco died in 1977, said joint checking account had P662,522.87. By virtue of an Indemnity
Undertaking executed by Lim and as President and General Manager of Eastern withdrew one half
of this amount and deposited it to one of the accounts of Eastern with CBTC.

Eastern obtained a loan of P73,000.00 from CBTC which was not secured. However, Eastern and
CBTC executed a Holdout Agreement providing that the loan was secured by the “Holdout of the C/A
No. 2310-001-42” referring to the joint checking account of Velasco and Lim.

Meanwhile, a judicial settlement of the estate of Velasco ordered the withdrawal of the balance of the
account of Velasco and Lim.

Asserting that the Holdout Agreement provides for the security of the loan obtained by Eastern and
that it is the duty of CBTC to debit the account of respondents to set off the amount of P73,000
covered by the promissory note, BPI filed the instant petition for recovery. Private respondents
Eastern and Lim, however, assert that the amount deposited in the joint account of Velasco and Lim
came from Eastern and therefore rightfully belong to Eastern and/or Lim. Since the Holdout
Agreement covers the loan of P73,000, then petitioner can only hold that amount against the joint
checking account and must return the rest.

ISSUE: Whether BPI can demand the payment of the loan despite the existence of the Holdout
Agreement and whether BPI is still liable to the private respondents on the account subject of the
withdrawal by the heirs of Velasco.

RULING: Yes, for both issues. Regarding the first, the Holdout Agreement conferred on CBTC the
power, not the duty, to set off the loan from the account subject of the Agreement. When BPI
demanded payment of the loan from Eastern, it exercised its right to collect payment based on the
promissory note, and disregarded its option under the Holdout Agreement. Therefore, its demand
was in the correct order.

Regarding the second issue, BPI was the debtor and Eastern was the creditor with respect to the
joint checking account. Therefore, BPI was obliged to return the amount of the said account only to
the creditor. When it allowed the withdrawal of the balance of the account by the heirs of Velasco, it
made the payment to the wrong party. The law provides that payment made by the debtor to the
wrong party does not extinguish its obligation to the creditor who is without fault or negligence.
Therefore, BPI was still liable to the true creditor, Eastern.

Bank of the Philippine Islands vs. Court of Appeals, 232 SCRA 302 , G.R. No. 104612 May
10, 1994

G.R. No. 104612 May 10, 1994


BANK OF THE PHILIPPINE ISLANDS (successor-in- interest of COMMERCIAL AND TRUST CO.), petitioner,
vs.
HON. COURT OF APPEALS, EASTERN PLYWOOD CORP. and BENIGNO D. LIM, respondents.
Leonen, Ramirez & Associates for petitioner.
Constante A. Ancheta for private respondents.

DAVIDE, JR., J.:


The petitioner urges us to review and set aside the amended Decision 1 of 6 March 1992 of respondent Court of Appeals in CA-
G.R. CV No. 25739 which modified the Decision of 15 November 1990 of Branch 19 of the Regional Trial Court (RTC) of Manila in
Civil Case No. 87-42967, entitled Bank of the Philippine Islands (successor-in-interest of Commercial Bank and Trust
Company) versus Eastern Plywood Corporation and Benigno D. Lim. The Court of Appeals had affirmed the dismissal of the
complaint but had granted the defendants' counterclaim for P331,261.44 which represents the outstanding balance of their
account with the plaintiff.
As culled from the records and the pleadings of the parties, the following facts were duly established:
Private respondents Eastern Plywood Corporation (Eastern) and
Benigno D. Lim (Lim), an officer and stockholder of Eastern, held at least one joint bank account ("and/or" account) with the
Commercial Bank and Trust Co. (CBTC), the predecessor-in-interest of petitioner Bank of the Philippine Islands (BPI). Sometime
in March 1975, a joint checking account ("and" account) with Lim in the amount of P120,000.00 was opened by Mariano
Velasco with funds withdrawn from the account of Eastern and/or Lim. Various amounts were later deposited or withdrawn
from the joint account of Velasco and Lim. The money therein was placed in the money market.
Velasco died on 7 April 1977. At the time of his death, the outstanding balance of the account stood at P662,522.87. On 5 May
1977, by virtue of an Indemnity Undertaking executed by Lim for himself and as President and General Manager of
Eastern, 2 one-half of this amount was provisionally released and transferred to one of the bank accounts of Eastern with CBTC. 3
Thereafter, on 18 August 1978, Eastern obtained a loan of P73,000.00 from CBTC as "Additional Working Capital," evidenced by
the "Disclosure Statement on Loan/Credit Transaction" (Disclosure Statement) signed by CBTC through its branch manager,
Ceferino Jimenez, and Eastern, through Lim, as its President and General Manager. 4 The loan was payable on demand with
interest at 14% per annum.
For this loan, Eastern issued on the same day a negotiable promissory note for P73,000.00 payable on demand to the order of
CBTC with interest at 14% per annum. 5 The note was signed by Lim both in his own capacity and as President and General
Manager of Eastern. No reference to any security for the loan appears on the note. In the Disclosure Statement, the box with
the printed word "UNSECURED" was marked with "X" — meaning unsecured, while the line with the words "this loan is
wholly/partly secured by" is followed by the typewritten words "Hold-Out on a 1:1 on C/A No. 2310-001-42," which refers to the
joint account of Velasco and Lim with a balance of P331,261.44.
In addition, Eastern and Lim, and CBTC signed another document entitled "Holdout Agreement," also dated 18 August
1978, 6 wherein it was stated that "as security for the Loan [Lim and Eastern] have offered [CBTC] and the latter accepts a
holdout on said [Current Account No. 2310-011-42 in the joint names of Lim and Velasco] to the full extent of their alleged
interests therein as these may appear as a result of final and definitive judicial action or a settlement between and among the
contesting parties thereto." 7Paragraph 02 of the Agreement provides as follows:
Eastply [Eastern] and Mr. Lim hereby confer upon Comtrust [CBTC], when and if their alleged interests in the Account Balance
shall have been established with finality, ample and sufficient power as shall be necessary to retain said Account Balance and
enable Comtrust to apply the Account Balance for the purpose of liquidating the Loan in respect of principal and/or accrued
interest.
And paragraph 05 thereof reads:
The acceptance of this holdout shall not impair the right of Comtrust to declare the loan payable on demand at any time, nor
shall the existence hereof and the non-resolution of the dispute between the contending parties in respect of entitlement to the
Account Balance, preclude Comtrust from instituting an action for recovery against Eastply and/or Mr. Lim in the event the Loan
is declared due and payable and Eastply and/or Mr. Lim shall default in payment of all obligations and liabilities thereunder.
In the meantime, a case for the settlement of Velasco's estate was filed with Branch 152 of the RTC of Pasig, entitled "In re
Intestate Estate of Mariano Velasco," and docketed as Sp. Proc. No. 8959. In the said case, the whole balance of P331,261.44 in
the aforesaid joint account of Velasco and Lim was being claimed as part of Velasco's estate. On 9 September 1986, the intestate
court granted the urgent motion of the heirs of Velasco to withdraw the deposit under the joint account of Lim and Velasco and
authorized the heirs to divide among themselves the amount withdrawn. 8
Sometime in 1980, CBTC was merged with BPI. 9 On 2 December 1987, BPI filed with the RTC of Manila a complaint against Lim
and Eastern demanding payment of the promissory note for P73,000.00. The complaint was docketed as Civil Case No. 87-
42967 and was raffled to Branch 19 of the said court, then presided over by Judge Wenceslao M. Polo. Defendants Lim and
Eastern, in turn, filed a counterclaim against BPI for the return of the balance in the disputed account subject of the Holdout
Agreement and the interests thereon after deducting the amount due on the promissory note.
After due proceedings, the trial court rendered its decision on
15 November 1990 dismissing the complaint because BPI failed to make out its case. Furthermore, it ruled that "the promissory
note in question is subject to the 'hold-out' agreement," 10 and that based on this agreement, "it was the duty of plaintiff Bank
[BPI] to debit the account of the defendants under the promissory note to set off the loan even though the same has no fixed
maturity." 11 As to the defendants' counterclaim, the trial court, recognizing the fact that the entire amount in question had
been withdrawn by Velasco's heirs pursuant to the order of the intestate court in Sp. Proc. No. 8959, denied it because the "said
claim cannot be awarded without disturbing the resolution" of the intestate court. 12
Both parties appealed from the said decision to the Court of Appeals. Their appeal was docketed as CA-G.R. CV No. 25739.
On 23 January 1991, the Court of Appeals rendered a decision affirming the decision of the trial court. It, however, failed to rule
on the defendants' (private respondents') partial appeal from the trial court's denial of their counterclaim. Upon their motion
for reconsideration, the Court of Appeals promulgated on 6 March 1992 an Amended Decision 13 wherein it ruled that the
settlement of Velasco's estate had nothing to do with the claim of the defendants for the return of the balance of their account
with CBTC/BPI as they were not privy to that case, and that the defendants, as depositors of CBTC/BPI, are the latter's creditors;
hence, CBTC/BPI should have protected the defendants' interest in Sp. Proc. No. 8959 when the said account was claimed by
Velasco's estate. It then ordered BPI "to pay defendants the amount of P331,261.44 representing the outstanding balance in the
bank account of defendants." 14
On 22 April 1992, BPI filed the instant petition alleging therein that the Holdout Agreement in question was subject to a
suspensive condition stated therein, viz., that the "P331,261.44 shall become a security for respondent Lim's promissory note
only if respondents' Lim and Eastern Plywood Corporation's interests to that amount are established as a result of a final and
definitive judicial action or a settlement between and among the contesting parties thereto." 15 Hence, BPI asserts, the Court of
Appeals erred in affirming the trial court's decision dismissing the complaint on the ground that it was the duty of CBTC to debit
the account of the defendants to set off the amount of P73,000.00 covered by the promissory note.
Private respondents Eastern and Lim dispute the "suspensive condition" argument of the petitioner. They interpret the findings
of both the trial and appellate courts that the money deposited in the joint account of Velasco and Lim came from Eastern and
Lim's own account as a finding that the money deposited in the joint account of Lim and Velasco "rightfully belong[ed] to
Eastern Plywood Corporation and/or Benigno Lim." And because the latter are the rightful owners of the money in question, the
suspensive condition does not find any application in this case and the bank had the duty to set off this deposit with the loan.
They add that the ruling of the lower court that they own the disputed amount is the final and definitive judicial action required
by the Holdout Agreement; hence, the petitioner can only hold the amount of P73,000.00 representing the security required for
the note and must return the rest. 16
The petitioner filed a Reply to the aforesaid Comment. The private respondents filed a Rejoinder thereto.
We gave due course to the petition and required the parties to submit simultaneously their memoranda.
The key issues in this case are whether BPI can demand payment of the loan of P73,000.00 despite the existence of the Holdout
Agreement and whether BPI is still liable to the private respondents on the account subject of the Holdout Agreement after its
withdrawal by the heirs of Velasco.
The collection suit of BPI is based on the promissory note for P73,000.00. On its face, the note is an unconditional promise to
pay the said amount, and as stated by the respondent Court of Appeals, "[t]here is no question that the promissory note is a
negotiable instrument." 17 It further correctly ruled that BPI was not a holder in due course because the note was not indorsed
to BPI by the payee, CBTC. Only a negotiation by indorsement could have operated as a valid transfer to make BPI a holder in
due course. It acquired the note from CBTC by the contract of merger or sale between the two banks. BPI, therefore, took the
note subject to the Holdout Agreement.
We disagree, however, with the Court of Appeals in its interpretation of the Holdout Agreement. It is clear from paragraph 02
thereof that CBTC, or BPI as its successor-in-interest, had every right to demand that Eastern and Lim settle their liability under
the promissory note. It cannot be compelled to retain and apply the deposit in Lim and Velasco's joint account to the payment
of the note. What the agreement conferred on CBTC was a power, not a duty. Generally, a bank is under no duty or obligation to
make the application. 18 To apply the deposit to the payment of a loan is a privilege, a right of set-off which the bank has the
option to exercise. 19
Also, paragraph 05 of the Holdout Agreement itself states that notwithstanding the agreement, CBTC was not in any way
precluded from demanding payment from Eastern and from instituting an action to recover payment of the loan. What it
provides is an alternative, not an exclusive, method of enforcing its claim on the note. When it demanded payment of the debt
directly from Eastern and Lim, BPI had opted not to exercise its right to apply part of the deposit subject of the Holdout
Agreement to the payment of the promissory note for P73,000.00. Its suit for the enforcement of the note was then in order
and it was error for the trial court to dismiss it on the theory that it was set off by an equivalent portion in C/A No. 2310-001-42
which BPI should have debited. The Court of Appeals also erred in affirming such dismissal.
The "suspensive condition" theory of the petitioner is, therefore, untenable.
The Court of Appeals correctly decided on the counterclaim. The counterclaim of Eastern and Lim for the return of the
P331,261.44 20 was equivalent to a demand that they be allowed to withdraw their deposit with the bank. Article 1980 of the
Civil Code expressly provides that "[f]ixed, savings, and current deposits of money in banks and similar institutions shall be
governed by the provisions concerning simple loan." In Serrano vs. Central Bank of the Philippines, 21 we held that bank deposits
are in the nature of irregular deposits; they are really loans because they earn interest. The relationship then between a
depositor and a bank is one of creditor and debtor. The deposit under the questioned account was an ordinary bank deposit;
hence, it was payable on demand of the depositor.22
The account was proved and established to belong to Eastern even if it was deposited in the names of Lim and Velasco. As the
real creditor of the bank, Eastern has the right to withdraw it or to demand payment thereof. BPI cannot be relieved of its duty
to pay Eastern simply because it already allowed the heirs of Velasco to withdraw the whole balance of the account. The
petitioner should not have allowed such withdrawal because it had admitted in the Holdout Agreement the questioned
ownership of the money deposited in the account. As early as 12 May 1979, CBTC was notified by the Corporate Secretary of
Eastern that the deposit in the joint account of Velasco and Lim was being claimed by them and that one-half was being claimed
by the heirs of Velasco. 23
Moreover, the order of the court in Sp. Proc. No. 8959 merely authorized the heirs of Velasco to withdraw the account. BPI was
not specifically ordered to release the account to the said heirs; hence, it was under no judicial compulsion to do so. The
authorization given to the heirs of Velasco cannot be construed as a final determination or adjudication that the account
belonged to Velasco. We have ruled that when the ownership of a particular property is disputed, the determination by a
probate court of whether that property is included in the estate of a deceased is merely provisional in character and cannot be
the subject of execution. 24
Because the ownership of the deposit remained undetermined, BPI, as the debtor with respect thereto, had no right to pay to
persons other than those in whose favor the obligation was constituted or whose right or authority to receive payment is
indisputable. The payment of the money deposited with BPI that will extinguish its obligation to the creditor-depositor is
payment to the person of the creditor or to one authorized by him or by the law to receive it. 25 Payment made by the debtor to
the wrong party does not extinguish the obligation as to the creditor who is without fault or negligence, even if the debtor acted
in utmost good faith and by mistake as to the person of the creditor, or through error induced by fraud of a third person. 26 The
payment then by BPI to the heirs of Velasco, even if done in good faith, did not extinguish its obligation to the true depositor,
Eastern.
In the light of the above findings, the dismissal of the petitioner's complaint is reversed and set aside. The award on the
counterclaim is sustained subject to a modification of the interest.
WHEREFORE, the instant petition is partly GRANTED. The challenged amended decision in CA-G.R. CV No. 25735 is hereby
MODIFIED. As modified:
(1) Private respondents are ordered to pay the petitioner the promissory note for P73,000.00 with interest at:
(a) 14% per annum on the principal, computed from
18 August 1978 until payment;
(b) 12% per annum on the interest which had accrued up to the date of the filing of the complaint, computed from that date
until payment pursuant to Article 2212 of the Civil Code.
(2) The award of P331,264.44 in favor of the private respondents shall bear interest at the rate of 12% per annum computed
from the filing of the counterclaim.
No pronouncement as to costs.
SO ORDERED.

¢ Ejercito vs. Sandiganbayan, 509 SCRA 190

JOSEPH VICTOR G. EJERCITO v. SANDIGANBAYAN 509 SCRA 190 (2006)

Ms. Dela Paz, receiver of the Urban Bank, furnished the Office of the Ombudsman
certified copies of manager checks detailed in the subpoena duces tecum. The
Sandiganbayan granted the same. However, Ejercito claims that the subpoenas issued
by the Sandiganbayan are invalid and may not be enforced because the information
found therein, given their ―extremely detailed‖ character and could only have been
obtained by the Special Prosecution Panel through an illegal disclosure by the bank
officials. Ejercito thus contended that, following the ―fruit of the poisonous
tree‖ doctrine, the subpoenas must be quashed. Moreover, the ―extremely-detailed‖
information obtained by the Ombudsman from the bank officials concerned during a
previous investigation of the charges against him, such inquiry into his bank
accounts would itself be illegal.

ISSUE:

Whether or not subpoena duces tecum/ad testificandum may be issued to order the
production of statement of bank accounts even before a case for plunder is filed in court.

HELD:

The Supreme Court held that plunder is analogous to bribery, and therefore, the
exception to R.A. 1405 must also apply to cases of plunder. The court also reiterated the
ruling in Marquez v. Desierto 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 pending case
before the court of competent jurisdiction. As no plunder case against then
President Estrada had yet been filed before a court of competent jurisdiction at the time
the Ombudsman conducted an investigation, he 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. Thus, his attempt to make the
exclusionary rule applicable to the instant case fails. The high Court, however, rejected
the arguments of the petitioner Ejercito that the bank accounts which where demanded
from certain banks even before the case was filed before the proper court is inadmissible
in evidence being fruits of poisonous tree. This is because the Ombudsman issued the
subpoenas bearing on the bank accounts of Ejercito 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.
Thus, the Court referred to the teaching of Columbia Pictures Inc., v. Court of Appeals,
that: 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 doctrineshould be applied prospectively and should
not apply to parties who relied on the old doctrine and acted in good faith.

Facts:

In lieu of the Criminal Case “People v. Estrada” for plunder, the Special
Prosecution Panel filed before the Sandiganbayan a request for issuance of
Subpoena Duces Tecum directing the President of Export and Industry Bank or
his/her authorized representative to produce documents namely, Trust Account
and Savings Account belonging to petitioner and statement of accounts of one
named “Jose Velarde” and to testify thereon during the hearings. Sandiganbayan
granted both requests and subpoenas were accordingly issued. Sandiganbayan
also granted and issued subpoenas prayed for by the Prosecution Panel in
another later date. Petitioner now assisted by his counsel filed two separate
motions to quash the two subpoenas issued. Sandiganbayan denied both
motions and the consequent motions for reconsideration of petitioner.

Issues:

(1) Whether or not the trust accounts of petitioner are covered by the term
“deposits” as used in R.A. No. 1405

(2) Whether or not plunder is neither bribery nor dereliction of duty not exempted
from protection of R.A. No. 1405

(3) Whether or not the unlawful examination of bank accounts shall render the
evidence obtained therefrom inadmissible in evidence.

Ruling:

(1) YES. 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. 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. 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. 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.

(2) NO. 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.
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.

(3) NO. Petitioner’s attempt to make the exclusionary rule applicable to the
instant case fails. R.A. 1405, it bears noting, nowhere provides that an unlawful
examination of bank accounts shall render the evidence obtained therefrom
inadmissible in evidence. Section 5 of R.A. 1405 only states that “[a]ny violation
of this law will subject the offender upon conviction, to an imprisonment of not
more than five years or a fine of not more than twenty thousand pesos or both, in
the discretion of the court.”

Even assuming arguendo, however, that the exclusionary rule applies in principle
to cases involving R.A. 1405, the Court finds no reason to apply the same in this
particular case. Clearly, the “fruit of the poisonous tree” doctrine 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.

Additional Note: (This case is to be contrasted with Marquez v. Desierto)

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.

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

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

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. 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. 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.
JOSEPH VICTOR G. EJERCITO, G.R. Nos. 157294-95
Petitioner, Present:
PANGANIBAN, C.J.,
PUNO,
QUISUMBING,
- versus - YNARES-SANTIAGO,
SANDOVAL-GUTIERREZ,
CARPIO,
AUSTRIA-MARTINEZ,
CORONA,
SANDIGANBAYAN (SPECIAL CARPIO MORALES,
DIVISION) AND PEOPLE OF CALLEJO, SR.,
THE PHILIPPINES, AZCUNA,
Respondents. TINGA,
CHICO-NAZARIO,
GARCIA, and
VELASCO, JR., JJ.
Promulgated:

November 30, 2006


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

DECISION

CARPIO MORALES, J.:

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

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

In above-stated case of People v. Estrada, et al., the Special Prosecution


[1]
Panel filed on January 20, 2003 before the Sandiganbayan a Request for Issuance
of Subpoena Duces Tecum for the issuance of a subpoena directing the President of
Export and Industry Bank (EIB, formerly Urban Bank) or his/her authorized
representative to produce the following documents during the hearings scheduled
on January 22 and 27, 2003:

I. For Trust Account No. 858;


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

a. Bank of Commerce MC # 0256254 in the amount


of P2,000,000.00;
b. Urban bank Corp. MC # 34181 dated November 8, 1999 in the
amount of P10,875,749.43;
c. Urban Bank MC # 34182 dated November 8, 1999 in the
amount of P42,716,554.22;
d. Urban Bank Corp. MC # 37661 dated November 23, 1999 in
the amount of P54,161,496.52;

5. Trust Agreement dated January 1999:


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

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


SPAN No. 858

1. Signature Cards; and


2. Statement of Account/Ledger

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

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


2. MC # 039976 dated January 18, 2000 in the amount of P2,000,000.00;
3. MC # 039977 dated January 18, 2000 in the amount of P2,000,000.00;
4. MC # 039978 dated January 18, 2000 in the amount of P1,000,000.00;
The Special Prosecution Panel also filed on January 20, 2003, a Request for
Issuance of Subpoena Duces Tecum/Ad Testificandum directed to the authorized
representative of Equitable-PCI Bank to produce statements of account pertaining
to certain accounts in the name of Jose Velarde and to testify thereon.

The Sandiganbayan granted both requests by Resolution of January 21,


2003 and subpoenas were accordingly issued.

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

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

Your Honors:

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

I am sure the prosecution is aware of our banking secrecy laws everyone


supposed to observe. But, instead of prosecuting those who may have
breached such laws, it seems it is even going to use supposed evidence
which I have reason to believe could only have been illegally obtained.

The prosecution was not content with a general request. It even lists and
identifies specific documents meaning someone else in the bank illegally
released confidential information.
If this can be done to me, it can happen to anyone. Not that anything can
still shock our family. Nor that I have anything to hide. Your Honors.

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

xxxx

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

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

From the present petition, it is gathered that the accounts referred to by


petitioner in his above-quoted letter are Trust Account No. 858 and Savings
Account No. 0116-17345-9.[2]

In open court, the Special Division of the Sandiganbayan, through Associate


Justice Edilberto Sandoval, advised petitioner that his remedy was to file a motion
to quash, for which he was given up to 12:00 noon the following day, January 28,
2003.

Petitioner, unassisted by counsel, thus filed on January 28, 2003 a Motion to


Quash Subpoena Duces Tecum/Ad Testificandum praying that the subpoenas
previously issued to the President of the EIB dated January 21 and January 24,
2003 be quashed.[3]
In his Motion to Quash, petitioner claimed that his bank accounts are
covered by R.A. No. 1405 (The Secrecy of Bank Deposits Law) and do not fall
under any of the exceptions stated therein. He further claimed that the specific
identification of documents in the questioned subpoenas, including details on dates
and amounts, could only have been made possible by an earlier illegal disclosure
thereof by the EIB and the Philippine Deposit Insurance Corporation (PDIC) in its
capacity as receiver of the then Urban Bank.

The disclosure being illegal, petitioner concluded, the prosecution in the


case may not be allowed to make use of the information.

Before the Motion to Quash was resolved by the Sandiganbayan, the


prosecution filed another Request for the Issuance of Subpoena Duces Tecum/Ad
Testificandum dated January 31, 2003, again to direct the President of the EIB to
produce, on the hearings scheduled on February 3 and 5, 2003, the same
documents subject of the January 21 and 24, 2003 subpoenas with the exception of
the Bank of Commerce MC #0256254 in the amount of P2,000,000 as Bank of
Commerce MC #0256256 in the amount of P200,000,000 was instead
requested. Moreover, the request covered the following additional documents:

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


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

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

1. Letter of authority dated November 23, 1999 re: SPAN [Special


Private Account Number] 858;

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

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


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

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

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


supplied)

The subpoenas prayed for in both requests were issued by the


Sandiganbayan on January 31, 2003.

On February 7, 2003, petitioner, this time assisted by counsel, filed an


Urgent Motion to Quash Subpoenae Duces Tecum/Ad Testificandum praying that
the subpoena dated January 31, 2003 directed to Aurora Baldoz be quashed for the
same reasons which he cited in the Motion to Quash[4] he had earlier filed.

On the same day, February 7, 2003, the Sandiganbayan issued a Resolution


denying petitioners Motion to Quash Subpoenae Duces Tecum/Ad Testificandum
dated January 28, 2003.

Subsequently or on February 12, 2003, the Sandiganbayan issued a


Resolution denying petitioners Urgent Motion to Quash Subpoena Duces
Tecum/Ad Testificandum dated February 7, 2003.

Petitioners Motion for Reconsideration dated February 24, 2003 seeking a


reconsideration of the Resolutions of February 7 and 12, 2003 having been denied
by Resolution of March 11, 2003, petitioner filed the present petition.

Raised as issues are:

1. Whether petitioners Trust Account No. 858 is covered by the term


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

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


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

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

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

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

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


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

If the money deposited under an account may be used by banks for


authorized loans to third persons, then such account, regardless of whether it
creates a creditor-debtor relationship between the depositor and the bank, falls
under the category of accounts which the law precisely seeks to protect for the
purpose of boosting the economic development of the country.
Trust Account No. 858 is, without doubt, one such account. The Trust
Agreement between petitioner and Urban Bank provides that the trust account
covers deposit, placement or investment of funds by Urban Bank for and in behalf
of petitioner.[6] The money deposited under Trust Account No. 858, was, therefore,
intended not merely to remain with the bank but to be invested by it elsewhere. To
hold that this type of account is not protected by R.A. 1405 would encourage
private hoarding of funds that could otherwise be invested by banks in other
ventures, contrary to the policy behind the law.

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

SECTION 2. All deposits of whatever nature with banks or banking


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

The phrase of whatever nature proscribes any restrictive interpretation of


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

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

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

Petitioner contends that since plunder is neither bribery nor dereliction of


duty, his accounts are not excepted from the protection of R.A. 1405. Philippine
National Bank v. Gancayco[7] holds otherwise:

Cases of unexplained wealth are similar to cases of bribery or


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

Undoubtedly, cases for plunder involve unexplained wealth. Section 2 of


R.A. No. 7080 states so.

SECTION 2. Definition of the Crime of Plunder; Penalties. Any public


officer who, by himself or in connivance with members of his family,
relatives by affinity or consanguinity, business associates, subordinates
or other persons, amasses, accumulates or acquires ill-gotten
wealth through a combination or series of overt or criminal acts as
described in Section 1(d) hereof, in the aggregate amount or total value
of at least Seventy-five million pesos (P75,000,000.00), shall be guilty of
the crime of plunder and shall be punished by life imprisonment with
perpetual absolute disqualification from holding any public office. Any
person who participated with said public officer in the commission of
plunder shall likewise be punished. In the imposition of penalties, the
degree of participation and the attendance of mitigating and extenuating
circumstances shall be considered by the court. The court shall declare
any and all ill-gotten wealth and their interests and other incomes and
assets including the properties and shares of stock derived from the
deposit or investment thereof forfeited in favor of the State. (Emphasis
and underscoring supplied)
An examination of the overt or criminal acts as described in Section 1(d) of
R.A. No. 7080 would make the similarity between plunder and bribery even more
pronounced since bribery is essentially included among these criminal acts. Thus
Section 1(d) states:

d) Ill-gotten wealth means any asset, property, business enterprise


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

1) Through misappropriation, conversion, misuse, or malversation of


public funds or raids on the public treasury;

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


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

3) By the illegal or fraudulent conveyance or disposition of assets


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

4) By obtaining, receiving or accepting directly or indirectly any shares


of stock, equity or any other form of interest or participation
including promise of future employment in any business enterprise
or undertaking;

5) By establishing agricultural, industrial or commercial monopolies or


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

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


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

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

Plunder being thus analogous to bribery, the exception to R.A. 1405


applicable in cases of bribery must also apply to cases of plunder.

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

Petitioner contends that the Court of Appeals confuses the cause


of action with the subject of the action. In Yusingco v. Ong Hing Lian,
petitioner points out, this Court distinguished the two concepts.

x x x The cause of action is the legal wrong


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

The argument is well-taken. We note with approval the difference


between the subject of the action from the cause of action. We also find
petitioners definition of the phrase subject matter of the action is
consistent with the term subject matter of the litigation, as the latter is
used in the Bank Deposits Secrecy Act.
In Mellon Bank, N.A. v. Magsino, where the petitioner bank
inadvertently caused the transfer of the amount of US$1,000,000.00
instead of only US$1,000.00, the Court sanctioned the examination of
the bank accounts where part of the money was subsequently caused
to be deposited:

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


of bank deposits in cases where the money deposited is the subject matter
of the litigation. Inasmuch as Civil Case No. 26899 is aimed at
recovering the amount converted by the Javiers for their own
benefit, necessarily, an inquiry into the whereabouts of the illegally
acquired amount extends to whatever is concealed by being held or
recorded in the name of persons other than the one responsible for
the illegal acquisition.

Clearly, Mellon Bank involved a case where the money deposited


was the subject matter of the litigation since the money deposited was
the very thing in dispute. x x x (Emphasis and underscoring supplied)

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

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

In a further attempt to show that the subpoenas issued by the Sandiganbayan


are invalid and may not be enforced, petitioner contends, as earlier stated, that the
information found therein, given their extremely detailed character, could only
have been obtained by the Special Prosecution Panel through an illegal disclosure
by the bank officials concerned. Petitioner thus claims that, following the fruit of
the poisonous tree doctrine, the subpoenas must be quashed.
Petitioner further contends that even if, as claimed by respondent People, the
extremely-detailed information was obtained by the Ombudsman from the bank
officials concerned during a previous investigation of the charges against President
Estrada, such inquiry into his bank accounts would itself be illegal.

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

We rule that before an in camera inspection may be allowed there must


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

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

Petitioners attempt to make the exclusionary rule applicable to the instant


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

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

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

x x x When Congress specifically designates a remedy for one of


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

Even assuming arguendo, however, that the exclusionary rule applies in


principle to cases involving R.A. 1405, the Court finds no reason to apply the
same in this particular case.

Clearly, the fruit of the poisonous tree doctrine[13] presupposes a violation of


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

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

x x x [A]s early as February 8, 2001, long before the issuance of


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

Thus, on February 13, 2001, PDIC, as receiver of Urban Bank, issued a


certification as to the availability of bank documents relating to A/C 858
and T/A 858 and the non-availability of bank records as to the other
accounts named in the subpoena. (Attachments 2, 2-1 and 2-b)

Based on the certification issued by PDIC, the Office of the Ombudsman


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

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

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


99, 11-22-99, 1-07-00, 04-03-00 and 04-24-00;
2. Report of Unregularized TAFs & TDs for UR COIN A & B
Placements of Various Branches as of February 29, 2000 and
as of December 16, 1999; and
3. Trading Orders Nos. A No. 78102 and A No. 078125.

Trading Order A No. 07125 is filed in two copies a white copy


which showed set up information; and a yellow copy which
showed reversal information. Both copies have been reproduced
and are enclosed with this letter.

We are continuing our search for other records and documents


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

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

PDIC again complied with the said Subpoena Duces Tecum dated March
7, 2001 and provided copies of the managers checks thus requested
under cover letter dated March 16, 2001. (Attachment 6)[14] (Emphasis in
the original)
The Sandiganbayan credited the foregoing account of respondent People.
[15]
The Court finds no reason to disturb this finding of fact by the Sandiganbayan.

The Marquez ruling notwithstanding, the above-described examination by the


Ombudsman of petitioners bank accounts, conducted before a case was filed with a
court of competent jurisdiction, was lawful.

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

While judicial interpretations of statutes, such as that made in Marquez with


respect to R.A. No. 6770 or the Ombudsman Act of 1989, are deemed part of the
statute as of the date it was originally passed, the rule is not absolute.

Columbia Pictures, Inc. v. Court of Appeals[16] teaches:

It is consequently clear that a judicial interpretation becomes a part of


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

When this Court construed the Ombudsman Act of 1989, in light of the Secrecy of
Bank Deposits Law in Marquez, that before an in camera inspection may be
allowed there must be a pending case before a court of competent jurisdiction, it
was, in fact, reversing an earlier doctrine found in Banco Filipino Savings and
Mortgage Bank v. Purisima[17].
Banco Filipino involved subpoenas duces tecum issued by the Office of the
Ombudsman, then known as the Tanodbayan,[18] in the course of its preliminary
investigation of a charge of violation of the Anti-Graft and Corrupt Practices Act.

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

(d) He may issue a subpoena to compel any person to appear, give


sworn testimony, or produce documentary or other evidence the
Tanodbayan deems relevant to a matter under his inquiry,

held that The power of the Tanodbayan to issue subpoenae ad testificandum


and subpoenae duces tecum at the time in question is not disputed, and at any
rate does not admit of doubt.[20]

As the subpoenas subject of Banco Filipino were issued during a


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

Marquez, on the other hand, practically reversed this ruling in Banco


Filipino despite the fact that the subpoena power of the Ombudsman under R.A.
6770 was essentially the same as that under P.D. 1630. Thus Section 15 of R.A.
6770 empowers the Office of the Ombudsman to

(8) Administer oaths, issue subpoena and subpoena duces tecum, and
take testimony in any investigation or inquiry, including the power to
examine and have access to bank accounts and records;

A comparison of this provision with its counterpart in Sec. 10(d) of P.D. 1630
clearly shows that it is only more explicit in stating that the power of the
Ombudsman includes the power to examine and have access to bank accounts and
records which power was recognized with respect to the Tanodbayan
through Banco Filipino.

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

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

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

x x x The doctrine that an uncounselled waiver of the right to


counsel is not to be given legal effect was initially a judge-made one
and was first announced on 26 April 1983 in Morales v. Enrile and
reiterated on 20 March 1985 in People v. Galit. x x x

While the Morales-Galit doctrine eventually became part of Section


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

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

AT ALL EVENTS, even if the challenged subpoenas are quashed, the


Ombudsman is not barred from requiring the production of the same documents
based solely on information obtained by it from sources independent of its
previous inquiry.

In particular, the Ombudsman, even before its inquiry, had already possessed
information giving him grounds to believe that (1) there are bank accounts bearing
the number 858, (2) that such accounts are in the custody of Urban Bank, and (3)
that the same are linked with the bank accounts of former President Joseph Estrada
who was then under investigation for plunder.
Only with such prior independent information could it have been possible for the
Ombudsman to issue the February 8, 2001 subpoena duces tecum addressed to the
President and/or Chief Executive Officer of Urban Bank, which described the
documents subject thereof as follows:

(a) bank records and all documents relative thereto pertaining to all
bank accounts (Savings, Current, Time Deposit, Trust, Foreign Currency
Deposits, etc) under the account names of Jose Velarde, Joseph E.
Estrada, Laarni Enriquez, Guia Gomez, Joy Melendrez, Peach Osorio,
Rowena Lopez, Kevin or Kelvin Garcia, 727, 737, 747, 757, 777
and 858.(Emphasis and underscoring supplied)

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

Thus, with the filing of the plunder case against former President Estrada before
the Sandiganbayan, the Ombudsman, using the above independent information,
may now proceed to conduct the same investigation it earlier conducted, through
which it can eventually obtain the same information previously disclosed to it by
the PDIC, for it is an inescapable fact that the bank records of petitioner are no
longer protected by R.A. 1405 for the reasons already explained above.
Since conducting such an inquiry would, however, only result in the
disclosure of the same documents to the Ombudsman, this Court, in avoidance of
what would be a time-wasteful and circuitous way of administering justice,
[24]
upholds the challenged subpoenas.

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

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

1. These accounts are no longer protected by the Secrecy of Bank Deposits


Law, there being two exceptions to the said law applicable in this case, namely: (1)
the examination of bank accounts is upon order of a competent court in cases of
bribery or dereliction of duty of public officials, and (2) the money deposited or
invested is the subject matter of the litigation. Exception (1) applies since the
plunder case pending against former President Estrada is analogous to bribery or
dereliction of duty, while exception (2) applies because the money deposited in
petitioners bank accounts is said to form part of the subject matter of the same
plunder case.

2. The fruit of the poisonous tree principle, which states that once the
primary source (the tree) is shown to have been unlawfully obtained, any
secondary or derivative evidence (the fruit) derived from it is also inadmissible,
does not apply in this case. In the first place, R.A. 1405 does not provide for the
application of this rule. Moreover, there is no basis for applying the same in this
case since the primary source for the detailed information regarding petitioners
bank accounts the investigation previously conducted by the Ombudsman was
lawful.
3. At all events, even if the subpoenas issued by the Sandiganbayan were
quashed, the Ombudsman may conduct on its own the same inquiry into the
subject bank accounts that it earlier conducted last February-March 2001, there
being a plunder case already pending against former President Estrada. To quash
the challenged subpoenas would, therefore, be pointless since the Ombudsman
may obtain the same documents by another route. Upholding the subpoenas avoids
an unnecessary delay in the administration of justice.

WHEREFORE, the petition is DISMISSED. The Sandiganbayan


Resolutions dated February 7 and 12, 2003 and March 11, 2003 are upheld.

The Sandiganbayan is hereby directed, consistent with this Courts ruling


in Marquez v. Desierto, to notify petitioner as to the date the subject bank
documents shall be presented in court by the persons subpoenaed.

SO ORDERED.