Banking Laws Set 1 Q & A G.R. No. 138544. October 3, 2000] SECURITY BANK AND TRUST COMPANY, Inc.

., petitioner, vs. RODOLFO M. CUENCA, respondent.

THIRD DIVISION

DECISION PANGANIBAN, J.:

Being an onerous undertaking, a surety agreement is strictly construed against the creditor, and every doubt is resolved in favor of the solidary debtor. The fundamental rules of fair play require the creditor to obtain the consent of the surety to any material alteration in the principal loan agreement, or at least to notify it thereof. Hence, petitioner bank cannot hold herein respondent liable for loans obtained in excess of the amount or beyond the period stipulated in the original agreement, absent any clear stipulation showing that the latter waived his right to be notified thereof, or to give consent thereto. This is especially true where, as in this case, respondent was no longer the principal officer or major stockholder of the corporate debtor at the time the later obligations were incurred. He was thus no longer in a position to compel the debtor to pay the creditor and had no more reason to bind himself anew to the subsequent obligations.
The Case

This is the main principle used in denying the present Petition for Review under Rule 45 of the Rules of Court. Petitioner assails the December 22, 1998 Decision[1] of the Court of Appeals (CA) in CA-GR CV No. 56203, the dispositive portion of which reads as follows:

WHEREFORE, the judgment appealed from is hereby amended in the sense that defendant-appellant Rodolfo M. Cuenca [herein respondent] is RELEASED from liability to pay any amount stated in the judgment. Furthermore, [Respondent] Rodolfo M. Cuencas counterclaim is hereby DISMISSED for lack of merit. In all other respect[s], the decision appealed from is AFFIRMED.
[2]

Also challenged is the April 14, 1999 CA Resolution,[3] which denied petitioners Motion for Reconsideration. Modified by the CA was the March 6, 1997 Decision [4] of the Regional Trial Court (RTC) of Makati City (Branch 66) in Civil Case No. 93-1925,
which disposed as follows:

WHEREFORE, judgment is hereby rendered ordering defendants Sta. Ines Melale Corporation and Rodolfo M. Cuenca to pay, jointly and severally, plaintiff Security Bank & Trust Company the sum of P39,129,124.73 representing the balance of the loan as of May 10, 1994 plus 12% interest per annum until fully paid, and the sum of P100,000.00 as attorneys fees and litigation expenses and to pay the costs. SO ORDERED.
The Facts

The antecedent material and relevant facts are that defendant-appellant Sta. Ines Melale (Sta. Ines) is a corporation engaged in logging operations. It was a holder of a Timber License Agreement issued by the Department of Environment and Natural Resources (DENR). On 10 November 1980, [Petitioner] Security Bank and Trust Co. granted appellant Sta. Ines Melale Corporation [SIMC] a credit line in the amount of [e]ight [m]llion [p]esos (P8,000,000.00) to assist the latter in meeting the additional capitalization requirements of its logging operations. The Credit Approval Memorandum expressly stated that the P8M Credit Loan Facility shall be effective until 30 November 1981: JOINT CONDITIONS: 1. Against Chattel Mortgage on logging trucks and/or inventories (except logs) valued at 200% of the lines plus JSS of Rodolfo M. Cuenca. 2. Submission of an appropriate Board Resolution authorizing the borrowings, indicating therein the companys duly authorized signatory/ies; 3. Reasonable/compensating deposit balances in current account shall be maintained at all times; in this connection, a Makati account shall be opened prior to availment on lines; 4. Lines shall expire on November 30, 1981; and 5. The bank reserves the right to amend any of the aforementioned terms and conditions upon written notice to the Borrower. (Emphasis supplied.) To secure the payment of the amounts drawn by appellant SIMC from the above-mentioned credit line, SIMC executed a Chattel Mortgage dated 23 December 1980 (Exhibit A) over some of its machinery and equipment in favor of [Petitioner] SBTC. As additional security for the payment of the loan, [Respondent] Rodolfo M. Cuenca executed an Indemnity Agreement dated 17 December 1980 (Exhibit B) in favor of [Petitioner] SBTC whereby he solidarily bound himself with SIMC as follows: Rodolfo M. Cuenca x x x hereby binds himself x x x jointly and severally with the client (SIMC) in favor of the bank for the payment, upon demand and without the benefit of excussion of whatever amount x x x the client may be indebted to the bank x x x by virtue of aforesaid credit accommodation(s) including the substitutions, renewals, extensions, increases, amendments, conversions and revivals of the aforesaid credit accommodation(s) x x x . (Emphasis supplied). On 26 November 1981, four (4) days prior to the expiration of the period of effectivity of the P8M-Credit Loan Facility, appellant SIMC made a first drawdown from its credit line with [Petitioner] SBTC in the amount of [s]ix [m]illion [o]ne [h]undred [t]housand [p]esos (P6,100,000.00). To cover said drawdown, SIMC duly executed promissory Note No. TD/TLS-3599-81 for said amount (Exhibit C). Sometime in 1985, [Respondent] Cuenca resigned as President and Chairman of the Board of Directors of defendantappellant Sta. Ines. Subsequently, the shareholdings of [Respondent] Cuenca in defendant-appellant Sta. Ines were sold at a public auction relative to Civil Case No. 18021 entitled Adolfo A. Angala vs. Universal Holdings, Inc. and Rodolfo M. Cuenca. Said shares were bought by Adolfo Angala who was the highest bidder during the public auction. Subsequently, appellant SIMC repeatedly availed of its credit line and obtained six (6) other loan[s] from [Petitioner] SBTC in the aggregate amount of [s]ix [m]illion [t]hree [h]undred [s]ixty-[n]ine [t]housand [n]ineteen and 50/100
xxxxxxxxx

The facts are narrated by the Court of Appeals as follows:[5]

[p]esos (P6,369,019.50). Accordingly, SIMC executed Promissory Notes Nos. DLS/74/760/85, DLS/74773/85, DLS/74/78/85, DLS/74/760/85 DLS/74/12/86, and DLS/74/47/86 to cover the amounts of the abovementioned additional loans against the credit line. Appellant SIMC, however, encountered difficulty in making the amortization payments on its loans and requested [Petitioner] SBTC for a
[6]

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complete restructuring of its indebtedness. SBTC accommodated appellant SIMCs request and signified its approval in a letter dated 18 February 1988 (Exhibit G) wherein SBTC and defendant-appellant Sta. Ines, without notice to or the prior consent of [Respondent] Cuenca, agreed to restructure the past due obligations of defendant-appellant Sta. Ines. [Petitioner] Security Bank agreed to extend to defendant-appellant Sta. Ines the following loans:

a. Term loan in the amount of [e]ight [m]illion [e]ight [h]undred [t]housand [p]esos (P8,800,000.00), to be applied to liquidate the principal portion of defendant-appellant Sta. Ines[] total outstanding indebtedness to [Petitioner] Security Bank (cf. P. 1 of Exhibit G, Expediente, at Vol. II, p. 336; Exhibit 5-B-Cuenca, Expediente, et Vol I, pp. 33 to 34) and b. Term loan in the amount of [t]hree [m]illion [f]our [h]undred [t]housand [p]esos (P3,400,000.00), to be applied to liquidate the past due interest and penalty portion of the indebtedness of defendant-appellant Sta. Ines to [Petitioner] Security Bank (cf. Exhibit G, Expediente, at Vol. II, p. 336; Exhibit 5-B-Cuenca, Expediente, at Vol. II, p. 33 to 34). It should be pointed out that in restructuring defendant-appellant Sta. Ines obligations to [Petitioner] Security Bank, Promissory Note No. TD-TLS-3599-81 in the amount of [s]ix [m]illion [o]ne [h]undred [t]housand [p]esos (P6,100,000.00), which was the only loan incurred prior to the expiration of the P8M-Credit Loan Facility on 30 November 1981 and the only one covered by the Indemnity Agreement dated 19 December 1980 (Exhibit 3-Cuenca, Expediente, at Vol. II, p. 331), was not segregated from, but was instead lumped together with, the other loans, i.e., Promissory Notes Nos. DLS/74/12/86, DLS/74/28/86 and DLS/74/47/86 (Exhibits D, E, and F, Expediente, at Vol. II, pp. 333 to 335) obtained by defendant-appellant Sta. Ines which were not secured by said Indemnity Agreement. Pursuant to the agreement to restructure its past due obligations to [Petitioner] Security Bank, defendant-appellant Sta. Ines thus executed the following promissory notes, both dated 09 March 1988 in favor of [Petitioner] Security Bank: PROMISSORY NOTE NO. AMOUNT RL/74/596/88 P8,800,000.00 RL/74/597/88 P3,400,000.00 ------------------TOTAL P12,200,000.00 (Exhibits H and I, Expediente, at Vol. II, pp. 338 to 343). To formalize their agreement to restructure the loan obligations of defendant-appellant Sta. Ines, [Petitioner] Security Bank and defendant-appellant Sta. Ines executed a Loan Agreement dated 31 October 1989 (Exhibit 5-Cuenca, Expediente, at Vol. I, pp. 33 to 41). Section 1.01 of the said Loan Agreement dated 31 October 1989 provides: 1.01 Amount - The Lender agrees to grant loan to the Borrower in the aggregate amount of TWELVE MILLION TWO HUNDRED THOUSAND PESOS (P12,200,000.00), Philippines [c]urrency (the Loan). The loan shall be released in two (2) tranches of P8,800,000.00 for the first tranche (the First Loan) andP3,400,000.00 for the second tranche (the Second Loan) to be applied in the manner and for the purpose stipulated hereinbelow. 1.02. Purpose - The First Loan shall be applied to liquidate the principal portion of the Borrowers present total outstanding indebtedness to the Lender (the indebtedness) while the Second Loan shall be applied to liquidate the past due interest and penalty portion of the Indebtedness. (Underscoring supplied.) (cf. p. 1 of Exhibit 5-Cuenca, Expediente, at Vol. I, p. 33) From 08 April 1988 to 02 December 1988, defendant-appellant Sta. Ines made further payments to [Petitioner] Security Bank in the amount of [o]ne [m]illion [s]even [h]undred [f]ifty-[s]even [t]housand [p]esos (P1,757,000.00) (Exhibits 8, 9-P-SIMC up to 9-GG-SIMC, Expediente, at Vol. II, pp. 38, 70 to 165) Appellant SIMC defaulted in the payment of its restructured loan obligations to [Petitioner] SBTC despite demands made upon appellant SIMC and CUENCA, the last of which were made through separate letters dated 5 June 1991 (Exhibit K) and 27 June 1991 (Exhibit L), respectively. Appellants individually and collectively refused to pay the [Petitioner] SBTC. Thus, SBTC filed a complaint for collection of sum of money on 14 June 1993, resulting after trial on the merits in a decision by the court a quo, x x x from which [Respondent] Cuenca appealed.
Ruling of the Court of Appeals

In releasing Respondent Cuenca from liability, the CA ruled that the 1989 Loan Agreement had novated the 1980 credit accommodation earlier granted by the bank to Sta. Ines. Accordingly, such novation extinguished the Indemnity Agreement, by which Cuenca, who was then the Board chairman and president of Sta. Ines, had bound himself solidarily liable for the payment of the loans secured by that credit accommodation. It noted that the 1989 Loan Agreement had been executed without notice to, much less consent from, Cuenca who at the time was no longer a stockholder of the corporation. The appellate court also noted that the Credit Approval Memorandum had specified that the credit accommodation was for a total amount ofP8 million, and that its expiry date was November 30, 1981. Hence, it ruled that Cuenca was liable only for loans obtained prior to November 30, 1981, and only for an amount not exceeding P8 million. It further held that the restructuring of Sta. Ines obligation under the 1989 Loan Agreement was tantamount to a grant of an extension of time to the debtor without the consent of the surety. Under Article 2079 of the Civil Code, such extension extinguished the surety. The CA also opined that the surety was entitled to notice, in case the bank and Sta. Ines decided to materially alter or modify the principal obligation after the expiry date of the credit accommodation. Hence, this recourse to this Court.[7]
The Issues

In its Memorandum, petitioner submits the following for our consideration:[8]

A. Whether or not the Honorable Court of Appeals erred in releasing Respondent Cuenca from liability as surety under the Indemnity Agreement for the payment of the principal amount of twelve million two hundred thousand pesos (P12,200,000.00) under Promissory

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Note No. RL/74/596/88 dated 9 March 1988 and Promissory Note No. RL/74/597/88 dated 9 March 1988, plus stipulated interests, penalties and other charges due thereon; i. Whether or not the Honorable Court of Appeals erred in ruling that Respondent Cuencas liability under the Indemnity Agreement covered only availments on SIMCs credit line to the extent of eight million pesos (P8,000,000.00) and made on or before 30 November 1981; ii. Whether or not the Honorable Court of Appeals erred in ruling that the restructuring of SIMCs indebtedness under the P8 million credit accommodation was tantamount to an extension granted to SIMC without Respondent Cuencas consent, thus extinguishing his liability under the Indemnity Agreement pursuant to Article 2079 of the Civil Code; iii. Whether or not the Honorable Court of appeals erred in ruling that the restructuring of SIMCs indebtedness under the P8 million credit accommodation constituted a novation of the principal obligation, thus extinguishing Respondent Cuencas liability under the indemnity agreement; B. Whether or not Respondent Cuencas liability under the Indemnity Agreement was extinguished by the payments made by SIMC; C. Whether or not petitioners Motion for Reconsideration was pro-forma; D. Whether or not service of the Petition by registered mail sufficiently complied with Section 11, Rule 13 of the 1997 Rules of Civil Procedure.

Distilling the foregoing, the Court will resolve the following issues: (a) whether the 1989 Loan Agreement novated the original credit accommodation and Cuencas liability under the Indemnity Agreement; and (b) whether Cuenca waived his right to be notified of and to give consent to any substitution, renewal, extension, increase, amendment, conversion or revival of the said credit accommodation. As preliminary matters, the procedural questions raised by respondent will also be addressed.
The Courts Ruling

The Petition has no merit.

Preliminary Matters: Procedural Questions Motion for Reconsideration Not Pro Forma

Respondent contends that petitioners Motion for Reconsideration of the CA Decision, in merely rehashing the arguments already passed upon by the appellate court, was pro forma; that as such, it did not toll the period for filing the present Petition for Review.[9] Consequently, the Petition was filed out of time.[10] We disagree. A motion for reconsideration is not pro forma just because it reiterated the arguments earlier passed upon and rejected by the appellate court. The Court has explained that a movant may raise the same arguments, precisely to convince the court that its ruling was erroneous.[11] Moreover, there is no clear showing of intent on the part of petitioner to delay the proceedings. In Marikina Valley Development Corporation v. Flojo,[12] the Court explained that a pro forma motion had no other purpose than to gain time and to delay or impede the
proceedings. Hence, where the circumstances of a case do not show an intent on the part of the movant merely to delay the proceedings, our Court has refused to characterize the motion as simply pro forma. It held:

We note finally that because the doctrine relating to pro forma motions for reconsideration impacts upon the reality and substance of the statutory right of appeal, that doctrine should be applied reasonably, rather than literally. The right to appeal, where it exists, is an important and valuable right. Public policy would be better served by according the appellate court an effective opportunity to review the decision of the trial court on the merits, rather than by aborting the right to appeal by a literal application of the procedural rules relating to pro forma motions for reconsideration.
Service by Registered Mail Sufficiently Explained

SEC. 11. Priorities in modes of service and filing. -- Whenever practicable, the service and filing of pleadings and other papers shall be done personally. Except with respect to papers emanating from the court, a resort to other modes must be accompanied by a written explanation why the service or filing was not done personally. A violation of this Rule may be cause to consider the paper as not filed.
Respondent maintains that the present Petition for Review does not contain a sufficient written explanation why it was served by registered mail. We do not think so. The Court held in Solar Entertainment v. Ricafort[13] that the aforecited rule was mandatory, and that only when
personal service or filing is not practicable may resort to other modes be had, which must then be accompanied by a written explanation as to why personal service or filing was not practicable to begin with.

Section 11, Rule 13 of the 1997 Rules of Court, provides as follows:

In this case, the Petition does state that it was served on the respective counsels of Sta. Ines and Cuenca by registered mail in lieu of personal service due to limitations in time and distance.[14] This explanation sufficiently shows that personal service was not
practicable. In any event, we find no adequate reason to reject the contention of petitioner and thereby deprive it of the opportunity to fully argue its cause.
First Issue: Original Obligation Extinguished by Novation

ART. 1292. In order that an obligation may be extinguished by another which substitute the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other.
Novation of a contract is never presumed. It has been held that [i]n the absence of an express agreement, novation takes place only when the old and the new obligations are incompatible on every point. [15] Indeed, the following requisites must be established: (1) there
is a previous valid obligation; (2) the parties concerned agree to a new contract; (3) the old contract is extinguished; and (4) there is a valid new contract.[16]

An obligation may be extinguished by novation, pursuant to Article 1292 of the Civil Code, which reads as follows:

Petitioner contends that there was no absolute incompatibility between the old and the new obligations, and that the latter did not extinguish the earlier one. It further argues that the 1989 Agreement did not change the original loan in respect to the parties involved or the obligations incurred. It adds that the terms of the 1989 Contract were not more onerous. [17] Since the original credit
accomodation was not extinguished, it concludes that Cuenca is still liable under the Indemnity Agreement.

We reject these contentions. Clearly, the requisites of novation are present in this case. The 1989 Loan Agreement extinguished the obligation[18] obtained under the 1980 credit accomodation. This is evident from its explicit provision to liquidate the principal and the interest of
the earlier indebtedness, as the following shows:

1.02. Purpose. The First Loan shall be applied to liquidate the principal portion of the Borrowers present total outstanding Indebtedness to the Lender (the Indebtedness) while the Second Loan shall be applied to liquidate the past due interest and penalty portion of the Indebtedness. (Italics supplied.)
[19]

serves to strengthen this ruling.[21]

The testimony of an officer[20] of the bank that the proceeds of the 1989 Loan Agreement were used to pay-off the original indebtedness

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Furthermore, several incompatibilities between the 1989 Agreement and the 1980 original obligation demonstrate that the two cannot coexist. While the 1980 credit accommodation had stipulated that the amount of loan was not to exceed P8 million,[22] the 1989
Agreement provided that the loan was P12.2 million. The periods for payment were also different.

Likewise, the later contract contained conditions, positive covenants and negative covenants not found in the earlier obligation. As an example of a positive covenant, Sta. Ines undertook from time to time and upon request by the Lender, [to] perform such further acts and/or execute and deliver such additional documents and writings as may be necessary or proper to effectively carry out the provisions and purposes of this Loan Agreement.[23] Likewise, SIMC agreed that it would not create any mortgage or
encumbrance on any asset owned or hereafter acquired, nor would it participate in any merger or consolidation. [24]

Since the 1989 Loan Agreement had extinguished the original credit accommodation, the Indemnity Agreement, an accessory obligation, was necessarily extinguished also, pursuant to Article 1296 of the Civil Code, which provides:

ART. 1296. When the principal obligation is extinguished in consequence of a novation, accessory obligations may subsist only insofar as they may benefit third persons who did not give their consent.
Alleged Extension

Petitioner insists that the 1989 Loan Agreement was a mere renewal or extension of the P8 million original accommodation; it was not a novation.[25] This argument must be rejected. To begin with, the 1989 Loan Agreement expressly stipulated that its purpose was to liquidate, not to renew or extend, the outstanding indebtedness. Moreover, respondent did not sign or consent to the 1989 Loan Agreement, which had allegedly extended the original P8 million credit facility. Hence, his obligation as a surety should be deemed extinguished, pursuant to Article 2079 of the Civil Code, which specifically states that [a]n extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty. x x x. In an earlier case,[26] the Court explained the rationale of
this provision in this wise:

The theory behind Article 2079 is that an extension of time given to the principal debtor by the creditor without the suretys consent would deprive the surety of his right to pay the creditor and to be immediately subrogated to the creditors remedies against the principal debtor upon the maturity date. The surety is said to be entitled to protect himself against the contingency of the principal debtor or the indemnitors becoming insolvent during the extended period.
Binding Nature of the Credit Approval Memorandum

As noted earlier, the appellate court relied on the provisions of the Credit Approval Memorandum in holding that the credit accommodation was only for P8 million, and that it was for a period of one year ending on November 30, 1981. Petitioner objects to the appellate courts reliance on that document, contending that it was not a binding agreement because it was not signed by the parties. It adds that it was merely for its internal use. We disagree. It was petitioner itself which presented the said document to prove the accommodation. Attached to the Complaint as Annex A was a copy thereof evidencing the accommodation.[27] Moreover, in its Petition before this Court, it alluded to the Credit Approval
Memorandum in this wise:

4.1 On 10 November 1980, Sta. Ines Melale Corporation (SIMC) was granted by the Bank a credit line in the aggregate amount of Eight Million Pesos (P8,000,000.00) to assist SIMC in meeting the additional capitalization requirements for its logging operations. For this purpose, the Bank issued a Credit Approval Memorandum dated 10 November 1980.
Clearly, respondent is estopped from denying the terms and conditions of the P8 million credit accommodation as contained in the very document it presented to the courts. Indeed, it cannot take advantage of that document by agreeing to be bound only by those portions that are favorable to it, while denying those that are disadvantageous.
Second Issue: Alleged Waiver of Consent

Pursuing another course, petitioner contends that Respondent Cuenca impliedly gave his consent to any modification of the credit accommodation or otherwise waived his right to be notified of, or to give consent to, the same.[28] Respondents consent or waiver
thereof is allegedly found in the Indemnity Agreement, in which he held himself liable for the credit accommodation including [its] substitutions, renewals, extensions, increases, amendments, conversions and revival. It explains that the novation of the original credit accommodation by the 1989 Loan Agreement is merely its renewal, which connotes cessation of an old contract and birth of another one x x x.[29]

At the outset, we should emphasize that an essential alteration in the terms of the Loan Agreement without the consent of the surety extinguishes the latters obligation. As the Court held in National Bank v. Veraguth,[30] [i]t is fundamental in the law of suretyship
that any agreement between the creditor and the principal debtor which essentially varies the terms of the principal contract, without the consent of the surety, will release the surety from liability.

In this case, petitioners assertion - that respondent consented to the alterations in the credit accommodation -- finds no support in the text of the Indemnity Agreement, which is reproduced hereunder:

Rodolfo M. Cuenca of legal age, with postal address c/o Sta. Ines Malale Forest Products Corp., Alco Bldg., 391 Buendia Avenue Ext., Makati Metro Manila for and in consideration of the credit accommodation in the total amount of eight million pesos (P8,000,000.00) granted by the SECURITY BANK AND TRUST COMPANY, a commercial bank duly organized and existing under and by virtue of the laws of the Philippine, 6778 Ayala Avenue, Makati, Metro Manila hereinafter referred to as the BANK in favor of STA. INES MELALE FOREST PRODUCTS CORP., x x x ---- hereinafter referred to as the CLIENT, with the stipulated interests and charges thereon, evidenced by that/those certain PROMISSORY NOTE[(S)], made, executed and delivered by the CLIENT in favor of the BANK hereby bind(s) himself/themselves jointly and severally with the CLIENT in favor of the BANK for the payment , upon demand and without benefit of excussion of whatever amount or amounts the CLIENT may be indebted to the BANK under and by virtue of aforesaid credit accommodation(s) including the substitutions, renewals, extensions, increases, amendment, conversions and revivals of the aforesaid credit accommodation(s), as well as of the amount or amounts of such other obligations that the CLIENT may owe the BANK, whether direct or indirect, principal or secondary, as appears in the accounts, books and records of the BANK, plus interest and expenses arising from any agreement or agreements that may have heretofore been made, or may hereafter be executed by and between the parties thereto, including the substitutions, renewals, extensions, increases, amendments, conversions and revivals of the aforesaid credit accommodation(s), and further bind(s) himself/themselves with the CLIENT in favor of the BANK for the faithful compliance of all the terms and conditions contained in the aforesaid credit accommodation(s), all of which are incorporated herein and made part hereof by reference.

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While respondent held himself liable for the credit accommodation or any modification thereof, such clause should be understood in the context of the P8 million limit and the November 30, 1981 term. It did not give the bank or Sta. Ines any license to modify the nature and scope of the original credit accommodation, without informing or getting the consent of respondent who was solidarily liable. Taking the banks submission to the extreme, respondent (or his successors) would be liable for loans even amounting to, say, P100 billion obtained 100 years after the expiration of the credit accommodation, on the ground that he consented to all alterations and extensions thereof. Indeed, it has been held that a contract of surety cannot extend to more than what is stipulated. It is strictly construed against the creditor, every doubt being resolved against enlarging the liability of the surety.[31] Likewise, the Court has ruled that it is a well-settled
legal principle that if there is any doubt on the terms and conditions of the surety agreement, the doubt should be resolved in favor of the surety x x x. Ambiguous contracts are construed against the party who caused the ambiguity. [32] In the absence of an unequivocal provision that respondent waived his right to be notified of or to give consent to any alteration of the credit accommodation, we cannot sustain petitioners view that there was such a waiver.

It should also be observed that the Credit Approval Memorandum clearly shows that the bank did not have absolute authority to unilaterally change the terms of the loan accommodation. Indeed, it may do so only upon notice to the borrower, pursuant to this condition:

5. The Bank reserves the right to amend any of the aforementioned terms and conditions upon written notice to the Borrower.
[33]

We reject petitioners submission that only Sta. Ines as the borrower, not respondent, was entitled to be notified of any modification in the original loan accommodation.[34] Following the banks reasoning, such modification would not be valid as to Sta. Ines if no
notice were given; but would still be valid as to respondent to whom no notice need be given. The latters liability would thus be more burdensome than that of the former. Such untenable theory is contrary to the principle that a surety cannot assume an obligation more onerous than that of the principal.
[35]

The present controversy must be distinguished from Philamgen v. Mutuc,[36] in which the Court sustained a stipulation whereby the surety consented to be bound not only for the specified period, but to any extension thereafter made, an extension x x x that could be had without his having to be notified. In that case, the surety agreement contained this unequivocal stipulation: It is hereby further agreed that in case of any extension of renewal of the bond, we equally bind ourselves to the Company under the same terms and conditions as herein provided without the necessity of executing another indemnity agreement for the purpose and that we hereby equally waive our right to be notified of any renewal or extension of the bond which may be granted under this indemnity agreement. In the present case, there is no such express stipulation. At most, the alleged basis of respondents waiver is vague and uncertain. It confers no clear authorization on the bank or Sta. Ines to modify or extend the original obligation without the consent of the surety or notice thereto.
Continuing Surety

Contending that the Indemnity Agreement was in the nature of a continuing surety, petitioner maintains that there was no need for respondent to execute another surety contract to secure the 1989 Loan Agreement. This argument is incorrect. That the Indemnity Agreement is a continuing surety does not authorize the bank to extend the scope of the principal obligation inordinately.[37] In Dino v. CA,[38] the Court held that a continuing guaranty is one which covers all transactions,
including those arising in the future, which are within the description or contemplation of the contract of guaranty, until the expiration or termination thereof.

To repeat, in the present case, the Indemnity Agreement was subject to the two limitations of the credit accommodation: (1) that the obligation should not exceed P8 million, and (2) that the accommodation should expire not later than November 30, 1981. Hence, it was a continuing surety only in regard to loans obtained on or before the aforementioned expiry date and not exceeding the total of P8 million. Accordingly, the surety of Cuenca secured only the first loan of P6.1 million obtained on November 26, 1991. It did not secure the subsequent loans, purportedly under the 1980 credit accommodation, that were obtained in 1986. Certainly, he could not have guaranteed the 1989 Loan Agreement, which was executed after November 30, 1981 and which exceeded the stipulated P8 million ceiling. Petitioner, however, cites the Dino ruling in which the Court found the surety liable for the loan obtained after the payment of the original one, which was covered by a continuing surety agreement. At the risk of being repetitious, we hold that in Dino, the surety Agreement specifically provided that each suretyship is a continuing one which shall remain in full force and effect until this bank is notified of its revocation. Since the bank had not been notified of such revocation, the surety was held liable even for the subsequent obligations of the principal borrower. No similar provision is found in the present case. On the contrary, respondents liability was confined to the 1980 credit accommodation, the amount and the expiry date of which were set down in the Credit Approval Memorandum.
Special Nature of the JSS

It is a common banking practice to require the JSS (joint and solidary signature) of a major stockholder or corporate officer, as an additional security for loans granted to corporations. There are at least two reasons for this. First, in case of default, the creditors recourse, which is normally limited to the corporate properties under the veil of separate corporate personality, would extend to the personal assets of the surety. Second, such surety would be compelled to ensure that the loan would be used for the purpose agreed upon, and that it would be paid by the corporation. Following this practice, it was therefore logical and reasonable for the bank to have required the JSS of respondent, who was the chairman and president of Sta. Ines in 1980 when the credit accommodation was granted. There was no reason or logic, however, for the bank or Sta. Ines to assume that he would still agree to act as surety in the 1989 Loan Agreement, because at that time, he was no longer an officer or a stockholder of the debtor-corporation. Verily, he was not in a position then to ensure the payment of the obligation. Neither did he have any reason to bind himself further to a bigger and more onerous obligation. Indeed, the stipulation in the 1989 Loan Agreement providing for the surety of respondent, without even informing him, smacks of negligence on the part of the bank and bad faith on that of the principal debtor. Since that Loan Agreement constituted a new indebtedness, the old loan having been already liquidated, the spirit of fair play should have impelled Sta. Ines to ask somebody else to act as a surety for the new loan. In the same vein, a little prudence should have impelled the bank to insist on the JSS of one who was in a position to ensure the payment of the loan. Even a perfunctory attempt at credit investigation would have revealed that respondent was no longer connected with the corporation at the time. As it is, the bank is now relying on an unclear Indemnity Agreement in order to collect an obligation that could have been secured by a fairly obtained surety. For its defeat in this litigation, the bank has only itself to blame. In sum, we hold that the 1989 Loan Agreement extinguished by novation the obligation under the 1980 P8 million credit accommodation.Hence, the Indemnity Agreement, which had been an accessory to the 1980 credit accommodation, was also

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extinguished. Furthermore, we reject petitioners submission that respondent waived his right to be notified of, or to give consent to, any modification or extension of the 1980 credit accommodation. In this light, we find no more need to resolve the issue of whether the loan obtained before the expiry date of the credit accommodation has been paid. WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner. SO ORDERED.
Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.

Banking Laws Set 1 Q & A

FIRST DIVISION

G.R. No. L-49568 October 17, 1979

BANCO DE ORO, petitioner-appellant, vs. JAIME Z. BAYUGA and ROBERTO P. TOLENTINO, respondents- appellees, THE COURT OF APPEALS and HON. FRANCISCO DE LA ROSA in his capacity as Judge of the CFI-Rizal, Branch VII-Pasay City,respondents.

Dionisio M. Capistrano for petitioner.

Robito P. Tolentino for private respondents.

MELENCIO-HERRERA, J.:

A Petition for Review by certiorari of the Decision of the Court of Appeals * upholding with modification the Special Order, dated March 10, 1978, issued by the Court of First Instance of Rizal, Branch VI I. Pasay City, directing the issuance of a Writ of Execution pending appeal. Factual Antecedents Respondent Roberto P. Tolentino is a lawyer appearing on his own behalf and as counsel for his co-respondent Jaime Z. Bayuga. On November 2, 1976, as security for a loan of P375,000.00 respondent Jaime Z. Bayuga, as attorney-in-fact of respondent Roberto P. Tolentino, and Leonardo Zaballero, executed a Real Estate Mortgage in favor of the Acme Savings Bank (now Banco de Oro, petitioner herein) over a parcel of land covered by TCT No. 4841.8 in the names of TOLENTINO and Zaballero, with an area of 2 hectares, more or less, situated at Mabato, Calamba, Laguna. 1 The purpose of the loan was for the "acquisition of real estate property." 2 The mortgage was duly registered. According to petitioner BANK, it approved the loan subject to the following terms and conditions: 1. That the interest rate shall be l9% per annum; 2. That the monthly amortization shall be P7,000.12; 3. That the loan shall be payable within ten (10) years; 4. That the property sought to be acquired which is located in Tagaytay City, covered and described under TCT No. 2703, Lot B (LRC) Psd-1537 registered in the name of Algue Incorporated shall be given as additional collateral; 5. That the property located at Calamba, Laguna (TCT No. T48418, Lot 1995-U (LRC) Psd-6481) shall first be registered provided, however, that the release of tile proceeds shall be paid directly to the owner of the property above-mentioned, and 6. That the loan shall be subject to availability of funds.
3

Private respondents contend, however, that they were unaware of the foregoing conditions, the same having been embodied only in the Minutes of the meeting of "the Board of Directors/Executive Committee" of petitioner BANK, and, therefore, self-serving, as held by the trial Court. On November 15, 1976, the BANK made a partial release of P200,000.00 less charges of P6,000.00, which amount was credited to the account of TOLENTINO in the said BANK. On the same date, out of the balance of P194,000.00, TOLENTINO purchased from the BANK a certificate of time deposit in the amount of P50,000.00. He also withdrew on the said date P100,000.00, and on November 16, 1976, the amount of P44,000.00. TOLENTINO then purchased from the BANK a Manager's check in the total amount of P144,000.00, P135,000.00 of which he deposited in his savings account, and P9,000.00 in his checking account, both with the Far East Bank & Trust Company. Thereafter, claiming that the borrowers showed no indication of complying with his obligation to pay the amount of the loan to the vendor (Algue, Inc.) of the Tagaytay City property, which constituted diversion in violation of Sec. 77, Republic Act No. 337, the BANK stopped payment of its Manager's check at the same time that it refused to release the balance of the loan. That action was necessary, according to the BANK, in order to prevent private respondent from perpetrating a fraud against it. CC NO. 5271-B, CFI, Rizal Branch VII, Pasay City, and CA-G.R. No. SP-07573, Court

Banking Laws Set 1 Q & A

of Appeals On December 2, 1976, private respondents TOLENTINO and Bayuga, as plaintiffs, brought an action for Specific Performance with Damages against the BANK before the Court of First Instance of Rizal, Branch VI I, Pasay City, docketed as CC No. 5271-B. On December 27, 1976, after a preliminary hearing, the trial Court ordered the issuance of a Writ of Preliminary Mandatory Injunction directing the BANK to comply with the mortgage contract by releasing immediately to Bayuga the consideration thereof in the amount of P375,000.00 upon private respondents' posting of a bond of P200,000.00. 4 Apparently, however, the BANK did not release the amount. On December 12, 1977, the trial Court rendered its Decision with the following decretal portion: WHEREFORE, judgment is hereby rendered in favor of plaintiffs (private respondents herein): a) Ordering Defendant Bank (petitioner in this case) to comply with its obligations towards Plaintiff Bayuga under the Real Estate Mortgage (Exhibit "E", Exhibit 14); b) Ordering Defendant Bank to pay to Plaintiff Tolentino P144,000.00 in its manager's check and P50,000.00 in its Certificate of Time Deposit; c) Ordering Defendant Bank to pay to Plaintiff Bayuga the balance of P175,000-00 in cash or in check, as said Plaintiff Bayuga may demand; d) Ordering Defendant Bank to pay to Plaintiff Bayuga the following: 1) P5,000.00 - as nominal damages, 2) P20,000.00-as moral damages; 3) P 10,000.00 -as exemplary damages, 4) P10,000.00 - as attorney's fees; e) Ordering Defendant Bank to pay Plaintiff Tolentino the following: 1) P80,000.00 - as actual damages, 2) P20,000-00 - as moral damages, 3) P10,000.00 - as exemplary damages, 4) P10,000.00 - as attorney's fees. COSTS AGAINST DEFENDANT BANK. On December 27, 1977, the BANK filed its Notice of Appeal to the Court of Appeals, posted an appeal bond, and moved for extension of time within which to submit its Record on Appeal. Before the perfection of said appeal, however, and upon private respondents' "Petition for Execution with Prayer for Contempt", the trial Court issued an Order, dated February 10, 1978, confirming and reiterating the Writ of Preliminary Mandatory Injunction it had issued on December 27, 1976 and ordering the BANK to comply therewith. The BANK challenged the aforestated Orders of December 27, 1976 and February 10, 1978 in a Petition for certiorari and Prohibition filed before the Court of Appeals on February 16, 1978 in CA-G. R. No. SP-07-D73. On March 10, 1978, upon private respondents' Motion for Execution Pending Appeal, the trial Court released a "Special Order" authorizing execution in this wise: WHEREFORE, independently of whatever resolution the Honorable Court of Appeals may hand down in the Petition now pending before it (CA-G.R. No. 07573), and without the necessity of passing upon the issue of delay allegedly intended by the Defendant Bank, this Court finds that there is a good reason for the granting of the writ of execution pending the appeal herein-to deny the issuance of the writ of execution pending appeal will be to deny from the Plaintiffs the relief from the substantial injustice which they have been burdened, which injustice started from the time the parcel of land of Plaintiff Tolentino was mortgaged in favor of Defendant Bank, and the same will continue for some time more unless the writ of execution is immediately granted. It bears repeating t hat their substantial injustice consists of having said parcel of land mortgaged to Defendant Bank and said Defendant Bank

Banking Laws Set 1 Q & A

not paying any single centavo of the loan guaranteed by the mortgage. Plaintiffs are willing to post sufficient bonds, as a token of good faith, to cover the award of damages of P120,000.00 in favor of Plaintiff Tolentino and of P45,000.00 in favor of Plaintiff Bayuga. It is therefore, hereby ordered that a writ of execution pending appeal be issued immediately for the enforcement and execution of the DECISION of this Court dated December 12, 1977, upon the posting, in favor of Defendant Bank, a bond in the amount of P45,000.00 by Plaintiff Tolentino and a bond in the amount of P15,000.00 by Plaintiff Bayuga. On March 13, 1978, private respondents posted the required bonds for special execution in the total sum of P55,000.00. were approved by the trial Court on the same date.
5

The bonds

On March 14, 1978, the corresponding Writ of Execution was issued by the trial Court, by virtue of which the amount of P389,000.00 the BANK'S deposit with the Central Bank, was garnished. On March 16, 1978, a Supplemental Petition for certiorari was filed by the BANK with the Court of Appeals in the same CA-G.R. No. SP07573, seeking the nullification of the aforementioned Special Order of March 10, 1978 and the issuance of a Restraining Order enjoining the enforcement of execution pending appeal. On March 17, 1978, the Court of Appeals issued a Restraining Order as prayed for by the BANK. On October 16, 1978, the Court of Appeals ruled that the trial Court committed no grave abuse of discretion in granting execution pending appeal but excluded the images awarded to private respondents. Its Decision, in CA-G.R. No. SP-07573. reads thus in its dispositive portion: WHEREFORE, the herein petition is denied. The challenged order is accordingly modified in order to exclude the damages assessed in favor of respondent Bayuga and respondent Tolentino (letters D and C of the dispositive portion of the decision a quo). In an other respects, the challenged order dated March 10, 1978 and all other orders flowing therefrom stand. With costs. On October 20, 1978, in virtue of said Decision of the Court of Appeals, the trial Court issued its Order granting private respondents' ex-parte Motion for the enforcement of the Writ and/or the issuance of an Alias Writ. On October 25, 1978, the BANK filed a Motion to Quash/Lift Order dated October 20, 1978 or in the alternative, a Motion for Authority to File Supersedeas Bond to stay execution pending appeal. On December 11, 1978, the trial Court denied quashal of the Writ as well as the BANK'S alternative prayer to be allowed to file a superdeas bond, and ordered the Central Bank, upon receipt of the Order, to deliver to the Deputy Sheriff the amount of P389,000.00 the amount garnished by virtue of the Writ of Execution of March 14, 1978, for said Sheriff to deliver the mentioned amount to the Clerk of Court, and for the latter, in turn, to deliver the same to private respondents. 6 On December 15, 1978, the Court of Appeals, upon the BANK'S Motion, issued a Restraining Order enjoining the execution of its Decision until the BANK would be able to elevate an appeal to this Court. 7 On January 22, 1979, the Court of Appeals lifted its Restraining Order since a Petition for Review on certiorari had actually been filed with this Court. 8 In the meantime, or on August 10, 1978, the trial Court approved the BANK'S Record on Appeal. In the Court of Appeals, the appealed case was docketed as CA-G.R. No. 64130R, where it is still pending. G.R. No. L,49568 before the Supreme Court On January 12, 1979, after an extension having been granted, the BANK filed the instant appeal by way of certiorari before this Court impugning the Decision of the Court of Appeals, as well as the trial Court Orders a) of December 27, 1976 ordering the issuance of a Writ of Preliminary Mandatory Injunction, b) of February 10, 1978 reiterating the said Order, and c) the Special Order of March 10, 1978 granting execution pending appeal. On January 19, 1979, the BANK filed an Urgent Petition for the Issuance of Preliminary Injunction with Restraining Order, 9 to enjoin the trial Court "from further proceeding with any matter in connection with Civil Case No. 5271-P of this Court" and praying that Injunction be made permanent until the final outcome of the appeal on the merits in C.A.-G.R. No. 64130 of the Court of Appeals is known. In a Resolution dated January 24, 1979, we required private respondents to submit their Comment and issued a Restraining Order enjoining the trial Judge from further proceeding with Civil Case No. 5271-P and from enforcing his Order dated December 11, 1978, authorizing the Central Bank to release the amount of P389,000.00. Private respondents' Comment, which included a prayer for the dismissal of the Petition and the immediate quashing of the Restraining Order, was filed on January 29, 1979, 10 and connected mainly that execution pending appeal is a necessity in order to serve the interest of justice. On February 14, 1979, we denied the Petition for lack of merit and, on February 21, 1979, lifted the Restraining Order. 11 The BANK moved for reconsideration and for the restoration of the Restraining Order, which was opposed by private respondents. In support of its Motion for Reconsideration, the BANK claimed that the amount of P375,000.00 would be secured only by the Calamba property, with a loan value of only P157,889.76; that the bonds posted by private respondents totalling P55,000.00 only are grossly inadequate; that it would be made to violate the General Banking Act, R. A. No. 337, which mandates that the loan in question should

Banking Laws Set 1 Q & A

10

be used only for the purpose of acquiring urban or rural land; and that release of the loan would render its appeal in CA-G.R. No. 64130-R moot and academic. In the interim, in view of the lifting of the Restraining Order, a check for P389,000.00 was released by the Central Bank to the Deputy Sheriff on February 26, 1979. The check was encashed on the same date and turned over to private respondents. The BANK claims that execution was implemented with irregularity and haste, with no explanation as to why the amount of P369,000.00 was raised to P389,000.00. In a Motion filed before the trial Court on March 15, 1979, the BANK prayed for an Order directing private respondents to execute the corresponding promissory note in its favor. 12 This was followed by a Manifestation that it was without prejudice to whatever action the Supreme Court may take in the premises. 13 In our Resolution of March 19,1979, we required the BANK to file a Reply to private respondents' Opposition to the Motion for Reconsideration, and we reinstated the Restraining Order lifted on February 21, 1979, unaware that execution had been implemented. 14 The BANK filed its Reply on March 26, 1979 and reiterated its prayer for the restoration of the amount of P389,000.00. We set the Petition and all pending incidents for hearing, which was tantamount to a due course Order, on April 16, 1979. 15 This was reset to-May 14, 1979 for non-service of the notice of hearing of April 16 on TOLENTINO. On the date of the first hearing on April 16, however, the same having been attended by the BANK's counsel, the Court required the BANK to submit such pertinent documents as would give the Court a complete picture of the controversy. In its Compliance, petitioner submitted Application for Loan of Jaime Z. Bayuga (Annex "A"); Application for Loan of Roberto P. Tolentino (Annex "A-1 "); Resolution No. 76-93 G M of the Board of petitioner Bank (Annex "B"); Real Estate Mortgage (Annex "C"); Affidavit of Undertaking signed by Bayuga (Annex "D"); Letter of the Bank dated April 4, 1979 addressed to Bayuga, Zaballero and TOLENTINO reminding them of the monthly amortization due (Annex "E"). For its part, private respondents claimed that those documents were misleading, 16 that the Application for Loan, which he had signed (Annex "A-1 "), had nothing to do with the transaction in question; that the excerpt of the Minutes of the meeting of petitioner Bank (Annex "B") is self- serving, that the Real Estate Mortgage (Annex "C") was executed only between Bayuga and the BANK; that the Affidavit of undertaking signed by Bayuga (Annex "D") should not be given any value; that the subject mortgage is not yet due and the BANK's letter dated April 14, 1979 (Annex "E") is "a worthless piece of paper coming from (the BANK'S) dirty heart." The hearing of May 14, 1979 was further postponed to June 6,1979 after denying TOLENTINO's prayer that said hearing of May 14, 1979 be cancelled for being "unnecessary, the facts of the case being beyond dispute." We resolved to impose upon Atty. TOLENTINO a fine of P200.00, and instead we required the personal appearance of both private respondents Bayuga and TOLENTINO at the hearing set fortune 6,1979. During the oral argument, the Bank was required to submit copies of the Record on Appeal filed in CA-G.R. No. 64130- R of the Court of Appeals and a chronology of relevant incidents. Its Compliance was filed on June 8, 1979. TOLENTINO was also required to submit, not later than the close of office hours of June 7, 1979, copy of the alleged deed showing the purchase by him of about eight hectares of real estate in Tagaytay City on account of which he allegedly paid P350,000.00 out of the P389,000.00 received by him from the loan proceeds. TOLENTINO complied by submitting on June 7, 1979, at 11:00 A.M., a Deed of Sale dated March 9, 1979 of a parcel of land of 5 hectares in Tagaytay City for which he is shown to have made a down payment of P280,000.00. At 3:00 P.M. of the same day, he submitted another Deed of Sale dated April 2, 1979 over a piece of property of 2 hectares in Tagaytay City for which he obligated himself to make a down payment of P70,000.00. Both sales, while duly acknowledged before a Notary Public, do not disclose any evidence of registration. On July 2, 1979, we granted private respondents' prayer for 10 days within which to file a comment to the BANK's Compliance dated June 7, 1979, but the said comment was not filed. On August 3, 1979, the case was considered submitted for resolution, with the Court noting a Motion for Early Resolution filed by the BANK on, July 31, 1979. In this Petition before us, the BANK contends: I RESPONDENT COURT OF APPEALS ERRED IN DISREGARDING THE ELEMENTARY PRINCIPLE OF LAW THAT A MORTGAGE CONTRACT IS MERELY AN ACCESSORY CONTRACT, THUS DISPLAYING LACK OF INSIGHT IN THE LAW AND THE REASONS OR PRINCIPLES UNDERLYING THE SAME; II RESPONDENT COURT OF APPEALS COMMITTED ERRORS OF LAW BY NOT CONSIDERING THE LEGAL PROVISION ATTENDANT TO THE ORDERS COMPLAINED OF BEFORE IT ISSUED BY THE RESPONDENT JUDGE; III RESPONDENT COURT OF APPEALS ENTIRELY DISREGARDED THE SPECIFIC DIRECTION LAID DOWN BY R. A. NO. 337; IV RESPONDENT COURT OF APPEALS ERRED IN ARRIVING AT A DECISION OBVIOUSLY CONTRARY TO PUBLIC INTEREST AND TO PUBLIC POLICY; and

Banking Laws Set 1 Q & A

11

V RESPONDENT COURT OF APPEALS ERRED IN NOT CONSIDERING THE FACT THAT A WRIT OF EXECUTION IS NOT PROPER IN THE ABOVE-ENTITLED CASE, AGAIN DISPLAYING LACK OF INSIGHT IN THE LAW. The critical issue posed before us is the propriety of the issuance of the Writ of execution pending appeal by the trial Court, and its affirmance, except as to the aspect of damages. by the Court of Appeals. The trial Court opined that to deny execution pending appeal would have Been to deny the borrowers relief from the substantial injustice with which they have been burdened considering that their land had been mortgaged without the BANK having paid any centavo for the loan. The Court of Appeals, in turn ruled that the issuance of a Writ of execution pending appeal is a matter of discretion on the part of the issuing Court and as long as it is not exercised in a capricious or whimsical manner, and a special reason for its issuance is stated in the Order, appellate Courts will not, disturb the same. The Court of Appeals was most persuaded by the fact that the loan is intended to buy real estate property, the price of which varies as days go by." Upon the other hand, the BANK maintains that the issuance of the Writ would patently work violence with justice and equity because the property given as collateral as well as the bonds which have been posted are inadequate, and petitioner would be made to violate the General Banking Act. 17Which provides that the loan in question should be for the purpose only of acquiring urban or rural land; and that the appeal in CA-G.R. NO. 64130 would be rendered moot and academic. While, prima facie, execution pending appeal seemed justified because of the unilateral cancellation of the release of the loan by the BANK without notice, and the absence of complete supporting documents to the Petition, disclosures by the parties during the hearing and pleadings and documents subsequently filed uphold a contrary view. Thus, during the hearing as well as in his Comments filed on May 30, 1979, 'TOLENTINO contended that he is not a party to the mortgage contract which was executed only between the BANK and Bayuga; that he became a party only because he was "injured and damaged by the bad faith of the BANK;" that he is not willing to co-sign a promissory note in the BANK's favor for the amount of P389,000.00, alleging that Bayuga had already signed a promissory note in November, 1976 in the sum of P200,000.00; and that neither he nor Bayuga had obligated himself to put up any additional collateral. Bayuga, for his part, during the hearing, assumed a very passive role admitting that he was but an employee of TOLENTINO who was the prime mover in the entire transaction. The lack of good faith and of a sense of fair play on the part of private respondents was all too evident. 'They were treating the release of the amount of P389,000.00 in their favor more as a money judgment, which it is not, rather than as a loan which it is. They want to avail of the full benefits of the loan without assumption of the corresponding obligations, or very minimally at, that. Since receipt of the aforestated amount, they have even refused to make any monthly amortizations even upon demand by the BANK, contending that "no amount of the said loan is due. It will only be paid ten (10) years after the execution of the mortgage contract as interpreted by our Courts." 18 The unfairness and inequity of this posture to the banking business is too evident to require elaboration. Funds of a bank are, in a sense, held in trust. There are the interests of depositors to be protected. The collateral the BANK has in its favor, with a loan value of only P157,889.76, is far from adequate to answer for the amount of P389,000.00 that is now in the hands of private respondents. The manner of repayment by private respondents of that amount remains nebulous. Of course, the BANK is not without fault for this sorry state of affairs. The special reason cited by the trial Court and upheld by the Court of Appeals, i.e., the "substantial injustice" wrought on private respondents whose land had been mortgaged without any centavo paid for the loan, does not exist in law. As pointed out by the BANK, the Calamba property need not have remained subject to the mortgage, the mortgage being but an accessory contract to the contract of loan which is the principal obligation and which has been cancelled. The consideration of the mortgage is the same consideration of the principal contract without which it cannot exist as an independent contract. 19 The "persuasive" factor considered by the Court of Appeals "that the loan is intended to buy real estate property, the price of which varies as days go by" was disproved by the fact that TOLENTINO utilized the amount initially released to purchase a certificate of time deposit and to open bank accounts in his name rather than pay for the Algue property. In the absence of good reasons, 20 private respondents have not shown a clear entitlement to execution pending appeal. Moreover, after having received the loan proceeds of P389,000.00 on February 26, 1979 by means of the execution pending appeal improvidently granted, they refused to make any monthly amortizations since March, 1979, notwithstanding the BANK's demands, on the outrageous claim against all banking practice that they are not obligated to pay any amount on the loan until the lapse of ten (10) years after the execution of the mortgage contract. Under the circumstances, defendants are clearly in default on their loan and are liable to repay the whole amount with the stipulated interest. WHEREFORE, the judgment of the Court of Appeals in CA-G.R. No. SP-07573 is hereby set aside. Private respondents are hereby jointly and severally ordered to restore and repay petitioner Banco de Oro the sum of P389,000.00 with the stipulated interest of nineteen per cent (19%) per annum from February 26, 1979 until the whole amount due shall have been fully paid. The property given in mortgage by respondents under the mortgage contract as well as the bonds totalling P55,000.00 posted by respondents for the issuance of the questioned order of execution pending appeal shall stand liable for satisfaction of the judgment herein rendered in favor of petitioner bank. In effect, this conclusion renders the appeal in CA-G.R. No. 64130-R moot and academic and tile judgment of the trial court is accordingly set aside. the interests of substantial justice and demands of fair play so dictate. Costs against private respondents-appellees jointly and severally. This judgment shall be immediately executory upon its promulgation. SO ORDERED.

Banking Laws Set 1 Q & A Teehankee, Actg. C.J., (Chairman), Makasiar, Fernandez, Guerrero and De Castro JJ., concur.

12

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13

EN BANC

G.R. No. L-43682

March 31, 1938

In Re Liquidation of Mercantile Bank of China. TAN TIONG TICK, claimant-appellant, vs. AMERICAN APOTHECARIES CO., ET AL., claimants-appellees.

Cirilo Lim and Antonio Gonzalez for appellant. Eusebio Orense and Carmelino G. Alvendia for appellees Chinese Grocers Asso., et al. Marcelo Nubla for appellees Ang Cheng Lian, et al.

IMPERIAL, J.:

In the proceedings for the liquidation of the Mercantile Bank of China, the appellant presented a written claim alleging: that when this bank ceased to operate on September 19, 1931, his current account in said bank showed a balance of P9,657.50 in his favor; that on the same date his savings account in the said bank also showed a balance in his favor of P20,000 plus interest then due amounting to P194.78; that on the other hand, he owed the bank in the amount of P13,262.58, the amount of the trust receipts which he signed because of his withdrawal from the bank of certain merchandise consigned to him without paying the drafts drawn upon him by the remittors thereof; that the credits thus described should be set off against each other according to law, and on such set off being made it appeared that he was still the creditor of the bank in the sum of P16,589.70. And he asked that the court order the Bank Commissioner to pay him the aforesaid balance and that the same be declared as preferred credit. The claim was referred to the commissioner appointed by the court, who at the same time acted as referee, and this officer recommended that the balance claimed be paid without interest and as an ordinary credit. The court approved the recommendation and entered judgment in the accordance therewith. The claimant took an appeal. In his report the commissioner classified the claims presented under the following six groups: "(First) Current accounts, savings and fixed deposits. (Second) Checks or drafts sold by the Mercantile Bank of China and not paid by the correspondents or banks against which they were drawn. (Third) Checks or drafts issued by the Mercantile Bank of China in payment or reimbursement of drafts or goods sent to it for collection by banks and foreign commercial houses against merchants or commercial entities of Manila. (Fourth) Drafts for collection received by the Mercantile Bank of China to be collected from merchants and commercial entities in Manila and which were pending collection on the date of the suspension of payments. (Fifth) Claims of depositors who are at the same time debtor of the Mercantile Bank of China.(Sixth Various claims." And referring to the claims of the appellant, he states: Mr. Tan Tiong Tick claims from the Mercantile Bank of China the amount of P 27,597.80, the total amount of the following sums which he has in his favor in said bank including the corresponding interest: Balance on the account . . . . . . . . . . . current P7,390. 11

Balance of savings account No. 20,000. 2266 . . . . . 00 Total . . . . . . . . . . . . . . . . . . 27,390. 11

Adding to this total the interest also claimed by Mr. Tan Tiong Tick, that is, P194.78 on the saving account and P12.91 on the current account, the amount claimed makes a total of P27,597.80. Notwithstanding the fact that the Bank Commissioner found the claim in accordance with the books of the Mercantile Bank of China, he declined to issue the corresponding certificate of proof of claim because the said claimant has pending in the said bank obligations for accepting draft amounting to a total of $6 631.29. At the hearing of this claim, the claimant admitted such pending obligations, alleging at the same time that to guarantee the payment of drafts accepted by him, he pledged his bank book No. 2266, which also answered for the payment of any credit which the said bank may extend to him. In Exhibit A presented by the claimant as evidence, consisting of a letter dated November 4, 1931 addressed by Mr. H. J. Belden to the then Bank Commissioner, Mr. Leo. H. Martin it appears that the said savings account was constituted for the sole purpose of securing the payment of drafts against the claimants, the bill of lading of where delivered to him upon trust-receipts and that according to the records of that bank Mr. Tan Tiong Tick did not obtain any other accomodation from the bank except the trustreceipts. RECOMMENDATION Having established the existence of such deposits in the name of the bank alleged by the Bank Commissioner, for the securities of which he constituted the savings deposit in the amount of P20,000, it is recommended that from this amount there be deducted the amount of the obligation of P13,778.90 which the claimant acknowledge in favor of the Mercantile Bank of China, and that the difference, plus the other current account deposit of P7,390.11, be considered as ordinary credits subject to the equal division of the funds of the said bank.

Banking Laws Set 1 Q & A

14

As to the interest on said deposits also claimed by Mr. Tan Tiong Tick, the rejection thereof is recommended in view of the fact that the Bank Commissioner has not credited any interest to the current and savings account of the Merchantile Bank of China, and would be unfair that interest, not credited to the others, be allowed to this claimant. It will be noted that in the report of the commissioner the credit of the claimant for the balance of his deposit on current account has been reduced to P7,390.11, instead of P9,657.50 alleged in his claim, the total balance recommended in favor of the appellant being P13,611.21, without including interest, instead of P16,589.70. In his brief the appellant admits the figures appearing in the report, with the exception of the interest on which we shall presently dwell. 1. Resolving the claims under the first group the recommendation of this official to the effect that they declared ordinary credits only, and approved them as preferred credits. However, in considering the other claims among them that of that of the appellant, classified under the fifth group, the court approved the recommendation of the commissioner that they be declared ordinary credits; in otherwords, the court considered and declared the claim of the appellant as an ordinary credit just because the latter is at the same time a debtor of the bank, notwithstanding the fact that his claim is of the same kind as those classified under the first group, inasmuch as they are also current account and savings deposits. To this part of the decision is addressed the appellant's first assignment of error. In truth if the current account, savings, and fixed deposits are preferred credits for the reason states by the court in its decision, we see no reason why the preference should disappear when the depositors are at the same time debtors of the bank less than their credits. If the ground to declare them preferred credits is sound, the balances resulting after the set should likewise be preferred, unless there be a law providing that a set off, when it take place, produces such an effect, a law which does not exist as far as we know. But we are of the opinion, for the reason presently to be stated, that current account and savings deposits are not preferred credits in the cases, like the present, involving the insolvency and liquidation of a bank, where there are various creditors and it becomes necessary to ascertain the preference of various credits. The court held that these deposits should be governed by the Civil Code, and applying articles 1758 and 1868 of the said Code, ruled that the so-called irregular deposits being still in vogue, as Manresa, the commentator, maintain and as held by this court in the case Rogers vs. Smith, Bell & Co. (10 Phil., 319), the former are preferred credits because partaking of the nature of the irregular deposits. In our opinion, these deposits are essentially merchantile contracts and should, therefore, be governed by the provisions of the Code of Commerce, pursuant to its article 2 reading: ART. 2 Commercial transactions, be they performed by merchants or not, whether they are specified in this Code or not, shall be governed by the provisions contained in the same; in the absence of such provisions, by the commercial customs generally observed in each place; and in the absence of such provisions, by the commercial customs generally observed in each place; and in the absence of both, by those of the common law. Commercial transactions shall be considered those enumerated in this Code and any others of a similar character. There is cited in support of the application of the Civil Code to these deposits article 310 of the Code of Commerce providing: ART. 310. Notwithstanding the provisions of the foregoing articles, deposits made banks, with general warehouse, with loan or any other associations, shall be governed in the place by the by-laws of the same in the second by the provisions of this Code, and finally by the rules of common law, which are applicable to all deposits. But apparently there was a failure to consider that, according to the order established by the article, the Civil Code or the common law is mentioned after Code of Commerce, which means that the provisions of the latter Code should first be applied before resorting to those of the Civil Code which are supplementary in character. The Code of Commerce contains express provisions regulating deposits of the nature under consideration, and they are articles 303 to 310. The first and the second to the last of the said articles are as follows: ART. 303. In order that a deposit may be considered commercial, it is necessary 1. That the depositary, at least, be a merchant. 2. That the things deposited be commercial objects. 3. That the deposit constitute in itself a commercial transaction, or be made by reason or as a consequently of commercial transaction. ART. 309. Whatever, with the consent of the depositor, the depositary disposes of the articles on deposit either for himself or for his business, or for transactions intrusted to him by the former, the rights and obligations of the depositary and of the depositor shall cease, and the rules and provisions applicable to the commercial loans, commissions, or contract which took the place of the deposit shall be observed.

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In accordance with article 309, the so-called current account and savings deposits have lost the character of deposits properly socalled, and are converted into simple commercial loans, because the bank disposed of the funds deposited by the claimant for its ordinary transactions and for the banking business in which it was engaged. That the bank had the authority of the claimant to make use of the money deposited on current and savings account is deducible from the fact that the bank has been paying interest on both deposits, and the claimant himself asks that he be allowed interest up to the time when the bank ceased its operations. Moreover, according to section 125 of the Corporation Law and 9 of Act No. 3154, said bank is authorized to make use of the current account, savings, and fixed deposits provided it retains in its treasury a certain percentage of the amounts of said deposits. Said sections read: SEC. 125. Every such commercial banking corporation shall at all times have on hand in lawful money of the Philippines Islands or of the United States, an amount equal to at least eighteen per centum of the aggregate amount of its deposits in current which are payable on demand and of its fixed deposits coming due within thirty days. Such commercial banking corporations shall also at all times maintain equal in amount to at least five per centum of its total savings deposits. The said reserve may be maintained in the form of lawful money of the Philippines Islands of the United States, or in bonds issued or guaranteed by the Government of the Philippines Islands or to the United States. . . . The percentage of reserve to deposits in the case of the Philippine National Bank and Bank of the Philippine Islands is hereby fixed at eighteen per centum of demand deposits and fixed deposits payable within thirty days and five per centum of savings deposits, in the same manner as is prescribed in this section for commercial banking corporations in general, which reserve against savings deposit may consists of Philippine Government of United States Government Bonds. SEC. 9. Every bank organized under this Act shall at all times have on hand, in lawful money of the Philippine Islands of the United States, an amount equal to at least twenty per centum of the aggregate amount of its deposits. The Treasury certificates authorized by Act Numbered Three thousand and fifty-eight, and the term lawful money of the United States shall include gold and silver certificates of the United States and bank notes issued by the Federal Reserve Bank. Therefore, the bank, without the necessity of the claimant consent, was by law authorized to dispose of the deposits, subject to the limitations indicated. We, therefore, conclude that the law applicable to the appellant's claim is the Code of Commerce and that his current and savings account have converted into simple commercial loans. 2. The next point to decide is the applicable law, if any, to determine the preference of the appellant's credits, considering that there happens to be other creditors. Section V of Title I Book IV of the Code of Commerce contains provisions relative to the rights of creditors in case of bankruptcy and their respective gradations, but these provisions have been repealed by section 524 of the Code of Civil Procedure reading as follows: SEC. 524. No new proceedings to be instituted. No new bankrupt proceedings shall be instituted until a new bankruptcy law shall come into force in the Islands. All existing laws and other relating to bankruptcy and proceedings therein are hereby repealed: Provided, That nothing in this section shall be deemed in any manner to affect pending litigation in bankruptcy proceedings. The Philippine Legislature subsequently enacted Act No. 1956, also known as the Insolvency Law, which took effect on May 20, 1909, containing provisions regarding preference of credits; but its section 52 provides that all the provisions of the law shall not apply to corporations engaged principally in the banking business, and among them should be understood included the Merchantile Bank of China. Said section provide: SEC. 48. Merchantile, effect, and any other kind of property found among the property of the insolvent, the ownership of which has not been conveyed to him by a legal and irrevocable title, shall be considered to be the property of other persons shall be placed at the disposal of its lawful owners on order of the court made at the hearing in section forty-three or at any ordinary hearing, if the assignee or any creditor whose right in the estate of the insolvent has been established shall petition in writing for such hearing and the court in its discretion shall so order, the creditors, however, retaining such rights in said property as belong to the insolvent, and subrogating him whenever they shall have with all obligations concerning said property. The following shall be included in this section: 1. Drowy property inestimado and such property estimado which may remain in the possession of the husband where the receipt thereof is matter of record in a public instrument registered under the provisions of section twenty-one and twenty-seven of the Code of Commerce in force. 2. Paraphernal property which the wife may have acquired by inheritance, legacy, or donation whether remaining in the form in which it was received or subrogated or invested in other property, provided that such investment or subrogation has been registered in the registro mercantile in accordance with the provisions of the sections of the Code of Commerce mentioned in the next preceding paragraph. 3. Property and effects deposited with the bankrupt, or administered, least, rented, or held in usufruct by him. 4. Merchandise in the possession of the bankrupt, on commission, for purchase, sale, forwarding, or delivery.

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5. Bills of exchange or promissory notes without indorsement or other expression transferring ownership remitted to the insolvent for collection and all other acquired by him for the account of another person, drawn or indorsed to the remitter direct. 6. Money remitted to the insolvent, otherwise than on current account, and which is in his possession for delivery to a definite person in the name and for the account of the remitter or for the settlement of claims which are to be met at the insolvent domicile. 7. Amounts due the insolvent for sales of merchandise on commission, and bills of exchange and promissory notes delivered therefrom in his possession, even when the same are not made payable to the owner of the merchandise sold, provided it is proven that the obligation to the insolvent is derived therefrom and that said bills of exchange and promissory notes were in the possession of the insolvent for account of the owner of the merchandise to be cashed and remitted, in due time, to the said owners; all of which shall be a legal presumption when the amount involved in any such shall not been credited on the book of both the owner of the merchantile and of the insolvent. 8. Merchandise bought on credit by the insolvent so long as the actual thereof has not been made to him at his store at any other place stipulated for such delivery, and merchandise the bills of lading or shipping receipts of which have been sent him after the same has been loaded by order of the purchaser and for his account and risk. In all cases arising under this paragraph assignees may retain the merchandise so purchased or claim it for the creditors by paying the price thereof to the vendor. 9. Goods or chattels wrongfully taken, converted, or withheld by the insolvent if still existing in his possession or the amount of the value thereof. SEC. 49. All creditors, except those whose debts are duly proved and allowed shall be entitled to share in the property and estate pro rata, after the property belonging to other persons referred to in the last preceding section has been deducted therefrom, without priority or preference whatever: Provided, That any debt proved by any person liable as bail, surety, guarantor, or otherwise, for the debtor, shall not be paid to the person so providing the same until satisfactory evidence shall be produced of the payment of such debt by such person so liable, and the share to which such debt would be entitled may be paid into court, or otherwise held, for the benefit of the party entitled thereto, as the court may direct. SEC. 50. The following are preferred claims which shall be paid in the order named: (a) Necessary funeral expenses of the debtor, or of his wife, or children who are under their parental authority and have no property of their own, when approved by the court; (b) Debts due for personal services rendered the insolvent by employees, laborers, or domestic servants immediately preceding the commencement of proceedings in insolvency; (c) Compensation due the laborers or their dependents under the provisions of Act Numbered Thirty-four hundred and twenty-eight, known as the Workmen's Compensation Act, as amended by Act Numbered Thirty-eight hundred and twelve, and under the provisions of Act Numbered Eighteen hundred and seventy-four known as the Employers' Liability Act, and of the other laws providing for payment of indemnity for damages in cases of labor accidents; (d) Legal expenses, and expenses incurred in the administration of the insolvent estate for the common interest of the creditors, when properly authorized and approved by the court; (e) Debts, taxes and assessments due the Insular Government; (f ) Debts, taxes and assessments due to any province of provinces of the Philippines Islands; (g) Debts, taxes and assessment due to any municipality or municipalities of the Philippine Islands; All other creditors shall be paid pro rata. (As amended by Act No. 3962.) ART. 52 . . . The provisions of this Act shall not apply to corporations engaged principally in the banking business, or to any other corporation as to which there is any special provisions of law for its liquidation in case of insolvency. It appears that even after the enactment of the Insolvency Law there was no law in this jurisdiction governing the order or preference of credits in case of insolvency and liquidation of a bank. But the Philippine Legislature subsequently enacted Act No. 3519, amended various sections of the Revised Administrative Code, which took effect on February 20, 1929, and section 1641 of this latter Code. as amended by said Act provides: SEC. 1641. Distribution of assets. In the case of the liquidation of a bank or banking institution, after payment of the costs of the proceeding, including reasonable expenses, commissions and fees of the Bank Commissioner, to be allowed by the court, the Bank Commissioner shall pay the debts of the institution, under of the court in the order of their legal priority.

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From this section 1641 we deduce that the intention of the Philippine Legislature, in providing that the Bank Commissioner shall pay the debts of the company by virtue of an order of the court in the order of their priority, was to enforce the provisions of section 48, 49 and 50 of the Insolvency Law in the sense that they are made applicable to cases of insolvency or bankruptcy and liquidation of banks. No other deduction can be made from the phrase "in the order of their legal priority" employed by the law, for there being no law establishing any priority in the order of payment of credits, the legislature could not reasonably refer to any legislation upon the subject, unless the interpretation above stated is accepted. Examining now the claims of the appellant, it appears that none of them falls under any of the cases specified by section 48, 49 and 50 of the Insolvency Law; wherefore, we conclude that the appellant's claims, consisting of his current and savings account, are not preferred credits. 3. The commissioner set off the claims of the appellant against what the bank had against him. The court approved this set off over the objection of the appellant. The appellees contend that the set off does not lie in this case because otherwise it would prejudice them and the other creditors in the liquidation. We hold that the court's ruling is not error. "It may be stated as a general rule that when a depositor is indebted to a bank, and the debts are mutual that is, between the same parties and in the same right the bank may apply the deposit, or such portion thereof as may be necessary, to the payment of the debt due it by the depositor, provided there is no express agreement to the contrary and the deposit is not specially applicable to some other particular purposes." (7 Am. Jur., par. 629, p.455; United States vs. Butterworth-Judson Corp., 267 U.S., 387; National Bank vs. Morgan, 207 Ala.., 65; Bank of Guntersville vs. Crayter, 199 Ala., 699; Tatum vs. Commercial Bank & T. Co., 193 Ala., 120; Desha Bank & T. Co. vs. Quilling, 118 Ark., 114; Holloway vs. First Nat. Bank, 45 Idaho, 746; Wyman vs. Ft. Dearborn Nat Bank, 181 Ill., 279; Niblack vs. Park Nat. Bank, 169 Ill., 517; First Nat Bank vs. Stapf., 165 Ind., 162; Bedford Bank vs. Acoam, 125 Ind., 584.) The situation referred to by the appellees is inevitable because section 1639 of the Revised Administrative Code, as amended by Act No. 3519, provides that the Bank Commissioner shall reduce the assets of the bank into cash and this cannot be done without first liquidating individually the accounts of the debtors of said bank, and in making this individual liquidation the debtors are entitled to set off, by way of compensation, their claims against the bank. 4. The court held that the appellant is not entitled to charge interest on the amounts of his claims, and this is the object of the second assignment of error. Upon this point a distinction must be made between the interest which the deposits should ear from their existence until the bank ceased to operate, and that which they may earn from the time the bank's operations were stopped until the date of payment of the deposits. As to the first class, we hold that it should be paid because such interest has been earned in the ordinary course of the bank's business and before the latter has been declared in a state or liquidation. Moreover, the bank being authorized by law to make us of the deposits, with the limitation stated, to invest the same in its business and other operations, it may be presumed that it bound itself to pay interest to the depositors as in fact it paid interest prior to the date of the said claims. As to the interest which may be charged from the date the bank ceased to do business because it was declared in a state of liquidation, we hold that the said interest should not be paid. Under articles 1101 and 1108 of the Civil Code, interest is allowed by way of indemnity for damages suffered, in the cases wherein the obligation consists in the payment of money. In view of this, we hold that in the absence of any express law or any applicable provision of the Code of Commerce, it is not proper to pay this last kind of interest to the appellant upon his deposits in the bank, for this would be anomalous and unjustified in a liquidation or insolvency of a bank. This rule should be strictly observed in the instant case because it is understood that the assets should be prorated among all the creditors as they are insufficient to pay all the obligations of the bank. 5. The last assignment of error has to do with the denial by the court of the claimant's motion for new trial. No new arguments have been made in its support and it appears that the assigned error was inserted as a mere corollary of the preceding ones. In view of all the foregoing considerations, we affirm the part of the appealed decision for the reasons stated herein, and it is ordered that the net claim of the appellant, amounting to P13,611.21, is an ordinary and not a preferred credit, and that he is entitled to charge interest on said amount up to September 19, 1931, without special pronouncement up to September 19, 1931, without special pronouncement as to the costs. So ordered.
Avancea, C.J., Villa-Real, Abad Santos, Diaz and Horrilleno, JJ., concur.

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THIRD DIVISION

G.R. No. 159794

December 19, 2006

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

DECISION

TINGA, J.:

This is a petition for review challenging the decision of the trial court, affirmed by the Court of Appeals, granting the petition for mandamus filed by herein respondents, Barangay Chairmen (or Punong Barangay) of several barangays in the province of Lanao del Sur. The petition for mandamus filed by respondents before the trial court is rooted in their claim that they were deprived of their Internal Revenue Allotment (IRA) for the 2nd and 3rd quarters of 1997. Respondents further alleged that these same funds were released by petitioner as Manager of Land Bank of the Philippines (LBP), the depositary bank, to third persons. There were originally six (6) petitioners when the Petition for Mandamus with Prayer for Writ of Preliminary Mandatory Injunction was filed by now respondents before the court of origin. They were Alimatar Malawi, Abdulkhayr Pangcoga, Salimatar Sarip, Lomala Cadar, Aliriba S. Macarambon and Abdul Usman who were the incumbent barangay chairmen of Bubong Ngingir (Kabasaran), Ilian, Linindingan, Mapantao-Ingod, Paigoay and Rangiran, respectively, all from the Municipality of Pagayawan, Lanao del Sur.1 All of them were the incumbent barangay chairmen of their respective barangays prior to the 12 May 1997 barangay elections. The elections on 12 May 1997 in the aforesaid barangays resulted in a failure of elections. Thereafter, the special elections held in these barangays likewise resulted in a failure of elections.2 Consequently, respondents remained in office in a holdover capacity pursuant to the provisions of Sec. 1 of R.A. No. 66793 and Comelec Resolution No. 2888 dated February 5, 1997.4 Beginning with the second quarter of 1997, LBP was selected as the government depository bank for the IRAs of the abovementioned barangays.5 Being a new government depositary bank for the IRA funds, the authorized public officials had to open new accounts in behalf of their government units with the proper LBP branch from which they could withdraw the IRAs.6 After the failed 12 May 1997 elections, respondents attempted to open their respective barangays' IRA bank accounts but were refused by petitioner because respondents needed to show their individual certifications showing their right to continue serving as Barangay Chairmen and the requisite Municipal Accountant's Advice giving respondents the authority to withdraw IRA deposits.7 The requirement for the Accountant's Advice stemmed from Commission on Audit Circular No. 94-004.8 Respondents were eventually allowed to open accounts for their barangays except for Lomala Cadar and Abdul Usman of barangays Mapantao-Ingud and Rangiran, respectively, because the accounts for these barangays were previously opened by two persons who presented themselves as the duly proclaimed Barangay Chairmen for these same barangays.9 In any event, all respondents were not allowed to withdraw the IRA funds from the opened accounts, owing to the absence of the requisite Accountant's Advice.10 Then on 4 August 1997, five (5) other persons presented themselves before petitioner as the newly proclaimed Punong Barangays of the five barangays concerned,11 each of them presenting a certification of his election as Punong Barangay issued by the provincial director of the DILG-ARMM and another Certification issued by the Local Government Operations Officer attesting, among others, to the revocation of the certification previously issued to respondents.12 Without verifying the authenticity of the certifications presented by these third persons, petitioner proceeded to release the IRA funds for the 2nd and 3rd quarters of 1997 to them.13 Respondents thus filed on 11 August 1997 a special civil action for Mandamus with Application for Preliminary Mandatory Injunction docketed as Civil Case No. 11-106, to compel petitioner to allow them to open and maintain deposit accounts covering the IRAs of their respective barangays and to withdraw therefrom.14 The case was raffled to the Regional Trial Court (RTC) of Lanao del Sur, Branch 11.15 At the trial respondents Sarip, Cadar, Pangcoga and Usman testified that they were duly elected chairpersons of their respective barangays and continued as such in a holdover capacity until their re-election on 30 August 1997. They testified further that despite presenting the corresponding documents, petitioner refused to allow the withdrawal of the funds.16 Respondent Macarambon testified that he was the incumbent chairperson of Barangay Paigoay prior to the 12 May 1997 elections and that due to the failure of elections, he continued to occupy his position in a holdover capacity until he was succeeded by his wife upon the latter's election to the same post. He testified on petitioner's refusal to release the money to him despite his submission of the Accountant's Advice.17 For failure to appear at the scheduled hearing on 20 April 1999, petitioner was held as in default and respondents were allowed to present evidence ex parte. Petitioner's Motion for Reconsideration of the Order declaring him as in default was granted.18

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After failing again to appear on the given time for him to adduce evidence, another Order was issued wherein petitioner was deemed to have waived his right to present evidence. The Order was lifted on petitioner's Motion for Reconsideration. Instead of presenting evidence, petitioner filed on 10 November 1999 a Motion to Dispense or Waive Presentation of Evidence wherein he represented that the prayers in the complaint had already been complied with.19 The RTC granted petitioner's motion through an Order dated 24 September 1999.20 Thereafter, the RTC rendered a Decision21 dated 8 October 1999 commanding petitioner to pay respondents, except respondent Alimatar Malawi who failed to testify, the IRAs of their respective barangays "even without the Accountant's Advice."22 The dispositive portion of the Decision reads, to wit: WHEREFORE, premises all considered, the instant petition is hereby granted. Accordingly, Mr. Maclaring M. Lucman, Manager of the Land Bank of the Philippines, Marawi City branch, is hereby ordered to pay the following:23 1. Aliriba Macarambon, the 2nd Quarter IRA of Paigoay, Pagayawan in the sum of P48,200.00; 2. Salimatar Sarip of Linindingan the 2nd Quarter IRA - - - P54,220.00 3rd Quarter IRA - - - P54,220.00 3. Lomala S. Cadar of Mapantao the 2nd Quarter IRA - - - P54,320.00 3rd Quarter IRA - - - P54,320.00 4. Abdulkhay Pangcoga of Ilian the 2nd Quarter IRA - - - P53, 361.00 3rd Quarter IRA - - - P53,361.00 5. Abdul Usman of Rangiran the 2nd Quarter IRA - - - P51,185.00 3rd Quarter IRA - - - P51,185.00 even without the Accountant's Advice and the subsequent IRAs until their term of office shall have expired. SO ORDERED.24 The RTC gave no credence to petitioner's assertion of payment to the rightful barangay officers, there having been no testimonial or documentary evidence proferred in substantiation thereof.25 It considered petitioner's refusal to present evidence as a "silence" that equates to an admission of respondents' allegations.26Furthermore, the RTC relied on the testimonies and certifications adduced by respondents in holding that they were occupying their positions in a holdover capacity27and that by virtue thereof, they had "the perfect right to continue performing the duties and functions of their positions including the withdrawal of funds of their respective barangays."28 The Court of Appeals29 affirmed the RTC's Decision in toto. Hence, this petition. Petitioner argues that respondents have no cause of action against him since they failed to present valid certifications showing their respective right to continue serving as Punong Barangay as well as the requisite Municipal Accountant's Advice. Petitioner also asserts that the LBP Marawi Branch had already released the contested IRAs to the Barangay Treasurers who were acting in conjunction with the duly recognized Punong Barangays, thereby making the petition for mandamus moot and academic.30 These are factual issues that are generally beyond the review of this Court. Petitioner adds that respondents have no legal personality to institute the petition for mandamus in their own names since the IRAs rightfully belong to the respective barangays and not to them and that their respective barangays already received the claimed IRAs in this instant case.31 For the proper adjudication of the present petition, two related core issues have to be resolved. First, what is the cause of action alleged in the initiatory pleading filed by respondents before the trial court? Second, are there indispensable parties which were not impleaded?

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Although the pleading filed before the lower court was denominated as a Petition for Mandamus With Prayer For Writ of Preliminary Injunction, the allegations thereof indicate that it is an action for specific performance, particularly to compel petitioner to allow withdrawal of funds from the accounts of the barangays headed by respondents with the LBP, Marawi Branch. Thus, the Petition alleged: "12. Despite the opening of deposit accounts for the barangays mentioned in the preceding paragraph, respondent, without any valid or lawful cause, failed and refused, and still fails and refuses, to allow the withdrawal of the funds or IRA of the said barangays as evidenced by the WITHDRAWAL CHECKS (attached as Annexes "D" to "D-3" hereof) of said barangays which were refused payment when presented to the Land Bank on August 4, 1997."32 From the records of the case, it appears that the shares of the barangays in the IRA had already been remitted by the Department of Budget and Management (DBM) to the LBP Marawi Branch where they were kept in the accounts opened in the names of the barangays. By virtue of the deposits, there exists between the barangays as depositors and LBP a creditor-debtor relationship. Fixed, savings, and current deposits of money in banks and similar institutions are governed by the provisions concerning simple loan.33 In other words, the barangays are the lenders while the bank is the borrower. This Court elucidated on the matter in Guingona, Jr., et al. v. The City Fiscal of Manila, et al.,34 citing Serrano v. Central Bank of the Philippines,35 thus: Bank deposits are in the nature of irregular deposits. They are really loans because they earn interest. All kinds of bank deposits, whether fixed, savings, or current are to be treated as loans and are to be covered by the law on loans (Art. 1980, Civil Code; Gullas v. Phil. National Bank, 62 Phil. 519). Current and savings deposits are loans to a bank because it can use the same. The petitioner here in making time deposits that earn interest with respondent Overseas Bank of Manila was in reality a creditor of the respondent Bank and not a depositor. The respondent Bank was in turn a debtor of petitioner. Failure of the respondent Bank to honor the time deposit is failure to pay its obligation as a debtor and not a breach of trust arising from a depository's failure to return the subject matter of the deposit. (Emphasis supplied.)36 The relationship being contractual in nature, mandamus is therefore not an available remedy since mandamus does not lie to enforce the performance of contractual obligations.37 This brings us to the second core issue. The IRA funds for which the bank accounts were created belong to the barangays headed by respondents. The barangays are the only lawful recipients of these funds. Consequently, any transaction or claim involving these funds can be done only through the proper authorization from the barangays as juridical entities. The determination, therefore, of whether or not the IRA funds were unlawfully withheld or improperly released to third persons can only be determined if the barangays participated as parties to this action. These questions cannot be resolved with finality without the involvement of the barangays. After all, these controversies involve funds rightfully belonging to the barangays. Hence, the barangays are indispensable parties in this case. An indispensable party is defined as parties-in-interest without whom there can be no final determination of an action.38 The nature of an indispensable party was thoroughly discussed in Arcelona v. Court of Appeals,39 to quote: An indispensable party is a party who has such an interest in the controversy or subject matter that a final adjudication cannot be made, in his absence, without injuring or affecting that interest, a party who has not only an interest in the subject matter of the controversy, but also has an interest of such nature that a final decree cannot be made without affecting his interest or leaving the controversy in such a condition that its final determination may be wholly inconsistent with equity and good conscience. It has also been considered that an indispensable party is a person in whose absence there cannot be a determination between the parties already before the court which is effective, complete, or equitable. Further, an indispensable party is one who must be included in an action before it may properly go forward. A person is not an indispensable party, however, if his interest in the controversy or subject matter is separable from the interest of the other parties, so that it will not necessarily be directly or injuriously affected by a decree which does complete justice between them. Also, a person is not an indispensable party if his presence would merely permit complete relief between him and those already parties to the action, or if he has no interest in the subject matter of the action. It is not a sufficient reason to declare a person to be an indispensable party that his presence will avoid multiple litigation.40 In Arcelona, the Court also dwelt on the consequences of failure to include indispensable parties in a case, categorically stating that the presence of indispensable parties is a condition for the exercise of juridical power41and when an indispensable party is not before the court, the action should be dismissed.42 The absence of an indispensable party renders all subsequent actions of the court null and void for want of authority to act, not only as to the absent parties but even as to those present.43 The joinder of indispensable parties is mandatory. Without the presence of indispensable parties to the suit, the judgment of the court cannot attain real finality. Strangers to a case are not bound by the judgment rendered by the court.44

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Clearly, this case was not initiated by the barangays themselves. Neither did the barangay chairmen file the suit in representation of their respective barangays. Nothing from the records shows otherwise. On this score alone, the case in the lower court should have been dismissed. Even if the barangays themselves had filed the case, still it would not prosper. The case involves government funds and as such, any release therefrom can only be done in accordance with the prevailing rules and procedures. The Government Accounting and Auditing Manual (GAAM) provides that the local treasurers shall maintain the depositary accounts in the name of their respective local government units with banks.45 Under the Local Government Code, the treasurer is given the power, among others, to: (1) keep custody of barangay funds and properties; and (2) disburse funds in accordance with the financial procedures provided by the Local Government Code.46 The same manual defines disbursements as constituting all cash paid out during a given period either in currency or by check.47 Sec. 344 of the Local Government Code further provides for the following requirements in cases of disbursements, to wit: Sec. 344. No money shall be disbursed unless the local budget officer certifies to the existence of appropriation that has been legally made for the purpose, the local accountant has obligated said appropriation, and the local treasurer certifies to the availability of funds for the purpose. Vouchers and payrolls shall be certified to and approved by the head of the department or office who has administrative control of the fund concerned, as to the validity, propriety, and legality of the claim involved. Except in cases of disbursements involving regularly recurring administrative expenses xxx approval of the disbursement voucher by the local chief executive himself shall be required whenever local funds are disbursed. Thus, as a safeguard against unwarranted disbursements, certifications are required from: (a) the local budget officer as to the existence and validity of the appropriation; (b) the local accountant as to the legal obligation incurred by the appropriation; (c) the local treasurer as to the availability of funds; and (d) the local department head as to the validity, propriety and legality of the claim against the appropriation.48 Further, the GAAM provides for the basic requirements applicable to all classes of disbursements that shall be complied with, to wit: a) Certificate of Availability of Fund.Existence of lawful appropriation, the unexpended balance of which, free from other obligations, is sufficient to cover the expenditure, certified as available by an accounting officer or any other official required to accomplish the certificate. Use of moneys appropriated solely for the specific purpose for which appropriated, and for no other, except when authorized by law or by a corresponding appropriating body. b) Approval of claim or expenditure by head of office or his duly authorized representative. c) Documents to establish validity of claim. Submission of documents and other evidences to establish the validity and correctness of the claim for payment. d) Conformity of the expenditure to existing laws and regulations. e) Proper accounting treatment.49 This prescribed legal framework governing the release and disbursement of IRA funds to the respective barangays disabuses from the notion that a barangay chairman, relying solely on his authority as a local executive, has the right to demand physical possession of the IRA funds allocated by the national government to the barangay. The right to demand for the funds belongs to the local government itself through the authorization of their Sanggunian.50 One final note. There is no conclusive proof from the records showing that the IRA funds for the 2 nd and 3rdquarters of the barangays concerned remitted by the DBM had already been withdrawn from the LBP Marawi Branch. Considering the implications of this action of possibly depriving several local government units of their IRAs, the Court took the initiative to request the COMELEC to issue certifications on who were the duly elected chairmen of the barangays concerned. The COMELEC issued to this Court a list of the elected barangay chairmen which confirmed the reelection of respondents as barangay chairmen of their respective barangays.51 If withdrawals were indeed made, whether by the respondents or by impostors, the matter deserves to be investigated since public funds are involved. Accordingly, we refer the matter to the Department of Interior and Local Government (DILG) for investigation and appropriate action. WHEREFORE, premises considered, the petition is GRANTED. The assailed Decisions of the Court of Appeals and the Regional Trial Court are REVERSED and SET ASIDE. The Petition for Mandamus filed before the Regional Trial Court is ordered DISMISSED. The alleged withdrawals of deposits representing the Internal Revenue Allotments for the 2nd and 3rd Quarters of 1997 of the barangays concerned from the Land Bank of the Philippines, Marawi Branch, are referred to the DILG for investigation and appropriate action. The DILG is hereby DIRECTED to INFORM the Court of the result of its investigation within thirty (30) days from the completion thereof.

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No pronouncement as to costs. SO ORDERED.

Quisumbing, J., Chairperson, Carpio, Carpio Morales, and Velasco, Jr., JJ., concur.

Banking Laws Set 1 Q & A G.R. No. 138569. September 11, 2003 THE CONSOLIDATED BANK and TRUST CORPORATION, petitioner, vs. COURT OF APPEALS and L.C. DIAZ and COMPANY, CPAs, respondents.

FIRST DIVISION

23

DECISION CARPIO, J.:

The Case Before us is a petition for review of the Decision of the Court of Appeals dated 27 October 1998 and its Resolution dated 11 May 1999. The assailed decision reversed the Decision of the Regional Trial Court of Manila, Branch 8, absolving petitioner Consolidated Bank and Trust Corporation, now known as Solidbank Corporation (Solidbank), of any liability. The questioned resolution of the appellate court denied the motion for reconsideration of Solidbank but modified the decision by deleting the award of exemplary damages, attorneys fees, expenses of litigation and cost of suit.
[1] [2]

The Facts Solidbank is a domestic banking corporation organized and existing under Philippine laws. Private respondent L.C. Diaz and Company, CPAs (L.C. Diaz), is a professional partnership engaged in the practice of accounting. Sometime in March 1976, L.C. Diaz opened a savings account with Solidbank, designated as Savings Account No. S/A 20016872-6. On 14 August 1991, L.C. Diaz through its cashier, Mercedes Macaraya (Macaraya), filled up a savings (cash) deposit slip for P990 and a savings (checks) deposit slip for P50. Macaraya instructed the messenger of L.C. Diaz, Ismael Calapre (Calapre), to deposit the money with Solidbank. Macaraya also gave Calapre the Solidbank passbook. Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips and the passbook. The teller acknowledged receipt of the deposit by returning to Calapre the duplicate copies of the two deposit slips. Teller No. 6 stamped the deposit slips with the words DUPLICATE and SAVING TELLER 6 SOLIDBANK HEAD OFFICE. Since the transaction took time and Calapre had to make another deposit for L.C. Diaz with Allied Bank, he left the passbook with Solidbank. Calapre then went to Allied Bank. When Calapre returned to Solidbank to retrieve the passbook, Teller No. 6 informed him that somebody got the passbook. Calapre went back to L.C. Diaz and reported the incident to Macaraya. Macaraya immediately prepared a deposit slip in duplicate copies with a check of P200,000. Macaraya, together with Calapre, went to Solidbank and presented to Teller No. 6 the deposit slip and check. The teller stamped the words DUPLICATE and SAVING TELLER 6 SOLIDBANK HEAD OFFICE on the duplicate copy of the deposit slip. When Macaraya asked for the passbook, Teller No. 6 told Macaraya that someone got the passbook but she could not remember to whom she gave the passbook. When Macaraya asked Teller No. 6 if Calapre got the passbook, Teller No. 6 answered that someone shorter than Calapre got the passbook. Calapre was then standing beside Macaraya. Teller No. 6 handed to Macaraya a deposit slip dated 14 August 1991 for the deposit of a check for P90,000 drawn on Philippine Banking Corporation (PBC). This PBC check of L.C. Diaz was a check that it had long closed. PBC subsequently dishonored the check because of insufficient funds and because the signature in the check differed from PBCs specimen signature. Failing to get back the passbook, Macaraya went back to her office and reported the matter to the Personnel Manager of L.C. Diaz, Emmanuel Alvarez. The following day, 15 August 1991, L.C. Diaz through its Chief Executive Officer, Luis C. Diaz (Diaz), called up Solidbank to stop any transaction using the same passbook until L.C. Diaz could open a new account. On the same day, Diaz formally wrote Solidbank to make the same request. It was also on the same day that L.C. Diaz learned of the unauthorized withdrawal the day before, 14 August 1991, of P300,000 from its savings account. The withdrawal slip for the P300,000 bore the signatures of the authorized signatories of L.C. Diaz, namely Diaz and Rustico L. Murillo. The signatories, however, denied signing the withdrawal slip. A certain Noel Tamayo received the P300,000. In an Information dated 5 September 1991, L.C. Diaz charged its messenger, Emerano Ilagan (Ilagan) and one Roscon Verdazola with Estafa through Falsification of Commercial Document. The Regional Trial Court of Manila dismissed the criminal case after the City Prosecutor filed a Motion to Dismiss on 4 August 1992. On 24 August 1992, L.C. Diaz through its counsel demanded from Solidbank the return of its money. Solidbank refused. On 25 August 1992, L.C. Diaz filed a Complaint for Recovery of a Sum of Money against Solidbank with the Regional Trial Court of Manila, Branch 8. After trial, the trial court rendered on 28 December 1994 a decision absolving Solidbank and dismissing the complaint. L.C. Diaz then appealed to the Court of Appeals. On 27 October 1998, the Court of Appeals issued its Decision reversing the decision of the trial court. On 11 May 1999, the Court of Appeals issued its Resolution denying the motion for reconsideration of Solidbank. The appellate court, however, modified its decision by deleting the award of exemplary damages and attorneys fees.
[3] [4] [5] [6] [7] [8]

The Ruling of the Trial Court In absolving Solidbank, the trial court applied the rules on savings account written on the passbook. The rules state that possession of this book shall raise the presumption of ownership and any payment or payments made by the bank upon the production of the said book and entry therein of the withdrawal shall have the same effect as if made to the depositor personally. At the time of the withdrawal, a certain Noel Tamayo was not only in possession of the passbook, he also presented a withdrawal slip with the signatures of the authorized signatories of L.C. Diaz. The specimen signatures of these persons were in the signature cards. The teller stamped the withdrawal slip with the words Saving Teller No. 5. The teller then passed on the withdrawal slip to Genere Manuel (Manuel) for authentication. Manuel verified the signatures on the withdrawal slip. The withdrawal slip was then given to another officer who compared the signatures on the withdrawal slip with the specimen on the signature cards. The trial court concluded that Solidbank acted with care and observed the rules on savings account when it allowed the withdrawal of P300,000 from the savings account of L.C. Diaz. The trial court pointed out that the burden of proof now shifted to L.C. Diaz to prove that the signatures on the withdrawal slip were forged. The trial court admonished L.C. Diaz for not offering in evidence the National Bureau of Investigation (NBI) report on the authenticity of the signatures on the withdrawal slip for P300,000. The trial court believed that L.C. Diaz did not offer this evidence because it is derogatory to its action. Another provision of the rules on savings account states that the depositor must keep the passbook under lock and key. When another person presents the passbook for withdrawal prior to Solidbanks receipt of the notice of loss of the passbook, that person is considered as the owner of the passbook. The trial court ruled that the passbook presented during the questioned transaction was now out of the lock and key and presumptively ready for a business transaction.
[9] [10] [11]

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Solidbank did not have any participation in the custody and care of the passbook. The trial court believed that Solidbanks act of allowing the withdrawal of P300,000 was not the direct and proximate cause of the loss. The trial court held that L.C. Diazs negligence caused the unauthorized withdrawal. Three facts establish L.C. Diazs negligence: (1) the possession of the passbook by a person other than the depositor L.C. Diaz; (2) the presentation of a signed withdrawal receipt by an unauthorized person; and (3) the possession by an unauthorized person of a PBC check long closed by L.C. Diaz, which check was deposited on the day of the fraudulent withdrawal. The trial court debunked L.C. Diazs contention that Solidbank did not follow the precautionary procedures observed by the two parties whenever L.C. Diaz withdrew significant amounts from its account. L.C. Diaz claimed that a letter must accompany withdrawals of more thanP20,000. The letter must request Solidbank to allow the withdrawal and convert the amount to a managers check. The bearer must also have a letter authorizing him to withdraw the same amount. Another person driving a car must accompany the bearer so that he would not walk from Solidbank to the office in making the withdrawal. The trial court pointed out that L.C. Diaz disregarded these precautions in its past withdrawal. On 16 July 1991, L.C. Diaz withdrew P82,554 without any separate letter of authorization or any communication with Solidbank that the money be converted into a managers check. The trial court further justified the dismissal of the complaint by holding that the case was a last ditch effort of L.C. Diaz to recover P300,000 after the dismissal of the criminal case against Ilagan. The dispositive portion of the decision of the trial court reads:

IN VIEW OF THE FOREGOING, judgment is hereby rendered DISMISSING the complaint. The Court further renders judgment in favor of defendant bank pursuant to its counterclaim the amount of Thirty Thousand Pesos (P30,000.00) as attorneys fees. With costs against plaintiff. SO ORDERED.
[12]

The Ruling of the Court of Appeals The Court of Appeals ruled that Solidbanks negligence was the proximate cause of the unauthorized withdrawal of P300,000 from the savings account of L.C. Diaz. The appellate court reached this conclusion after applying the provision of the Civil Code on quasi-delict, to wit:

Article 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this chapter.

The appellate court held that the three elements of a quasi-delict are present in this case, namely: (a) damages suffered by the plaintiff; (b) fault or negligence of the defendant, or some other person for whose acts he must respond; and (c) the connection of cause and effect between the fault or negligence of the defendant and the damage incurred by the plaintiff. The Court of Appeals pointed out that the teller of Solidbank who received the withdrawal slip for P300,000 allowed the withdrawal without making the necessary inquiry. The appellate court stated that the teller, who was not presented by Solidbank during trial, should have called up the depositor because the money to be withdrawn was a significant amount. Had the teller called up L.C. Diaz, Solidbank would have known that the withdrawal was unauthorized. The teller did not even verify the identity of the impostor who made the withdrawal. Thus, the appellate court found Solidbank liable for its negligence in the selection and supervision of its employees. The appellate court ruled that while L.C. Diaz was also negligent in entrusting its deposits to its messenger and its messenger in leaving the passbook with the teller, Solidbank could not escape liability because of the doctrine of last clear chance. Solidbank could have averted the injury suffered by L.C. Diaz had it called up L.C. Diaz to verify the withdrawal. The appellate court ruled that the degree of diligence required from Solidbank is more than that of a good father of a family. The business and functions of banks are affected with public interest. Banks are obligated to treat the accounts of their depositors with meticulous care, always having in mind the fiduciary nature of their relationship with their clients. The Court of Appeals found Solidbank remiss in its duty, violating its fiduciary relationship with L.C. Diaz. The dispositive portion of the decision of the Court of Appeals reads:

WHEREFORE, premises considered, the decision appealed from is hereby REVERSED and a new one entered. 1. Ordering defendant-appellee Consolidated Bank and Trust Corporation to pay plaintiff-appellant the sum of Three Hundred Thousand Pesos (P300,000.00), with interest thereon at the rate of 12% per annum from the date of filing of the complaint until paid, the sum of P20,000.00 as exemplary damages, and P20,000.00 as attorneys fees and expenses of litigation as well as the cost of suit; and 2. Ordering the dismissal of defendant-appellees counterclaim in the amount of P30,000.00 as attorneys fees. SO ORDERED.
[13] [14]

Acting on the motion for reconsideration of Solidbank, the appellate court affirmed its decision but modified the award of damages. The appellate court deleted the award of exemplary damages and attorneys fees. Invoking Article 2231 of the Civil Code, the appellate court ruled that exemplary damages could be granted if the defendant acted with gross negligence. Since Solidbank was guilty of simple negligence only, the award of exemplary damages was not justified. Consequently, the award of attorneys fees was also disallowed pursuant to Article 2208 of the Civil Code. The expenses of litigation and cost of suit were also not imposed on Solidbank. The dispositive portion of the Resolution reads as follows:

WHEREFORE, foregoing considered, our decision dated October 27, 1998 is affirmed with modification by deleting the award of exemplary damages and attorneys fees, expenses of litigation and cost of suit. SO ORDERED.
[15]

Hence, this petition. The Issues Solidbank seeks the review of the decision and resolution of the Court of Appeals on these grounds:

I.

THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER BANK SHOULD SUFFER THE LOSS BECAUSE ITS TELLER SHOULD HAVE FIRST CALLED PRIVATE RESPONDENT BY TELEPHONE BEFORE IT ALLOWED THE WITHDRAWAL OFP300,000.00 TO RESPONDENTS MESSENGER EMERANO ILAGAN, SINCE THERE IS NO AGREEMENT BETWEEN THE PARTIES IN THE OPERATION OF THE SAVINGS ACCOUNT, NOR IS THERE ANY BANKING LAW, WHICH MANDATES THAT A BANK TELLER SHOULD FIRST

Banking Laws Set 1 Q & A

II.

III. IV.

CALL UP THE DEPOSITOR BEFORE ALLOWING A WITHDRAWAL OF A BIG AMOUNT IN A SAVINGS ACCOUNT. THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF LAST CLEAR CHANCE AND IN HOLDING THAT PETITIONER BANKS TELLER HAD THE LAST OPPORTUNITY TO WITHHOLD THE WITHDRAWAL WHEN IT IS UNDISPUTED THAT THE TWO SIGNATURES OF RESPONDENT ON THE WITHDRAWAL SLIP ARE GENUINE AND PRIVATE RESPONDENTS PASSBOOK WAS DULY PRESENTED, AND CONTRARIWISE RESPONDENT WAS NEGLIGENT IN THE SELECTION AND SUPERVISION OF ITS MESSENGER EMERANO ILAGAN, AND IN THE SAFEKEEPING OF ITS CHECKS AND OTHER FINANCIAL DOCUMENTS. THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE INSTANT CASE IS A LAST DITCH EFFORT OF PRIVATE RESPONDENT TO RECOVER ITS P300,000.00 AFTER FAILING IN ITS EFFORTS TO RECOVER THE SAME FROM ITS EMPLOYEE EMERANO ILAGAN. THE COURT OF APPEALS ERRED IN NOT MITIGATING THE DAMAGES AWARDED AGAINST PETITIONER UNDER ARTICLE 2197 OF THE CIVIL CODE, NOTWITHSTANDING ITS FINDING THAT PETITIONER BANKS NEGLIGENCE WAS ONLY CONTRIBUTORY.
[16]

25

The petition is partly meritorious.

The Ruling of the Court

Solidbanks Fiduciary Duty under the Law The rulings of the trial court and the Court of Appeals conflict on the application of the law. The trial court pinned the liability on L.C. Diaz based on the provisions of the rules on savings account, a recognition of the contractual relationship between Solidbank and L.C. Diaz, the latter being a depositor of the former. On the other hand, the Court of Appeals applied the law on quasi-delict to determine who between the two parties was ultimately negligent. The law on quasi-delict or culpa aquiliana is generally applicable when there is no pre-existing contractual relationship between the parties. We hold that Solidbank is liable for breach of contract due to negligence, or culpa contractual. The contract between the bank and its depositor is governed by the provisions of the Civil Code on simple loan. Article 1980 of the Civil Code expressly provides that x x x savings x x x deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan. There is a debtor-creditor relationship between the bank and its depositor. The bank is the debtor and the depositor is the creditor. The depositor lends the bank money and the bank agrees to pay the depositor on demand. The savings deposit agreement between the bank and the depositor is the contract that determines the rights and obligations of the parties. The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of Republic Act No. 8791 (RA 8791), which took effect on 13 June 2000, declares that the State recognizes the fiduciary nature of banking that requires high standards of integrity and performance. This new provision in the general banking law, introduced in 2000, is a statutory affirmation of Supreme Court decisions, starting with the 1990 case of Simex International v. Court of Appeals, holding that the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. This fiduciary relationship means that the banks obligation to observe high standards of integrity and performance is deemed written into every deposit agreement between a bank and its depositor. The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family. Article 1172 of the Civil Code states that the degree of diligence required of an obligor is that prescribed by law or contract, and absent such stipulation then the diligence of a good father of a family. Section 2 of RA 8791 prescribes the statutory diligence required from banks that banks must observe high standards of integrity and performance in servicing their depositors. Although RA 8791 took effect almost nine years after the unauthorized withdrawal of the P300,000 from L.C. Diazs savings account, jurisprudence at the time of the withdrawal already imposed on banks the same high standard of diligence required under RA No. 8791. However, the fiduciary nature of a bank-depositor relationship does not convert the contract between the bank and its depositors from a simple loan to a trust agreement, whether express or implied. Failure by the bank to pay the depositor is failure to pay a simple loan, and not a breach of trust. The law simply imposes on the bank a higher standard of integrity and performance in complying with its obligations under the contract of simple loan, beyond those required of non-bank debtors under a similar contract of simple loan. The fiduciary nature of banking does not convert a simple loan into a trust agreement because banks do not accept deposits to enrich depositors but to earn money for themselves. The law allows banks to offer the lowest possible interest rate to depositors while charging the highest possible interest rate on their own borrowers. The interest spread or differential belongs to the bank and not to the depositors who are not cestui que trust of banks. If depositors are cestui que trust of banks, then the interest spread or income belongs to the depositors, a situation that Congress certainly did not intend in enacting Section 2 of RA 8791.
[17] [18] [19] [20] [21] [22] [23] [24]

Solidbanks Breach of its Contractual Obligation Article 1172 of the Civil Code provides that responsibility arising from negligence in the performance of every kind of obligation is demandable. For breach of the savings deposit agreement due to negligence, or culpa contractual, the bank is liable to its depositor. Calapre left the passbook with Solidbank because the transaction took time and he had to go to Allied Bank for another transaction. The passbook was still in the hands of the employees of Solidbank for the processing of the deposit when Calapre left Solidbank. Solidbanks rules on savings account require that the deposit book should be carefully guarded by the depositor and kept under lock and key, if possible. When the passbook is in the possession of Solidbanks tellers during withdrawals, the law imposes on Solidbank and its tellers an even higher degree of diligence in safeguarding the passbook. Likewise, Solidbanks tellers must exercise a high degree of diligence in insuring that they return the passbook only to the depositor or his authorized representative. The tellers know, or should know, that the rules on savings account provide that any person in possession of the passbook is presumptively its owner. If the tellers give the passbook to the wrong person, they would be clothing that person presumptive ownership of the passbook, facilitating unauthorized withdrawals by that person. For failing to return the passbook to Calapre, the authorized representative of L.C. Diaz, Solidbank and Teller No. 6 presumptively failed to observe such high degree of diligence in safeguarding the passbook, and in insuring its return to the party authorized to receive the same. In culpa contractual, once the plaintiff proves a breach of contract, there is a presumption that the defendant was at fault or negligent. The burden is on the defendant to prove that he was not at fault or negligent. In contrast, in culpa aquiliana the plaintiff has the burden of proving that the defendant was negligent. In the present case, L.C. Diaz has established that Solidbank breached

Banking Laws Set 1 Q & A

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its contractual obligation to return the passbook only to the authorized representative of L.C. Diaz. There is thus a presumption that Solidbank was at fault and its teller was negligent in not returning the passbook to Calapre. The burden was on Solidbank to prove that there was no negligence on its part or its employees. Solidbank failed to discharge its burden. Solidbank did not present to the trial court Teller No. 6, the teller with whom Calapre left the passbook and who was supposed to return the passbook to him. The record does not indicate that Teller No. 6 verified the identity of the person who retrieved the passbook. Solidbank also failed to adduce in evidence its standard procedure in verifying the identity of the person retrieving the passbook, if there is such a procedure, and that Teller No. 6 implemented this procedure in the present case. Solidbank is bound by the negligence of its employees under the principle of respondeat superior or command responsibility. The defense of exercising the required diligence in the selection and supervision of employees is not a complete defense in culpa contractual, unlike in culpa aquiliana. The bank must not only exercise high standards of integrity and performance, it must also insure that its employees do likewise because this is the only way to insure that the bank will comply with its fiduciary duty. Solidbank failed to present the teller who had the duty to return to Calapre the passbook, and thus failed to prove that this teller exercised the high standards of integrity and performance required of Solidbanks employees.
[25]

Proximate Cause of the Unauthorized Withdrawal Another point of disagreement between the trial and appellate courts is the proximate cause of the unauthorized withdrawal. The trial court believed that L.C. Diazs negligence in not securing its passbook under lock and key was the proximate cause that allowed the impostor to withdraw the P300,000. For the appellate court, the proximate cause was the tellers negligence in processing the withdrawal without first verifying with L.C. Diaz. We do not agree with either court. Proximate cause is that cause which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury and without which the result would not have occurred. Proximate cause is determined by the facts of each case upon mixed considerations of logic, common sense, policy and precedent. L.C. Diaz was not at fault that the passbook landed in the hands of the impostor. Solidbank was in possession of the passbook while it was processing the deposit. After completion of the transaction, Solidbank had the contractual obligation to return the passbook only to Calapre, the authorized representative of L.C. Diaz. Solidbank failed to fulfill its contractual obligation because it gave the passbook to another person. Solidbanks failure to return the passbook to Calapre made possible the withdrawal of the P300,000 by the impostor who took possession of the passbook. Under Solidbanks rules on savings account, mere possession of the passbook raises the presumption of ownership. It was the negligent act of Solidbanks Teller No. 6 that gave the impostor presumptive ownership of the passbook. Had the passbook not fallen into the hands of the impostor, the loss of P300,000 would not have happened. Thus, the proximate cause of the unauthorized withdrawal was Solidbanks negligence in not returning the passbook to Calapre. We do not subscribe to the appellate courts theory that the proximate cause of the unauthorized withdrawal was the tellers failure to call up L.C. Diaz to verify the withdrawal. Solidbank did not have the duty to call up L.C. Diaz to confirm the withdrawal. There is no arrangement between Solidbank and L.C. Diaz to this effect. Even the agreement between Solidbank and L.C. Diaz pertaining to measures that the parties must observe whenever withdrawals of large amounts are made does not direct Solidbank to call up L.C. Diaz. There is no law mandating banks to call up their clients whenever their representatives withdraw significant amounts from their accounts. L.C. Diaz therefore had the burden to prove that it is the usual practice of Solidbank to call up its clients to verify a withdrawal of a large amount of money. L.C. Diaz failed to do so. Teller No. 5 who processed the withdrawal could not have been put on guard to verify the withdrawal. Prior to the withdrawal of P300,000, the impostor deposited with Teller No. 6 the P90,000 PBC check, which later bounced. The impostor apparently deposited a large amount of money to deflect suspicion from the withdrawal of a much bigger amount of money. The appellate court thus erred when it imposed on Solidbank the duty to call up L.C. Diaz to confirm the withdrawal when no law requires this from banks and when the teller had no reason to be suspicious of the transaction. Solidbank continues to foist the defense that Ilagan made the withdrawal. Solidbank claims that since Ilagan was also a messenger of L.C. Diaz, he was familiar with its teller so that there was no more need for the teller to verify the withdrawal. Solidbank relies on the following statements in the Booking and Information Sheet of Emerano Ilagan:
[26] [27]

xxx Ilagan also had with him (before the withdrawal) a forged check of PBC and indicated the amount of P90,000 which he deposited in favor of L.C. Diaz and Company. After successfully withdrawing this large sum of money, accused Ilagan gave alias Rey (Noel Tamayo) his share of the loot. Ilagan then hired a taxicab in the amount of P1,000 to transport him (Ilagan) to his home province at Bauan, Batangas. Ilagan extravagantly and lavishly spent his money but a big part of his loot was wasted in cockfight and horse racing. Ilagan was apprehended and meekly admitted his guilt. (Emphasis supplied.)
[28]

L.C. Diaz refutes Solidbanks contention by pointing out that the person who withdrew the P300,000 was a certain Noel Tamayo. Both the trial and appellate courts stated that this Noel Tamayo presented the passbook with the withdrawal slip. We uphold the finding of the trial and appellate courts that a certain Noel Tamayo withdrew the P300,000. The Court is not a trier of facts. We find no justifiable reason to reverse the factual finding of the trial court and the Court of Appeals. The tellers who processed the deposit of the P90,000 check and the withdrawal of the P300,000 were not presented during trial to substantiate Solidbanks claim that Ilagan deposited the check and made the questioned withdrawal. Moreover, the entry quoted by Solidbank does not categorically state that Ilagan presented the withdrawal slip and the passbook. Doctrine of Last Clear Chance The doctrine of last clear chance states that where both parties are negligent but the negligent act of one is appreciably later than that of the other, or where it is impossible to determine whose fault or negligence caused the loss, the one who had the last clear opportunity to avoid the loss but failed to do so, is chargeable with the loss. Stated differently, the antecedent negligence of the plaintiff does not preclude him from recovering damages caused by the supervening negligence of the defendant, who had the last fair chance to prevent the impending harm by the exercise of due diligence. We do not apply the doctrine of last clear chance to the present case. Solidbank is liable for breach of contract due to negligence in the performance of its contractual obligation to L.C. Diaz. This is a case of culpa contractual, where neither the contributory negligence of the plaintiff nor his last clear chance to avoid the loss, would exonerate the defendant from liability. Such contributory negligence or last clear chance by the plaintiff merely serves to reduce the recovery of damages by the plaintiff but does not exculpate the defendant from his breach of contract.
[29] [30] [31] [32]

Mitigated Damages

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Under Article 1172, liability (for culpa contractual) may be regulated by the courts, according to the circumstances. This means that if the defendant exercised the proper diligence in the selection and supervision of its employee, or if the plaintiff was guilty of contributory negligence, then the courts may reduce the award of damages. In this case, L.C. Diaz was guilty of contributory negligence in allowing a withdrawal slip signed by its authorized signatories to fall into the hands of an impostor. Thus, the liability of Solidbank should be reduced. In Philippine Bank of Commerce v. Court of Appeals, where the Court held the depositor guilty of contributory negligence, we allocated the damages between the depositor and the bank on a 40-60 ratio. Applying the same ruling to this case, we hold that L.C. Diaz must shoulder 40% of the actual damages awarded by the appellate court. Solidbank must pay the other 60% of the actual damages. WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION. Petitioner Solidbank Corporation shall pay private respondent L.C. Diaz and Company, CPAs only 60% of the actual damages awarded by the Court of Appeals. The remaining 40% of the actual damages shall be borne by private respondent L.C. Diaz and Company, CPAs. Proportionate costs. SO ORDERED.
[33]

Davide, Jr., C.J., (Chairman), Vitug, and Ynares-Santiago, JJ., concur. Azcuna, J., on official leave.

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FIRST DIVISION

G.R. No. 88013 March 19, 1990

SIMEX INTERNATIONAL (MANILA), INCORPORATED, petitioner, vs. THE HONORABLE COURT OF APPEALS and TRADERS ROYAL BANK, respondents.

Don P. Porcuincula for petitioner.

San Juan, Gonzalez, San Agustin & Sinense for private respondent.

CRUZ, J.:

We are concerned in this case with the question of damages, specifically moral and exemplary damages. The negligence of the private respondent has already been established. All we have to ascertain is whether the petitioner is entitled to the said damages and, if so, in what amounts. The parties agree on the basic facts. The petitioner is a private corporation engaged in the exportation of food products. It buys these products from various local suppliers and then sells them abroad, particularly in the United States, Canada and the Middle East. Most of its exports are purchased by the petitioner on credit. The petitioner was a depositor of the respondent bank and maintained a checking account in its branch at Romulo Avenue, Cubao, Quezon City. On May 25, 1981, the petitioner deposited to its account in the said bank the amount of P100,000.00, thus increasing its balance as of that date to P190,380.74. 1 Subsequently, the petitioner issued several checks against its deposit but was suprised to learn later that they had been dishonored for insufficient funds. The dishonored checks are the following: 1. Check No. 215391 dated May 29, 1981, in favor of California Manufacturing Company, Inc. for P16,480.00: 2. Check No. 215426 dated May 28, 1981, in favor of the Bureau of Internal Revenue in the amount of P3,386.73: 3. Check No. 215451 dated June 4, 1981, in favor of Mr. Greg Pedreo in the amount of P7,080.00; 4. Check No. 215441 dated June 5, 1981, in favor of Malabon Longlife Trading Corporation in the amount of P42,906.00: 5. Check No. 215474 dated June 10, 1981, in favor of Malabon Longlife Trading Corporation in the amount of P12,953.00: 6. Check No. 215477 dated June 9, 1981, in favor of Sea-Land Services, Inc. in the amount of P27,024.45: 7. Check No. 215412 dated June 10, 1981, in favor of Baguio Country Club Corporation in the amount of P4,385.02: and

8. Check No. 215480 dated June 9, 1981, in favor of Enriqueta Bayla in the amount of P6,275.00. 2
As a consequence, the California Manufacturing Corporation sent on June 9, 1981, a letter of demand to the petitioner, threatening prosecution if the dishonored check issued to it was not made good. It also withheld delivery of the order made by the petitioner. Similar letters were sent to the petitioner by the Malabon Long Life Trading, on June 15, 1981, and by the G. and U. Enterprises, on June 10, 1981. Malabon also canceled the petitioner's credit line and demanded that future payments be made by it in cash or certified check. Meantime, action on the pending orders of the petitioner with the other suppliers whose checks were dishonored was also deferred. The petitioner complained to the respondent bank on June 10, 1981. 3 Investigation disclosed that the sum of P100,000.00 deposited by the petitioner on May 25, 1981, had not been credited to it. The error was rectified on June 17, 1981, and the dishonored checks were paid after they were re-deposited. 4 In its letter dated June 20, 1981, the petitioner demanded reparation from the respondent bank for its "gross and wanton negligence." This demand was not met. The petitioner then filed a complaint in the then Court of First Instance of Rizal claiming from the private respondent moral damages in the sum of P1,000,000.00 and exemplary damages in the sum of P500,000.00, plus 25% attorney's fees, and costs.

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After trial, Judge Johnico G. Serquinia rendered judgment holding that moral and exemplary damages were not called for under the circumstances. However, observing that the plaintiff's right had been violated, he ordered the defendant to pay nominal damages in the amount of P20,000.00 plus P5,000.00 attorney's fees and costs. 5 This decision was affirmed in toto by the respondent court. 6 The respondent court found with the trial court that the private respondent was guilty of negligence but agreed that the petitioner was nevertheless not entitled to moral damages. It said: The essential ingredient of moral damages is proof of bad faith (De Aparicio vs. Parogurga, 150 SCRA 280). Indeed, there was the omission by the defendant-appellee bank to credit appellant's deposit of P100,000.00 on May 25, 1981. But the bank rectified its records. It credited the said amount in favor of plaintiff-appellant in less than a month. The dishonored checks were eventually paid. These circumstances negate any imputation or insinuation of malicious, fraudulent, wanton and gross bad faith and negligence on the part of the defendant-appellant. It is this ruling that is faulted in the petition now before us. This Court has carefully examined the facts of this case and finds that it cannot share some of the conclusions of the lower courts. It seems to us that the negligence of the private respondent had been brushed off rather lightly as if it were a minor infraction requiring no more than a slap on the wrist. We feel it is not enough to say that the private respondent rectified its records and credited the deposit in less than a month as if this were sufficient repentance. The error should not have been committed in the first place. The respondent bank has not even explained why it was committed at all. It is true that the dishonored checks were, as the Court of Appeals put it, "eventually" paid. However, this took almost a month when, properly, the checks should have been paid immediately upon presentment. As the Court sees it, the initial carelessness of the respondent bank, aggravated by the lack of promptitude in repairing its error, justifies the grant of moral damages. This rather lackadaisical attitude toward the complaining depositor constituted the gross negligence, if not wanton bad faith, that the respondent court said had not been established by the petitioner. We also note that while stressing the rectification made by the respondent bank, the decision practically ignored the prejudice suffered by the petitioner. This was simply glossed over if not, indeed, disbelieved. The fact is that the petitioner's credit line was canceled and its orders were not acted upon pending receipt of actual payment by the suppliers. Its business declined. Its reputation was tarnished. Its standing was reduced in the business community. All this was due to the fault of the respondent bank which was undeniably remiss in its duty to the petitioner. Article 2205 of the Civil Code provides that actual or compensatory damages may be received "(2) for injury to the plaintiff s business standing or commercial credit." There is no question that the petitioner did sustain actual injury as a result of the dishonored checks and that the existence of the loss having been established "absolute certainty as to its amount is not required." 7 Such injury should bolster all the more the demand of the petitioner for moral damages and justifies the examination by this Court of the validity and reasonableness of the said claim. We agree that moral damages are not awarded to penalize the defendant but to compensate the plaintiff for the injuries he may have suffered. 8 In the case at bar, the petitioner is seeking such damages for the prejudice sustained by it as a result of the private respondent's fault. The respondent court said that the claimed losses are purely speculative and are not supported by substantial evidence, but if failed to consider that the amount of such losses need not be established with exactitude precisely because of their nature. Moral damages are not susceptible of pecuniary estimation. Article 2216 of the Civil Code specifically provides that "no proof of pecuniary loss is necessary in order that moral, nominal, temperate, liquidated or exemplary damages may be adjudicated." That is why the determination of the amount to be awarded (except liquidated damages) is left to the sound discretion of the court, according to "the circumstances of each case." From every viewpoint except that of the petitioner's, its claim of moral damages in the amount of P1,000,000.00 is nothing short of preposterous. Its business certainly is not that big, or its name that prestigious, to sustain such an extravagant pretense. Moreover, a corporation is not as a rule entitled to moral damages because, not being a natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish and moral shock. The only exception to this rule is where the corporation has a good reputation that is debased, resulting in its social humiliation. 9 We shall recognize that the petitioner did suffer injury because of the private respondent's negligence that caused the dishonor of the checks issued by it. The immediate consequence was that its prestige was impaired because of the bouncing checks and confidence in it as a reliable debtor was diminished. The private respondent makes much of the one instance when the petitioner was sued in a collection case, but that did not prove that it did not have a good reputation that could not be marred, more so since that case was ultimately settled. 10 It does not appear that, as the private respondent would portray it, the petitioner is an unsavory and disreputable entity that has no good name to protect. Considering all this, we feel that the award of nominal damages in the sum of P20,000.00 was not the proper relief to which the petitioner was entitled. Under Article 2221 of the Civil Code, "nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him." As we have found that the petitioner has indeed incurred loss through the fault of the private respondent, the proper remedy is the award to it of moral damages, which we impose, in our discretion, in the same amount of P20,000.00. Now for the exemplary damages.

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The pertinent provisions of the Civil Code are the following: Art. 2229. Exemplary or corrective damages are imposed, by way of example or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages. Art. 2232. In contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. The banking system is an indispensable institution in the modern world and plays a vital role in the economic life of every civilized nation. Whether as mere passive entities for the safekeeping and saving of money or as active instruments of business and commerce, banks have become an ubiquitous presence among the people, who have come to regard them with respect and even gratitude and, most of all, confidence. Thus, even the humble wage-earner has not hesitated to entrust his life's savings to the bank of his choice, knowing that they will be safe in its custody and will even earn some interest for him. The ordinary person, with equal faith, usually maintains a modest checking account for security and convenience in the settling of his monthly bills and the payment of ordinary expenses. As for business entities like the petitioner, the bank is a trusted and active associate that can help in the running of their affairs, not only in the form of loans when needed but more often in the conduct of their day-to-day transactions like the issuance or encashment of checks. In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account consists only of a few hundred pesos or of millions. The bank must record every single transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if the account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit, confident that the bank will deliver it as and to whomever he directs. A blunder on the part of the bank, such as the dishonor of a check without good reason, can cause the depositor not a little embarrassment if not also financial loss and perhaps even civil and criminal litigation. The point is that as a business affected with public interest and because of the nature of its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. In the case at bar, it is obvious that the respondent bank was remiss in that duty and violated that relationship. What is especially deplorable is that, having been informed of its error in not crediting the deposit in question to the petitioner, the respondent bank did not immediately correct it but did so only one week later or twenty-three days after the deposit was made. It bears repeating that the record does not contain any satisfactory explanation of why the error was made in the first place and why it was not corrected immediately after its discovery. Such ineptness comes under the concept of the wanton manner contemplated in the Civil Code that calls for the imposition of exemplary damages. After deliberating on this particular matter, the Court, in the exercise of its discretion, hereby imposes upon the respondent bank exemplary damages in the amount of P50,000.00, "by way of example or correction for the public good," in the words of the law. It is expected that this ruling will serve as a warning and deterrent against the repetition of the ineptness and indefference that has been displayed here, lest the confidence of the public in the banking system be further impaired. ACCORDINGLY, the appealed judgment is hereby MODIFIED and the private respondent is ordered to pay the petitioner, in lieu of nominal damages, moral damages in the amount of P20,000.00, and exemplary damages in the amount of P50,000.00 plus the original award of attorney's fees in the amount of P5,000.00, and costs. SO ORDERED.
Narvasa, Gancayco, Grino-Aquino and Medialdea, JJ., concur.

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SECOND DIVISION

G.R. No. L-46208 April 5, 1990

FIDELITY SAVINGS AND MORTGAGE BANK, petitioner, vs. HON. PEDRO D. CENZON, in his capacity as Presiding Judge of the Court of First Instance of Manila (Branch XL) and SPOUSES TIMOTEO AND OLIMPIA SANTIAGO, respondents.

Agapito S. Fajardo and Marino E. Eslao for petitioner.

Leovillo C. Agustin Law Offices for private respondents.

REGALADO, J.:

The instant petition seeks the review, on pure questions of law, of the decision rendered by the Court of First Instance of Manila (now Regional Trial Court), Branch XL, on December 3, 1976 in Civil Case No. 84800, 1ordering herein petitioner to pay private respondents the following amounts: (a) P90,000.00 with accrued interest in accordance with Exhibits A and B until fully paid; (b) P30,000,00 as exemplary damages; and (c) P10,000.00 as and for attorney's fees. The payment by the defendant Fidelity Savings and Mortgage Bank of the aforementioned sums of money shall be subject to the Bank Liquidation Rules and Regulations embodied in the Order of the Court of First Instance of Manila, Branch XIII, dated October 3, 1972, Civil Case No. 86005, entitled, "IN RE: Liquidation of the Fidelity Savings Bank versus Central Bank of the Philippines, Liquidator." With costs against the defendant Fidelity Savings and Mortgage Bank. SO ORDERED. Private respondents instituted this present action for a sum of money with damages against Fidelity Savings and Mortgage Bank, Central Bank of the Philippines, Eusebio Lopez, Jr., Arsenio M. Lopez, Sr., Arsenio S. Lopez, Jr., Bibiana E. Lacuna, Jose C. Morales, Leon P. Cusi, Pilar Y. Pobre-Cusi and Ernani A. Pacana. On motion of herein private respondents, as plaintiffs, the amended complaint was dismissed without prejudice against defendants Jose C. Morales, Leon P. Cusi, Pilar Y. Pobre-Cusi and Ernani A. Pacana. 2 In its aforesaid decision of December 3, 1976, the court a quo dismissed the complaint as against defendants Central Bank of the Philippines, Eusebio Lopez, Jr., Arsenio S. Lopez, Jr., Arsenio M. Lopez, Sr. and Bibiana S. Lacuna. Back on August 10, 1973, the plaintiffs (herein private respondents) and the defendants Fidelity Savings and Mortgage Bank (petitioner herein), Central Bank of the Philippines and Bibiana E. Lacuna had filed in said case in the lower court a partial stipulation of facts, as follows: COME NOW herein plaintiffs, SPOUSES TIMOTEO M. SANTIAGO and OLIMPIA R. SANTIAGO, herein defendants FIDELITY SAVINGS AND MORTGAGE BANK and the CENTRAL BANK OF THE PHILIPPINES, and herein defendant BIBIANA E. LACUNA, through their respective undersigned counsel, and before this Honorable Court most respectfully submit the following Partial Stipulation of Facts: 1. That herein plaintiffs are husband and wife, both of legal age, and presently residing at No. 480 C. de la Paz Street, Sta. Elena, Marikina, Rizal; 2. That herein defendant Fidelity Savings and Mortgage Bank is a corporation duly organized and existing under and by virtue of the laws of the Philippines; that defendant Central Bank of the Philippines is a corporation duly organized and existing under and by virtue of the laws of the Philippines; 3. That herein defendant Bibiana E. Lacuna is of legal age and a resident of No. 42 East Lawin Street, Philamlife Homes, Quezon City, said defendant was an assistant Vice-President of the defendant fidelity Savings and Mortgage Bank, 4. That sometime on May 16, 1968, here in plaintiffs deposited with the defendant Fidelity Savings Bank the amount of FIFTY THOUSAND PESOS (P50,000.00) under Savings Account No. 16-0536; that likewise, sometime on July 6, 1968, herein plaintiff,- deposited with the defendant Fidelity Savings and Mortgage Bank the amount of FIFTY THOUSAND PESOS (P50,000.00) under Certificate of Time Deposit No. 0210; that the aggregate amount of deposits of the plaintiffs with the defendant Fidelity Savings and Mortgage Bank is ONE HUNDRED THOUSAND PESOS (P100,000.00);

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5. That on February 18, 1969, the Monetary Board, after finding the report of the Superintendent of Banks, that the condition of the defendant Fidelity Savings and Mortgage Bank is one of insolvency, to be true, issued Resolution No. 350 deciding, among others, as follows: 1) To forbid the Fidelity Savings Bank to do business in the Philippines; 2) To instruct the Acting Superintendent of Banks to take charge, in the name of the Monetary Board, of the Bank's assets 6. That pursuant to the above-cited instructions of the Monetary Board, the Superintendent of Banks took charge in the name of the Monetary Board, of the assets of defendant Fidelity Savings Bank on February 19, 1969; and that since that date up to this date, the Superintendent of Banks (now designated as Director, Department of Commercial and Savings Banks) has been taking charge of the assets of defendant Fidelity Savings and Mortgage Bank; 7. That sometime on October 10, 1969 the Philippine Deposit Insurance Corporation paid the plaintiffs the amount of TEN THOUSAND PESOS (P10,000.00) on the aggregate deposits of P100,000.00 pursuant to Republic Act No. 5517, thereby leaving a deposit balance of P90,000.00; 8. That on December 9, 1969, the Monetary Board issued its Resolution No. 2124 directing the liquidation of the affairs of defendant Fidelity Savings Bank; 9. That on January 25, 1972, the Solicitor General of the Philippines filed a "Petition for Assistance and Supervision in Liquidation" of the affairs of the defendant Fidelity Savings and Mortgage Bank with the Court of First Instance of Manila, assigned to Branch XIII and docketed as Civil Case No. 86005; 10. That on October 3, 1972, the Liquidation Court promulgated the Bank Rules and Regulations to govern the liquidation of the affairs of defendant Fidelity Savings and Mortgage Bank, prescribing the rules on the conversion of the Bank's assets into money, processing of claims against it and the manner and time of distributing the proceeds from the assets of the Bank; 11. That the liquidation proceedings has not been terminated and is still pending up to the present; 12. That herein plaintiffs, through their counsel, sent demand letters to herein defendants, demanding the immediate payment of the aforementioned savings and time deposits. WHEREFORE, it is respectfully prayed that the foregoing Partial Stipulation of Facts be approved by this Honorable Court, without prejudice to the presentation of additional documentary or testimonial evidence by herein parties.
Manila, Philippines, August 10, 1973.
3

Assigning error in the judgment of the lower court quoted ab antecedents, petitioner raises two questions of law, to wit: 1. Whether or not an insolvent bank like the Fidelity Savings and Mortgage Bank may be adjudged to pay interest on unpaid deposits even after its closure by the Central Bank by reason of insolvency without violating the provisions of the Civil Code on preference of credits; and 2. Whether or not an insolvent bank like the Fidelity Savings and Mortgage Bank may be adjudged to pay moral and exemplary damages, attorney's fees and costs when the insolvency is caused b the anomalous real estate transactions without violating the provisions of the Civil Code on preference of credits. There is merit in the petition. It is settled jurisprudence that a banking institution which has been declared insolvent and subsequently ordered closed by the Central Bank of the Philippines cannot be held liable to pay interest on bank deposits which accrued during the period when the bank is actually closed and non-operational. In The Overseas Bank of Manila vs. Court of Appeals and Tony D. Tapia, 4 we held that: It is a matter of common knowledge, which We take judicial notice of, that what enables a bank to pay stipulated interest on money deposited with it is that thru the other aspects of its operation it is able to generate funds to cover the payment of such interest. Unless a bank can lend money, engage in international transactions, acquire foreclosed mortgaged properties or their proceeds and generally engage in other banking and financing activities from which it can derive income, it is inconceivable how it can carry on as a depository obligated to pay stipulated interest. Conventional wisdom dictates this inexorable fair and just conclusion. And it can be said that all who deposit money in banks are aware of such a simple economic proposition. Consequently, it should be deemed read

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into every contract of deposit with a bank that the obligation to pay interest on the deposit ceases the moment the operation of the bank is completely suspended by the duly constituted authority, the Central Bank. This was reiterated in the subsequent case of The Overseas Bank of Manila vs. The Hon. Court of Appeals and Julian R. Cordero. 5 and in the recent cases of Integrated Realty Corporation, et al. vs. Philippine National Bank, et al. and the Overseas Bank of Manila vs. Court of appeals, et al. 6 From the aforecited authorities, it is manifest that petitioner cannot be held liable for interest on bank deposits which accrued from the time it was prohibited by the Central Bank to continue with its banking operations, that is, when Resolution No. 350 to that effect was issued on February 18, 1969. The order, therefore, of the Central Bank as receiver/liquidator of petitioner bank allowing the claims of depositors and creditors to earn interest up to the date of its closure on February 18, 1969, 7 in line with the doctrine laid down in the jurisprudence above cited. Although petitioner's formulation of the second issue that it poses is slightly inaccurate and defective, we likewise find the awards of moral and exemplary damages and attorney's fees to be erroneous. The trial court found, and it is not disputed, that there was no fraud or bad faith on the part of petitioner bank and the other defendants in accepting the deposits of private respondents. Petitioner bank could not even be faulted in not immediately returning the amount claimed by private respondents considering that the demand to pay was made and Civil Case No. 84800 was filed in the trial court several months after the Central Bank had ordered petitioner's closure. By that time, petitioner bank was no longer in a position to comply with its obligations to its creditors, including herein private respondents. Even the trial court had to admit that petitioner bank failed to pay private respondents because it was already insolvent. 8 Further, this case is not one of the specified or analogous cases wherein moral damages may be recovered. 9 There is no valid basis for the award of exemplary damages which is supposed to serve as a warning to other banks from dissipating their assets in anomalous transactions. It was not proven by private respondents, and neither was there a categorical finding made by the trial court, that petitioner bank actually engaged in anomalous real estate transactions. The same were raised only during the testimony of the bank examiner of the Central Bank, 10 but no documentary evidence was ever presented in support thereof. Hence, it was error for the lower court to impose exemplary damages upon petitioner bank since, in contracts, such sanction requires that the offending party acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. 11 Neither does this case present the situation where attorney's fees may be awarded. 12 In the absence of fraud, bad faith, malice or wanton attitude, petitioner bank may, therefore, not be held responsible for damages which may be reasonably attributed to the non-performance of the obligation. 13Consequently, we reiterate that under the premises and pursuant to the aforementioned provisions of law, it is apparent that private respondents are not justifiably entitled to the payment of moral and exemplary damages and attorney's fees. While we tend to agree with petitioner bank that private respondents' claims should he been filed in the liquidation proceedings in Civil Case No. 86005, entitled "In Re: Liquidation of the Fidelity Savings and Mortgage Bank," pending before Branch XIII of the then Court of First Instance of Manila, we do not believe that the decision rendered in the instant case would be violative of the legal provisions on preference and concurrence of credits. As the trial court puts it:
. . . But this order of payment should not be understood as raising these deposits to the category of preferred credits of the defendant Fidelity Savings and Mortgage Bank but shall be paid in accordance with the Bank Liquidation Rules and Regulations embodied in the Order of the. Court of First Instance of Manila, Branch XIII dated October 3, 1972 (Exh. 3). . . . 14

WHEREFORE, the judgment appealed from is hereby MODIFIED. Petitioner Fidelity Savings and Mortgage Bank is hereby declared liable to pay private respondents Timoteo and Olimpia Santiago the sum of P90,000.00, with accrued interest in accordance with the terms of Savings Account Deposit No. 16-0536 (Exhibit A) and Certificate of Time Deposit No. 0210 (Exhibit B) until February 18, 1969. The awards for moral and exemplary damages, and attorney's fees are hereby DELETED. No costs. SO ORDERED.
Melencio-Herrera, Paras, Padilla and Sarmiento, JJ., concur.

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EN BANC

G.R. No. L-11964

April 28, 1962

REGISTER of DEEDS OF MANILA, petitioner-appellee, vs. CHINA BANKING CORPORATION, respondent-appellant.

Office of the Solicitor General for petitioner-appellee. Sycip-Salazar, Luna and Associates for respondent-appellant. Alfonso Ponce Enrile as Amicus Curiae.

DIZON, J.:

Appeal from a resolution of the Land Registration Commission holding "that the deed of transfer in favor of an alien bank, subject of the present Consulta, is unregisterable for being in contravention of the Constitution of the Philippines". In an information filed on June 16, 1953 in the Court of First Instance of Manila (Criminal Case No. 22908) Alfonso Pangilinan and one Guillermo Chua were charged with qualified theft, the money involved amounting to P275,000.00. On September 18, 1956, Pangilinan and his wife, Belen Sta. Ana, executed a public instrument entitled DEED OF TRANSFER whereby, after admitting his civil liability in favor of his employer, the China Banking Corporation, in relation to the offense aforesaid, he ceded and transferred to the latter, in satisfaction thereof, a parcel of land located in the City of Manila, registered in the name of "Belen Sta. Ana, married to Alfonso Pangilinan" (Transfer Certificate of Title No. 32230). On October 24, 1956 the deed was presented for registration to the Register of Deeds of the City of Manila, but because the transferee the China Banking Corporation was alien-owned and, as such, barred from acquiring lands in the Philippines, in accordance with the provisions of Section 5, Article XIII of the Constitution of the Philippines, said officer submitted the matter of its registration to the Land Registration Commission for resolution. After granting the parties concerned ample opportunity to submit their views upon the issue, the Commission issued the resolution appealed from. Plainly stated, the question before Us is whether appellant an alien-owned bank can acquire ownership of the residential lot covered by Transfer Certificate of Title No. 32230 by virtue of the deed of transfer mentioned heretofore (Vide pages 1-6 of the Record on Appeal). Maintaining the affirmative, appellant argues that: (a) the temporary holding of land by an alien-owned commercial bank under a public instrument such as the deed of transfer in question "bears no reasonable connection with the constitutional purpose" underlying the provisions of Section 5, Article XIII of the Constitution of the Philippines; hence, such holding or acquisition "was not within the contemplation of the framers of the Constitution"; (b) by judicial as well as by executive-administrative an legislative construction, the constitutional prohibition against alien landholding does not preclude enjoyment by aliens of temporary rights and land; (c) under the provisions of Section 25 of Republic Act No. 337 (General Banking Act) an alien or an alien-owned commercial bank may acquire land in the Philippines subject to the obligation of disposing of it within 5 years from the date of its acquisition. 1wph1.t Upon the other hand, the argument supporting the appealed resolution is that the privilege of acquiring real estate granted to commercial banks under the provisions of Section 25 of Republic Act No. 337 was not intended as an amendment, much less as a nullification of the constitutional prohibition against alien acquisition of lands in the Philippines, the same being merely an exception to the general rule, under existing banking and corporation laws, that banks and corporations can engage only in the particular business for which they were specifically created; that a mere statute, like the republic act relied upon by, appellant, cannot amend the Constitution; that in connection with the particular constitutional prohibition involved herein, it is the character and nature of the possession whether in strict ownership or otherwise and not the length of possession that is material, the result being that, if real property is to be held in ownership, an alien may not legally do so even for a single day. After considering the arguments adduced by appellant in its brief, jointly with those expounded in the briefs submitted by Alfonso Ponce Enrile and William H. Quasha and Associates, as amici curiae, on the one hand, and on the other, those relied upon in the brief submitted by the Office of the Solicitor General on behalf of the Commission, we are inclined to uphold, as we do uphold, the appealed resolution. To support its view appellant relies particularly upon paragraphs (c) and (d), Section 25 of Republic Act 337 which read as follows: . SEC. 25. Any commercial bank may purchase, hold, and convey real estate for the following purposes: xxx xxx xxx

(c) Such shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings; . (d) Such as it shall purchase at sales under judgments, decrees, mortgages, or trust deeds held by it and such as it shall purchase to secure debts due to it. But no such bank shall hold the possession of any real estate under mortgage or trust deed, or the title and possession of any real estate purchased to secure any debt due to it, for a longer period than five years.

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Assuming, arguendo, that under the provisions of the aforesaid Act any commercial bank, whether alien-owned or controlled or not, may purchase and hold real estate for the specific purposes and in the particular cases enumerated in Section 25 thereof, we find that the case before Us does not fall under anyone of them. Paragraph (c), Section 25 of Republic Act 337 allows a commercial bank to purchase and hold such real estate as shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings, We deem it quite clear and free from doubt that the "debts" referred to in this provision are only those resulting from previous loans and other similar transactions made or entered into by a commercial bank in the ordinary course of its business as such. Obviously, whatever "civil liability" arising from the criminal offense of qualified theft was admitted in favor of appellant bank by its former employee, Alfonso Pangilinan, was not a debt resulting from a loan or a similar transaction had between the two parties in the ordinary course of banking business. Neither do the provisions of paragraph (d) of the Same section apply to the present case because the deed of transfer in question can in no sense be considered as a sale made by virtue of a judgment, decree, mortgage, or trust deed held by appellant bank. In the same manner it cannot be said that the real property in question was purchased by appellant "to secure debts due to it", considering that, as stated heretofore, the term debt employed in the pertinent legal provision can logically refer only to such debts as may become payable to appellant bank as a result of a banking transaction. That the constitutional prohibition under consideration has for its purpose the preservation of the patrimony of the nation can not be denied, but appellant and the amici curiae claim that it should be liberally construed so that the prohibition be limited to the permanent acquisition of real estate by aliens whether natural or juridical persons. This, of course, would make legal the ownership acquired by appellant bank by virtue of the deed of transfer mentioned heretofore, subject to its obligation to dispose of it in accordance with law, within 5 years from the date of its acquisition. We can not give assent to this contention, in view of the fact that the constitutional prohibition in question is absolute in terms. We have so held in Ong Sui Si Temple vs. The Register of Deeds of Manila (G. R. No. L-6776, prom. May 21, 1955) where we said, inter alia, the following: We are of the opinion that the Court below has correctly held that in view of the absolute terms of section 5, Title XIII, of the Constitution, the provisions of Act 271 of the old Philippine Commission must be deemed repealed since the Constitution was enacted, in so far as incompatible therewith. In providing that Save in cases of hereditary succession no private agricultural land shall be transferred or assigned except to individuals, corporations or associations qualified to acquire or hold lands of the public domain in the Philippines. the Constitution makes no exception in favor of religious associations. Neither is there any such saving found in Sections 1 and 2 of Article XIII, restricting the acquisition of public agricultural lands and other natural resources to "corporations or associations at least sixty per centum of the capital of which is owned by such citizens" (of the Philippines). (Emphasis ours) . Even in the case of Smith Bell & Co. vs. Register of Deeds of Davao (50 O.G., 5239) where a lease of a parcel of land for a total period of 50 years in favor of an alien corporation was held to be registerable, the reason we gave for such ruling was that a lease unlike a sale does not involve the transfer of dominion over the land, the clear implication from this being that transfer of ownership over land, even for a limited period of time, is not permissible in view of the constitutional prohibition. The reason for this is manifestly the desire and purpose of the Constitution to place and keep in the hands of the people the ownership over private lands in order not to endanger the integrity of the nation. Inasmuch as when an alien buys land he acquires and will naturally exercise ownership over the same, either permanently or temporarily, to that extent his acquisition jeopardizes the purpose of the Constitution. Some may say that this construction is too narrow and unwise; to this we answer that it is not our privilege to determine the wisdom or lack of wisdom of this constitutional mandate. It is, rather, Our sworn duty to enforce it free from qualifications and distinctions that tend to render futile the constitutional intent. WHEREFORE, the resolution appealed from is hereby affirmed, with costs.
Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera and Paredes, JJ., concur. Padilla and Labrador, JJ., took no part.

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THIRD DIVISION

G.R. No. 97785 March 29, 1996

PHILIPPINE COMMERCIAL INTERNATIONAL BANK, petitioner, vs. COURT OF APPEALS and RORY W. LIM, respondents.

FRANCISCO, J.:p

This is a petition for review on certiorari seeking the reversal of the Decision of the Court of Appeals in CA-G.R. No. 18843 promulgated on July 30, 1990, and the Resolution dated March 11, 1991, affirming with modification the judgment of the Regional Trial Court of Gingoog City which held petitioner Philippine Commercial International Bank (PCIB) liable for damages resulting from its breach of contract with private respondent Rory W. Lim. Disputed herein is the validity of the stipulation embodied in the standard application form/receipt furnished by petitioner for the purchase of a telegraphic transfer which relieves it of any liability resulting from loss caused by errors or delays in the course of the discharge of its services. The antecedent facts are as follows: On March 13, 1986, private respondent Rory Lim delivered to his cousin Lim Ong Tian PCIB Check No. JJJ 24212467 in the amount of P200,000.00 for the purpose of obtaining a telegraphic transfer from petitioner PCIB in the same amount. The money was to be transferred to Equitable Banking Corporation, Cagayan de Oro Branch, and credited to private respondent's account at the said bank. Upon purchase of the telegraphic transfer, petitioner issued the corresponding receipt dated March 13, 1986 [T/T No. 284] 1 which contained the assailed provision, to wit:
AGREEMENT
xxx xxx xxx

In case of fund transfer, the undersigned hereby agrees that such transfer will be made without any responsibility on the part of the BANK, or its correspondents, for any loss occasioned by errors, or delays in the transmission of message by telegraph or cable companies or by the correspondents or agencies, necessarily employed by this BANK in the transfer of this money, all risks for which are assumed by the undersigned.

Subsequent to the purchase of the telegraphic transfer, petitioner in turn issued and delivered eight (8) Equitable Bank checks 2 to his suppliers in different amounts as payment for the merchandise that he obtained from them. When the checks were presented for payment, five of them bounced for insufficiency of funds, 3 while the remaining three were held overnight for lack of funds upon presentment. 4 Consequent to the dishonor of these checks, Equitable Bank charged and collected the total amount of P1,100.00 from private respondent. The dishonor of the checks came to private respondent's attention only on April 2, 1986, when Equitable Bank notified him of the penalty charges and after receiving letters from his suppliers that his credit was being cut-off due to the dishonor of the checks he issued. Upon verification by private respondent with the Gingoog Branch Office of petitioner PCIB, it was confirmed that his telegraphic transfer (T/T No. 284) for the sum of P200,000.00 had not yet been remitted to Equitable Bank, Cagayan de Oro branch. In fact, petitioner PCIB made the corresponding transfer of funds only on April 3, 1986, twenty one (21) days after the purchase of the telegraphic transfer on March 13, 1986. Aggrieved, private respondent demanded from petitioner PCIB that he be compensated for the resulting damage that he suffered due to petitioner's failure to make the timely transfer of funds which led to the dishonor of his checks. In a letter dated April 23, 1986, PCIB's Branch Manager Rodolfo Villarmia acknowledged their failure to transmit the telegraphic transfer on time as a result of their mistake in using the control number twice and the petitioner bank's failure to request confirmation and act positively on the disposition of the said telegraphic transfer. 5 Nevertheless, petitioner refused to heed private respondent's demand prompting the latter to file a complaint for damages with the Regional Trial Court of Gingoog City 6 on January 16, 1987. In his complaint, private respondent alleged that as a result of petitioner's total disregard and gross violation of its contractual obligation to remit and deliver the sum of Two Hundred Thousand Pesos (P200,000.00) covered by T/T No. 284 to Equitable Banking Corporation, Cagayan de Oro Branch, private respondent's checks were dishonored for insufficient funds thereby causing his business and credit standing to suffer considerably for which petitioner should be ordered to pay damages. 7 Answering the complaint, petitioner denied any liability to private respondent and interposed as special and affirmative defense the lack of privity between it and private respondent as it was not private respondent himself who purchased the telegraphic transfer from petitioner. Additionally, petitioner pointed out that private respondent is nevertheless bound by the stipulation in the telegraphic transfer application/form receipt 8 which provides:
. . . . In case of fund transfer, the undersigned hereby agrees that such transfer will be made without any responsibility on the part of the BANK, or its correspondents, for any loss occasioned by errors or delays in the transmission of message by telegraph or cable

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companies or by correspondents or agencies, necessarily employed by this BANK in the transfer of this money, all risks for which are assumed by the undersigned.

According to petitioner, they utilized the services of RCPI-Gingoog City to transmit the message regarding private respondent's telegraphic transfer because their telex machine was out of order at that time. But as it turned out, it was only on April 3, 1986 that petitioner's Cagayan de Oro Branch had received information about the said telegraphic transfer. 9 In its decision dated July 27, 1988 10 the Regional Trial Court of Gingoog City held petitioner liable for breach of contract and struck down the aforecited provision found in petitioner's telegraphic transfer application form/receipt exempting it from any liability and declared the same to be invalid and unenforceable. As found by the trial court, the provision amounted to a contract of adhesion wherein the objectionable portion was unilaterally inserted by petitioner in all its application forms without giving any opportunity to the applicants to question the same and express their conformity thereto. 11 Thus, the trial court adjudged .petitioner liable to private respondent for the following amounts:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the defendant, ordering the latter to pay the former as follows: P 960,000.00 as moral damages; P 50,000.00 as exemplary damages; P 40,000.00 as attorney's fees; and P 1,100.00 as reimbursement for the surcharges paid by plaintiff to the Equitable Banking Corporation, plus costs, all with legal interest of 6% per annum from the date of this judgment until the same shall have been paid in full. 12

Upon appeal by petitioner to the Court of Appeals, respondent court affirmed with modifications the judgment of the trial court and ordered as follows:
WHEREFORE, premises considered, judgment is hereby rendered affirming the appealed decision with modification, as follows: The defendant-appellant is ordered to pay to the plaintiff-appellee the following: 1. The sum of Four Hundred Thousand (P400,000.00) Pesos as/for moral damages; 2. The sum of Forty Thousand (P40,000.00) Pesos as exemplary damage to serve as an example for the public good; 3. The sum of Thirty Thousand (P30,000.00) Pesos representing attorney's fees; 4. The sum of One Thousand One Hundred (P1,100.00) Pesos as actual damage, and 5. To pay the costs. SO ORDERED. 13

A motion for reconsideration was filed by petitioner but respondent Court of Appeals denied the same. 14 Still unconvinced, petitioner elevated the case to this Court through the instant petition for review on certiorari invoking the validity of the assailed provision found in the application form/receipt exempting it from any liability in case of loss resulting from errors or delays in the transfer of funds. Petitioner mainly argues that even assuming that the disputed provision is a contract of adhesion, such fact alone does not make it invalid because this type of contract is not absolutely prohibited. Moreover, the terms thereof are expressed clearly, leaving no room for doubt, and both contracting parties understood and had full knowledge of the same. Private respondent however contends that the agreement providing non-liability on petitioner's part in case of loss caused by errors or delays despite its recklessness and negligence is void for being contrary to public policy and interest. 15 A contract of adhesion is defined as one in which one of the parties imposes a ready-made form of contract, which the other party may accept or reject, but which the latter cannot modify. 16 One party prepares the stipulation in the contract, while the other party merely affixes his signature or his "adhesion" thereto, 17 giving no room for negotiation and depriving the latter of the opportunity to bargain on equal footing. 18 Nevertheless, these types of contracts have been declared as binding as ordinary contracts, the reason being that the party who adheres to the contract is free to reject it entirely. 19 It is equally important to stress, though, that the Court is not precluded from ruling out blind adherence to their terms if the attendant facts and circumstances show that they should be ignored for being obviously too one-sided. 20 On previous occasions, it has been declared that a contract of adhesion may be struck down as void and unenforceable, for being subversive to public policy, only when the weaker party is imposed upon in dealing with the dominant bargaining party and is reduced to the alternative of taking it or leaving it, completely deprived of the opportunity to bargain on equal footing. 21 And when it has been shown that the complainant is knowledgeable enough to have understood the terms and conditions of the contract, or one

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whose stature is such that he is expected to be more prudent and cautious with respect to his transactions, such party cannot later on be heard to complain for being ignorant or having been forced into merely consenting to the contract. 22 The factual backdrop of the instant case, however, militates against applying the aforestated pronouncements. That petitioner failed to discharge its obligation to transmit private respondent's telegraphic transfer on time in accordance with their agreement is already a settled matter as the same is no longer disputed in this petition. Neither is the finding of respondent Court of Appeals that petitioner acted fraudulently and in bad faith in the performance of its obligation, being contested by petitioner. Perforce, we are bound by these factual considerations. Having established that petitioner acted fraudulently and in bad faith, we find it implausible to absolve petitioner from its wrongful acts on account of the assailed provision exempting it from any liability. In Geraldez vs. Court of Appeals, 23 it was unequivocally declared that notwithstanding the enforceability of a contractual limitation, responsibility arising from a fraudulent act cannot be exculpated because the same is contrary to public policy. Indeed, Article 21 of the Civil Code is quite explicit in providing that "[a]ny person who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage". Freedom of contract is subject to the limitation that the agreement must not be against public policy and any agreement or contract made in violation of this rule is not binding and will not be enforced. 24 The prohibition against this type of contractual stipulation is moreover treated by law as void which may not be ratified or waived by a contracting party. Article 1409 of the Civil Code states:
Art. 1409. The following contracts are inexistent and void from the beginning: (1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy; xxx xxx xxx These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.

Undoubtedly, the services being offered by a banking institution like petitioner are imbued with public interest. 25 The use of telegraphic transfers have now become commonplace among businessmen because it facilitates commercial transactions. Any attempt to completely exempt one of the contracting parties from any liability in case of loss notwithstanding its bad faith, fault or negligence, as in the instant case, cannot be sanctioned for being inimical to public interest and therefore contrary to public policy. Resultingly, there being no dispute that petitioner acted fraudulently and in bad faith, the award of moral 26 and exemplary damages were proper. But notwithstanding petitioner's liability for the resulting loss and damage to private respondent, we find the amount of moral damages adjudged by respondent court in the sum of P400,000.00 exorbitant. Bearing in mind that moral damages are awarded, not to penalize the wrongdoer, but rather to compensate the claimant for the injuries that he may have suffered, 27 we believe that an award of Two Hundred Thousand Pesos (P200,000.00) is reasonable under the circumstances. WHEREFORE, subject to the foregoing modification reducing the amount awarded as moral damages to the sum of Two Hundred Thousand Pesos (P200,000.00), the appealed decision is hereby AFFIRMED. SO ORDERED.
Narvasa, Davide, Jr., Melo and Panganiban, JJ., concur.

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SECOND DIVISION

G.R. No. 118492

August 15, 2001

GREGORIO H. REYES and CONSUELO PUYAT-REYES, petitioners, vs. THE HON. COURT OF APPEALS and FAR EAST BANK AND TRUST COMPANY, respondents.

DE LEON, JR., J.:

Before us is a petition for review of the Decision1 dated July 22, 1994 and Resolution2 dated December 29, 1994 of the Court of Appeals3 affirming with modification the Decision4 dated November 12, 1992 of the Regional Trial Court of Makati, Metro Manila, Branch 64, which dismissed the complaint for damages of petitioners spouses Gregorio H. Reyes and Consuelo Puyat-Reyes against respondent Far East Bank and Trust Company. The undisputed facts of the case are as follows: In view of the 20th Asian Racing Conference then scheduled to be held in September, 1988 in Sydney, Australia, the Philippine Racing Club, Inc. (PRCI, for brevity) sent four (4) delegates to the said conference. Petitioner Gregorio H. Reyes, as vice-president for finance, racing manager, treasurer, and director of PRCI, sent Godofredo Reyes, the club's chief cashier, to the respondent bank to apply for a foreign exchange demand draft in Australian dollars. Godofredo went to respondent bank's Buendia Branch in Makati City to apply for a demand draft in the amount One Thousand Six Hundred Ten Australian Dollars (AU$1,610.00) payable to the order of the 20th Asian Racing Conference Secretariat of Sydney, Australia. He was attended to by respondent bank's assistant cashier, Mr. Yasis, who at first denied the application for the reason that respondent bank did not have an Australian dollar account in any bank in Sydney. Godofredo asked if there could be a way for respondent bank to accommodate PRCI's urgent need to remit Australian dollars to Sydney. Yasis of respondent bank then informed Godofredo of a roundabout way of effecting the requested remittance to Sydney thus: the respondent bank would draw a demand draft against Westpac Bank in Sydney, Australia (Westpac-Sydney for brevity) and have the latter reimburse itself from the U.S. dollar account of the respondent in Westpac Bank in New York, U.S.A. (Westpac-New York for brevity). This arrangement has been customarily resorted to since the 1960's and the procedure has proven to be problem-free. PRCI and the petitioner Gregorio H. Reyes, acting through Godofredo, agreed to this arrangement or approach in order to effect the urgent transfer of Australian dollars payable to the Secretariat of the 20th Asian Racing Conference. On July 28, 1988, the respondent bank approved the said application of PRCI and issued Foreign Exchange Demand Draft (FXDD) No. 209968 in the sum applied for, that is, One Thousand Six Hundred Ten Australian Dollars (AU$ 1,610.00), payable to the order of the 20th Asian Racing Conference Secretariat of Sydney, Australia, and addressed to Westpac-Sydney as the drawee bank.1wphi1.nt On August 10, 1988, upon due presentment of the foreign exchange demand draft, denominated as FXDD No. 209968, the same was dishonored, with the notice of dishonor stating the following: "xxx No account held with Westpac." Meanwhile, on August 16, 1988, Wespac-New York sent a cable to respondent bank informing the latter that its dollar account in the sum of One Thousand Six Hundred Ten Australian Dollars (AU$ 1,610.00) was debited. On August 19, 1988, in response to PRCI's complaint about the dishonor of the said foreign exchange demand draft, respondent bank informed Westpac-Sydney of the issuance of the said demand draft FXDD No. 209968, drawn against the Wespac-Sydney and informing the latter to be reimbursed from the respondent bank's dollar account in Westpac-New York. The respondent bank on the same day likewise informed Wespac-New York requesting the latter to honor the reimbursement claim of Wespac-Sydney. On September 14, 1988, upon its second presentment for payment, FXDD No. 209968 was again dishonored by Westpac-Sydney for the same reason, that is, that the respondent bank has no deposit dollar account with the drawee Wespac-Sydney. On September 17, 1988 and September 18, 1988, respectively, petitioners spouses Gregorio H. Reyes and Consuelo Puyat-Reyes left for Australia to attend the said racing conference. When petitioner Gregorio H. Reyes arrived in Sydney in the morning of September 18, 1988, he went directly to the lobby of Hotel Regent Sydney to register as a conference delegate. At the registration desk, in the presence of other delegates from various member of the conference secretariat that he could not register because the foreign exchange demand draft for his registration fee had been dishonored for the second time. A discussion ensued in the presence and within the hearing of many delegates who were also registering. Feeling terribly embarrassed and humiliated, petitioner Gregorio H. Reyes asked the lady member of the conference secretariat that he be shown the subject foreign exchange demand draft that had been dishonored as well as the covering letter after which he promised that he would pay the registration fees in cash. In the meantime he demanded that he be given his name plate and conference kit. The lady member of the conference secretariat relented and gave him his name plate and conference kit. It was only two (2) days later, or on September 20, 1988, that he was given the dishonored demand draft and a covering letter. It was then that he actually paid in cash the registration fees as he had earlier promised. Meanwhile, on September 19, 1988, petitioner Consuelo Puyat-Reyes arrived in Sydney. She too was embarassed and humiliated at the registration desk of the conference secretariat when she was told in the presence and within the hearing of other delegates that she could not be registered due to the dishonor of the subject foreign exchange demand draft. She felt herself trembling and unable to look at the people around her. Fortunately, she saw her husband, coming toward her. He saved the situation for her by telling the secretariat member that he had already arranged for the payment of the registration fee in cash once he was shown the dishonored demand draft. Only then was petitioner Puyat-Reyes given her name plate and conference kit. At the time the incident took place, petitioner Consuelo Puyat-Reyes was a member of the House of Representatives representing the lone Congressional District of Makati, Metro Manila. She has been an officer of the Manila Banking Corporation and was cited by

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Archbishop Jaime Cardinal Sin as the top lady banker of the year in connection with her conferment of the Pro-Ecclesia et Pontifice Award. She has also been awarded a plaque of appreciation from the Philippine Tuberculosis Society for her extraordinary service as the Society's campaign chairman for the ninth (9th) consecutive year. On November 23, 1988, the petitioners filed in the Regional Trial Court of Makati, Metro Manila, a complaint for damages, docketed as Civil Case No. 88-2468, against the respondent bank due to the dishonor of the said foreign exchange demand draft issued by the respondent bank. The petitioners claim that as a result of the dishonor of the said demand draft, they were exposed to unnecessary shock, social humiliation, and deep mental anguish in a foreign country, and in the presence of an international audience. On November 12, 1992, the trial court rendered judgment in favor of the defendant (respondent bank) and against the plaintiffs (herein petitioners), the dispositive portion of which states: WHEREFORE, judgment is hereby rendered in favor of the defendant, dismissing plaintiff's complaint, and ordering plaintiffs to pay to defendant, on its counterclaim, the amount of P50,000.00, as reasonable attorney's fees. Costs against the plaintiff. SO ORDERED.5 The petitioners appealed the decision of the trial court to the Court of Appeals. On July 22, 1994, the appellate court affirmed the decision of the trial court but in effect deleted the award of attorney's fees to the defendant (herein respondent bank) and the pronouncement as to the costs. The decretal portion of the decision of the appellate court states: WHEREFORE, the judgment appealed from, insofar as it dismissed plaintiff's complaint, is hereby AFFIRMED, but is hereby REVERSED and SET ASIDE in all other respect. No special pronouncement as to costs. SO ORDERED.6 According to the appellate court, there is no basis to hold the respondent bank liable for damages for the reason that it exerted every effort for the subject foreign exchange demand draft to be honored. The appellate court found and declared that: xxx xxx xxx

Thus, the Bank had every reason to believe that the transaction finally went through smoothly, considering that its New York account had been debited and that there was no miscommunication between it and Westpac-New York. SWIFT is a world wide association used by almost all banks and is known to be the most reliable mode of communication in the international banking business. Besides, the above procedure, with the Bank as drawer and Westpac-Sydney as drawee, and with Westpac-New York as the reimbursement Bank had been in place since 1960s and there was no reason for the Bank to suspect that this particular demand draft would not be honored by Westpac-Sydney. From the evidence, it appears that the root cause of the miscommunications of the Bank's SWIFT message is the erroneous decoding on the part of Westpac-Sydney of the Bank's SWIFT message as an MT799 format. However, a closer look at the Bank's Exhs. "6" and "7" would show that despite what appears to be an asterick written over the figure before "99", the figure can still be distinctly seen as a number "1" and not number "7", to the effect that Westpac-Sydney was responsible for the dishonor and not the Bank. Moreover, it is not said asterisk that caused the misleading on the part of the Westpac-Sydney of the numbers "1" to "7", since Exhs. "6" and "7" are just documentary copies of the cable message sent to Wespac-Sydney. Hence, if there was mistake committed by Westpac-Sydney in decoding the cable message which caused the Bank's message to be sent to the wrong department, the mistake was Westpac's, not the Bank's. The Bank had done what an ordinary prudent person is required to do in the particular situation, although appellants expect the Bank to have done more. The Bank having done everything necessary or usual in the ordinary course of banking transaction, it cannot be held liable for any embarrassment and corresponding damage that appellants may have incurred.7 xxx Hence, this petition, anchored on the following assignment of errors: I THE HONORABLE COURT OF APPEALS ERRED IN FINDING PRIVATE RESPONDENT NOT NEGLIGENT BY ERRONEOUSLY APPLYING THE STANDARD OF DILIGENCE OF AN "ORDINARY PRUDENT PERSON" WHEN IN TRUTH A HIGHER DEGREE OF DILIGENCE IS IMPOSED BY LAW UPON THE BANKS. II xxx xxx

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THE HONORABLE COURT OF APPEALS ERRED IN ABSOLVING PRIVATE RESPONDENT FROM LIABILITY BY OVERLOOKING THE FACT THAT THE DISHONOR OF THE DEMAND DRAFT WAS A BREACH OF PRIVATE RESPONDENT'S WARRANTY AS THE DRAWER THEREOF. III THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT AS SHOWN OVERWHELMINGLY BY THE EVIDENCE, THE DISHONOR OF THE DEMAND DRAFT AS DUE TO PRIVATE RESPONDENT'S NEGLIGENCE AND NOT THE DRAWEE BANK.8 The petitioners contend that due to the fiduciary nature of the relationship between the respondent bank and its clients, the respondent should have exercised a higher degree of diligence than that expected of an ordinary prudent person in the handling of its affairs as in the case at bar. The appellate court, according to petitioners, erred in applying the standard of diligence of an ordinary prudent person only. Petitioners also claim that the respondent bank violate Section 61 of the Negotiable Instruments Law9 which provides the warranty of a drawer that "xxx on due presentment, the instrument will be accepted or paid, or both, according to its tenor xxx." Thus, the petitioners argue that respondent bank should be held liable for damages for violation of this warranty. The petitioners pray this Court to re-examine the facts to cite certain instances of negligence. It is our view and we hold that there is no reversible error in the decision of the appellate court. Section 1 of Rule 45 of the Revised Rules of Court provides that "(T)he petition (for review) shall raise only questions of law which must be distinctly set forth." Thus, we have ruled that factual findings of the Court of Appeals are conclusive on the parties and not reviewable by this Court and they carry even more weight when the Court of Appeals affirms the factual findings of the trial court.10 The courts a quo found that respondent bank did not misrepresent that it was maintaining a deposit account with Westpac-Sydney. Respondent bank's assistant cashier explained to Godofredo Reyes, representing PRCI and petitioner Gregorio H. Reyes, how the transfer of Australian dollars would be effected through Westpac-New York where the respondent bank has a dollar account to Westpac-Sydney where the subject foreign exchange demand draft (FXDD No. 209968) could be encashed by the payee, the 20th Asian Racing Conference Secretariat. PRCI and its Vice-President for finance, petitioner Gregorio H. Reyes, through their said representative, agreed to that arrangement or procedure. In other words, the petitioners are estopped from denying the said arrangement or procedure. Similar arrangements have been a long standing practice in banking to facilitate international commercial transactions. In fact, the SWIFT cable message sent by respondent bank to the drawee bank, Westpac-Sydney, stated that it may claim reimbursement from its New York branch, Westpac-New York, where respondent bank has a deposit dollar account. The facts as found by the courts a quo show that respondent bank did not cause an erroneous transmittal of its SWIFT cable message to WestpacSydney. It was the erroneous decoding of the cable message on the part of Westpac-Sydney that caused the dishonor of the subject foreign exchange demand draft. An employee of Westpac-Sydney in Sydney, Australia mistakenly read the printed figures in the SWIFT cable message of respondent bank as "MT799" instead of as "MT199". As a result, Westpac-Sydney construed the said cable message as a format for a letter of credit, and not for a demand draft. The appellate court correct found that "the figure before '99' can still be distinctly seen as a number '1' and not number '7'." Indeed, the line of a "7" is in a slanting position while the line of a "1" is in a horizontal position. Thus, the number "1" in "MT199" cannot be construed as "7".11 The evidence also shows that the respondent bank exercised that degree of diligence expected of an ordinary prudent person under the circumstances obtaining. Prior to the first dishonor of the subject foreign exchange demand draft, the respondent bank advised Westpac-New York to honor the reimbursement claim of Westpac-Sydney and to debit the dollar account 12 of respondent bank with the former. As soon as the demand draft was dishonored, the respondent bank, thinking that the problem was with the reimbursement and without any idea that it was due to miscommunication, re-confirmed the authority of Westpac-New York to debit its dollar account for the purpose of reimbursing Westpac-Sydney.13 Respondent bank also sent two (2) more cable messages to Westpac-New York inquiring why the demand draft was not honored.14 With these established facts, we now determine the degree of diligence that banks are required to exert in their commercial dealings. In Philippine Bank of Commerce v. Court of Appeals15 upholding a long standing doctrine, we ruled that the degree of diligence required of banks, is more than that of a good father of a family where the fiduciary nature of their relationship with their depositors is concerned. In other words banks are duty bound to treat the deposit accounts of their depositors with the highest degree of care. But the said ruling applies only to cases where banks act under their fiduciary capacity, that is, as depositary of the deposits of their depositors. But the same higher degree of diligence is not expected to be exerted by banks in commercial transactions that do not involve their fiduciary relationship with their depositors. Considering the foregoing, the respondent bank was not required to exert more than the diligence of a good father of a family in regard to the sale and issuance of the subject foreign exchange demand draft. The case at bar does not involve the handling of petitioners' deposit, if any, with the respondent bank. Instead, the relationship involved was that of a buyer and seller, that is, between the respondent bank as the seller of the subject foreign exchange demand draft, and PRCI as the buyer of the same, with the 20th Asian Racing conference Secretariat in Sydney, Australia as the payee thereof. As earlier mentioned, the said foreign exchange demand draft was intended for the payment of the registration fees of the petitioners as delegates of the PRCI to the 20 th Asian Racing Conference in Sydney. The evidence shows that the respondent bank did everything within its power to prevent the dishonor of the subject foreign exchange demand draft. The erroneous reading of its cable message to Westpac-Sydney by an employee of the latter could not have been foreseen by the respondent bank. Being unaware that its employee erroneously read the said cable message, Westpac-Sydney merely stated that the respondent bank has no deposit account with it to cover for the amount of One Thousand Six Hundred Ten Australian Dollar (AU $1610.00) indicated in the foreign exchange demand draft. Thus, the respondent bank had the impression that Westpac-New York had not yet made available the amount for reimbursement to Westpac-Sydney despite the fact that respondent bank has a sufficient deposit dollar account with Westpac-New York. That was the reason why the respondent bank had to re-confirm

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and repeatedly notify Westpac-New York to debit its (respondent bank's) deposit dollar account with it and to transfer or credit the corresponding amount to Westpac-Sydney to cover the amount of the said demand draft. In view of all the foregoing, and considering that the dishonor of the subject foreign exchange demand draft is not attributable to any fault of the respondent bank, whereas the petitioners appeared to be under estoppel as earlier mentioned, it is no longer necessary to discuss the alleged application of Section 61 of the Negotiable Instruments Law to the case at bar. In any event, it was established that the respondent bank acted in good faith and that it did not cause the embarrassment of the petitioners in Sydney, Australia. Hence, the Court of Appeals did not commit any reversable error in its challenged decision. WHEREFORE, the petition is hereby DENIED, and the assailed decision of the Court of Appeals is AFFIRMED. Costs against the petitioners. SO ORDERED.
Bellosillo, Mendoza, Quisumbing, and Buena, JJ., concur.

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EN BANC

G.R. No. L-23307

June 30, 1967

DAMASO P. PEREZ and REPUBLIC BANK, ETC., ET AL., petitioners-appellants, vs. MONETARY BOARD, THE SUPERINTENDENT OF BANKS, CENTRAL BANK OF THE PHILIPPINES and SECRETARY OF JUSTICE, respondents-appellees. AURORA R. RECTO, MIGUEL CANIZARES, LEON ANCHETA, PABLO ROMAN, VICTORIA B. ROMAN and NORBERTO J. QUISUMBING, intervenors-appellees.

C. D. Baizas and Associates and Halili, Bolinao and Associates for petitioners-appellants. Natalio M. Balboa, F. E. Evangelista and Severo Malvar for respondent-appellee Central Bank. Office of the Solicitor General Arturo A. Alafriz and Solicitor C. S. Gaddi for respondent-appellee Secretary of Justice. N. J. Quisumbing and E. Quisumbing-Fernando for intervenors-appellees.

BENGZON, J.P., J.:

Petitioner-appellant Damaso P. Perez, for himself and in a derivative capacity on behalf of the Republic Bank, instituted mandamus proceedings in the Court of First Instance of Manila on June 23, 1962, against the Monetary Board, the Superintendent of Banks, the Central Bank and the Secretary of Justice. His object was to compel these respondents to prosecute, among others, Pablo Roman and several other Republic Bank officials for violations of the General Banking Act (specifically secs. 76-78 and 83 thereof) and the Central Bank Act, and for falsification of public or commercial documents in connection with certain alleged anomalous loans amounting to P1,303,400.00 authorized by Roman and the other bank officials. Respondents assailed, in their respective answers, the propriety of mandamus. The Secretary of Justice claimed that it was not their specific duty to prosecute the persons denounced by Perez. The Central Bank and its respondent officials, on the other hand, averred that they had already done their duty under the law by referring to the special prosecutors of the Department of Justice for criminal investigation and prosecution those cases involving the alleged anomalous loans.1 On July 10, 1962, respondents moved for the dismissal of the petition for lack of cause of action. Petitioners opposed. The lower court denied the motion. Subsequently, herein intervenors-appellees, as the incumbent directors of the Board of the Republic Bank, filed motion to intervene in the proceedings. Petitioners opposed the motion but the lower court approved the same. On January 20, 1964, the Monetary Board of the Central Bank passed Resolution No. 81 granting the request of Republic Bank for credit accommodations to cover the unusual withdrawal of deposits by its depositors in view of the fact that said Bank was under investigation then by the authorities. The grant, however, was conditioned upon the execution by the management and controlling stockholders of the Republic Bank of a voting trust agreement in favor of a Board of Trustees to be chosen by the latter with the approval of the Central Bank. Pursuant to this resolution, Pablo Roman and his family, is the controlling stockholders of Republic Bank, executed a voting trust agreement in favor of a board of trustees composed of former Chief Justice Ricardo Paras, Hon. Miguel Cuaderno and Mr. Felix de la Costa. Subsequently, or on March 13, 1964, this agreement was superseded by another one with the Philippine National Bank as the trustee.2 In view of these developments, the intervenors-appellees filed a motion to dismiss before the lower court claiming that the ouster of Pablo Roman and his family from the management of the Republic Bank effected by the voting trust agreement rendered the mandamus case moot and academic. Respondents-appellees also filed motion to dismiss in which they again raised the impropriety of mandamus. Acting upon the two motions and the oppositions thereto filed by petitioners, the lower court granted the motions and dismissed the case. Hence, this appeal. Appellants, contending that the ouster of Pablo Roman from Republic Bank's management and control has not altered or rendered moot the issues in the case, argue that the remedy of mandamus lies3 to compel respondents to prosecute the aforementioned Pablo Roman and company. Addressing Ourselves directly to this issue raised on the propriety of the petition for mandamus, We rule that petitioners cannot seek by mandamus to compel respondents to prosecute criminally those alleged violators of the banking laws. Although the Central Bank and its respondent officials may have the duty under the Central Bank Act and the General Banking Act to cause the prosecution of those alleged violators, yet We find nothing in said laws that imposes a clear, specific duty on the former to do the actual prosecution of the latter. The Central Bank is a government corporation created principally to administer the monetary and banking system of the Republic,4 not a prosecution agency5 like the fiscal's office. Being an artificial person, The Central Bank is limited to its statutory powers and the nearest power to which prosecution of violators of banking laws may be attributed is its power to sue and be sued.6 But this corporate power of litigation evidently refers to civil cases only.1wph1.t The Central Bank and its respondent officials have already done all they could, within the confines of their powers, to cause the prosecution of those persons denounced by Perez. Annexes 5 to 7-C CBP of respondents' answer and even petitioners' opposition to the first motion to dismiss7 show that the cases of the alleged anomalous loans had already been referred by the Central Bank to the special prosecutors of the Department of Justice for criminal investigation and prosecution. For respondents to do the actual prosecuting themselves, as petitioners would have it, would be tantamount to an ultra vires act already. As for the Secretary of Justice, while he may have the power to prosecute through the office of the Solicitor General criminal cases, yet it is settled rule that mandamus will not lie to compel a prosecuting officer to prosecute a criminal case in court.8

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Moreover, it does not appear from the law that only the Central Bank or its respondent officials can cause the prosecution of alleged violations of banking laws. Said violations constitute a public offense, the prosecution of which is a matter of public interest and hence, anyone even private individuals can denounce such violations before the prosecuting authorities. Since Perez himself could cause the filing of criminal complaints against those allegedly involved in the anomalous loans, if any, then he has a plain, adequate and speedy remedy in the ordinary course of law, which makes mandamus against respondents improper. But petitioners-appellants would insist that the impropriety of mandamus could no longer be raised before the lower court for the second time since it had already been invoked in previous motion to dismiss which was denied. This is untenable. The lower court was not estopped from changing its opinion while it was under its jurisdiction to do so and on the same ground of lack of cause of action raised before, because the former order was purely interlocutory and thus remained constantly subject to alteration, modification or reversal by it before the rendition of final judgment on its merits.9 Wherefore, the order of dismissal appealed from is, as it is hereby, affirmed. Costs against petitioner-appellant Perez. So ordered
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez and Castro JJ., concur.

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THIRD DIVISION

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 certiorari under Rule 45 of the Rules of Court, to set aside the Decision promulgated January 14, 1994 of the respondent Court of Appeals1 in CA-G.R CV No. 35756 and the Resolution 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's2 decision dated July 10, 1991, on the other hand, is as 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. T106932 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 ponente for the writing of this Decision. The Parties

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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 Decision3 as follows: (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. T106932 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. T-106932 T-106933 T-106934 T-106935 T-106936 T-106937 AREA 113,580 sq. m. 70,899 sq. m. 52,246 sq. m. 96,768 sq. m. 187,114 sq. m. 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., Doa Andres II Rosario, Pasig, Metro Manila Attention: JOSE O. JANOLO

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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.

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(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.

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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"4 In his answer, Janolo argued that the 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."5 Private respondent, in his memorandum, averred that this motion is still pending in the Makati RTC. In their Petition6 and Memorandum7, petitioners summarized their position as follows: 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 ground8 that: 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:

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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
11

that there is no forum-shopping because:

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 was plaintiff; 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.12, where non-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 13 says that forum shopping "occurs when a party attempts to have 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 Phrases14, "a litigant is open to the charge of "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

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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 2891. 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 16 the 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 . . ." 17 when does forum shopping take place? 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 19, also by Chief Justice Narvasa, and that is, forum 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 20 (or more) complaints or petitions, and for imposition of the 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 21 in the Second Case seeks to declare such purported sale involving the same real 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. 22, this Court ruled that the filing by a party of two apparently different actions, 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).

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23

In an earlier case

but with the same logic and vigor, we held:

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" 24. Indeed, this is the very essence of a derivative 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 26 where the corporate fiction has been disregarded, we now add the 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., 27 where Court held: 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.

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Indeed, by praying for affirmative reliefs and interposing counterclaims 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.

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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, 583584; 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." 30 They disputed the 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 Appeals31, where it was held that: 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).

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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.32, the Court, 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 34 .They disputed the respondent 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)", citing the late Justice Paras35, Art. 1319 of the Civil Code 36 and related Supreme Court rulings starting with Beaumont vs. Prieto 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." 38 However, both the trial court and the Court of Appeals found petitioners' testimonial evidence "not credible", and we find no basis for changing this finding of fact.

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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)"39. Hence, 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 alleged42: 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;

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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.

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[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.

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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 44 . If the legislature itself cannot revoke an existing valid contract, how can 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, 45, we held: . . . 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. L27488, 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. 144145.] Likewise, in Bernardo vs. Court of Appeals
46

, we held:

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. 48 is equally applicable to the present case:

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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, citing Philippine National Bank vs. Court of Appeals 49, petitioners are asking us to review and reverse such factual findings. The first point was clearly passed upon by the Court of Appeals
50

, thus:

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 51, such suppression gives rise to the presumption that his testimony 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 52. We have studied both the records and the CA Decision and we find no such 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

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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 54. That the Bank procrastinated 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.
Narvasa, C.J., Davide Jr., Melo and Francisco, JJ., concur.

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THIRD DIVISION

G.R. No. 162270. April 06, 2005

ABACUS REAL ESTATE DEVELOPMENT CENTER, INC., Petitioners, vs. THE MANILA BANKING CORPORATION, Respondents.

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.

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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 complaint3 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.

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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.

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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 Appeals12 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 socalled "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 Act15 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.
Panganiban, (Chairman), Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.

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THIRD DIVISION

A.C. No. 6377

March 12, 2007

RUFA C. SUAN, Complainant, vs. ATTY. RICARDO D. GONZALEZ, Respondent.

DECISION

YNARES-SANTIAGO, J.:

The instant administrative complaint filed by Rufa C. Suan charges respondent Atty. Ricardo D. Gonzalez with violation of the Code of Professional Responsibility, perjury and forum shopping, and prays for his suspension or disbarment. Complainant is a Director and Vice President of Rural Green Bank of Caraga, Inc., a rural banking corporation with principal place of business at Montilla Blvd., Butuan City, while respondent is one of its stockholders. The antecedent facts are as follows: On February 11, 2004, respondent filed a case for Mandamus, Computation of Interests, Enforcement of Inspection, Dividend and Appraisal Rights, Damages and Attorneys Fees against the Rural Green Bank of Caraga, Inc. and the members of its Board of Directors before the Regional Trial Court (RTC) of Butuan City, Branch 33, praying, inter alia, that a temporary restraining order be issued enjoining the conduct of the annual stockholders meeting and the holding of the election of the Board of Directors. On February 14, 2004, the trial court issued a temporary restraining order (TRO) conditioned upon respondents posting of a bond. Thereafter, respondent submitted JCL Bond No. 01626 issued by Stronghold Insurance Company, Incorporated (SICI) together with a Certification issued by then Court Administrator, now Associate Justice, Presbitero J. Velasco, Jr. that, according to the Clerk of Court of the Municipal Trial Court in Cities (MTCC) of Butuan City, SICI has no pending obligation and/or liability to the government insofar as confiscated bonds in civil and criminal cases are concerned. Based on the foregoing, Suan filed this complaint alleging that respondent engaged in unlawful, dishonest, immoral or deceitful conduct when he submitted the certification to the RTC despite knowing that the same is applicable only for transactions before the MTCC; and that the bond was defective because it was released by SICI despite respondents failure to put up the required P100,000.00 collateral. Suan also claimed that in the complaint filed by respondent, together with Eduardo, Purisima, Ruben, and Manuel, all surnamed Tan, before the Bangko Sentral ng Pilipinas (BSP) against Ismael E. Andaya and the members of the Board of Directors of the Rural Green Bank of Caraga, Inc. for alleged gross violation of the principles of good corporate governance, they represented themselves as the banks minority stockholders with a total holdings amounting to more or less P5 million while the controlling stockholders own approximately 80% of the authorized capital stock. Suan averred that respondent committed perjury because the above allegations were allegedly inconsistent with respondents averments in the complaint pending before the RTC where he claimed that the majority stockholders own 70% ( and not 80%) of the outstanding capital stock of the Rural Green Bank of Caraga, Inc. while the minority stockholders stake amounted to P6 million (and not P5 million). Complainant finally claimed that respondent is guilty of forum shopping because the causes of action of the cases he filed before the RTC and the Bangko Sentral ng Pilipinas are the same. Respondent denied the allegations against him. He alleged that it was the bonding company which inadvertently attached the certification pertaining to the MTCC; that when he discovered the inadvertence, he immediately filed with the RTC an ex-parte motion to replace the certification with the one pertaining to the RTC; that he had satisfactorily complied with the requirements of SICI as shown in the letter of Ms. Evelyn R. Ramirez, SICIs Officer-in-Charge, dated March 19, 2004; that there is no inconsistency in the allegations contained in the complaints pending before the RTC and the Bangko Sentral ng Pilipinas thus he could not be held liable for perjury; that there is no forum shopping because the causes of action and the reliefs prayed for in the cases pending before the trial court and the Bangko Sentral ng Pilipinas are different; and that it is complainant who is guilty of forum shopping since this is the second disbarment suit that she filed against him. In her Reply, complainant insisted that she is not guilty of forum shopping; that she only filed one disbarment suit against respondent while the other two suits were filed by Joseph Omar Andaya and Dr. Arturo Cruz based on different acts committed by the respondent. On December 1, 2004, the instant administrative complaint was referred to the Integrated Bar of the Philippines (IBP) for investigation, report and recommendation. After the mandatory conference, the parties were directed to submit their respective position papers. In a Report and Recommendation dated September 20, 2005, the Investigating Commissioner recommended that the administrative complaint be dismissed because complainant failed to prove by strong and substantial evidence the imputations of dishonesty against the respondent. In its Resolution dated December 17, 2005, the Board of Governors of the IBP approved the dismissal of the complaint.

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Complainant is now before us on appeal praying for the reversal and setting aside of the assailed Resolution arguing that it failed to state clearly the facts and the reasons on which it is based and that the evidence she presented were ignored and not considered. Complainant maintains that contrary to the findings of the IBP, respondents act of submitting a wrong certification to the RTC, relative to SICIs capacity to issue bonds, was deliberate and with intent to mislead, thereby constituting a violation of the Code of Professional Responsibility. She claims that respondent who is interested in the issuance of a temporary restraining order is expected to examine all the documents as well as the attachments, hence there is no reason why he would "inadvertently" attach the certification intended for the MTCC. We are not persuaded. Complainants insistence that respondent deliberately attached the MTCC certification instead of the RTC certification lacks merit. We are inclined to believe the findings of the IBP that the MTCC certification was inadvertently attached and that it was not deliberate. Indeed, respondent as well as every litigant is expected to examine all the documents he files in court. However, not every mistake or oversight he commits should be deemed dishonest, deceitful or deliberate so as to mislead the court. Respondent has nothing to gain by submitting the wrong certification. On the contrary, he runs the risk that his complaint be dismissed or denied outright. There is no reason for respondent, or even the bonding company, to attach the wrong certification as the latter was equally qualified to issue bonds in civil or criminal cases pending before the RTC. Further, what militates against complainants insistence that the filing of the wrong certification was deliberate and with intent to deceive was the fact that after respondent knew of the inadvertence he immediately filed a manifestation with motion that the same be replaced with the certification applicable to the RTC. It is well-settled that in disbarment proceedings, the burden of proof rests upon the complainant and the case against the respondent must be established by clear, convincing and satisfactory proof. Considering the serious consequence of the disbarment or suspension of a member of the Bar, this Court has consistently held that clear preponderant evidence is necessary to justify the imposition of the administrative penalty.1 In the instant case, complainant Suan failed to show that respondent willfully and deliberately resorted to falsehood and unlawful and dishonest conduct. She failed to show not only the dubious character of the act done but the motivation as well.2 Complainant next claims that the injunction bond was wrongfully released to respondent by SICI as the latter failed to put up the required collateral, as shown in the February 28, 2004 letter of Evelyn R. Ramirez which the IBP allegedly ignored. She also insists that protesting the propriety of the bond before the trial court is not a pre-requisite to the filing of the instant administrative complaint. Besides, she argues that it would have been futile to file a protest before the trial court considering that she knew of the defects in the issuance of the injunction bond long after the bond has expired. The argument is without merit. The IBP correctly disregarded the February 28, 2004 letter of Ramirez considering that on March 19, 2004, Ramirez wrote another letter to the trial court informing the latter of respondents compliance with the required collateral. Anent the allegation of perjury, the same is likewise bereft of merit. In the case of Villanueva v. Secretary of Justice,3 the Court held that a mere assertion of a false, objective fact, a falsehood, is not enough to warrant a finding of perjury, thus: There are two essential elements of proof for perjury: (1) the statement made by the defendants must be proven false; and (2) it must be proven that the defendant did not believe those statements to be true. xxxx A conviction for perjury cannot be sustained merely upon the contradictory sworn statements of the accused. The prosecution must prove which of the two statements is false and must show the statement to be false by other evidence than the contradicting statement.4 (Emphasis supplied) Thus, it is necessary that there must be contradictory statements for perjury to exist. In the instant case, we find that respondent made no contradicting statements. Indeed, he alleged in the complaint before the Bangko Sentral ng Pilipinas that the minority stockholders own more or less P5 million while the controlling stockholders own approximately 80% of the authorized capital stock. These figures are mere estimates and in no way contradict respondents allegations in the complaint pending before the RTC that the minoritys stake is P6 million while the majoritys stockholdings is 70% of the outstanding capital stock. Besides, for perjury to prosper it is necessary that complainant prove the falsity of the statements and that respondent did not believe any of the statements to be true. We find that complainant failed to meet the required standard of proof to sustain the charge of perjury. The IBP correctly noted that no malice was shown when respondent made the foregoing allegations and that respondents failure to allege the exact shareholdings was due to the banks refusal to allow respondent to inspect the books. We agree with the findings of the IBP that there is no forum shopping. The essence of forum shopping is the filing of multiple suits involving the same parties for the same cause of action, either simultaneously or successively, for the purpose of obtaining a favorable judgment.5 There is forum shopping when, between an action pending before this Court and another one, there exist: a) identity of parties, or at least such parties as represent the same interests in both actions, b) identity of rights asserted and relief prayed for, the relief being founded on the same facts, and c) the identity of the two preceding particulars is such that any judgment

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rendered in the other action, will, regardless of which party is successful amount to res judicata in the action under consideration; and said requisites also constitutive of lis pendens.6 The filing of the intra-corporate case before the RTC does not amount to forum-shopping. It is a formal demand of respondents legal rights in a court of justice in the manner prescribed by the court or by the law with respect to the controversy involved. 7 The relief sought in the case is primarily to compel the bank to disclose its stockholdings, to allow them the inspection of corporate books and records, and the payment of damages. It was also prayed that a TRO be issued to enjoin the holding of the annual stockholders meeting and the election of the members of the Board, which, only courts of justice can issue. On the other hand, the complaint filed with the Bangko Sentral ng Pilipinas was an invocation of the BSPs supervisory powers over banking operations which does not amount to a judicial proceeding. It brought to the attention of the BSP the alleged questionable actions of the banks Board of Directors in violation of the principles of good corporate governance. It prayed for the conduct of an investigation over the alleged unsafe and unsound business practices of the bank and to make necessary corrective measures to prevent the collapse of the bank. As such, the two proceedings are of different nature praying for different relief. Likewise, a ruling by the BSP concerning the soundness of the bank operations will not adversely or directly affect the resolution of the intra-corporate controversies pending before the trial court. Furthermore, to merit disciplinary action, forum shopping must be willful and deliberate.8 Section 5, Rule 7 of the Rules of Court requires that, should there be any pending action or claim before any court, tribunal or quasi-judicial agency, a complete statement of its status should be given. The Certification of Non-Forum-shopping attached by respondent substantially complied with this requirement by providing therein that he has also filed a Complaint before the BSP. Likewise, such disclosure negates the allegation that he willfully and deliberately committed forum-shopping. It bears stressing that disbarment proceedings are matters of public interest, undertaken for public welfare and for the purpose of preserving courts of justice from the official ministration of the persons unfit to practice them.9 However, the power to disbar must be exercised with great caution and only in a clear case of misconduct which seriously affects the standing and character of the lawyer as an officer of the Court and member of the bar.10 ACCORDINGLY, we AFFIRM the Resolution dated December 17, 1005, of the Integrated Bar of the Philippines recommending the dismissal of the instant complaint for disbarment/suspension against respondent ATTY. RICARDO D. GONZALEZ for lack of merit. SO ORDERED.
CONSUELO YNARES-SANTIAGO Associate Justice

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THIRD DIVISION

A.C. No. 6377

March 12, 2007

RUFA C. SUAN, Complainant, vs. ATTY. RICARDO D. GONZALEZ, Respondent.

DECISION

YNARES-SANTIAGO, J.:

The instant administrative complaint filed by Rufa C. Suan charges respondent Atty. Ricardo D. Gonzalez with violation of the Code of Professional Responsibility, perjury and forum shopping, and prays for his suspension or disbarment. Complainant is a Director and Vice President of Rural Green Bank of Caraga, Inc., a rural banking corporation with principal place of business at Montilla Blvd., Butuan City, while respondent is one of its stockholders. The antecedent facts are as follows: On February 11, 2004, respondent filed a case for Mandamus, Computation of Interests, Enforcement of Inspection, Dividend and Appraisal Rights, Damages and Attorneys Fees against the Rural Green Bank of Caraga, Inc. and the members of its Board of Directors before the Regional Trial Court (RTC) of Butuan City, Branch 33, praying, inter alia, that a temporary restraining order be issued enjoining the conduct of the annual stockholders meeting and the holding of the election of the Board of Directors. On February 14, 2004, the trial court issued a temporary restraining order (TRO) conditioned upon respondents posting of a bond. Thereafter, respondent submitted JCL Bond No. 01626 issued by Stronghold Insurance Company, Incorporated (SICI) together with a Certification issued by then Court Administrator, now Associate Justice, Presbitero J. Velasco, Jr. that, according to the Clerk of Court of the Municipal Trial Court in Cities (MTCC) of Butuan City, SICI has no pending obligation and/or liability to the government insofar as confiscated bonds in civil and criminal cases are concerned. Based on the foregoing, Suan filed this complaint alleging that respondent engaged in unlawful, dishonest, immoral or deceitful conduct when he submitted the certification to the RTC despite knowing that the same is applicable only for transactions before the MTCC; and that the bond was defective because it was released by SICI despite respondents failure to put up the required P100,000.00 collateral. Suan also claimed that in the complaint filed by respondent, together with Eduardo, Purisima, Ruben, and Manuel, all surnamed Tan, before the Bangko Sentral ng Pilipinas (BSP) against Ismael E. Andaya and the members of the Board of Directors of the Rural Green Bank of Caraga, Inc. for alleged gross violation of the principles of good corporate governance, they represented themselves as the banks minority stockholders with a total holdings amounting to more or less P5 million while the controlling stockholders own approximately 80% of the authorized capital stock. Suan averred that respondent committed perjury because the above allegations were allegedly inconsistent with respondents averments in the complaint pending before the RTC where he claimed that the majority stockholders own 70% ( and not 80%) of the outstanding capital stock of the Rural Green Bank of Caraga, Inc. while the minority stockholders stake amounted to P6 million (and not P5 million). Complainant finally claimed that respondent is guilty of forum shopping because the causes of action of the cases he filed before the RTC and the Bangko Sentral ng Pilipinas are the same. Respondent denied the allegations against him. He alleged that it was the bonding company which inadvertently attached the certification pertaining to the MTCC; that when he discovered the inadvertence, he immediately filed with the RTC an ex-parte motion to replace the certification with the one pertaining to the RTC; that he had satisfactorily complied with the requirements of SICI as shown in the letter of Ms. Evelyn R. Ramirez, SICIs Officer-in-Charge, dated March 19, 2004; that there is no inconsistency in the allegations contained in the complaints pending before the RTC and the Bangko Sentral ng Pilipinas thus he could not be held liable for perjury; that there is no forum shopping because the causes of action and the reliefs prayed for in the cases pending before the trial court and the Bangko Sentral ng Pilipinas are different; and that it is complainant who is guilty of forum shopping since this is the second disbarment suit that she filed against him. In her Reply, complainant insisted that she is not guilty of forum shopping; that she only filed one disbarment suit against respondent while the other two suits were filed by Joseph Omar Andaya and Dr. Arturo Cruz based on different acts committed by the respondent. On December 1, 2004, the instant administrative complaint was referred to the Integrated Bar of the Philippines (IBP) for investigation, report and recommendation. After the mandatory conference, the parties were directed to submit their respective position papers. In a Report and Recommendation dated September 20, 2005, the Investigating Commissioner recommended that the administrative complaint be dismissed because complainant failed to prove by strong and substantial evidence the imputations of dishonesty against the respondent. In its Resolution dated December 17, 2005, the Board of Governors of the IBP approved the dismissal of the complaint.

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Complainant is now before us on appeal praying for the reversal and setting aside of the assailed Resolution arguing that it failed to state clearly the facts and the reasons on which it is based and that the evidence she presented were ignored and not considered. Complainant maintains that contrary to the findings of the IBP, respondents act of submitting a wrong certification to the RTC, relative to SICIs capacity to issue bonds, was deliberate and with intent to mislead, thereby constituting a violation of the Code of Professional Responsibility. She claims that respondent who is interested in the issuance of a temporary restraining order is expected to examine all the documents as well as the attachments, hence there is no reason why he would "inadvertently" attach the certification intended for the MTCC. We are not persuaded. Complainants insistence that respondent deliberately attached the MTCC certification instead of the RTC certification lacks merit. We are inclined to believe the findings of the IBP that the MTCC certification was inadvertently attached and that it was not deliberate. Indeed, respondent as well as every litigant is expected to examine all the documents he files in court. However, not every mistake or oversight he commits should be deemed dishonest, deceitful or deliberate so as to mislead the court. Respondent has nothing to gain by submitting the wrong certification. On the contrary, he runs the risk that his complaint be dismissed or denied outright. There is no reason for respondent, or even the bonding company, to attach the wrong certification as the latter was equally qualified to issue bonds in civil or criminal cases pending before the RTC. Further, what militates against complainants insistence that the filing of the wrong certification was deliberate and with intent to deceive was the fact that after respondent knew of the inadvertence he immediately filed a manifestation with motion that the same be replaced with the certification applicable to the RTC. It is well-settled that in disbarment proceedings, the burden of proof rests upon the complainant and the case against the respondent must be established by clear, convincing and satisfactory proof. Considering the serious consequence of the disbarment or suspension of a member of the Bar, this Court has consistently held that clear preponderant evidence is necessary to justify the imposition of the administrative penalty.1 In the instant case, complainant Suan failed to show that respondent willfully and deliberately resorted to falsehood and unlawful and dishonest conduct. She failed to show not only the dubious character of the act done but the motivation as well.2 Complainant next claims that the injunction bond was wrongfully released to respondent by SICI as the latter failed to put up the required collateral, as shown in the February 28, 2004 letter of Evelyn R. Ramirez which the IBP allegedly ignored. She also insists that protesting the propriety of the bond before the trial court is not a pre-requisite to the filing of the instant administrative complaint. Besides, she argues that it would have been futile to file a protest before the trial court considering that she knew of the defects in the issuance of the injunction bond long after the bond has expired. The argument is without merit. The IBP correctly disregarded the February 28, 2004 letter of Ramirez considering that on March 19, 2004, Ramirez wrote another letter to the trial court informing the latter of respondents compliance with the required collateral. Anent the allegation of perjury, the same is likewise bereft of merit. In the case of Villanueva v. Secretary of Justice,3 the Court held that a mere assertion of a false, objective fact, a falsehood, is not enough to warrant a finding of perjury, thus: There are two essential elements of proof for perjury: (1) the statement made by the defendants must be proven false; and (2) it must be proven that the defendant did not believe those statements to be true. xxxx A conviction for perjury cannot be sustained merely upon the contradictory sworn statements of the accused. The prosecution must prove which of the two statements is false and must show the statement to be false by other evidence than the contradicting statement.4 (Emphasis supplied) Thus, it is necessary that there must be contradictory statements for perjury to exist. In the instant case, we find that respondent made no contradicting statements. Indeed, he alleged in the complaint before the Bangko Sentral ng Pilipinas that the minority stockholders own more or less P5 million while the controlling stockholders ownapproximately 80% of the authorized capital stock. These figures are mere estimates and in no way contradict respondents allegations in the complaint pending before the RTC that the minoritys stake is P6 million while the majoritys stockholdings is 70% of the outstanding capital stock. Besides, for perjury to prosper it is necessary that complainant prove the falsity of the statements and that respondent did not believe any of the statements to be true. We find that complainant failed to meet the required standard of proof to sustain the charge of perjury. The IBP correctly noted that no malice was shown when respondent made the foregoing allegations and that respondents failure to allege the exact shareholdings was due to the banks refusal to allow respondent to inspect the books. We agree with the findings of the IBP that there is no forum shopping. The essence of forum shopping is the filing of multiple suits involving the same parties for the same cause of action, either simultaneously or successively, for the purpose of obtaining a favorable judgment.5 There is forum shopping when, between an action pending before this Court and another one, there exist: a) identity of parties, or at least such parties as represent the same interests in both actions, b) identity of rights asserted and relief prayed for, the relief being founded on the same facts, and c) the identity of the two preceding particulars is such that any judgment

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rendered in the other action, will, regardless of which party is successful amount to res judicata in the action under consideration; and said requisites also constitutive of lis pendens.6 The filing of the intra-corporate case before the RTC does not amount to forum-shopping. It is a formal demand of respondents legal rights in a court of justice in the manner prescribed by the court or by the law with respect to the controversy involved. 7 The relief sought in the case is primarily to compel the bank to disclose its stockholdings, to allow them the inspection of corporate books and records, and the payment of damages. It was also prayed that a TRO be issued to enjoin the holding of the annual stockholders meeting and the election of the members of the Board, which, only courts of justice can issue. On the other hand, the complaint filed with the Bangko Sentral ng Pilipinas was an invocation of the BSPs supervisory powers over banking operations which does not amount to a judicial proceeding. It brought to the attention of the BSP the alleged questionable actions of the banks Board of Directors in violation of the principles of good corporate governance. It prayed for the conduct of an investigation over the alleged unsafe and unsound business practices of the bank and to make necessary corrective measures to prevent the collapse of the bank. As such, the two proceedings are of different nature praying for different relief. Likewise, a ruling by the BSP concerning the soundness of the bank operations will not adversely or directly affect the resolution of the intra-corporate controversies pending before the trial court. Furthermore, to merit disciplinary action, forum shopping must be willful and deliberate.8 Section 5, Rule 7 of the Rules of Court requires that, should there be any pending action or claim before any court, tribunal or quasi-judicial agency, a complete statement of its status should be given. The Certification of Non-Forum-shopping attached by respondent substantially complied with this requirement by providing therein that he has also filed a Complaint before the BSP. Likewise, such disclosure negates the allegation that he willfully and deliberately committed forum-shopping. It bears stressing that disbarment proceedings are matters of public interest, undertaken for public welfare and for the purpose of preserving courts of justice from the official ministration of the persons unfit to practice them.9However, the power to disbar must be exercised with great caution and only in a clear case of misconduct which seriously affects the standing and character of the lawyer as an officer of the Court and member of the bar.10 ACCORDINGLY, we AFFIRM the Resolution dated December 17, 1005, of the Integrated Bar of the Philippines recommending the dismissal of the instant complaint for disbarment/suspension against respondent ATTY. RICARDO D. GONZALEZ for lack of merit. SO ORDERED.
CONSUELO YNARES-SANTIAGO Associate Justice

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EN BANC

G.R. No. 76118 March 30, 1993

THE CENTRAL BANK OF THE PHILIPPINES and RAMON V. TIAOQUI, petitioners, vs. COURT OF APPEALS and TRIUMPH SAVINGS BANK, respondents.

Sycip, Salazar, Hernandez & Gatmaitan for petitioners.

Quisumbing, Torres & Evangelista for Triumph Savings Bank.

BELLOSILLO, J.:

May a Monetary Board resolution placing a private bank under receivership be annulled on the ground of lack of prior notice and hearing? This petition seeks review of the decision of the Court of Appeals in CA G.R. S.P. No. 07867 entitled "The Central Bank of the Philippines and Ramon V. Tiaoqui vs. Hon. Jose C. de Guzman and Triumph Savings Bank," promulgated 26 September 1986, which affirmed the twin orders of the Regional Trial Court of Quezon City issued 11 November 1985 1 denying herein petitioners' motion to dismiss Civil Case No. Q-45139, and directing petitioner Ramon V. Tiaoqui to restore the private management of Triumph Savings Bank (TSB) to its elected board of directors and officers, subject to Central Bank comptrollership. 2 The antecedent facts: Based on examination reports submitted by the Supervision and Examination Sector (SES), Department II, of the Central Bank (CB) "that the financial condition of TSB is one of insolvency and its continuance in business would involve probable loss to its depositors and creditors," 3 the Monetary Board (MB) issued on 31 May 1985 Resolution No. 596 ordering the closure of TSB, forbidding it from doing business in the Philippines, placing it under receivership, and appointing Ramon V. Tiaoqui as receiver. Tiaoqui assumed office on 3 June 1985. 4 On 11 June 1985, TSB filed a complaint with the Regional Trial Court of Quezon City, docketed as Civil Case No. Q-45139, against Central Bank and Ramon V. Tiaoqui to annul MB Resolution No. 596, with prayer for injunction, challenging in the process the constitutionality of Sec. 29 of R.A. 269, otherwise known as "The Central Bank Act," as amended, insofar as it authorizes the Central Bank to take over a banking institution even if it is not charged with violation of any law or regulation, much less found guilty thereof.
5

On 1 July 1985, the trial court temporarily restrained petitioners from implementing MB Resolution No. 596 "until further orders", thus prompting them to move for the quashal of the restraining order (TRO) on the ground that it did not comply with said Sec. 29, i.e., that TSB failed to show convincing proof of arbitrariness and bad faith on the part of petitioners;' and, that TSB failed to post the requisite bond in favor of Central Bank. On 19 July 1985, acting on the motion to quash the restraining order, the trial court granted the relief sought and denied the application of TSB for injunction. Thereafter, Triumph Savings Bank filed with Us a petition for certiorari under Rule 65 of the Rules of Court 6 dated 25 July 1985 seeking to enjoin the continued implementation of the questioned MB resolution. Meanwhile, on 9 August 1985; Central Bank and Ramon Tiaoqui filed a motion to dismiss the complaint before the RTC for failure to state a cause of action, i.e., it did not allege ultimate facts showing that the action was plainly arbitrary and made in bad faith, which are the only grounds for the annulment of Monetary Board resolutions placing a bank under conservatorship, and that TSB was without legal capacity to sue except through its receiver. 7 On 9 September 1985, TSB filed an urgent motion in the RTC to direct receiver Ramon V. Tiaoqui to restore TSB to its private management. On 11 November 1985, the RTC in separate orders denied petitioners' motion to dismiss and ordered receiver Tiaoqui to restore the management of TSB to its elected board of directors and officers, subject to CB comptrollership. Since the orders of the trial court rendered moot the petition for certiorari then pending before this Court, Central Bank and Tiaoqui moved on 2 December 1985 for the dismissal of G.R. No. 71465 which We granted on 18 December 1985. 8 Instead of proceeding to trial, petitioners elevated the twin orders of the RTC to the Court of Appeals on a petition for certiorari and prohibition under Rule 65. 9 On 26 September 1986, the appellate court, upheld the orders of the trial court thus
Petitioners' motion to dismiss was premised on two grounds, namely, that the complaint failed to state a cause of action and that the Triumph Savings Bank was without capacity to sue except through its appointed receiver. Concerning the first ground, petitioners themselves admit that the Monetary Board resolution placing the Triumph Savings Bank under the receivership of the officials of the Central Bank was done without prior hearing, that is, without first hearing the side of the bank. They further admit that said resolution can be the subject of judicial review and may be set aside should it be found that the same was issued with arbitrariness and in bad faith. The charge of lack of due process in the complaint may be taken as constitutive of allegations of arbitrariness and bad faith. This is not of course to be taken as meaning that there must be previous hearing before the Monetary Board may exercise its powers under Section 29 of its Charter. Rather, judicial review of such action not being foreclosed, it would be best should private respondent be

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given the chance to show and prove arbitrariness and bad faith in the issuance of the questioned resolution, especially so in the light of the statement of private respondent that neither the bank itself nor its officials were even informed of any charge of violating banking laws. In regard to lack of capacity to sue on the part of Triumph Savings Bank, we view such argument as being specious, for if we get the drift of petitioners' argument, they mean to convey the impression that only the CB appointed receiver himself may question the CB resolution appointing him as such. This may be asking for the impossible, for it cannot be expected that the master, the CB, will allow the receiver it has appointed to question that very appointment. Should the argument of petitioners be given circulation, then judicial review of actions of the CB would be effectively checked and foreclosed to the very bank officials who may feel, as in the case at bar, that the CB action ousting them from the bank deserves to be set aside. xxx xxx xxx On the questioned restoration order, this Court must say that it finds nothing whimsical, despotic, capricious, or arbitrary in its issuance, said action only being in line and congruent to the action of the Supreme Court in the Banco Filipino Case (G.R. No. 70054) where management of the bank was restored to its duly elected directors and officers, but subject to the Central Bank comptrollership. 10

On 15 October 1986, Central Bank and its appointed receiver, Ramon V. Tiaoqui, filed this petition under Rule 45 of the Rules of Court praying that the decision of the Court of Appeals in CA-G.R. SP No. 07867 be set aside, and that the civil case pending before the RTC of Quezon City, Civil Case No. Q-45139, be dismissed. Petitioners allege that the Court of Appeals erred
(1) in affirming that an insolvent bank that had been summarily closed by the Monetary Board should be restored to its private management supposedly because such summary closure was "arbitrary and in bad faith" and a denial of "due process"; (2) in holding that the "charge of lack of due process" for "want of prior hearing" in a complaint to annul a Monetary Board receivership resolution under Sec. 29 of R.A. 265 "may be taken as . . allegations of arbitrariness and bad faith"; and (3) in holding that the owners and former officers of an insolvent bank may still act or sue in the name and corporate capacity of such bank, even after it had been ordered closed and placed under receivership. 11

The respondents, on the other hand, allege inter alia that in the Banco Filipino case, 12 We held that CB violated the rule on administrative due process laid down in Ang Tibay vs. CIR (69 Phil. 635) and Eastern Telecom Corp. vs. Dans, Jr. (137 SCRA 628) which requires that prior notice and hearing be afforded to all parties in administrative proceedings. Since MB Resolution No. 596 was adopted without TSB being previously notified and heard, according to respondents, the same is void for want of due process; consequently, the bank's management should be restored to its board of directors and officers. 13 Petitioners claim that it is the essence of Sec. 29 of R.A. 265 that prior notice and hearing in cases involving bank closures should not be required since in all probability a hearing would not only cause unnecessary delay but also provide bank "insiders" and stockholders the opportunity to further dissipate the bank's resources, create liabilities for the bank up to the insured amount of P40,000.00, and even destroy evidence of fraud or irregularity in the bank's operations to the prejudice of its depositors and creditors. 14 Petitioners further argue that the legislative intent of Sec. 29 is to repose in the Monetary Board exclusive power to determine the existence of statutory grounds for the closure and liquidation of banks, having the required expertise and specialized competence to do so. The first issue raised before Us is whether absence of prior notice and hearing may be considered acts of arbitrariness and bad faith sufficient to annul a Monetary Board resolution enjoining a bank from doing business and placing it under receivership. Otherwise stated, is absence of prior notice and hearing constitutive of acts of arbitrariness and bad faith? Under Sec. 29 of R.A. 265, 15 the Central Bank, through the Monetary Board, is vested with exclusive authority to assess, evaluate and determine the condition of any bank, and finding such condition to be one of insolvency, or that its continuance in business would involve probable loss to its depositors or creditors, forbid the bank or non-bank financial institution to do business in the Philippines; and shall designate an official of the CB or other competent person as receiver to immediately take charge of its assets and liabilities. The fourth paragraph, 16 which was then in effect at the time the action was commenced, allows the filing of a case to set aside the actions of the Monetary Board which are tainted with arbitrariness and bad faith. Contrary to the notion of private respondent, Sec. 29 does not contemplate prior notice and hearing before a bank may be directed to stop operations and placed under receivership. When par. 4 (now par. 5, as amended by E.O. 289) provides for the filing of a case within ten (10) days after the receiver takes charge of the assets of the bank, it is unmistakable that the assailed actions should precede the filing of the case. Plainly, the legislature could not have intended to authorize "no prior notice and hearing" in the closure of the bank and at the same time allow a suit to annul it on the basis of absence thereof. In the early case of Rural Bank of Lucena, Inc. v. Arca [1965], 17 We held that a previous hearing is nowhere required in Sec. 29 nor does the constitutional requirement of due process demand that the correctness of the Monetary Board's resolution to stop operation and proceed to liquidation be first adjudged before making the resolution effective. It is enough that a subsequent judicial review be provided. Even in Banco Filipino, 18 We reiterated that Sec. 29 of R.A. 265 does not require a previous hearing before the Monetary Board can implement its resolution closing a bank, since its action is subject to judicial scrutiny as provided by law.

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It may be emphasized that Sec. 29 does not altogether divest a bank or a non-bank financial institution placed under receivership of the opportunity to be heard and present evidence on arbitrariness and bad faith because within ten (10) days from the date the receiver takes charge of the assets of the bank, resort to judicial review may be had by filing an appropriate pleading with the court. Respondent TSB did in fact avail of this remedy by filing a complaint with the RTC of Quezon City on the 8th day following the takeover by the receiver of the bank's assets on 3 June 1985. This "close now and hear later" scheme is grounded on practical and legal considerations to prevent unwarranted dissipation of the bank's assets and as a valid exercise of police power to protect the depositors, creditors, stockholders and the general public. In Rural Bank of Buhi, Inc. v. Court of Appeals, 19 We stated that
. . . 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.

We stressed in Central Bank of the Philippines v. Court of Appeals 20 that

. . . the banking business is properly subject to reasonable regulation under the police power of the state because of its nature and relation to the fiscal affairs of the people and the revenues of the state (9 CJS 32). Banks are affected with public interest because they receive funds from the general public in the form of deposits. Due to the nature of their transactions and functions, a fiduciary relationship is created between the banking institutions and their depositors. Therefore, banks are under the obligation to treat with meticulous care and utmost fidelity the accounts of those who have reposed their trust and confidence in them (Simex International [Manila], Inc., v. Court of Appeals, 183 SCRA 360 [1990]). It is then the Government's responsibility to see to it that the financial interests of those who deal with the banks and banking institutions, as depositors or otherwise, are protected. In this country, that task is delegated to the Central Bank which, pursuant to its Charter (R.A. 265, as amended), is authorized to administer the monetary, banking and credit system of the Philippines. Under both the 1973 and 1987 Constitutions, the Central Bank is tasked with providing policy direction in the areas of money, banking and credit; corollarily, it shall have supervision over the operations of banks (Sec. 14, Art. XV, 1973 Constitution, and Sec. 20, Art. XII, 1987 Constitution). Under its charter, the CB is further authorized to take the necessary steps against any banking institution if its continued operation would cause prejudice to its depositors, creditors and the general public as well. This power has been expressly recognized by this Court. In Philippine Veterans Bank Employees Union-NUBE v. Philippine Veterans Banks (189 SCRA 14 [1990], this Court held that: . . . [u]nless adequate and determined efforts are taken by the government against distressed and mismanaged banks, public faith in the banking system is certain to deteriorate to the prejudice of the national economy itself, not to mention the losses suffered by the bank depositors, creditors, and stockholders, who all deserve the protection of the government. The government cannot simply cross its arms while the assets of a bank are being depleted through mismanagement or irregularities. It is the duty of the Central Bank in such an event to step in and salvage the remaining resources of the bank so that they may not continue to be dissipated or plundered by those entrusted with their management.

Section 29 of R.A. 265 should be viewed in this light; otherwise, We would be subscribing to a situation where the procedural rights invoked by private respondent would take precedence over the substantive interests of depositors, creditors and stockholders over the assets of the bank. Admittedly, the mere filing of a case for receivership by the Central Bank can trigger a bank run and drain its assets in days or even hours leading to insolvency even if the bank be actually solvent. The procedure prescribed in Sec. 29 is truly designed to protect the interest of all concerned, i.e., the depositors, creditors and stockholders, the bank itself, and the general public, and the summary closure pales in comparison to the protection afforded public interest. At any rate, the bank is given full opportunity to prove arbitrariness and bad faith in placing the bank under receivership, in which event, the resolution may be properly nullified and the receivership lifted as the trial court may determine. The heavy reliance of respondents on the Banco Filipino case is misplaced in view of factual circumstances therein which are not attendant in the present case. We ruled in Banco Filipino that the closure of the bank was arbitrary and attendant with grave abuse of discretion, not because of the absence of prior notice and hearing, but that the Monetary Board had no sufficient basis to arrive at a sound conclusion of insolvency to justify the closure. In other words, the arbitrariness, bad faith and abuse of discretion were determined only after the bank was placed under conservatorship and evidence thereon was received by the trial court. As this Court found in that case, the Valenzuela, Aurellano and Tiaoqui Reports contained unfounded assumptions and deductions which did not reflect the true financial condition of the bank. For instance, the subtraction of an uncertain amount as valuation reserve from the assets of the bank would merely result in its net worth or the unimpaired capital and surplus; it did not reflect the total financial condition of Banco Filipino. Furthermore, the same reports showed that the total assets of Banco Filipino far exceeded its total liabilities. Consequently, on the basis thereof, the Monetary Board had no valid reason to liquidate the bank; perhaps it could have merely ordered its reorganization or rehabilitation, if need be. Clearly, there was in that case a manifest arbitrariness, abuse of discretion and bad faith in the closure of Banco Filipino by the Monetary Board. But, this is not the case before Us. For here, what is being raised as arbitrary by private respondent is the denial of prior notice and hearing by the Monetary Board, a matter long settled in this jurisdiction, and not the arbitrariness which the conclusions of the Supervision and Examination Sector (SES), Department II, of the Central Bank were reached. Once again We refer to Rural Bank of Buhi, Inc. v. Court of Appeals, 21 and reiterate Our pronouncement therein that

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. . . 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 its continuance in business would involve probable loss to its depositors or creditors.

In sum, appeal to procedural due process cannot just outweigh the evil sought to be prevented; hence, We rule that Sec. 29 of R.A. 265 is a sound legislation promulgated in accordance with the Constitution in the exercise of police power of the state. Consequently, the absence of notice and hearing is not a valid ground to annul a Monetary Board resolution placing a bank under receivership. The absence of prior notice and hearing cannot be deemed acts of arbitrariness and bad faith. Thus, an MB resolution placing a bank under receivership, or conservatorship for that matter, may only be annulled after a determination has been made by the trial court that its issuance was tainted with arbitrariness and bad faith. Until such determination is made, the status quo shall be maintained, i.e., the bank shall continue to be under receivership. As regards the second ground, to rule that only the receiver may bring suit in behalf of the bank is, to echo the respondent appellate court, "asking for the impossible, for it cannot be expected that the master, the CB, will allow the receiver it has appointed to question that very appointment." Consequently, only stockholders of a bank could file an action for annulment of a Monetary Board resolution placing the bank under receivership and prohibiting it from continuing operations. 22 In Central Bank v. Court of Appeals, 23 We explained the purpose of the law
. . . in requiring that only the stockholders of record representing the majority of the capital stock may bring the action to set aside a resolution to place a bank under conservatorship is to ensure that it be not frustrated or defeated by the incumbent Board of Directors or officers who may immediately resort to court action to prevent its implementation or enforcement. It is presumed that such a resolution is directed principally against acts of said Directors and officers which place the bank in a state of continuing inability to maintain a condition of liquidity adequate to protect the interest of depositors and creditors. Indirectly, it is likewise intended to protect and safeguard the rights and interests of the stockholders. Common sense and public policy dictate then that the authority to decide on whether to contest the resolution should be lodged with the stockholders owning a majority of the shares for they are expected to be more objective in determining whether the resolution is plainly arbitrary and issued in bad faith.

It is observed that the complaint in this case was filed on 11 June 1985 or two (2) years prior to 25 July 1987 when E.O. 289 was issued, to be effective sixty (60) days after its approval (Sec. 5). The implication is that before E.O . 289, any party in interest could institute court proceedings to question a Monetary Board resolution placing a bank under receivership. Consequently, since the instant complaint was filed by parties representing themselves to be officers of respondent Bank (Officer-in-Charge and Vice President), the case before the trial court should now take its natural course. However, after the effectivity of E.O. 289, the procedure stated therein should be followed and observed. PREMISES considered, the Decision of the Court of Appeals in CA-G.R. SP No. 07867 is AFFIRMED, except insofar as it upholds the Order of the trial court of 11 November 1985 directing petitioner RAMON V. TIAOQUI to restore the management of TRIUMPH SAVINGS BANK to its elected Board of Directors and Officers, which is hereby SET ASIDE. Let this case be remanded to the Regional Trial Court of Quezon City for further proceedings to determine whether the issuance of Resolution No. 596 of the Monetary Board was tainted with arbitrariness and bad faith and to decide the case accordingly. SO ORDERED.
Narvasa, C.J., Cruz, Padilla, Bidin, Grio-Aquino, Regalado, Davide, Jr., Romero, Nocon, Campos, Jr. and Quiason, JJ., concur.

Feliciano and Melo, JJ., took no part.

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FIRST DIVISION

G.R. No. 112830

February 1, 1996

JERRY ONG, petitioner, vs. COURT OF APPEALS and RURAL BANK OF OLONGAPO, INC., represented by its Liquidator, GUILLERMO G. REYES, JR. and Deputy Liquidator ABEL ALLANIGUE, respondents.

DECISION

BELLOSILLO, J.:

The jurisdiction of a regular court over a bank undergoing liquidation is the issue in this petition for review of the decision of the Court of Appeals.1 On 5 February 1991 Jerry Ong filed with the Regional Trial Court of Quezon City a petition for the surrender of TCT Nos. 13769 and 13770 pursuant to the provisions of Secs. 63(b) and 107 of P.D. 1529 2 against Rural Bank of Olongapo, Inc. (RBO), represented by its liquidator Guillermo G. Reyes, Jr. and deputy liquidator Abel Allanigue.3 The petition averred inter alia that 2. The RBO was the owner in fee simple of two parcels of land including the improvements thereon situated in Tagaytay City . . . particularly described in TCT Nos. 13769 and 13770 . . . . 3. Said parcels of land were duly mortgaged by RBO in favor of petitioner on December 29, 1983 to guarantee the payment of Omnibus Finance, Inc., which is likewise now undergoing liquidation proceedings of its money market obligations to petitioner in the principal amount of P863,517.02 . . . . 4. Omnibus Finance, Inc., not having seasonably settled its obligations to petitioner, the latter proceeded to effect the extrajudicial foreclosure of said mortgages, such that on March 23, 1984, the City Sheriff of Tagaytay City issued a Certificate of Sale in favor of petitioner . . . . 5. Said Certificate of Sale . . . was duly registered with the Registry of Deeds of Tagaytay City on July 16, 1985, as shown in the certified true copies of the aforementioned titles . . . . 6. Respondents failed to seasonably redeem said parcels of land, for which reason, petitioner has executed an Affidavit of Consolidation of Ownership which, to date, has not been submitted to the Registry of Deeds of Tagaytay City, in view of the fact that possession of the aforesaid titles or owner's duplicate certificates of title remains with the RBO. 7. To date, petitioner has not been able to effect the registration of said parcels of land in his name in view of the persistent refusal of respondents, despite demand, to surrender RBO's copies of its owner's certificates of title for the parcels of land covered by TCT Nos. 13769 and 13770.4 Respondent RBO filed a motion to dismiss on the ground of res judicata alleging that petitioner had earlier sought a similar relief from Br. 18 of the Regional Trial Court of Tagaytay City, which case was dismissed with finality on appeal before the Court of Appeals. In a supplemental motion to dismiss, respondent RBO contended that it was undergoing liquidation and, pursuant to prevailing jurisprudence, it is the liquidation court which has exclusive jurisdiction to take cognizance of petitioner's claim. On 7 May 1991 the trial court denied the motion to dismiss because it found that the causes of action in the previous and present cases were different although it was silent on the jurisdictional issue. Accordingly, respondent RBO filed a motion for reconsideration but the same was similarly rejected in the order of June 11 1991 holding that: (a) subject parcels of land were sold to petitioner through public bidding on 23 March 1984 and, consequently, said pieces of realty were no longer part of the assets of respondent RBO; and, (b) in the same token, subject lots were no longer considered assets of respondent RBO when its liquidation was commenced by the Central Bank on 9 November 1984 and when the petition for assistance in its liquidation was approved by the Regional Trial Court of Olongapo City on 30 May 1985. On 5 July 1991 respondent RBO filed a manifestation and urgent motion for reconsideration arguing that the validity of the certificate of sale issued to petitioner was still at issue in another case between them and therefore the properties covered by said certificate were still part and parcel of its assets. Still unpersuaded by respondent RBO's arguments, the trial court denied reconsideration in its order of 18 September 1991 prompting the bank to elevate the case to respondent Court of Appeals by way of a petition for certiorari and prohibition. On 12 February 1992 respondent court rendered a decision annulling the challenged order of the court a quo dated 19 June 1991 which sustained the jurisdiction of the trial court as well as the order of 18 September 1991 denying reconsideration thereof. Moreover, the trial judge was ordered to dismiss Civil Case No. Q-91-8019 without prejudice to the right of petitioner to file his claim in the liquidation proceedings (Sp. Proc. No. 170-0-85) pending before Br. 73 of the Regional Trial Court of Olongapo City.5 In reversing the trial court the appellate court noted that Sec. 29, par. 3, of R.A. 265 as amended by P.D. 1827 6 does not limit the jurisdiction of the liquidation court to claims against the assets of the insolvent bank. The provision is general in that it clearly and

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unqualifiedly states that the liquidation court shall have jurisdiction to adjudicate disputed claims against the bank. "Disputed claims" refer to all claims, whether they be against the assets of the insolvent bank, for specific performance, breach of contract, damages, or whatever. To limit the jurisdiction of the liquidation court to those claims against the asset's of the bank is to remove significantly and without basis the cases that may be brought against a bank in case of insolvency. Respondent court also noted that the certificates of title are still in the name of respondent RBO. As far as third persons are concerned (and these include claimants in the liquidation court), registration is the operative act which would convey title to the property. Petitioner submits that Civil Case No. Q-91-8019 may proceed independently of Sp. Proc. No. 170-0-85. He argues that the disputed parcels of land have been extrajudicially foreclosed and the corresponding certificate of sale issued in his favor; that considering that respondent RBO failed to redeem said properties he should now be allowed to consolidate his title thereto; that respondent RBO's mortgage of TCT Nos. 13769 and 13770 in favor of petitioner and its subsequent foreclosure are presumed valid and regular; and, that the liquidation court has no jurisdiction over subject parcels of land since they are no longer assets of respondent RBO. We find no merit in the petition. Section 29, par. 3, of R.A. 265 as amended by P. D. 1827 provides If the Monetary Board shall determine and confirm within (sixty days) that the bank . . . 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 7 reciting the proceedings which have been taken and praying the assistance of the court in the liquidation of such 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 such institution and to implement the liquidation plan approved by the Monetary Board (emphasis supplied). Applying the aforequoted provision in Hernandez v. Rural Bank of Lucena, Inc.,
8

this Court ruled

The fact that the insolvent bank is forbidden to do business, that its assets are turned over to the Superintendent of Banks, as a receiver, for conversion into cash, and that its liquidation is undertaken with judicial intervention means that, as far as lawful and practicable, all claims against the insolvent bank should be filed in the liquidation proceeding (emphasis supplied). We explained therein the rationale behind the provision, i.e., the judicial liquidation is intended to prevent multiplicity of actions against the insolvent bank. It is a pragmatic arrangement designed to establish due process and orderliness in the liquidation of the bank, to obviate the proliferation of litigations and to avoid injustice and arbitrariness. The lawmaking body contemplated that for convenience only one court, if possible, should pass upon the claims against the insolvent bank and that the liquidation court should assist the Superintendent of Banks and regulate his operations. The phrase "(T)he court shall have jurisdiction in the same proceedings to adjudicate disputed claims against the bank" appears to have misled petitioner. He argues that to the best of his personal knowledge there is no pending action filed before any court or agency which contests his right over subject properties. Thus his petition before the Regional Trial Court of Quezon City cannot be considered a "disputed claim" as contemplated by law. It is not necessary that a claim be initially disputed in a court or agency before it is filed with the liquidation court. As may be gleaned in the Hernandez case, the term "disputed claim" in the provision simply connotes that [i]n the course of the liquidation, contentious cases might arise wherein a full-dress hearing would be required and legal issues would have to be resolved. Hence, it would be necessary in justice to all concerned that a Court of First Instance (now Regional Trial Court) . . . assist and supervise the liquidation and . . . . act as umpire or arbitrator in the allowance and disallowance of claims. Petitioner must have overlooked the fact that since respondent RBO is insolvent other claimants not privy to their transaction may be involved. As far as those claimants are concerned, in the absence of certificates of title in the name of petitioner, subject lots still form part of the assets of the insolvent bank. On the basis of the Hernandez case as well as Sec. 29, par. 3, of R.A. 265 as amended by P.D. 1827, respondent Court of Appeals was correct in holding that the Regional Trial Court of Quezon City, Br. 79, did not have jurisdiction over the petition, much less in ordering the dismissal of Civil Case No. Q-91-8019, without prejudice to petitioner's right to file his claim in Sp. Proc. No. 170-0-85 before the Regional Trial Court of Olongapo City, Br. 73. WHEREFORE, the petition is DENIED. The decision of respondent Court of Appeals dated 12 February 1992 is AFFIRMED. Costs against petitioner. SO ORDERED.
Padilla, Vitug, Kapunan and Hermosisima, Jr., JJ., concur.

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EN BANC

G.R. No. L-29352 October 4, 1971

EMERITO M. RAMOS, SUSANA B. RAMOS, EMERITO B. RAMOS, JR., JOSEFA RAMOS DE LA RAMA, HORACIO DE LA RAMA, ANTONIO B. RAMOS, FILOMENA RAMOS LEDESMA, RODOLFO RAMOS, VICTORIA RAMOS TANJUATCO, and TEOFILO TANJUATCO, petitioners, vs. CENTRAL BANK OF THE PHILIPPINES, respondent.

Francisco Carreon, Feliciano C. Tumale and Araneta, Mendoza & Papa for petitioners.

Office of the Solicitor General Felix Q. Antonio and F. E. Evangelista, Clara Cruz-Espritu & Iigo B. Regalado, Jr. for respondent Bank.

REYES, J.B.L., J.:

This is a petition for Certiorari, Prohibition and Mandamus with prayer for the issuance of a writ of preliminary injunction to restrain respondent Central Bank of the Philippines (hereinafter designated as the CB) from enforcing and implementing the Monetary Board Resolution No. 1263, adopted on 30 July 1968, excluding the Overseas Bank of Manila (hereinafter termed the OBM) from clearing with the Central Bank, that was ordered implemented on 31 July 1968 (Annex "11"), and Resolution No. 1290, adopted on 1 August 1968, granting authority to the OBM Board of Directors to suspend operations thereof, which was implemented on 2 August 1968 (Annex "13"). The herein petition is based on the following grounds: (a) That the aforesaid resolutions were not legally issued and were promulgated by respondent CB through the Monetary Board in excess of jurisdiction and with grave abuse of discretion; (b) That the said resolutions are prejudicial to the national interest and against public policy, as they would erode confidence in the banking system and undermine the integrity and stability thereof, contrary to the purpose and spirit of the Central Bank Act; (c) That said resolutions have caused and will cause further irreparable losses, damages and injuries to the depositors, creditors and stockholders of the OBM; (d) That said resolutions were promulgated without due process of law, would constitute deprivation of property likewise without due process of law, and will amount to impairment of the obligations of contract; and (e) That there is no appeal nor any plain, speedy and adequate remedy in the ordinary course of law. From the pleadings and annexes, the following appears: The OBM is a commercial banking corporation duly organized and existing under the laws of the Philippines with principal office at Rosario Street, Manila. Petitioners are the majority and controlling stockholders thereof. The OBM was opened for business on 6 January 1964 with authorized capital of P30 million, P10 million subscribed and P8 million thereof paid, but had been suspended by respondent from clearing with the CB and from lending operations for various violations of the banking laws and implementing regulations. Petitioners charged that the OBM became financially distressed because of this suspension and the deprivation by the CB of all the usual credit facilities and accommodations accorded to the other banks. The alleged exactions of onerous fines and penalties by respondent was likewise blamed for the aggravated situation. For its deficiencies it was made subject to penalties of 12% interest on overdrawings and 36% per annum on reserve deficiencies, which by 1968 amounted to several millions. By April, 1967, the financial situation of the OBM had caused mounting concern in the CB. Petitioner Ramos and the OBM management finally met with respondent CB on the necessity and urgency of rehabilitating the OBM through the extension of necessary financial assistance. The upshot of these conferences appears from the correspondence exchanged between the CB and the OBM. On 2 May 1967, the Governor of the Central Bank, Andres Castillo, upon instructions of the Monetary Board, wrote a letter (Petition, Annex "B") stating:
This is with reference to the conference had between Mr. Emerito Ramos, Sr., Chairman of your Board, and the undersigned, the Deputy Governor, the Acting Superintendent of Banks, and the Officer-in-Charge, Accounting Department of this Bank, last Friday evening on the present very precarious condition of the Overseas. In the conference, we described to Mr. Ramos at length the circumstances which led to the present precarious conditions of the bank. We stressed the imminent danger of the bank's being thrown out of clearing, in accordance with existing Central Bank regulations, on account of its continuous adverse clearing balances, and of the immediate necessity of putting up additional capital in the amount of at least P3 million, which Mr. Ramos promised to put up when he last appeared before the Monetary Board. I informed Mr. Ramos that if his bank is thrown out of clearing, the Central Bank will proceed in accordance with the existing policy under which he and other stockholders representing a majority will have to sign a trusteeship agreement with the Philippine National Bank pursuant to which the Overseas Bank will be managed by the Philippine National Bank. If the PNB takes over

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management in such eventuality, the Central Bank could also announce that it is ready to support the Philippine National Bank in order to allay the fears of depositors and creditors.

In view of the OBM stockholders' reluctance to execute the Voting Trust suggested, the Monetary Board adopted Resolution No. 2015 dated 16 October 1967, having the following terms (Petition, Annex "F"):
(1) To require Mr. Emerito M. Ramos, Sr., the principal stockholder of the Overseas Bank of Manila, to submit a listing of his properties and to mortgage or assign the same to the Central Bank to cover the overdraft balance therewith of the Overseas Bank of Manila; (2) To require the stockholders of the Overseas Bank of Manila to subscribe to an appropriate voting trust agreement so that the Central Bank may be able to effect a complete reorganization and/or transfer the management of the bank to a nominee of the Monetary Board;

Further conference ensued, and on 30 October 1967 Governor Castillo of the CB wrote again (Petition, Annex "G" ):
I wish to refer to the conference had between your goodself and the members of the Monetary Board at Malacaang of 16 October 1967, relative to the financial condition and state of affairs of the Overseas Bank of Manila, of which the substantial majority of stock is owned by you and your family and corporations controlled by you. Among other things, the Monetary Board, having in mind the overdrawing in your deposit account with the Central Bank which, on that date, stood at P22.3 million, together with the balance of your past due emergency loan with the Central Bank amounting to P10.3 million exclusive of accumulated interest, decided that, as a measure to stave off liquidation, a voting trust agreement should be executed by you and your family and the corporations controlled by you in favor of the Superintendent of Banks, in an instrument similar to the one executed by stockholders of the Republic Bank in favor of the Philippine National Bank. On 23 October 1967, the Legal Counsel of this Bank submitted to you a draft of such "Voting Trust Agreement" desired by the Monetary Board. However, on 25 October 1967, you handed the legal Counsel your own draft of a "Trust Agreement" which, in essence, is not a voting trust agreement as desired by the Monetary Board and reiterated in its Resolution No. 2020 dated 20 October 1967 and confirmed on 24 October 1967.

This was followed up by another letter of 8 November 1967 (Petition, Annex "H"):
In line with the conference this morning between your goodself and the undersigned, the Deputy Governor, the Acting Superintendent of Banks, and the Central Bank Legal Counsel, and your manifestation of readiness to abide by the decisions of the Monetary Board on all matters involving the Overseas Bank of Manila, it is requested that the voting trust agreement prepared by the Legal Counsel of this Bank be now signed by you and other members of your family and by the proper officials of the corporations which are stockholders of the bank and which are controlled by you and your family. It is also requested that the execution of the mortgages on the properties you offered as security for the obligations of the Overseas Bank of Manila to the Central Bank be finalized, and the shares of stock belonging to you and your family in your corporations and enterprises be endorsed in favor of the Central Bank and delivered to us as soon as possible.

Finally, on 20 November 1967, the petitioners herein executed the Voting Trust Agreement prepared by attorneys of the CB (Petition, Annex "A") with petitioners as Cestuis Que Trust 1 and respondent CB's Superintendent of Banks as the Trustee. The Trustee entered into the agreement pursuant to the authority given by respondent's Monetary Board under M. B. Resolution No. 2017, dated 17 October 1967. The salient features of the said Voting Trust Agreement are the following: (a) Objectives. The objectives are stated in the "Whereas Clauses", the pertinent portions of which read: "... the abovenamed stockholders of the Overseas Bank of Manila believe that it is for and/or the interest and benefit of the bank depositors, creditors and stockholders that this trust agreement should be entered into by them for the rehabilitation, normalization and stabilization of the Overseas Bank of Manila;" and "... TRUSTEE has likewise signified his willingness to accept such trust in pursuance of the objectives above-mentioned;" (Emphasis supplied) (b) Term. The life of the trust shall be for three (3) years from 20 November 1967, but the Trustee at its option, may relinquish the trust upon approval of the Monetary Board. It is provided further that if, at the expiration of the three-year period the purposes for which the trust has been constituted have not as yet been fully achieved, the trust agreement shall be considered automatically extended for such period to be determined by the Monetary Board, similarly terminable within such further period at the discretion of the Monetary Board; (c) Powers and authority. The trustee is given all and full authority, subject to the limitations set forth in the law and other conditions in the contract to: (1) direct the management of the affairs and accounts and properties of the OBM; (2) vote its directors and choose the officers and employees; (3) improve, modify, reorganize its operation policies, standards, systems, methods, structure, organization, personnel, staffing pattern, etc.; (4) hold and vote on the shares of stocks transferred to him as trustee; (5) safeguard the interests of depositors, creditors and stockholders; and (6) in general, to exercise all such powers and discharge all such functions as inherently pertain to the cestui que trust as owners, and/or for the sound management of a banking institution; (d) Consideration. The cestui que trust hound themselves, among others, to pay the trustee during the life of the trust an annual honorarium subject to certain conditions. Petitioners likewise conveyed by way of mortgage to the CB all their private properties and holdings to secure the obligations of the OBM to the CB, but there is no agreement as to the value of these properties, petitioners contending that they are worth over 141 million, but the CB appraised them at around 67 million (Petition, Annexes "B" and "C").

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But as early as 25 September 1967, Mr. Martin Oliva, who had become president of OBM only since 13 March 1967, had written to the Superintendent of Banks that transactions worth around P48 million, of which over P43 million were time deposits, at usurious rates of interest, had not been incorporated in the Bank's books nor reported to the Board of Directors. It was explained 2 that the OBM management had resorted to these unrecorded transactions because the suspension of its lending activities after 14 months of operation reduced OBM to virtual inactivity, and it had to agree to pay high premiums or interests on such deposits because this high costs is comparatively cheaper than the Central Bank's interests on overdrawings at the rate of 12% per annum and a penalty of 36% per annum on reserve deficiencies. Oliva's letter prompted a further investigation of OBM records by the CB examiners that revealed allegedly unrecorded deposits and transactions (which is disputed by Petitioners) amounting to 48,007,211 as of 13 September 1967 (reduced to P35 million when petition was filed); diversion of deposits to accounts controlled by certain OBM officials (so-called COFICO and EMRACO accounts) and loans to the Ramos family and firms controlled by them. 3 Petitioners contend that these transactions were recorded in subsidiary ledger accounts that were linked to the general ledger accounts of the Bank under the so-called EMRACO and COFICO accounts, and finally incorporated in OBM's regular books in September, 1967 upon instructions of President Martin Oliva. 4 And as to the loans to the Ramos family and firms, the same had been written off when around 31 July 1967 the Ramoses conveyed to the OBM properties worth P54.096 million. On 27 October 1967, the Superintendent of Banks reported that the condition of the OBM was one of insolvency, calling for application of Section 29 of the Central Bank Act and liquidation of OBM. However, with the listing of Ramos properties worth 100 million, it was added, a new possibility emerged to recapitalize the OBM in 100 million. 5
2. However, with the letter dated October 26, 1967 of Mr. Martin R. Oliva, President of the Overseas Bank of Manila, giving a list of the Ramos properties worth P100 million (?), a radically different possibility has emerged. If the valuation of the P100 million (net of encumbrances to the parties other than the CB and TOBM) to the properties is true, or substantially true, then the new "possibility" may be briefly stated thus: A Recapitalization of the Overseas Bank of Manila on the amount of P100 million will save the bank, because as a general proposition, subject of course to corroborative quantification such a magnitude of capital can make good the bad loans as well as the funds that cannot be legitimately accounted for, and can absorb the losses in bad debts, can provide it with funds for viable operations, and thus ultimately give adequate protection to depositors and creditors.

In the same memorandum report, considering the need for liquid funds, the Superintendent of Banks suggested the following alternatives:
(1) The OBM be required to acquire the properties in payment for frozen or bad loans or for unaccountable funds, and then mortgage the properties to CB for emergency advances, or (2) The owners be required to mortgage the properties to the CB directly, and for CB to extend loans to OBM depending on the needs.

Three days later, 30 October 1967, the Central Bank governor wrote to the petitioner, Emerito Ramos, reiterating the need for the OBM stockholders to execute a voting trust agreement "to stave of liquidation", which letter was followed by another of 8 November 1967, requiring the execution of the Voting Trust Agreement by the OBM stockholders and of the mortgage of their properties to secure OBM obligations to the Central Bank and the endorsement of the shares of stock held by them in their corporations and enterprises (Petition, Annexes "G" and "H", quoted previously). Petitioners duly complied (Annexes "A", "C" and "S") in November, 1967. On 5 December 1967, new directors and officers drafted from the CB itself, the PNB and DBP were elected and installed and they took over the management and control of the Overseas bank. On 14 June 1968, the CB announced that only P10 million were available as emergency loan to OBM and requested the management of the latter (appointed under the Voting Trust Agreement to replace the old Board elected by the stockholders) to project how it could help bail out OBM. OBM president, Mr. Orosa, submitted a "Projected Cash Flow Statement" 6, concluding
It is pointed out here that with the P10 million loan from the CB, the extremely distressed financial condition of TOBM will continue to prevail. At best, the P10 million loan will enable TOBM to resume limited lending operations on a highly selected basis and diminish its estimated loss by some P492.5 thousand assuming that the loans to be extended have a high turnover rate and a 100% repayment ratio. Thus, with the P10 million CB loan, the annual loss has been estimated to be P8.9 million. To be able to breakdown in operations, therefore, TOBM needs loanable funds estimated at P196 million, placing the cost of such funds at 1 %.

In a memorandum submitted to Governor Calalang 12 days later, 22 July, Mr. Orosa unburdened himself and deployed CB for hemming and hawing. This caused, he said the loss of "psychological advantage" initially gained by PNB's take over of the OBM management. He reminded the CB Governor about the OBM management's request on 6 January 1968 for a P20 million loan to enable OBM to get on its feet. "At that time", he said, "the aid we are recommending, properly used, would have staved off panic and restored some confidence."
Eight months of indecision has made depositors lose faith and as a result, we are faced with more court suits and withdrawals than ever before and more obligations have matured. 7

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The next day, 23 July 1968, the Superintendent of Banks recommended to the Monetary Board that OBM be liquidated under Section 29, Republic Act 265, if its "capital structure cannot be strengthened to meet the requirements of Section 22 of RA 337", 8 and if "massive financing cannot be given to enable the bank to expand its risk assets." He concluded that:
... The bank's continuance in business under its present extremely precarious financial condition, without the necessary capital injection and financial aid, will involve not merely probable, but certain further losses to its depositors and other creditors and may have further adverse effects on the banking system.

Thereafter, on 13 August 1968, as heretofore stated, the CB Monetary Board adopted Resolution No. 1333, ordering the Superintendent of Banks to proceed to the liquidation of the OBM, under Section 29 of the Central Bank Act. As already noted, implementation of this resolution was restrained by this Court. Petitioners aver that no adequate financial assistance was granted to the OBM after the execution of the Voting Trust Agreement. They further ]claim that the said agreement is not only bilateral, imposing reciprocal obligations for valuable consideration, but was also entered into by respondent CB in the performance of its duties under the law; and that under said agreement the obligation of the CB was to act and work for the "rehabilitation, normalization and stabilization" of the OBM, through the extension of adequate and necessary financial assistance to stave off liquidation, is legally demandable, as well as a duty specifically enjoined and imposed by law. And that in violation of its obligations, the CB, "after eight months of delay", adopted the questioned resolutions, without notice to or hearing the petitioners. By resolution of this Court, the respondents were required to answer the petition and set for hearing the petition for a writ of injunction. However, on 13 August 1968, the CB adopted Resolution No. 1333 (Annex "12", Answer) forbidding the OBM from doing business and instructing the Superintendent of Banks to take charge of the Bank's assets and to take action under Section 29 of the Central Bank Act (Republic Act 265), which amounted to a directive for the liquidation of the OBM. Implementation of the resolution was, upon petitioners' motion, restrained by the Court on 14 August 1968. Justifying Resolutions 1263 and 1290, CB in its answer cited specific instances of OBM's "unusual and irregular transactions" discovered by examiners or "revealed by OBM officials themselves". By way of affirmative defenses, CB averred that: 1. The CB is not a party to the Voting Trust agreement, and therefore cannot be compelled to implement it. 2. Assuming that CB is obliged to rehabilitate OBM, it cannot give more loans to the latter than that already given to it as of 30 July 1968, without violating Section 90 of the Central Bank Act since neither OBM nor its stockholders could put up additional capital and additional collaterals to secure CB's future advances. 3. It would be illegal and contrary to public interest to construe the voting trust agreement as imposing upon CB the duty to rescue OBM at all cost. 4. No bank has an absolute right to take part in inter-bank clearing, because Section 100, Republic Act 265, requires a bank as a condition to such participation to keep deposit reserves, which the OBM does not have in fact it had overdrawn its reserve account with the CB beyond the maximum fixed by law. Several petitions for intervention were denied by the Court. The issues involved appear to be:
(a) Whether or not this Supreme Court has jurisdiction to restrain the implementation of CB Resolution No. 1333; (b) Whether or not the CB had agreed to rehabilitate, normalize and stabilize OBM; (c) Whether or not CB Resolutions Nos. 1263, 1290 and 1333 were adopted in abuse of discretion.

On the first issue of jurisdiction, the respondent Central Bank defines its position in its Rejoinder Memorandum, pages 3-5, as follows:
"We respectfully maintain,"..., that even as this Honorable Court had ample jurisdiction over the said petition, any action based on the approval and implementation of the third resolution, Res. 1333 on 13 August 1968 comes already within the exclusive original jurisdiction of the Court of First Instance, in accordance with the provisions itself of Section 29 of the Central Bank Act, Rep. Act 265, under which said resolution was promulgated. xxx xxx xxx The point ... is that the situation has changed entirely because of the approval of Res. 1333 on August 13, 1968, after the main petition had already been filed and given due course. This resolution has made the two previous questioned resolutions academic and the main petition pointless.

The CB stand is that to assail Resolution 1333 of the Monetary Board ordering the liquidation of the Overseas Bank, an action must be filed in the Court of First Instance of Manila by the Bank itself, and not by petitioning stockholders, allegedly in view of the provisions of Section 29, Republic Act No. 265, paragraph 3, reading:

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At any time within ten days after the Monetary Board has taken charge of the assets of any banking institution, such institution may apply to the Court of First Instance for an order requiring the Monetary Board to show cause why it should not be enjoined from continuing such charge of its assets, and the court may direct the Board to refrain from further proceedings and to surrender charge of its assets.

This argument must be rejected, for it overlooks the fact that before the Central Bank adopted said Resolution No. 1333 on 13 August 1968 this Court had already taken cognizance of the petition herein, assailing Resolutions Nos. 1263 and 1290 of the Monetary Board as "patent acts of liquidation," violative of its alleged commitment to rehabilitate the overseas Bank; and the Court, in fact, already had required the Central Bank to answer the petition on 12 August 1962, prior to the adoption of Resolution No. 1333. The latter resolution is clearly an act in pursuance of the policy outlined in the previous resolutions (1263 and 1290) enjoined by this Court. Hence, if jurisdiction was already acquired ito delve into the validity of Resolutions 1263 and 1290 (and this the Central Bank admits), there is no cogent reason why, after such jurisdiction had been acquired, the Court should be deprived thereof by the subsequent adoption of Resolution 1333, particularly because the latter, in relation to the antecedent facts, appears to be no more than a deliberate effort to evade the jurisdiction of this Court, and have the case thrown back to the Court of First Instance. In People vs. Pegarum, this Court quoted with approval the rule that:
... the jurisdiction of a court depends upon the state of facts existing at the time it is invoked, and if the jurisdiction once attaches to the person and subject matter of the litigation, the subsequent happening of events, although they are of such a character as would have prevented jurisdiction from attaching in the first instance, will not operate to oust jurisdiction already attached.

This rule coincides with well-established principles of American law 9 to the same effect. The basic guidelines in the exercise of this Court's original jurisdiction to issue prerogative writs were expressed in Dimayuga vs. Fernandez, 43 Phil. 306-307, thus:
... It is true, as respondents contend, that as a general rule, a court of equity will not restrain the authorities of either a state or municipality from the enforcement of a criminal law, and among the earlier decisions, there was no exception to that rule. By the modern authorities, an exception is sometimes made, and the writ is granted, where it is necessary for the orderly administration of justice, or to prevent the use of the strong arm of the law in an oppressive or vindictive manner, or a multiplicity of actions. In legal effect, that was the decision of this court in Kwong Sing vs. City of Manila. (41 Phil. 103) The writ of prohibition is somewhat sui generis, and is more or less in the sound legal discretion of the court and is intended to prevent the unlawful and oppressive exercise of legal authority, and to bring about the orderly administration of justice.

Nor would it serve the interest of justice to dismiss the case at this stage and let a new petition be filed in another court. In Bay View vs. Manila Hotel Worker's Union (L-21803, 17 December 1966), this Court, through Mr. Justice Conrado V. Sanchez, pointed out the evils attending split jurisdictions, saying:
To draw a tenuous jurisdictional line is to undermine stability in ... litigations. A piece meal resort to one Court and another gives rise to multiplicity of suits. ... The time to be lost, effort wasted, anxiety augmented, additional expense incurred these are considerations which weigh heavily against split jurisdiction. Indeed it is more in keeping with orderly administration of justice that all the causes of action here be cognizable and heard by only one court... (Cas. cit., 18 SCRA 953).

On Previous occasions, this Court has overruled the defense of jurisdiction in the interest of public welfare and for the advanced agreement of public policy, where, as in this case, an extraordinary situation existed. 10 There is no denying that creditors, depositors and the banking community are all interested in a quick determination whether the Overseas Bank may, under the circumstances, be closed or allowed to continue operating at the exclusive discretion of respondent Central Bank. The plea that the Overseas Bank is not a party to the case at bar need not give concern. The petitioners are the controlling stockholders of that Bank, and are qualified to represent its interests, so that a judgment may be enforced for or against it, although it is not impleaded by name in the suits (V. Albert vs. Court of First Instance, L-26361, 29 May 1968, 23 SCRA 948, 964). This is particularly true considering that the present management of the OBM (Overseas Bank of Manila) is at present composed of respondent's nominees, pursuant to the Trust Agreement, and they can hardly be expected to resist the plans and actions of respondent Central Bank (CB). On the second issue, whether or not the respondent CB agreed to rehabilitate the OBM, Of which petitioner are the majority stockholders, it is believed that a review of the letters from the CB to the petitioners (hereinbefore quoted), considered together with the terms of the Voting Trust Agreement, leaves no doubt that the CB did agree and commit itself to the continued operation of, and rehabilitation of, the OBM. As early as 2 May 1967, the respondent CB, through its Monetary Board, caused then Governor Castillo to advise petitioners that
he and other stockholders representing a majority will have to sign a trusteeship agreement with the Philippine National Bank pursuant to which the Overseas Bank will be managed by the Philippine National Bank. If the PNB takes over management in such eventuality, the Central Bank could also announce that it is ready to support the Philippine National Bank in order to allay the fears of depositors and creditors. (Pet., Annex "B") (Emphasis supplied)

CB Resolution No. 2015 of 16 October 1967 (Petition, Annex "F"), in addition to requiring a mortgage or assignment of petitioners' personal properties to CB, confirmed the quoted memorandum by requiring the stockholders of OBM to subscribe to an appropriate trust agreement, with the only difference that instead of the Philippine National Bank, the trust would be executed in favor of the CB

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as trustee to enable it to reorganize and transfer management to a nominee of the Monetary Board." Two weeks later, on 30 October 1967, after a conference at Malacaang, the CB governor once more wrote to Ramos that the Monetary Board
decided that, as a measure to stave off liquidation, a voting trust agreement should be executed by you and your family and the corporations controlled by you in favor of the Superintendent of Banks, in an instrument similar to the one executed by stockholders of the Republic Bank in favor of the Philippine National Bank (Petition, Annex "G") (Emphasis supplied)

The reference to the case of the Republic Bank clarifies the purpose and scope of the demand for a voting trust agreement "as a measure to stave off liquidation"; for it is well-known, and it is not denied, that when the Republic Bank previously became distressed, the CB had advanced funds, to rehabilitate it and allow it to resume operating. Accordingly, the voting trust agreement that was finally executed (Annex "A"), and which was admittedly prepared by the Legal Counsel of the Central Bank, recited in its preamble as an objective of the voting trust agreement, that:
... the above named stockholders of the Overseas Bank of Manila believe that it is for and/or interest and benefit of the bank depositors, creditors, and stockholders, that this trust agreement should be entered into by them for the rehabilitation, normalization and stabilization of the Overseas Bank of Manila.

and that the Superintendent of Banks as

... Trustee has likewise signified his willingness to accept such trust in pursuance of the objectives above mentioned. ... (Emphasis supplied)

While the trust agreement on its face creates obligations only for the Superintendent of Banks as trustee, his commitments were undeniably those of the Central Bank itself, since it was the latter that had from the very beginning insisted upon such voting trust being executed. For the Superintendent of Banks was an officer of the CB, the chief of its Department of Supervision and Examination of all banking institutions operating in the country, subject to the instructions of the Monetary Board at all times, pursuant to Section 25 of the CB charter, Republic Act No. 265; and it is not credible that he should have understand that he was entering into the trust agreement in his personal capacity. Bearing in mind that the communications, Annexes "B" and "G," as well as the voting trust agreement, Annex "A," had been prepared by the CB, and the well-known rule that ambiguities therein are to be construed against the party that caused them, 11 the record becomes clear that, in consideration of the execution of the voting trust agreement by the petitioner stockholders of OBM, and of the mortgage or assignment of their personal properties to the CB (Res. No. 2015, 16 October 1967, Annex "F," Petition), the CB had agreed to announce its readiness to support the new management "in order to allay the fears of depositors and creditors." (Annex "B"), and to stave off liquidation" by providing adequate funds for "the rehabilitation, normalization and stabilization" of the OBM, in a manner similar to what the CB had previously done with the Republic Bank (Portion, Annex "G," ante). While no express terms in the documents refer to the provision of funds by CB for the purpose, the same is necessarily implied, for in no other way could it rehabilitate, normalize and stabilize a distressed bank. Even in the absence of contract, the record plainly shows that the CB made express representations to petitioners herein that it would support the OBM, and avoid its liquidation if the petitioners would execute (a) the Voting Trust Agreement turning over the management of OBM to the CB or its nominees, and (b) mortgage or assign their properties to the Central Bank to cover the overdraft balance of OBM. The petitioners having complied with these conditions and parted with value to the profit of the CB (which thus acquired additional security for its own advances), the CB may not now renege on its representations and liquidate the OBM, to the detriment of its stockholders, depositors and other creditors, under the rule of promissory estoppel (19 Am. Jur., pages 657-658; 28 Am. Jur. 2d, 656-657; Ed. Note, 115 ALR, 157).
The broad general rule to the effect that a promise to do or not to do something in the future does not work an estoppel must be qualified, since there are numerous cases in which an estoppel has been predicated on promises or assurances as to future conduct. The doctrine of "promissory estoppel" is by no means new, although the name has been adopted only in comparatively recent years. According to that doctrine, an estoppel may arise from the making of a promise, even though without consideration, if it was intended that the promise should be relied upon and in fact it was relied upon, and if a refusal to enforce it would be virtually to sanction the perpetration of fraud or would result in other injustice. In this respect, the reliance by the promisee is generally evidenced by action or forbearance on his part, and the idea has been expressed that such action or forbearance would reasonably have been expected by the promissor. Mere omission by the promisee to do whatever the promisor promised to do has been held insufficient "forbearance" to give rise to a promissory estoppel. (19 Am. Jur., loc. cit.)

Disingenuously, the CB pleaded that the Voting Trust agreement was binding only upon the trustee, the Superintendent of Banks. But as already pointed out this proposition is unacceptable since the trust could have no private interest in the matters. Not only that, but CB subsequently caused its own team of nominees to take over the direction and management of the OBM, through the voting of the shares conveyed to the trustee. Even more, in August, 1970, the CB gave notice that it would not extend or renew the voting trust, and attempted to turn back the shares covered by it to the petitioners, thereby recognizing the obligations under the agreement as its own, and repudiating its original disclaimer thereof. How did the CB subsequently treat its commitments? After execution of the Voting Trust Agreement, on 20 November 1967, the CB elected and installed new directors and officers drafted from the Central Bank itself, the Philippine National Bank and the Development Bank of the Philippines. The new team assumed the management and control of the OBM and elected Augusto E. Orosa as bank president. On 6 January 1968, the new management requested for a thirty million peso loan to enable the OBM to get on its feet. How this request for aid was treated appears in a

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memorandum to the new CB governor, dated 22 July 1968 (Petitioner's Reply Memorandum, Annex "X," Record, pages 526-527). Mr. Orosa stated:
MEMORANDUM TO: Governor Alfonso Calalang SUBJECT: POSITION PAPER OF THE OVERSEAS BANK OF MANILA BACKGROUND A selected PNB team formally took over the management of the Overseas Bank of Manila on December 7, 1967. On January 16, 1968 we completed a report on the financial standing of the Bank, the original of which is in your possession. In that report, we recommended that the balance of the unpaid capital stock of P11 million be fully paid and P20 million be advanced by the Central Bank to enable the Bank to resume normal operations. At that time, we gathered from the books of account that the Bank faced obligations to be immediately met amounting to about P30 million as against liquid assets of more than P12 million or an immediate cash requirement of about P17 million. Nevertheless, and this is a very important point, our feeling was that at that time the aid we are recommending, properly used, would have staved off panic and restored some confidence. The entrance of the PNB team actually was a great initial psychological advantage; we have used that advantage to full extent: the advantage has faded. PRESENT POSITION Eight months of indecision has made depositors lose faith and as a result, we are faced with more court suits and withdrawals than ever before and more obligations have matured. We are made to understand that an advance of P19 million has been approved for the Bank and that an initial release of P10 million is under study. Last July 10, 1968, we wrote the Superintendent of Banks complying with his request to render a projection of what we can do with P10 million. There is a great leeway with what we can do with P10 million depending on the conditions which will accompany its grant. Even under the most liberal conditions that we can imagine, P10 million will not save the Bank. We are, however, not aware whether this proposed P10 million will be the start of a series of advances nor as to how much ultimately the Central Bank will be willing to finance the rehabilitation. We are faced with both internal and external problems that are daily increasing in difficulty. If we are requested to make a projection which we believe is a reasonable request, the present management should be made privy to the following: (1) What is the real policy of the Central Bank regarding the future of TOBM; (2) What is the policy of the Central Bank regarding present rates of interest and penalties on prevailing deficiencies; (3) What is the rate of interest to be charged on the fresh advances; (4) What are the conditions to be meted out regarding leeway and operations of TOBM; (5) Any other strings that may be attached. (6) What is the policy of Central Banking regarding unrecorded time deposits. All these points will greatly affect any projection. REQUEST: That the PNB management team be withdrawn from TOBM.

It is obvious from this memorandum that far from heeding the request of its own team for an advance of P30 million (or P17 million in cash) to enable the OBM to resume normal operations, the Central Bank did nothing to support the OBM between 6 January to 14 June, for almost six months, and kept even its own management team largely in the dark as to what to expect. 0n 14 June, CB advised that only P10 million were to be made available (i.e., one third of the requirements estimated necessary by its own representatives). This amount was naturally considered insufficient to normalize, much less rehabilitate, the OBM. And yet all this while, the CB was holding petitioners' mortgages on their private properties worth at least P67 million in 1967 by the CB's own appraisal. Petitioners claimed they were worth P100 million which can not be very far from the truth, considering the continual rise in real estate values.

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Not content with procrastinating for 6 months, without taking positive steps to normalize OBM as it had agreed to do, nor even announcing its support of its own management team or disclosing its policy regarding the future of OBM, (the CB finally adopted the resolutions now attacked by herein petitioner stockholders. On 30 July 1968, it excluded the OBM from clearing with the CB (Resol. No. 1263) the contingency that the Voting Trust and the mortgage of the petitioners' private properties were to guard against. On 1 August 1968, CB authorized (and virtually directed) its nominee Board of Directors to suspend operations (Resol. No. 1290); and thirteen days thereafter (13 August 1968), the CB directed its Superintendent of Banks to proceed to liquidate OBM (Resol. No. 1333) under Section 29 of Republic Act No. 265 (Central Bank Charter), providing that
SEC. 29. Proceedings upon insolvency. Whenever, upon examination by the Superintendent 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 Superintendent forthwith, in writing, to inform the Monetary Board of the facts, and the Board, upon finding the statements of the Superintendent to be true, shall forthwith forbid the institution to do business in the Philippines and shall take charge of its assets and proceeds according to law. If the Monetary Board shall determine that the banking institution cannot resume business with safety to its creditors, it 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 and supervision of the court in the liquidation of the affairs of the same. The Superintendent shall thereafter, upon order of the Monetary Board and under the supervision of the court and with all convenient speed, convert the assets of the banking institution to money.

We are constrained to agree with petitioners that the conduct of the CB from and after January, 1968, reveals a calculated attempt to evade rehabilitating OBM despite its promises. What is more aggravating is that by the ordered liquidation, depositors and other creditors would have to share in the assets of the OBM, while the CB's own credits for advances were secured by the new mortgages it had obtained from the petitioners, thereby gaining for it what amounts to an illegal preference. To cap it all, the CB disregarded its representations and promises to rehabilitate and normalize the financial condition of OBM, as it had previously done with the Republic Bank, without even offering to discharge the mortgages, given by petitioners in consideration for its promises, or notifying petitioners that it desired to rescind its contract, or bringing action in court for the purpose. And all the while CB knew that the situation of the OBM was deteriorating daily, with penalties at 3% per month continually accumulating, while its creditors, depositors and stockholders awaited the promised aid that never came, and which apparently CB never intended to give. The deception practiced by the Central Bank, not only on petitioners but on its own management team, was in violation of Articles 1159 and 1315 of the Civil Code of the Philippines:
ART. 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. ART. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. (Emphasis supplied)

The Supreme Court expounded the import of these legal provisions in Abelarde vs. Lopez, 74 Phil. 344, 348, stating:
Cleverness should never take the place of the loyal, upright and straightforward observance of plighted undertakings.

The CB excuses itself by pleading that the OBM officers had resorted to non-recording of time deposits in the Bank's books and diverting such deposits to accounting controlled by certain bank officials, and other irregularities. It is well to note, however, that these "unrecorded" deposits were revealed to the CB as early as 25 September 1967 by the then President of the OBM, Mr. Martin Oliva, who had no hand in such irregularities and who informed the Superintendent of Banks that time deposits worth P43,188,009.29 had not been carried in the books and had not been reported to the OBM directors. 12 In fact, on 29 September 1967, the CB had already ordered its examiners to investigate the Bank's records and determine the parties responsible. 13 Notwithstanding knowledge of these irregularities, the CB did not withdraw its promised support, and insisted on the execution of the Voting Trust Agreement on 20 November 1967. Such attitude imports that, in its opinion, the irregularities disclosed were not to be blamed on the OBM itself or its depositors and creditors, but on the officials responsible; and further, that the OBM could still be saved by adequate aid and management reform, which was required by CB's duty to maintain the stability of the banking system and the preservation of public confidence in it. Respondent CB likewise urges in its defense that the rehabilitation of the OBM has become impossible, and points out to the reports of the Superintendent of Banks and of Mr. Augusto Orosa (the President of OBM elected by the CB nominees under the Voting Trust) that the Bank's loanable funds had to be expanded to P136 million to break even. 14 It is to be borne in mind, however, that these reports were made in July, 1968, after six months of inaction on the part of the CB, without positive action on its part to comply with its previous commitments. Furthermore, while the stabilization of the OBM required injections of capital, it would be erroneous to assume that such capital would have to reach P130 million, or that it would have to be advanced all at once. For had the CB furnished the original aid of 30 million asked by the Orosa team early in January, 1968, and the OBM allowed to resume operations with CB support, the restored confidence would have stimulated new deposits, which, as is well-known, become in turn a source of loanable funds. It thus becomes apparent that most of the difficulties invoked now by the CB are of its own making, and are not a lawful excuse for its refusal to comply with its commitments. Finally, in the computations by the CB examiners, there are included a total of P16.994 million for estimated losses, interests and penalties 15 that did not represent amounts to be disbursed. More concretely, even in July, 1968, after six months of CB dilly-dallying, the actual amount needed to be loaned to the OBM for capital requirements "to support the necessary expansion in risk assets of P126.334 million in order to break even in its operations" was estimated by the Superintendent of Banks at no more than P40.730 million. 16 This amount tallies with Mr. A. Orosa's estimate that an advance of P30 million in January, 1968 would have saved OBM. 17 There is no showing that these amounts were beyond the capacity of CB to make, 18 nor is it proved that they exceeded the amounts supplied for the rehabilitation of the Republic Bank (the CB, for reasons of its own, refused to disclose the latter amounts despite

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requests from the court). Certainly, the ten million increase in advance capital requirements between January and July of 1968 can not be blamed on the petitioners herein, and was not of their own making. The respondent CB cites American cases to the effect that the courts can not interfere with CB's discretion in determining whether or not a distressed bank should be supported or liquidated. In none of the cases cited, however, does it appear that the CB engaged to support the distressed bank in exchange for control of its management and additional mortgages in its favor, and, therefore, the authorities cited are not in point. Discretion has its limits and has never been held to include arbitrariness, discrimination or bad faith. We conclude that having induced the petitioners to part with additional security in reliance upon its (CB's) promises and commitments to avert liquidation and to support, normalize and rehabilitate the OBM, the respondent CB is duty bound to comply in good faith with such promises. Consequently, being contrary thereto, CB Resolutions Nos. 1263, 1290 and 1333 should be annulled and set aside for having been adopted in abuse of discretion, equivalent to excess of jurisdiction. And never having attempted to comply, nor even to begin compliance, with its commitments and promises, the respondent CB is precluded to invoke the expiration of the period specified for the duration of its obligations under the Voting Trust Agreement. Such period should, in justice and equity, be deemed to start running from and after the CB begins due performance of its commitments, promises and representations in good faith. WHEREFORE, the writs prayed for in the petition are hereby granted, and respondent Central Bank's resolutions Nos. 1263, 1290 and 1333 (that prohibit the Overseas Bank of Manila to participate in clearing, direct the suspension of its operations, and ordering liquidation of said bank) are hereby annulled and set aside; and said respondent Central Bank of the Philippines is directed to comply with it obligations under the Voting Trust Agreement, and to desist from taking action in violation thereof. Costs against respondent Central Bank of the Philippines.
Dizon, Teehankee, and Villamor, JJ., concur.

Concepcion, Barredo and Makasiar, C.J., took no part.

Zaldivar, J., concurs in the result.

Separate Opinions

FERNANDO, J., concurring:

In the result primarily on the ground that respondent's arbitrary and improvident exercise of its asserted power in the premises is violative of due process.
MAKALINTAL, J., dissenting:

I fail to see, either from the record of this case or from the opinion of the majority, just how and where respondent Central Bank acted without or in excess of jurisdiction or with grave abuse of discretion so as to justify the writs of certiorari and prohibition granted by this Court; and just how and where said respondent neglected to perform a duty specifically enjoined by law so as to justify the writ of mandamus. To my mind the acts complained of in the petition, namely, Resolutions Nos. 1263 and 1290, passed by the Monetary Board on July 31 and August 1, 1968, respectively, were, if anything, a judicious exercise of discretion for the purpose of carrying out the policies laid down by the Central Bank Act with respect to supervision over the operation of private banking institutions and this Court, by issuing the writs prayed for, has substituted its own judgment for that of the Monetary Board in a matter that is peculliarly within the competence of the latter. The thrust of the decision, as far as I can make out, is that the Voting Trust Agreement of November 20, 1967 created contractual obligations, with which "respondent Central Bank of the Philippines is directed to comply ." The directive does not specify what those obligations are. The principal stipulation in the agreement is simply what its title indicates: petitioners here, referred to as the Cestuis Que Trust, assign to the Trustee "for such purpose" the voting rights to all their shares of stock in the Overseas Bank of Manila, subject to certain conditions thereafter stated. The purpose envisaged is expressed in the first of the two "WHEREAS" clauses of the agreement, to wit: "the abovenamed stockholders (petitioners here) believe that it is for and/or in the interest and benefit of the bank's depositors, creditors and stockholders that this trust agreement should be entered into by them for the rehabilitation, normalization and stabilization of the Overseas Bank of Manila." It seems, from a reading of the decision of this Court, that the purpose for which the Voting Trust Agreement was entered into more accurately, the goal sought to be achieved is mistaken for the obligation thereunder, and that such obligation devolves not upon the Trustee, the Superintendent of Banks, but upon the Central Bank itself, which is not a party to the agreement. Be that as it may, the agreement contains an optional rescission clause, which is only logical, since the feasibility of rehabilitating, normalizing and stabilizing the Overseas Bank, which was then in extremely distressed circumstances, would depend upon many factors which could not be predicted with mathematical certitude, but only upon a reasonably considered projection of future probabilities. Thus while the life of the agreement would be for three years from the date of its execution, it was provided expressly "that the Trustee may, at its option, relinquish the trust, upon approval of the Monetary Board." Resolution No. 1263, adopted July 31, 1968, excluded the Overseas Bank, then under trusteeship, from clearing with the Central Bank, effective immediately. Resolution No. 1290, adopted the next day, granted authority to the Board of Directors of the Overseas Bank to suspend operations pending final action by the Monetary Board. Such final action was evidently meant to be in connection

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with the recommendation submitted by the Superintendent of Banks to the Monetary Board on June 23, 1968, which reads in part as follows:
After considering (1) the Examiners' provisions for estimated losses on the recorded loans and receivables of P13.766 million (exclusive of estimated losses of P13.243 million on "unrecorded" loans and receivables), plus 2(a) the accrued interest on the emergency loans by, and overdrawings with, the Central Bank, and 2(b) penalties payable on deposit reserve deficiencies aggregating P3.228 million, or a total of P16.994 million, all of these not yet taken up in the books, the bank's capital accounts per books of P14.356 million as of June 30, 1968, would be wiped out resulting in an estimated deficiency to creditors of P2.638 million. Since the minimum capital required under Section 22 of Republic Act No. 337 as of June 30, 1968 is P19.142 million, the amount of fresh capital needed to be put up to comply with the minimum capital requirement as of June 30, 1968 would be P21.780 million. In addition, P18.950 million of new capital must be put up by the Bank to support the necessary expansion in risk assets of P126.334 million in order to break even in its operations. Therefore, the total fresh capital which the Bank must put to meet the requirements of Section 22 of R.A. No. 337, after considering the estimated losses on loans and other expenses not yet taken up in the books, as well as the necessary expansion in risk assets so as to break even in its operations, would be P40.730 million. xxx xxx xxx If the capital structure cannot be strengthened to meet the requirements of Section 22 of R.A. No. 337, and massive financing cannot be given to enable the Bank to expand its risk assets to the level at which it can break even in operations, then there seems to be no other alternative except to liquidate the Bank under Section 29 of R.A. No. 265. The Bank's continuance in business under its present extremely precarious financial condition, without the necessary capital injection and financial aid, will involve not merely probable, but certain, further losses to its depositors and other creditors and may have further adverse effects on the banking system.

In the situation depicted by the Superintendent of Banks, which in his opinion presented no other alternative except to liquidate the Overseas Bank pursuant to Section 29 of Republic Act No. 265 (Charter of the Central Bank), the adoption of Resolutions Nos. 1263 and 1290 was not, in my opinion, a violation of the Voting Trust Agreement, much less an abuse of discretion on the part of the Monetary Board. In a sense the issue with respect to the aforesaid resolutions has become moot and academic in view of the fact that on August 13, 1968, after the instant petition was filed, the Monetary Board adopted Resolution No. 1333, wherein it decided as follows:
(1) To forbid the Overseas Bank of Manila to do business in the Philippines; (2) To instruct the Superintendent of Banks to take charge, in the name of the Monetary Board of the bank's assets; (3) To instruct the Superintendent of Banks to take such further action as may be necessary pursuant to Section 29 of Republic Act No. 265; and (4) To refer the said memorandum report of the Superintendent of Banks as well as previous pertinent reports of the examiners of the Department of Supervision and Examination, particularly those pertaining to unrecorded certificates of time deposits bearing the signatures of former officers of the bank, to the Central Bank Legal Counsel for appropriate legal action.

The adoption of Resolution No. 1333, it seems to me, should remove the present controversy from this Court if it was properly here at all in the first place, which I doubt and address it to the Court of First Instance pursuant to Section 29 of the Central Bank Charter, which provides:
SEC. 29. Proceeding upon insolvency. Whenever, upon examination by the Superintendent 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 Superintendent forthwith, in writing, to inform the Monetary Board of the facts, and the Board, upon finding the statements of the Superintendent to be true, shall forthwith forbid the institution to do business in the Philippines and shall take charge of its assets and proceeds according to law. The Monetary Board shall thereupon determine within thirty days whether the institution may be reorganized or otherwise placed in such a condition so that it may be permitted to resume business with safety to its creditors and shall prescribe the conditions under which such resumption of business shall take place. In such case the expenses and fees in the administration 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. At any time within ten days after the Monetary Board has taken charge of the assets of any banking institution, such institution may apply to the Court of First Instance for an order requiring the Monetary Board to show cause why it should not be enjoined from continuing such charge of its assets, and the court may direct the Board to refrain from further proceedings and to surrender charge of its assets. If the Monetary Board shall determine that the banking institution cannot resume business with safety to its creditors, it 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 and supervision of the court in the liquidation of the affairs of the same. The Superintendent shall thereafter, upon order of the Monetary Board and under the supervision of the court and with all convenient speed, convert the assets of the banking institution to money.

My misgiving as to the propriety of the remedy sought by petitioners is that it is essentially for the enforcement of an alleged contract, presented in the guise of a petition for certiorari, prohibition and mandamus. This is borne out by the decision of this Court, which directs the Central Bank "to comply with its obligations under the Voting Trust Agreement, and to desist from taking any action in violation thereof." It is to be noted that noted that no "act which the law specifically enjoins as a duty resulting from an office, trust, or station" is ordered to be performed. Compliance with contractual obligations is beyond the purview of mandamus, and original

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jurisdiction over an action for that purpose pertains to the Courts of First Instance. Such an action is a plain, speedy and adequate remedy in the ordinary course of law which, being available to petitioners, should bar the present recourse to the extraordinary writ of mandamus, especially because certain vital facts are controverted by the parties, such as the outstanding liabilities which can not be paid by the Overseas Bank, the value of the properties mortgaged to the Central Bank by petitioners, the extent of the loans secured by the mortgage, and the amount of money which the Central Bank is supposed to advance in order to comply with its supposed undertaking to rehabilitate, normalize and stabilize Overseas Bank. Curiously enough, as already noted, the decision of this Court merely directs compliance with the Voting Trust Agreement without specifying if indeed what is implied is the rehabilitation of the Overseas Bank just what should be done to achieve that goal, or just how many millions of pesos the Central Bank must continue to pump into the Overseas Bank in order to put it in its feet again. It is no idle speculation to say that the writs granted by this Court may raise more questions than they answer. With particular reference to the mortgages executed by petitioners, they say the same were a consideration of the Voting Trust Agreement. Respondent Central Bank denies this and maintains that the mortgages were constituted as security for "the huge amounts of emergency loans and overdrawings advanced in the clearing house to the OBM by the Central Bank." The Voting Trust Agreement itself is silent on the point. My own reading of the record convinces me of the correctness of the position of the Central Bank. In any case, considering the existence of a substantial disagreement on this point, not only between the parties but also among the members of this Court, the issue could best be resolved in an ordinary action, either for specific performance as hereinbefore indicated or for rescission of the mortgages and the reconveyance of the mortgaged properties to petitioners. For the resolution of this issue I believe that this Court is not the proper forum in the first instance, nor the present petition the proper vehicle. Going back to Section 29 of Republic Act No. 265, it may be noted that what the Central Bank did, including its suggestion that a Voting Trust Agreement be executed, was in accordance with its powers and duties under the said section. Whenever a banking institution is in a state of insolvency the Monetary Board shall determine whether it "may be reorganized or otherwise placed in such a condition so that it may be permitted to resume business with safety." A Voting Trust, such as that which was entered into in the case of the Overseas Bank, is certainly one of the measures which may be adopted for that purpose. The rehabilitation of the distressed institution is the primary goal of the authority given to the Monetary Board, and there is nothing so sacrosanct in a voting trust agreement, or in the use of the word "rehabilitate" therein, that once it is executed the Central Bank is thereby bound to see the rehabilitation" through as an ordinary contractual commitment, no matter how costly and impractical it may prove. For Section 29 also provides that "if the Monetary Board shall determine that the banking institution cannot resume business with safety to its creditors, it 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 and supervision of the Court in the liquidation of the affairs of the same." This was precisely the step contemplated by the Monetary Board when it passed Resolution No. 1333 on August 1968, and any questions concerning its validity, in my opinion, should be raised in a proper case as authorized in the said provision. In view of the foregoing considerations, I vote to deny the writs prayed for and to dismiss the instant petition.

CASTRO, J., concurring:

Like Mr. Justice Querube C. Makalintal, in whose dissent I concur fully, I am in sharp disagreement with the conclusions reached by the majority of the Court. Before I state my reasons, which will be extensively discuss in seriatim farther below, it is well that we get a general picture of (a) the overdrawings incurred by the Overseas Bank of Manila in its clearing account with the Central Bank up to August 13, 1968 when the liquidation of the Overseas Bank was ordered by the Central Bank, and (b) the fraudulent transactions perpetrated in the operations and management of the Overseas Bank. These are summarized by the Superintendent of Banks, as follows:
1. Advances granted to TOBM by way of overdrawings in 1967 thru 1968 The Overseas Bank of Manila had been chronically overdrawn in its current account since 1967 thru 1968. However, these overdrawings were made good before clearing time by means of cash deposit, call money or sale of dollar drafts. It was sometime in September, 1967 that it failed to cover the overdrawings. [The overdraft which amounted to P16,116,890.06 as of September 29, 1967 increased to P51,925,381.90 as of August 13, 1968.] On September 29, 1967, the Monetary Board in its Resolution No. 1890 enjoined TOBM not to allow overdrawings amounting to P16.4 million to deteriorate any further. On October 16, 1967, the Monetary Board in its Resolution No. 2015, among others, required Mr. Ramos, Sr. to submit a listing of his properties and to mortgage or assign the same to cover the overdraft balance therewith of TOBM and not to exclude TOBM from clearing. On October 16, 1967, date the listing of the alleged P100 million collateral was submitted, TOBM's overdrawings of its clearing account with CB totalled P22.333 million. On November 20, 1967, date the Voting Trust Agreement was executed between the Superintendent of Banks and Emerito M. Ramos, Sr. et al., the bank's overdrawings amounted to P33,624,743.68. During this period [from November 20, 1967 to July 26, 1968] it will be noted that the collateral position of the Central Bank on loans granted to TOBM by way of overdrawings, showed consistent net collateral deficiency, taking into consideration, appraised value of collateral documents and even at the higher of PNB or DBP appraised values. When finally the registration of the mortgages was almost complete, on July 23, 1968, the Monetary Board decided to consider a liberal loan value of 90% on the average of PNB and DBP market values. 2. Monetary Board decisions showing real intention in requiring collateral from M. E. M. Ramos, Sr. et al.

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From the various Monetary Board decisions and reports, there was no doubt that the requirement for Mr. Emerito M. Ramos, Sr. et al. to put up the collateral was for the purpose of securing the unsecured obligation of TOBM with the Central Bank, by way of overdrawings in the clearing account. Records show that Central Bank made this known to TOBM and Mr. Ramos, Sr. all along from the very beginning. a) No. 1735 dated September 8, 1967 To require TOBM to mortgage the Padre Faura property to the Central Bank to secure the unsecured advances given thereto especially by way of overdrawings. (Transmitted to TOBM per DSE letter dated September 14, 1967.) b) No. 1890 dated September 29, 1967 After noting the report on the disclosure of transactions at TOBM which had neither been incorporated in the books of said bank nor reported to its board of directors, the Monetary Board enjoined TOBM not to allow the overdrawings of its clearing account with CB amounting then to P16.4 million, to deteriorate any further; and required the TOBM to immediately mortgage to CB all other available properties of Mr. E. M. Ramos and family in order to secure the unsecured advances given to said bank especially by way of overdrawings. (Transmitted to TOBM per DSE letter dated October 1967.) c) No. 1918 dated October 3, 1967 Monetary Board instructed management to exert every effort to obtain collateral to secure the unsecured liabilities of TOBM to CB. d) No. 1975 dated October 10, 1967 Monetary Board instructed management to continue with its efforts to obtain additional collateral to secure the unsecured liabilities and for the protection of other creditors/depositors thereof. e) No. 2014 dated October 14, 1967 To effect the registration of the second mortgage on Xavierville Estate. f) No. 2015 dated October 16, 1967 To require Mr. Emerito M. Ramos, Sr., to submit a listing of his property and to mortgage and assign the same to the Central Bank to cover the overdraft balance of TOBM. (Transmitted to TOBM per DSE letter dated October 19, 1967.) g) No. 2017 dated October 17, 1967 Instruction to the Central Bank Legal Counsel to proceed immediately with the registration of the second mortgage on the Xavierville Estate in favor of the Central Bank; and thereafter, to obtain the consent of the majority of the stockholders of the Xavierville Estate, Inc. to a second mortgage in appropriate resolution approved at a regularly called stockholders' meeting; and to assign one or more lawyers for the particular purpose of (a) seeing to it that the Central Bank obtain a lien on as many properties (real or personal), including shares of stock (the corresponding certificate of which be delivered to the Central Bank) and other assets in the name of Mr. Emerito M. Ramos, Sr. and members of his family, as can be obtained, amounting to at least P100 million as represented by Mr. Ramos; and (b) drawing up and registering with the Register of Deeds of the necessary documents establishing the liens of the Central Bank on such properties. To the Acting Superintendent of Banks To obtain information on as many more properties as possible (including shares of stocks) in the name of Mr. Ramos and members of his family as are not included in a list submitted by Mr. Ramos on October 16, 1967, so that the Central Bank can obtain a lien thereon. h) No. 2132 dated November 3, 1967 Monetary Board instructed management to write a letter to TOBM to reiterate CB's demand for additional collateral to secure the unsecured liabilities of the TOBM to CB and for the protection of the other creditors and depositors. (Letter of Governor dated November 6, 1967 sent.) i) Memorandum to Monetary Board of Acting Superintendent of Banks on the matters taken up in the conference held with Mr. E. M. Ramos, Sr. and Mr. M. Oliva on October 23, 1967 disclosed that the Governor impressed upon Mr. Ramos the imperativeness of his putting up of adequate collaterals to fully secure present CB advances and before the CB can even consider the extension of additional advances to TOBM. One specific resolution to this effect was M. B. Resolution No. 2210 dated November 17, 1967 wherein the Board instructed management to acknowledge the letter dated November 17, 1967 of the Auditor of the Central Bank inviting attention to the increasing trend in the overdraft of TOBM with the CB amounting to P32,210,242.21 as of November 16, 1967; to advise the Auditor General and the CB Auditor that documentation is now being undertaken of the mortgages covering the properties (allegedly worth P100 million) offered by Mr. Emerito M. Ramos, Sr. to secure the unsecured liabilities of TOBM to the CB; and to transmit copies of the aforesaid 1st Indorsement of the Auditor General and the letter of the CB Auditor to the Board of Directors of TOBM and to require the said bank to explain why it should not be excluded from CB clearing. 3. Fraudulent transactions a) Extent of the fraudulent transactions made known to the Central Bank In a letter dated September 25, 1967, Mr. Martin R. Oliva, then TOBM President, made a disclosure to the Acting Superintendent of Banks, certain transactions amounting to P48 million which have not been incorporated in the books of TOBM and not reported to its Board of Directors. In addition to these transactions, a number of regular accounts were manipulated by top officers of TOBM whereby bank funds amounting to about P38 million (net) were channeled to various interests. These manipulated accounts were reinstated in the books of the bank through a series of adjustments and accounting entries passed upon by the bank in September 1967.

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The consolidated trial balance of these two sets of transactions as prepared by TOBM Acting Assistant Accountant follows: Consolidated Trial Balance As of September 22, 1967 ___________________

Debits Accounts Receivable Bills Discounted Time Loans P25,235,721 .34 419,989.27

Credits

4,764,968.5 9 12,502,521. 38 4,492,498.4 7 38,858,797. 87

Special Overdrafts Expenses

Suspense Account in Liquidation Time Deposits Accounts Payable Cashier's Checks Acceptance s Payable Earnings Overdrawin gs C/A #1198 Demand Deposits Savings Deposits Bills Payable Due to Branches Domestic Bills Purchased (Payable) Accrued Interest Receivable

P44,110,563 .45 1,086,566.0 3 2,020,000.0 0 1,100,000.0 0 644,587.00 2,933,646.7 8

12,107,517. 78 10,005,080. 54 1,500,000.0 0 3,584,004.2 8 6,177,451.4 4

1,005,079.6 2

____________ P86,274,496 .92

___________ 86,274,496. 92

The loans and other receivable accounts shown in the above trial balance were without any loan papers and collaterals, thus their collections would be extremely difficult and hopeless to pursue. On the other hand, the liabilities, including the `unrecorded' time deposits which were ruled as liabilities of the bank, in an opinion rendered by the Secretary of Justice, were properly documented and therefore actual liabilities of the bank.

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The bulk of the loans and other receivable accounts were in the name of Ramoses and their various business interests. The Suspense Account in Liquidation amounting to P38.8 million, however, could not be accounted for, but verification of the fraudulent transactions, based on available documents/records tends to show that said account represents funds channeled to the benefit of the Ramoses and their business interests. However, there was no acknowledgment on their part to this effect. b) Extent of verification Verification of the above transactions has been temporarily suspended in view of lack of bank examiners. However, even with the resumption of verification, a complete reconstruction and documentation thereof are highly improbable because so many bank records are missing in the bank's files. Besides, it will take a considerable length of time, considering that the manipulations, involved thousands of transactions and verification requires the tracing of every single transaction to a number of records. Moreover, verification is made doubly difficult by the fact that so many entries in the deposit/withdrawal sheets were fictitious, alongside with the genuine ones, and the examiners had to follow the trial and error method in tracing the entries. One type of manipulation alone was done daily, with so many deposit accounts involved on a single day and this covered a period of two (2) years more or less. c) Modus operandi for the fraudulent transactions The "modus operandi" or mode of operation employed the opening of current or checking accounts with the bank, the signatories of which were Emerito B. Ramos, Jr. and a few selected officers. 1) Current Account No. 1198 EMRACO with the following authorized signatures: (a) Emerito B. Ramos, Jr. Executive Vice President & Treasurer (b) Rodrigo Recto Assistant Vice President & Cashier (c) Rodolfo R. Sunico Vice President & Chief Accountant (d) Manuel Moje with the Office of the Executive Vice President 2) Current Account No. 1198-A General Fund with no known authorized signatures. 3) Current Account No. 1920 COFICO SPECIAL ACCOUNT NO. 2 with the following authorized signatures: (a) Emerito B. Ramos, Jr. Executive Vice President & Treasurer (b) Rodolfo R. Sunico Vice President & Chief Accountant These fraudulent and highly devious operations involving a staggering amount of P86 million were perpetrated under two general schemes: 1) Moneys of depositors received by the bank as time deposits or in exchange for banker's acceptances and cashier's checks were not recorded in the books of the bank as money owned or liability of the bank to the depositors/creditors. Instead, the money received were recorded as deposits to Current Account No. 1920. As mentioned above, these transactions, known as "unrecorded transactions", involved P48 million. 2) The second scheme involving about P38 million as of September 30, 1967 is subdivided into three operations, namely: (a) "Segregated accounts" Ledger cards showing the balances of the deposits of either current, time or savings account depositors, usually with large balances, were removed from the respective files of depositors. Withdrawals were effected on these ledger cards without the knowledge or consent of the depositors. The aggregate amount illegally withdrawn was then shown as deposits to Current Account No. 1920, 1198, or 1198-A. (b) "Diverted accounts" Funds properly belonging to the bank were credited or shown as deposits to Current Account No. 1198 or 1198-A. Examples: (1) Payments made by La Suerte Cigar and Cigarette Co. of P6.25 million on its loan with the bank was recorded as deposit to Current Account No. 1198, instead of crediting the account of the debtor. The amount paid properly belong to the bank. (2) Call loans obtained from other banks were also credited to the current accounts controlled by the officers of TOBM. (3) Remittances from other banks for the account of a TOBM branch were likewise not shown in the books as such but instead credited to the current accounts owned/controlled by the officers. (c) "Fictitious/simulated entries" Books were made to show that funds were transferred from branches to Head Office (no actual fund transfer) and credited to current accounts owned/controlled by officers of TOBM. Checks were drawn by Ramos corporations against their unfunded current accounts. These checks were held up as asset accounts of TOBM and credited again to the current accounts owned/controlled by officers of TOBM.

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As fast as funds were received under either the "unrecorded transactions" or "segregated/diverted" schemes, loans were surreptitiously granted to the various firms/corporations, owned or controlled by Mr. Emerito M. Ramos, Sr., and members of his family, numbering twenty-seven (27), twelve (12) of which were established from 1964 to 1967, and also to other borrowers. As a means of control and accounting of this clandestine financing operations, Messrs. Emerito B. Ramos, Jr. and Rodolfo R. Sunico, ably assisted by trusted employees, designed and maintained a separate book of accounts accessible only to them and to nobody else. Since the nucleus of the anomalous transactions was linked to the deposit accounts, Mr. Emerito B. Ramos, Jr. and his men availed fully of the protective mantle of the provisions of R.A. No. 1405 which prohibits the disclosure of any information on deposit accounts even to bank examiners, and thus the perpetrators were able to amass an enormous amount of P86.129 million as of September 30, 1967 which they appropriated for their various firms/corporations and partially to other borrowers, in wanton disregard of banking laws, rules, regulations and orders legally issued by the Central Bank, never before recorded in the annals of banking in the Philippines. In addition to the above, Emerito B. Ramos, Jr., Executive Vice President and Treasurer, during the time that he was on an indefinite leave of absence from May 1967, and therefore no longer authorized to sign for the bank, still received funds and issued TOBM certificates of time deposit and banker's acceptances in the aggregate amount of P2.02 million. Naturally, these amounts were not recorded in the regular books of the bank nor in the separate set of books, and the proceeds thereof were pocketed by Mr. Ramos, Jr. 4. Loans to the Ramoses As of July 31, 1967 (date of latest regular examination of TOBM), the total outstanding loans and advances to the Ramos/family/enterprises aggregated P29.086 million, representing 41.18% of the total loan portfolio (recorded or regular loans) of P70.633 million. On September 25, 1967, Mr. Martin R. Oliva, then TOBM President, disclosed the so-called unrecorded transactions. He first reported that as per tentative trial balance as of September 13, 1967, the total unrecorded transactions totalled P48.007 million. However, as of September 30, 1967, after certain adjustments/entries have been passed, the total amount of unrecorded/diverted/segregated accounts totalled P86.129 million. From discussions of manipulation above, these funds were channeled to current accounts controlled by the E. M. Ramoses and were withdrawn or spent according to their pleasure. Certain properties of the Ramoses were offered to the bank on a "dacion en pago" arrangement in the total amount of P30.6 million and were applied to the outstanding loans and obligations (both recorded and unrecorded loans) of the Ramoses. However, even with the application of the proceeds of these properties offered to TOBM, the outstanding loans of the Ramoses/family/enterprises still stood at an enormous amount of P72.150 million (both recorded and unrecorded) or 58.90% of the total loans of P122.502 million (both recorded and unrecorded) as of June 30, 1968 summarized below: Outstanding Loans and Advances (Recorded & Unrecorded)
(As of June 30, 1968) (In Millions)

Recorded

Unrecord ed % to Amount Total

Total

% to SUMMARY: Amount Total

% to Amoun t Total

Total loans and advances and other amounts to be accounted for by E. M. Ramos, Sr./family/enterpr ises Loans and advances to parties other than the Ramos family/enterprise s 31.230 62.05% 19.122* 26.50% 550.35 2 41.10% P19.100 37.95% P53.050 73.50% P72.15 0 58.90%

Total

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Outstanding Loans & Advances P50.330 100.00% P72.172 100.00% P122.5 02 100.00 %

* While these were shown as having been lent to third parties, promissory notes were not presented to indicate indebtedness of third parties. Considering that these amounts were derived from funds channeled to the current accounts of the Ramoses and were granted by them to third parties, these amounts could very well be amounts that will also have to be accounted for by E.M. Ramos, et al.

My fundamental purpose in quoting in full the above narration is to project the importance of certain facets of this case which were accorded only scant attention or consideration in the majority opinion, and with reference to which I entertain a perspective different from that of the majority. On the basis thereof and of other facts which I will advert to in the course of my discussion, I now proceed to explain the reasons for my dissent, as well as refute certain arguments advanced and specific conclusions reached in the main opinion. Briefly stated, my reasons are as follows: 1. The Central Bank (hereinafter referred to as the CB) is without power, under the law, to enter into the voting trust agreement in question, as this agreement is construed by the majority. 2. Even assuming that the CB is legally a party thereto, (a) the said agreement expressly gave the Monetary Board authority to terminate the same at any time; (b) no express and definite commitment was therein made that the CB will extend further extraordinary financial assistance to the Overseas Bank of Manila (hereinafter referred to as the OBM); (c) contrary to the assertion that the CB has reneged on its "promise" under the said agreement, the CB has taken the necessary steps, consistent with law, to rehabilitate the OBM; and (d) the CB cannot be expected, legally and morally, to continue supporting the OBM at any and all cost. The basic assumptions of the majority opinion, vis-a-vis the CB's being a privy to the voting trust agreement, are as follows: (a) The CB rather than the Superintendent of Banks is the real party thereto because the latter is a mere officer of the CB acting under its orders. (b) The CB had executed certain acts which indicate that it is the real party to the said agreement. Thus, it is said that the CB, from the very start, had insisted upon the execution of the said agreement; had caused the nomination of the team that took over the management of the OBM; had given notice that the agreement in question will no longer be renewed or extended, which, consequently, led to the promulgation of Resolution No. 1333 on August 13, 1968 ordering the Superintendent of Banks to proceed to liquidate the OBM under section 29 of the Central Bank Act. (c) By "promising" to work for the rehabilitation, normalization and stabilization of the OBM to stave off its liquidation, the CB, in effect, impliedly obligated itself to finance the funding requirements of the OBM until these objectives are attained within the term stated in the voting trust agreement. In my view, even if it were assumed that the intention of the CB authorities relative to the said voting trust agreement was to make the CB a party thereto, its validity and binding effect upon the CB are not legally possible since under the said agreement the CB would not only be acquiring the legal title, including voting rights, over the shares of stock of the petitioners in the OBM, but it would also be actually directing the management and operation of the bank-powers and prerogatives the acquisition of which by the CB is expressly prohibited by law. Section 133 of the Central Bank Act states:
Sec. 133. Prohibitions. The Central Bank shall not acquire shares of any kind or accept them as collateral, and shall not participate in the ownership or management of any enterprise, either directly or indirectly.

Section 27 of the Central Bank Act explicitly prohibits the Superintendent of Banks from exercising the powers granted under the said voting trust agreement. Thus:
Sec. 27. Prohibition. The Superintendent and all employees of the Department of Supervision and Examination are hereby prohibited from: (a) Being an officer, director, employee or stockholder, directly or indirectly, of any institution subject to supervision or examination by the department.

Obviously, by virtue of the clear and unmistakable constraints described in the foregoing provisions of the CB Charter, the alleged intent of the CB authorities to be bound by the terms of the said voting trust agreement cannot but be interpreted as having been pursued under a clear misapprehension if not direct disregard, of the law. On this point, it appears to me to be well settled in our jurisdiction that the Government (and the CB is an instrumentality of the Government) is never estopped by the mistake or error of its agents. And since estoppel cannot give validity to an act that is prohibited by law or contrary to public policy, the CB cannot

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consequently be bound by any action diametrically contrary to what the law prohibits (such as those found in sections 27 and 133 of the CB Charter) which may be executed on its behalf by its agents, such as the Monetary Board. (See Eugenie vs. Perdido, L7083, May 19, 1955; Benguet Consolidated Mining Co. vs. Pineda, L-7231, March 28, 1956; Bachrach Motor Co. vs. Unson, 50 Phil. 981; San Diego vs. Municipality of Naujan, Oriental Mindoro, L-9920, February 29, 1960; also 10 Am. Jur. 802). Because the voting trust agreement ascribes to the Monetary Board certain duties and grants it certain powers, the majority opinion used this as one of the reasons to support the conclusion that the CB is a real contractual party to the agreement. I view the matter differently. As I see it, the agreement is between the OBM and the Superintendent of Banks only. Nowhere within the four corners thereof do I find any statement that, the CB is a contractual party thereto. The majority opinion loses sight of the fact that in the matter of the regulation of the banking and monetary systems of this country, the CB, as the "bank of banks," is given-all-embracing powers of supervision and superintendence. In the situation that the OBM has found itself, it was incumbent upon the CB to exercise these powers. If the agreement contains express reference to the Monetary Board it is because the OBM and the Superintendent of Banks, by themselves alone, without any assist from the CB, would be completely incapable of rehabilitating, normalizing and stabilizing the OBM. The agreement is much more than an ordinary contract between two private parties; it is a covenant unavoidably impressed with public policy: the stability of the banking and monetary systems. It must therefore be regarded, properly speaking, as one in which the provisions of the CB Charter and other pertinent laws are deemed perforce incorporated. As a matter of fact, even if there were no mention at all of the Monetary Board in the agreement, still the execution thereof would, by compulsion of the provisions of the Central Bank Charter, require direct supervision and superintendence by the CB. Whether the Monetary Board, in requiring the execution of the trust agreement, had in mind section 29 of the Central Bank Act or any of the general corporate powers vested in it by section 4 of the same Act, or what it honestly felt was its duty under the law "to maintain monetary stability in the Philippines" (section 2, CBA), and, in the discharge thereof, to make available its credit facilities "to regulate the volume, costs, availability and character of bank credit and to provide the banking system with liquid funds in times of need" (section 86, CBA), and "ensure that the supply, availability and cost of money are in accord with the needs of the Philippine economy and that bank credit is not granted for speculative purposes prejudicial to the national interests (Section 108, CBA), still the inescapable conclusion remains, by virtue of the statute's prescribing the principles that should guide, and the objectives that should be pursued by, the CB, that the Monetary Board required the execution of the voting trust agreement not for the purpose of binding the CB as a contracting party, but solely to fulfill its statutory obligation to superintend the banking system and forestall the occurrence of conditions that effectively lead to financial panic or that threaten monetary and banking stability. The law as well as the situation in extremis of the OBM by 1967, therefore, called for the monetary authorities to act, and act they did, by conscientiously attempting to eliminate the reported (at least, what they believed to be) causes of the bank's deterioration, by requiring the management of the bank to be passed onto new and trusted hands. But the said action, as I have stated earlier, was exercised for no other reason than to comply with the CB's statutory duty to manage and administer the banking and monetary systems of the country. I now proceed to discuss my second fundamental reason for this dissent. Assuming that the CB is legally a contracting party to the voting trust agreement, (a) the said agreement expressly gave the Monetary Board authority to terminate the same at any time; (b) no express and definite commitment was therein made that the CB would extend further extraordinary financial assistance to the OBM; (c) contrary to the assertion that the CB has taken the necessary steps, consistent with law, to rehabilitate the OBM; and (d) the CB cannot be expected, legally and morally, to continue supporting the OBM at any and all cost. Although I have divided this reason into foul parts, I will discuss all of these parts together as they are inextricably intertwined. By its very terms, the agreement could be terminated at any time at the option of the Monetary Board. The stipulated life span of the said agreement is stated in the following words:
1. That the life of this trust agreement shall be for a period of three years commencing from the date of the execution of this contract, provided, however, that the TRUSTEE may, at its option, relinquish the trust, upon approval of the Monetary Board, and provided, further that if, at the expiration of the three-year period, the purposes for which this trust agreement has been constituted have not, as yet, been fully achieved, this trust agreement shall then be considered automatically extended for such further period to be determined by the Monetary Board, similarly terminable within such further period also at the discretion of the Monetary Board. It is further agreed that if the condition of the Overseas Bank of Manila so warrant, the CESTUIS QUE TRUST may request the Monetary Board for the earlier termination of this agreement.

Without having to turn the mentioned stipulation inside out, it is unmistakably clear that under the unambiguous specific language used, the CB was not absolutely bound thereunder to any specific period during which it must restore the OBM to its feet. For, while the opening portion of the said stipulation states that the trust agreement shall be for a 3-year period, this term is, however, explicitly made subject to the condition that the "TRUSTEE may, at its option, relinquish the trust." If, as the majority opinion says, the resolutions in question contradict the "promise" of the CB that it will rehabilitate, restore and stabilize (to stave off the liquidation of) the OBM, then I can see no other conclusion but that the CB had thereby relinquished the said trust. The said trust agreement having been thus rescinded, I cannot see how the CB, in adopting the said resolutions, can be accused of having acted in "abuse of discretion equivalent to excess of jurisdiction.". Undue emphasis and reliance are placed by the majority opinion upon the argument that under the voting trust agreement in question the CB was obligated "to act and work for the "rehabilitation, normalization and stabilization" of the Overseas Bank of Manila, through the extension of adequate and necessary financial instance to stave off liquidation" an argument which, in my view, entirely fails to consider that there are contractual and statutory, if not administrative as well as market, constraints to what the CB can do in the matter of assisting banks in extremis.

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A reading of the scope of the powers and authority granted to the CB under the voting trust agreement provides the first step in an analysis of the contractual and legal constraints under which the OB must operate. The relevant stipulation of the said agreement recites:
3. During the life of this trust agreement the trustee shall have all and full authority, subject only to the limitations set by law and other conditions set forth therein: to direct the management of the affairs and accounts and properties of the Overseas Bank of Manila; to vote its directors and to choose the officers and employees giving due consideration to the suggestions of the cestui que trust for the employment and retention of qualified, competent and reputable persons who enjoy their confidence; to improve, modify, reorganize its operation, policies, standards, systems, methods, structure, organization, personnel, staffing, pattern, etc.; to hold and vote on the shares of stocks transferred to him as trustee; to safeguard the interests of depositors, creditors and stockholders; and in general to exercise all such powers and discharge all such functions as inherently pertain to the cestui que trust as owners, and/or for the sound management of a banking institution.

The aforementioned stipulation sets forth with definiteness and specificity the scope and reach of the alleges obligation f the CB to work for the "rehabilitation, normalization and stabilization of the Overseas Bank of Manila" under the voting trust agreement. By virtue of the said stipulation, the trustee's only duty and authority is to manage the affairs of the OBM in a manner beneficial to the bank, its equity owners, depositors and creditors. Nowhere does it appear in the said stipulation nor in any portion of the said voting trust agreement (which them majority opinion considers as the law between the parties) that the CB must pump money into the coffers of the OBM for its "rehabilitation, normalization and stabilization." Indeed, considering the precarious position of the OBM, the subsequent takeover by the CB (through its nominees) of its operations constitutes full compliance with its duty under the said agreement. For, it must be noted that the take-over of the OBM's operations was induced by the CB's considered belief, through reports submitted by its examiners, that the principal stockholders of the bank were misusing and fraudulently diverting for personal purposes the funds and assets of the bank to the detriment of its other stockholders and its creditors and depositors a belief which is not unfounded. The majority opinion itself states that the OBM (a) had overdrawn its clearing account with the CB beyond permissible limits, (b) had chronic reserve deficiency, and (c) had deficiency in the required liquidity floor against government deposits as early as 1965, all of which, by 1967, caused such a mounting concern at the CB that the latter
ordered the closing of all deposit accounts of Mr. Emerito Ramos and members of his family within the third degree, and firms and corporations in which they had interest; for the stockholders to put in an addition of P6.8 million, to remove Ramos and other key officials of the bank found to be responsible for irregular or anomalous transactions from their positions, to install an internal comptroller appointed by the Central Bank, and to place collection efforts of the bank under a special team headed by the Central Bank Legal Council.

Undoubtedly, the take-over by a new management of the operations of the OBM to stop the bank's assets and funds from further being fraudulently dissipated could bring about relative normalcy and stability and remove the immediate threat of closure. But no trustee can be expected to surmount what is humanly insurmountable. The CB is not expected, nor cannot it be obliged, to divert its own funds for the purpose of saving a solitary bank whose in extremis condition was, in the first place, caused by the malfeasance, and non-feasance of its principal stockholders and officers. The CB was established to discharge certain constituent functions. Its powers are necessarily circumscribed by law. The fact that it achieves a surplus fund in its operations does not mean that it can devote such surplus fund to any use not specifically and clearly described by law. Section 41 of the Central Bank Act, in fact, specifies the uses to which its net profits may be devoted. The "rehabilitation, normalization and stabilization" of a private commercial bank are not among these. And even if it be construed that the management function which the CB had supposedly assumed includes the giving of extraordinary financial assistance, I seriously dispute the observation of the majority that the CB did not conscientiously and in good faith exert every effort to rehabilitate, normalize and stabilize the OBM. The pertinent facts, narrated in chronological perspective below, conclusively rebut this observation of the majority. 1. During the five years of the existence of the OBM, the CB granted it a total of P76.11 million in the form of emergency loans (P24,185,193.74) and overdrawings in its clearing account (P51,925,381.90). (For purposes of clarity, a banking institution, by law and as ruled by the Monetary Board, is required to hold reserves against its deposit liabilities partly in the form of deposits with the CB. If this deposit account is overdrawn, which results from the clearing of checks, the bank incurs an overdraft. An overdraft in the clearing account of a bank is regarded as a loan in the books of the CB.) 2. The OBM, since early 1967, had been chronically overdrawn in its clearing account with the CB, but somehow, was able to make sufficient deposits to cover the daily overdrawings before the start of the clearing every day. It was sometime in September 1967 that it failed to cover the overdrawings. On September 25, 1967, Martin Oliva, then OBM President, informed the CB of transactions which were not recorded in the books of the OBM in the amount of 48.007 million. There were other manipulations made in the books which caused funds derived from depositors and clients of the bank to be credited to current accounts of certain OBM officers for their personal use and/or for the benefit of corporations and other interests of the Ramos family. The disclosed amount of P48.007 million was later determined to reach P86.129 million as of September 30, 1967. 3. Alarmed by this development and by the sudden increase in the overdrawings, the Monetary Board issued a series of directives requiring, among other things, the bank and Emerito M. Ramos, Sr., et al., the majority stockholders of the bank, to put up collateral to secure the unsecured obligations of the OBM with the CB, especially the overdrawings. The CB account was apparently being used to fund the operations of the OBM and the withdrawals of the depositors, since the funds originally deposited and collected to the extent of the manipulations were not invested for the benefit of the bank but were instead withdrawn for the use and benefit of the Ramos corporations.
(a) Resolution No. 1735 dated September 8, 1967 required the OBM to mortgage its Padre Faura property to the CB to secure the unsecured advances given, especially by way of overdrawings.

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(b) Resolution No. 1890 dated September 29, 1967 required the Xavierville Estate, Inc. to mortgage to the CB its Xavierville property situated in Quezon City to partly secure whatever liabilities the OBM had with the CB, and required the OBM to immediately mortgage to the CB all other available properties of the Ramoses (Emerito M. Ramos and family) in order to secure the unsecured advances given to the OBM especially by way of overdrawings, and place the advances so secured in a separate account. (c) Resolution No. 1918 dated October 3, 1967 instructed the CB management to exert every effort to obtain collateral to secure the unsecured liabilities of the OBM to the CB. (d) Resolution No. 1975 dated October 10, 1967 instructed the CB management to continue with its efforts to obtain additional collateral to secure the unsecured liabilities of the OBM to the CB and for the protection of other creditors/depositors thereof. (e) Resolution No. 2014 dated October 14, 1967 instructed the CB management to effect the registration of the second mortgage on the Xavierville Estate. (f) Resolution No. 2015 dated October 16, 1967 required Emerito M. Ramos, Sr., to submit a listing of his property and to mortgage and assign the same to the CB to cover the overdraft balance of the OBM. (g) Resolution No. 2017 dated October 17, 1967 instructed the CB Legal Counsel to proceed immediately with the registration of the second mortgage on the Xavierville Estate in favor of the CB, and thereafter to obtain the consent of the majority of the stockholders of the Xavierville Estate, Inc. to a second mortgage in an appropriate resolution approved at a regularly called stockholders' meeting; to assign one or more lawyers for the particular purposes of (1) seeing to it that the CB obtained a lien on as many properties (real or personal), including shares of stock (the corresponding certificate of which should be delivered to the CB) and other assets in the same of Emerito M. Ramos, Sr. and members of his family, as could be obtained, amounting to at least P100 million as represented by Emerito Ramos, and (2) drawing up and registering with the Register of Deeds the necessary documents establishing the liens of the CB on such properties. This resolution also instructed the Acting Superintendent of Banks to obtain information on as many more properties as possible (including shares of stocks) in the names of Emerito Ramos and members of his family as were not included in the list submitted by Emerito Ramos on October 16, 1967, so that the CB could obtain a lien thereon. (h) Resolution No. 2132 dated November 3, 1967 reiterated the CB's demand for additional collateral to secure the unsecured liabilities of the OBM to the CB and for the protection of the other creditors and/or depositors thereof. (i) Resolution No. 2185 dated November 7, 1967 noted a letter dated November 6, 1967 of the CB Governor to the OBM, which stated among other things, as follows: "As previously requested and agreed to by your principal stockholder, Mr. Emerito Ramos, Sr., immediately have Mr. Emerito M. Ramos, Sr., his associates or controlled corporations execute the necessary documentation to mortgage real properties to the Central Bank to secure the unsecured liabilities of The Overseas Bank of Manila to the Central Bank, and for the protection of the other creditors and/or depositors thereof. In this connection, it is reiterated that Mr. Ramos deliver to the Central Bank the endorsed certificates of stock of corporations in which he or his family has equity." (j) Resolution No. 2210 dated November 17, 1967 instructed the CB management to acknowledge the letter dated November 17, 1967 of the Auditor of the CB, inviting attention to the increasing trend in the overdraft of the OBM with the CB amounting to P32,210,242.21 as of November 16, 1967; to advise the Auditor General and the CB Auditor that documentation was then being undertaken of the mortgages covering the properties (allegedly worth P100 million) offered by Emerito M. Ramos, Sr. to secure the unsecured liabilities of the OBM to the CB; to transmit copies of the aforesaid 1st Indorsement of the Auditor General and the letter of the CB Auditor to the Board of Directors of the OBM and to require the OBM to explain why it should not be excluded from CB clearing.

As can be deduced from the foregoing resolutions, bad faith cannot be imputed to the CB when the voting trust agreement was executed on November 20, 1967, since all along Emerito M. Ramos, Sr. knew, as he was indeed from the very beginning, that the properties he had offered, allegedly worth P100 million, were to secure all the unsecured liabilities of the OBM with the CB. 4. In a conference held with E. M. Ramos, Sr. and M. Oliva on October 23, 1967, the CB Governor impressed upon Ramos the imperativeness of his putting up adequate collateral to fully secure the CB advances before the CB could even consider the extension of additional advances to the OBM. Moreover, the intentions of the CB in the execution of the voting trust agreement may be found in Resolution No. 2015 dated October 16, 1967 wherein the Monetary Board decided, among other things.
To require the stockholders of The Overseas Bank of Manila to subscribe to an appropriate voting trust agreement so that the Central Bank may be able to effect a complete reorganization and/or transfer management of the bank to a nominee of the Monetary Board.

In point of fact, the voting trust agreement was broached to the OBM or the Ramoses for the first time, not on October 16, 1967, but on December 23, 1966, when the Monetary Board, per its Resolution No. 2072, expressed the sense that if the OBM failed to elect a permanent President by January 31, 1967, acceptable to the Monetary Board, the bank should transfer the management of its affairs to the PNB under an appropriate voting trust agreement. 5. The CB was alarmed by the uncontrolled increase of the overdrawings in the OBM's clearing account, which continued to deteriorate despite admonitions from' the CB. The CB sought a change in the management of the OBM because the anomalies and fraudulent transactions in the OBM were being perpetrated by son of E. M. Ramos, Sr., and funds derived from the manipulation of accounts were being channeled to the corporations and interests of the Ramos family. These are borne out by the following:
(a) Resolution No. 1890 dated September 29, 1967 enjoined the OBM not to allow the state of the overdrawings in its clearing account with the CB, amounting to P16.4 million as of September 29, 1967, to deteriorate any further. (b) Resolution No. 2014 dated October 14, 1967 ordered

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(1) the return to clearing of OBM's Manager's and Cashiers' checks debited to clearing on Friday, October 13, 1967; (2) the listing and taking possession of outstanding Manager's, Cashiers and Treasurer's checks to be presented in the afternoon clearing on Monday, October 16, 1967; and . (3) the OBM to refrain from issuing Manager's and Cashier's checks. (c) Resolution No. 2015 dated October 16, 1967 suspended, in the meantime, the implementation of the instructions embodied in Resolution No. 2014 dated October 14, 1967 for the return of the bank's Manager's, Cashier's, and Treasurer's checks received thru the clearing to the banks which honored them, and the exclusion of the OBM from clearing, pending implementation of the requirements under paragraphs (1) re: submission of list of properties and (2) re: voting trust agreement, provided that the overdraft balance of the OBM as a result of clearing operations did not significantly increase above the level thereof of P21.2 million as of October 13, 1967. (d) Resolution No. 2017 dated October 17, 1967 instructed the Acting Superintendent of Banks to see to it that the accounts with the OBM of the enterprises owned by Ramos and members of his family were either closed or frozen in order to prevent the further deterioration of the OBM's clearing balance with the CB, and to see to it that the OBM did not issue Manager's and Cashier's checks. (e) Resolution No. 2132 dated November 3, 1967 instructed the CB management to immediately write a letter to the OBM demanding payment, within five (5) days from receipt of such demand, of whatever amount was necessary so as to reduce the OBM's overdraft balance with the CB to the level thereof of P21.2 million as of October 13, 1967, and the OBM not to permit drawings by its clients on their overdraft accounts until after completion of the review of such accounts by CB examiners, and to immediately advise the clients concerned accordingly. (f) Resolution No. 2188 dated November 7, 1967 stated, in connection with the report of the Acting Superintendent of Banks dated October 27, 1967 on the financial condition of the OBM as of August 31, 1967, that the general principle/policy to be carried out/applied on the OBM was to prevent the further increase of its overdrawings with the CB. Toward this end, the Board: (1) Expressed the sense that the unrecorded transactions of the OBM should not be recognized by the OBM pending study and verification thereof; and (2) Directed the CB management to require the OBM: (a) Not to convert deposits from one type to another: (b) To return all incoming checks and items from clearing which were drawn against accounts in the unrecorded transactions, against demand deposits which were converted from time or savings deposits, and, as already instructed, against overdraft lines and against accounts with insufficient balances; and (c) To take all precautions, measures and steps necessary to prevent further deterioration of the overdrawn clearing balance with the CB which as of November 7, 1967 amounted to P28.437 million. (g) Emerito M. Ramos, Sr. procrastinated in the final execution of the voting trust agreement. In the meantime, the overdrawings increased from P21.2 million on October 13, 1967 to P33.62 million on November 20, 1967. Finally, on November 17, 1967, the Monetary Board, in its Resolution No. 2190, instructed the CB management: (1) To require the stockholders of the OBM representing a substantial majority of the stock thereof to sign, not later than Monday morning, November 20, 1967, a voting trust agreement in favor of the Superintendent of Banks, called for under Resolution No. 2020 dated October 20, 1967; (2) To deny to the OBM access to CB clearing beginning Monday afternoon, November 20, 1967, should such voting trust agreement not be signed by that time; and (3) To return all incoming checks and items from clearing which were drawn against accounts in the unrecorded or falsely recorded transactions in the OBM. (h) Resolution No. 2252 dated November 23, 1967 instructed the CB management to take immediate action so that increases in overdrawings in the CB would be reflected in corresponding decrease in "recorded" deposit liabilities, impressing upon all those concerned that the unrecorded or falsely recorded transactions in the OBM were not to be recognized or honored, although evidence purporting to establish the legitimacy of such supposed transactions could be received by the CB. All transactions were to be passed upon by the Comptroller designated by the CB.

6. On November 20, 1967, the voting trust agreement between Emerito M. Ramos, Sr., et al., as trustor, and the Superintendent of Banks, as trustee, was executed. 7. It took a considerable length of time, or up to July 23,.1968, before all the properties deemed acceptable as collateral by the Monetary Board were mortgaged/assigned in favor of the CB. Contrary to the belief that the CB withheld funds from the OBM, the advances by way of overdrawings on any one date were always more than the appraised value of collateral mortgaged/assigned on

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the same day. The CB later liberally changed this basis of valuation, to be able to extend more advances by way of overdrawings to the OBM. 8. As of July 2, 1968, the balance of the overdrawings in the OBM's clearing account amounted to P51,661,774.90, whereas the loan value of the collaterals put up by Emerito M. Ramos, Sr., et al., computed liberally at 90% of the average PNB and DBP market values, amounted to P51,127,290, with a resulting collateral deficiency of P534,484.90. Having been apprised that no further acceptable collateral of appreciable value had been offered by the controlling stockholders and no additional fresh capital funds of the magnitude necessary to bail out the very distressed condition of the OBM was expected from the controlling stockholders, the Monetary Board was constrained to take drastic action and on July 30, 1968, under its Resolution No. 1263, decided to exclude the OBM from clearing with the CB, effective immediately. Two days Later, the Monetary Board, under its Resolution No. 1290 dated August 1, 1968, further decided to authorize the Board of Directors of the OBM to suspend the operations of the OBM. 9. At the time of the execution of the voting agreement on November 20, 1967, the overdrawings in the OBM's clearing account amounted to P33,624,743.68; as of August 13, 1968, they amounted to P51,925,381.90, or an increase of P18,300,638.22. All the above demonstrates that the CB extended P18.3 million additional financial assistance to the OBM from November 21, 1967 to August 13, 1968, or during the period of almost nine (9) months following the date of the execution of the voting trust agreement. The crucial portion of the decision relative to the alleged obligation of the CB to "rehabilitate, normalize and stabilize" the OBM is found on p. 16 thereof, the pertinent portion of which reads as follows:
... the record becomes clear that, in consideration of the execution of the voting trust agreement by the petitioner stockholders of OBM, and of the mortgage or assignment of their personal properties to the CB (Res. No. 2015, 16 October 1967, Annex "F", Petition), the CB had agreed to announce its readiness to support the new management "in order to allay the fears of depositors and creditors" (Annex "B"), and to "stave off liquidation" by providing adequate funds for "the rehabilitation, normalization and stabilization" of the OBM, in a manner similar to what the CB had previously done with the Republic Bank (Petition, Annex "G", ante).

While no express terms in the documents refer to the provision of funds by CB for the purpose, the same is necessarily implied, for in no other way could it rehabilitate, normalize and stabilize a distressed bank. (Emphasis supplied) As I have already stressed, the CB did not commit itself to rehabilitate, normalize and stabilize the OBM. But even assuming that there was in fact such a commitment, it is obvious to me that the same cannot be unqualified. The limits thereof must be ascertained in the light of existing statutes, more particularly, the pertinent provisions of the Civil Code of the Philippines, in relation to the pertinent provisions of the Central Bank Charter. In this connection, Article 1306 Of the Civil Code provides as follows:
ART. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. (Emphasis supplied)

Thus, assuming that the CB is legally committed under the voting trust agreement to rehabilitated the OBM, any action of the CB in respect thereto must have to be particularly what it can perform within the periphery of the law. The only way by which the CB can succeed in rehabilitating the OBM, under present conditions, is to extend financial assistance through loans of astronomical magnitude granted to the latter. In this respect, section 90 of the Central Bank Charter provides as follows:
SEC. 90. Emergency loans and advances. In periods of emergency or imminent financial panic which directly threaten monetary and banking stability, the Central Bank may grant banking institutions extraordinary advances secured by any assets which are defined as acceptable security by a concurrent vote of at least five members of the Monetary Board. While such advances are outstanding, the debtor institution may not expand the total volume of its loans or investments without prior authorization of the Monetary Board. (Emphasis supplied)

It would be in palpable violation of the provisions of section 90 if the CB were to grant the OBM further loans and advances, considering that neither the OBM nor its stockholders can put in the required additional capital nor submit collaterals acceptable to at least five (5) members of the Monetary Board. Nowhere in the voting trust agreement is it provided that the CB bound itself to bring about the rehabilitation, normalization and stabilization of the OBM at all cost. The decision of this Court further states that the CB should rehabilitate the OBM in a manner similar to what the CB had previously done with the Republic Bank. The rationale of this statement, found on p. 15 of the decision, reads:
CB Resolution No. 2015 of 16 October 1967 (Petition, Annex `F'), in addition to requiring a mortgage or assignment of petitioner's personal properties to CB, confirmed the quoted memorandum by requiring the stockholders of OBM to subscribe to an appropriate trust agreement, with the only difference that instead of the Philippine National Bank, the trust would be executed in favor of the CB as trustee "to enable it to reorganize and transfer management to a nominee of the Monetary Board." Two weeks later, on 30 October 1967, after a conference at Malacaang, the CB governor once more wrote to Ramos that the Monetary Board decided that, as a measure to stave off liquidation, a voting trust agreement should be executed by you and your family and the corporations controlled by you in favor of the Superintendent of Banks, in an instrument similar to the one executed by stockholders of the Republic Bank in favor of the Philippine National Bank.

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The reference to the case of the Republic Bank clarifies the purpose and scope of the demand for a voting trust agreement " as a measure to stave off liquidation"; for it is well-known, and it is not denied, that when the Republic Bank previously became distressed, the CB had advanced funds to rehabilitate it and allow it to resume operating.

The above statements are without support in the record of this case. First: It will be clearly seen that reference was made to the Republic Bank merely for the purpose of describing the "instrument" to be executed by the OBM stockholders (which must be "similar to the one executed by the stockholders of the Republic Bank.") On the basis of such reference, one cannot logically and immediately reach the conclusion that because the instrument (form) may be similar, the obligations (substance) would necessarily be similar, such that if the CB had indeed advanced funds to the Republic Bank, it is likewise obligated to advance funds to the OBM. Second: The statement that "when the Republic Bank previously become distressed, the CB had advanced funds to rehabilitate it and allow it to resume operating," appears to me to be gratuitous. There is nothing in the pleadings which shows as a fact that the CB had advanced funds to the Republic Bank, nor, if it did so, how much and for what specific purposes or ends. I have earlier stated that the mortgages or assignments of properties to the CB by the OBM stockholders were not a consideration of their entering in to the voting trust agreement. However, the decision appears to imply that the said mortgages were executed by the OBM stockholders because they were "induced" by the CB and "misled" into believing that such conveyances would "stave off liquidation." The pleadings of the respondent CB have uniformly maintained that the OBM stockholders were required to effect the mortgages in question precisely and solely because of the requirements of section 90 of the Central Bank Charter. The OBM had incurred, long before the execution of the voting trust agreement, overdrawings amounting to tens of millions of pesos; section 90 of the Central Bank Charter requires that these overdrawings be secured by collaterals acceptable to the Monetary Board. On November 20, 1967, the date the voting trust agreement was entered into, the OBM's overdrawings in its clearing account with the CB amounted to P33,624,743.68. Emerito Ramos had been promising the Monetary Board that fresh capital would be put into the bank, but these promises remained unfulfilled, notwithstanding repeated demands made on him by the CB, such that with the revelation of the unrecorded huge deposits in the OBM, it became obvious that Ramos could never fulfill his promises. Logic cannot sustain the statement that the OBM stockholders were induced into mortgaging their properties for the purpose of staving off liquidation. There was a moral and legal obligation on the part of the OBM to execute such mortgage because of its huge overdrawings which were not secured by sufficient and acceptable collaterals. The CB could legally demand the execution of such mortgages without need of providing any enticement or inducement to the OBM stockholders. It is, therefore, grossly erroneous to state that the execution of such mortgages was the consideration of the voting trust agreement. . The decision further states that the CB is now reneging on its commitments and on page 22 thereof, observes that the CB excuses itself by pleading that the OBM officers had resorted to non-recording of time deposits in the Bank's books and diverting such deposits to accounts controlled by certain bank officials, and other irregularities. True it is that, in its pleadings, the CB dwelt lengthily on the irregularities and anomalies, committed by the OBM management. This was done, however, not for the purpose of "excusing" itself from rehabilitating the OBM, but to show the imperativeness of the execution of the voting trust agreement as engendered by the critical condition of the OBM. I find it difficult to understand, therefore, why the majority of the Court would brush aside as being inconsequential the serious irregularities and anomalies committed by the OBM official's and stockholders, and instead "censure" the CB in deciding to liquidate the OBM. The decision further observes that "the CB made express representations to petitioners herein that it would support the OBM, and avoid its liquidation if the petitioners would execute (a) the Voting Trust Agreement turning over the management of OBM to the CB or its nominees, and (b) mortgage or assign their properties to the Central Bank to cover the overdraft balance of OBM. The petitioners having complied with these conditions and parted with value to profit of the CB (which thus acquired additional security for its own advances), the CB may not now renege on its representations and liquidation the OBM, to the detriment of its stockholders, depositors and other creditors, under the rule of promissory estoppel." As may be seen, however, the real situation is widely disparate. The CB required a change of management of the OBM by means of the voting agreement, because it had lost its confidence in the former one and it required the owners of the bank to collateralize all its obligations to the CB because that is what the law ordains. With the putting up of additional capital by the owners of the OBM and the financial assistance extended by the CB in the form of overdrawings in the OBM's clearing account, it was hoped that the OBM would be able to rehabilitate, normalize and stabilize itself. Unfortunately these expectations did not materialize partly because the owners of the OBM failed to produce the needed additional capital and the necessary collaterals for further loans from the CB. As already repeatedly stated, the conveyances of properties made by the petitioners were required by the CB in order to secure the huge amounts of loans and overdrawings which had been advanced to the OBM long before the voting trust agreement was executed. Under these circumstances, how can it be asserted that the CB is now "estopped" from "reneging" on its promise to rehabilitate, normalize and stabilize the OBM?
The doctrine of "promissory estoppel" is discussed in Corpus Juris Secundum, which, in this connection, states, Of course, a promise cannot be the basis of an estoppel if any other essential element is lacking ... Justifiable reliance and irreparable detriment to the promisee are requisite factors. (31 C.J.S. 291) .

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Certainly the petitioners could not have justifiably relied upon any "promise" of the CB to rehabilitate the OBM, assuming that there was such promise, if in the fulfillment thereof the CB would have to extend further financial assistance in the form of loans, without the requisite corresponding collaterals from the OBM, or to contribute to the capital of the said bank. For these would be in flagrant violation of section 90 and 133 of the Central Bank Charter, which are mandatorily prescriptive, and would in effect compel the CB to dole out public funds in the hundreds of millions of pesos in cynical contravention of the law. It is, therefore, incomprehensible to me how the doctrine of "promissory estoppel" can be made to apply. Bad faith and abuse of discretion are imputed by the majority of the Court to the CB for ordering the liquidation of the OBM, in obedience to the mandate of section 29 Of the Central Bank Charter. To demonstrate that this charge is groundless, I quote excerpts (which are self-explanatory) from the memorandum dated July 23, 1968 of the Superintendent of Banks to the Monetary Board. Thus:
... The Bank cannot be rehabilitated unless its operational losses are stopped. As of June 30, 1968, the accumulated losses of the Bank per its books stood at P6.9 million exclusive of estimated losses on loans. In order to at least break even in its operations (that is, that there be no net profit or net loss), the Bank must be able to lend in such a magnitude as to be able to cover the large operational expenses, particularly interest on deposits and borrowings. ... However ... the Bank must put up additional capital in order to meet the requirements of Section 22 of Republic Act No. 337 and to support the necessary expansion in risk assets. Therefore, the fresh funds needed in order to break even in operations must consist not only of borrowed funds but also of additional capital contribution. On this basis, the Bank will need a total of P126.334 million of loanable funds, which must be composed of P40.730 million additional capital (P21.780 million needed for risk assets as of June 30, 1968 plus P18.950 million to support the expansion in risk assets of P126.334 million) and P85.604 million of borrowed funds ... xxx xxx xxx And even granting that the Bank can obtain the required loanable funds in order to break even in its operations, it cannot legally invest all the funds unless its capital structure is also increased to support the necessary expansion in risk assets. Section 22 of Republic Act No. 337 requires that the combined capital accounts of a commercial bank shall not be less than 15% of its total risk assets. As of June 30, 1968, the required minimum capital of the bank was P19.142 million while its combined capital accounts per books were only P14.356 million thus showing a capital deficiency of P4.786 million. After considering (1) the Examiners' provision for estimated losses on the recorded loans and receivables of P13.766 million (exclusive of estimated losses of P13.243 million on `unrecorded' loans and receivables), plus 2(a) the accrued interest on the emergency loans by, and overdrawings with, the Central Bank, and 2(b) penalties payable on deposit reserve deficiencies aggregating P3.228 million, or a total of P16.994 million, all of these not yet taken up in the books, the bank's capital accounts per books of P14.356 million as of June 30, 1968, would be wiped out resulting in an estimated deficiency to creditors of P2.638 million. Since the minimum capital required under Section 22 of Republic Act No. 337 as of June 30, 1968 is P19.142 million, the amount of fresh capital needed to be put up to comply with the minimum capital requirement as of June 30, 1968 would be P21.780 million. In addition, P18.950 million of new capital must be put up by the Bank to support the necessary expansion in risk assets of P126.334 million in order to break even in its operations. Therefore, the total fresh capital which the Bank must put up to meet the requirements of Section 22 of RA No. 337, after considering the estimated losses on loans and other expenses not yet taken up in the books, as well as the necessary expansion in risk assets so as to break even in its operations, would be P40.730 million. xxx xxx xxx If the capital structure cannot be strengthened to meet the requirements of Section 22 of RA No. 337, and massive financing cannot be given to enable the Bank to expand its risk assets to the level at which it can break even in operations, then there seems to be no other alternative except to liquidate the Bank under Section 29 of RA No. 265.

Unlike the majority of the Court, I recognize the existence of numerous shifting imponderables always attendant to the superintendence of the banking and monetary systems, the solutions to or resolutions of which lie peculiarly within the expertise of the CB, but assuredly beyond the ken, beyond the competence, of any member of this Tribunal or of even the entire judicial collegium that is the Supreme Court. For my part, I refuse to be simplistic; I dare not substitute my own personal judgments or predilections or predilections for the judicious exercise by the CB of the specialized discretion vested in it by law. It is thus that I cannot discern what act done or step taken by the CB in relation to the OBM, when tested against the postulates of the law and of public morality, can be condemned as deceptive or oppressive, or as amounting to bad faith or abuse of discretion. Reference was made in our deliberations on the case at bar to an offer supposedly made by a number of depositors as a partial solution to alleviate the grave situation that now besets the OBM, which in general outline is to the effect that their deposits be converted into shares of stock of the OBM. But I am not told nor does the record anywhere disclose, the names of these venturesome depositors, or the amounts of their respective deposits, or the precise meaning and details of such offer. Verily, everything about this "proposition" is a disembodied blur. I well understand the overriding concern of the majority of the Court for the plight of the innocent depositors and creditors of the OBM. I share that concern, I, too, want to see all of them retrieve the full face value of their deposits and credits. As it is, the prejudice that they have already suffered is nigh incalculable. The deposits were made and the credits were extended at a time when the foreign exchange rate was four pesos to one US dollar. When these shall be returned, if at all, the rate of exchange will probably have risen to more than the present floating rate of about six and one half pesos to one US dollar, and the purchasing power of the will have been considerably watered down. In the meantime, these depositors and creditors have been, and will continue to be, effectively prevented from investing their OBM money (which has not earned nor is now earning interest) in profitable ventures or stocks. If, on some future but highly uncertain day, fifty percent of such deposits and credits will be returned, the depositors and creditors of the OBM might well regarded what they will get as veritable manna from heaven.

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At all events, I should think that if and when the OBM by the grace of the majority opinion, shall have resumed operations, even under the protective solicitude of the CB, the be-all and end-all concern of most of the OBM depositors and creditors will be to extricate from the OBM, soonest possible and not to the last centavo, all their deposits and credits. More likely than not, they will not thereafter like many perceptive observers on the outside looking in touch the OBM again, not even with the proverbial ten-foot pole. Finally, I must articulate a query which, as far as I am able to perceive, the Central Bank has not explored in depth, but which the majority of the Court have apparently confidently answered in the affirmative: In the face of the well-known constraints of public policy and high public morality, is it the real amendment of the Central Bank Charter and other pertinent laws that the Central Bank must run to the total rescue of any and every private banking institution which is in extremis due to causes other than inept but bona fide management?

Separate Opinions

FERNANDO, J., concurring:

In the result primarily on the ground that respondent's arbitrary and improvident exercise of its asserted power in the premises is violative of due process.
MAKALINTAL, J., dissenting:

I fail to see, either from the record of this case or from the opinion of the majority, just how and where respondent Central Bank acted without or in excess of jurisdiction or with grave abuse of discretion so as to justify the writs of certiorari and prohibition granted by this Court; and just how and where said respondent neglected to perform a duty specifically enjoined by law so as to justify the writ of mandamus. To my mind the acts complained of in the petition, namely, Resolutions Nos. 1263 and 1290, passed by the Monetary Board on July 31 and August 1, 1968, respectively, were, if anything, a judicious exercise of discretion for the purpose of carrying out the policies laid down by the Central Bank Act with respect to supervision over the operation of private banking institutions and this Court, by issuing the writs prayed for, has substituted its own judgment for that of the Monetary Board in a matter that is peculliarly within the competence of the latter. The thrust of the decision, as far as I can make out, is that the Voting Trust Agreement of November 20, 1967 created contractual obligations, with which "respondent Central Bank of the Philippines is directed to comply ." The directive does not specify what those obligations are. The principal stipulation in the agreement is simply what its title indicates: petitioners here, referred to as the Cestuis Que Trust, assign to the Trustee "for such purpose" the voting rights to all their shares of stock in the Overseas Bank of Manila, subject to certain conditions thereafter stated. The purpose envisaged is expressed in the first of the two "WHEREAS" clauses of the agreement, to wit: "the abovenamed stockholders (petitioners here) believe that it is for and/or in the interest and benefit of the bank's depositors, creditors and stockholders that this trust agreement should be entered into by them for the rehabilitation, normalization and stabilization of the Overseas Bank of Manila." It seems, from a reading of the decision of this Court, that the purpose for which the Voting Trust Agreement was entered into more accurately, the goal sought to be achieved is mistaken for the obligation thereunder, and that such obligation devolves not upon the Trustee, the Superintendent of Banks, but upon the Central Bank itself, which is not a party to the agreement. Be that as it may, the agreement contains an optional rescission clause, which is only logical, since the feasibility of rehabilitating, normalizing and stabilizing the Overseas Bank, which was then in extremely distressed circumstances, would depend upon many factors which could not be predicted with mathematical certitude, but only upon a reasonably considered projection of future probabilities. Thus while the life of the agreement would be for three years from the date of its execution, it was provided expressly "that the Trustee may, at its option, relinquish the trust, upon approval of the Monetary Board." Resolution No. 1263, adopted July 31, 1968, excluded the Overseas Bank, then under trusteeship, from clearing with the Central Bank, effective immediately. Resolution No. 1290, adopted the next day, granted authority to the Board of Directors of the Overseas Bank to suspend operations pending final action by the Monetary Board. Such final action was evidently meant to be in connection with the recommendation submitted by the Superintendent of Banks to the Monetary Board on June 23, 1968, which reads in part as follows:
After considering (1) the Examiners' provisions for estimated losses on the recorded loans and receivables of P13.766 million (exclusive of estimated losses of P13.243 million on "unrecorded" loans and receivables), plus 2(a) the accrued interest on the emergency loans by, and overdrawings with, the Central Bank, and 2(b) penalties payable on deposit reserve deficiencies aggregating P3.228 million, or a total of P16.994 million, all of these not yet taken up in the books, the bank's capital accounts per books of P14.356 million as of June 30, 1968, would be wiped out resulting in an estimated deficiency to creditors of P2.638 million. Since the minimum capital required under Section 22 of Republic Act No. 337 as of June 30, 1968 is P19.142 million, the amount of fresh capital needed to be put up to comply with the minimum capital requirement as of June 30, 1968 would be P21.780 million. In addition, P18.950 million of new capital must be put up by the Bank to support the necessary expansion in risk assets of P126.334 million in order to break even in its operations. Therefore, the total fresh capital which the Bank must put to meet the requirements of Section 22 of R.A. No. 337, after considering the estimated losses on loans and other expenses not yet taken up in the books, as well as the necessary expansion in risk assets so as to break even in its operations, would be P40.730 million.
xxx xxx xxx

If the capital structure cannot be strengthened to meet the requirements of Section 22 of R.A. No. 337, and massive financing cannot be given to enable the Bank to expand its risk assets to the level at which it can break even in operations, then there seems to be no other alternative except to liquidate the Bank under Section 29 of R.A. No. 265. The Bank's continuance in business under

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its present extremely precarious financial condition, without the necessary capital injection and financial aid, will involve not merely probable, but certain, further losses to its depositors and other creditors and may have further adverse effects on the banking system.

In the situation depicted by the Superintendent of Banks, which in his opinion presented no other alternative except to liquidate the Overseas Bank pursuant to Section 29 of Republic Act No. 265 (Charter of the Central Bank), the adoption of Resolutions Nos. 1263 and 1290 was not, in my opinion, a violation of the Voting Trust Agreement, much less an abuse of discretion on the part of the Monetary Board. In a sense the issue with respect to the aforesaid resolutions has become moot and academic in view of the fact that on August 13, 1968, after the instant petition was filed, the Monetary Board adopted Resolution No. 1333, wherein it decided as follows:
(1) To forbid the Overseas Bank of Manila to do business in the Philippines; (2) To instruct the Superintendent of Banks to take charge, in the name of the Monetary Board of the bank's assets; (3) To instruct the Superintendent of Banks to take such further action as may be necessary pursuant to Section 29 of Republic Act No. 265; and (4) To refer the said memorandum report of the Superintendent of Banks as well as previous pertinent reports of the examiners of the Department of Supervision and Examination, particularly those pertaining to unrecorded certificates of time deposits bearing the signatures of former officers of the bank, to the Central Bank Legal Counsel for appropriate legal action.

The adoption of Resolution No. 1333, it seems to me, should remove the present controversy from this Court if it was properly here at all in the first place, which I doubt and address it to the Court of First Instance pursuant to Section 29 of the Central Bank Charter, which provides:
SEC. 29. Proceeding upon insolvency. Whenever, upon examination by the Superintendent 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 Superintendent forthwith, in writing, to inform the Monetary Board of the facts, and the Board, upon finding the statements of the Superintendent to be true, shall forthwith forbid the institution to do business in the Philippines and shall take charge of its assets and proceeds according to law. The Monetary Board shall thereupon determine within thirty days whether the institution may be reorganized or otherwise placed in such a condition so that it may be permitted to resume business with safety to its creditors and shall prescribe the conditions under which such resumption of business shall take place. In such case the expenses and fees in the administration 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. At any time within ten days after the Monetary Board has taken charge of the assets of any banking institution, such institution may apply to the Court of First Instance for an order requiring the Monetary Board to show cause why it should not be enjoined from continuing such charge of its assets, and the court may direct the Board to refrain from further proceedings and to surrender charge of its assets. If the Monetary Board shall determine that the banking institution cannot resume business with safety to its creditors, it 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 and supervision of the court in the liquidation of the affairs of the same. The Superintendent shall thereafter, upon order of the Monetary Board and under the supervision of the court and with all convenient speed, convert the assets of the banking institution to money.

My misgiving as to the propriety of the remedy sought by petitioners is that it is essentially for the enforcement of an alleged contract, presented in the guise of a petition for certiorari, prohibition and mandamus. This is borne out by the decision of this Court, which directs the Central Bank "to comply with its obligations under the Voting Trust Agreement, and to desist from taking any action in violation thereof." It is to be noted that noted that no "act which the law specifically enjoins as a duty resulting from an office, trust, or station" is ordered to be performed. Compliance with contractual obligations is beyond the purview of mandamus, and original jurisdiction over an action for that purpose pertains to the Courts of First Instance. Such an action is a plain, speedy and adequate remedy in the ordinary course of law which, being available to petitioners, should bar the present recourse to the extraordinary writ of mandamus, especially because certain vital facts are controverted by the parties, such as the outstanding liabilities which can not be paid by the Overseas Bank, the value of the properties mortgaged to the Central Bank by petitioners, the extent of the loans secured by the mortgage, and the amount of money which the Central Bank is supposed to advance in order to comply with its supposed undertaking to rehabilitate, normalize and stabilize Overseas Bank. Curiously enough, as already noted, the decision of this Court merely directs compliance with the Voting Trust Agreement without specifying if indeed what is implied is the rehabilitation of the Overseas Bank just what should be done to achieve that goal, or just how many millions of pesos the Central Bank must continue to pump into the Overseas Bank in order to put it in its feet again. It is no idle speculation to say that the writs granted by this Court may raise more questions than they answer. With particular reference to the mortgages executed by petitioners, they say the same were a consideration of the Voting Trust Agreement. Respondent Central Bank denies this and maintains that the mortgages were constituted as security for "the huge amounts of emergency loans and overdrawings advanced in the clearing house to the OBM by the Central Bank." The Voting Trust Agreement itself is silent on the point. My own reading of the record convinces me of the correctness of the position of the Central Bank. In any case, considering the existence of a substantial disagreement on this point, not only between the parties but also among the members of this Court, the issue could best be resolved in an ordinary action, either for specific performance as hereinbefore indicated or for rescission of the mortgages and the reconveyance of the mortgaged properties to petitioners. For the resolution of this issue I believe that this Court is not the proper forum in the first instance, nor the present petition the proper vehicle.

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Going back to Section 29 of Republic Act No. 265, it may be noted that what the Central Bank did, including its suggestion that a Voting Trust Agreement be executed, was in accordance with its powers and duties under the said section. Whenever a banking institution is in a state of insolvency the Monetary Board shall determine whether it "may be reorganized or otherwise placed in such a condition so that it may be permitted to resume business with safety." A Voting Trust, such as that which was entered into in the case of the Overseas Bank, is certainly one of the measures which may be adopted for that purpose. The rehabilitation of the distressed institution is the primary goal of the authority given to the Monetary Board, and there is nothing so sacrosanct in a voting trust agreement, or in the use of the word "rehabilitate" therein, that once it is executed the Central Bank is thereby bound to see the rehabilitation" through as an ordinary contractual commitment, no matter how costly and impractical it may prove. For Section 29 also provides that "if the Monetary Board shall determine that the banking institution cannot resume business with safety to its creditors, it 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 and supervision of the Court in the liquidation of the affairs of the same." This was precisely the step contemplated by the Monetary Board when it passed Resolution No. 1333 on August 1968, and any questions concerning its validity, in my opinion, should be raised in a proper case as authorized in the said provision. In view of the foregoing considerations, I vote to deny the writs prayed for and to dismiss the instant petition.
CASTRO, J., concurring:

Like Mr. Justice Querube C. Makalintal, in whose dissent I concur fully, I am in sharp disagreement with the conclusions reached by the majority of the Court. Before I state my reasons, which will be extensively discuss in seriatim farther below, it is well that we get a general picture of (a) the overdrawings incurred by the Overseas Bank of Manila in its clearing account with the Central Bank up to August 13, 1968 when the liquidation of the Overseas Bank was ordered by the Central Bank, and (b) the fraudulent transactions perpetrated in the operations and management of the Overseas Bank. These are summarized by the Superintendent of Banks, as follows:
1. Advances granted to TOBM by way of overdrawings in 1967 thru 1968 The Overseas Bank of Manila had been chronically overdrawn in its current account since 1967 thru 1968. However, these overdrawings were made good before clearing time by means of cash deposit, call money or sale of dollar drafts. It was sometime in September, 1967 that it failed to cover the overdrawings. [The overdraft which amounted to P16,116,890.06 as of September 29, 1967 increased to P51,925,381.90 as of August 13, 1968.] On September 29, 1967, the Monetary Board in its Resolution No. 1890 enjoined TOBM not to allow overdrawings amounting to P16.4 million to deteriorate any further. On October 16, 1967, the Monetary Board in its Resolution No. 2015, among others, required Mr. Ramos, Sr. to submit a listing of his properties and to mortgage or assign the same to cover the overdraft balance therewith of TOBM and not to exclude TOBM from clearing. On October 16, 1967, date the listing of the alleged P100 million collateral was submitted, TOBM's overdrawings of its clearing account with CB totalled P22.333 million. On November 20, 1967, date the Voting Trust Agreement was executed between the Superintendent of Banks and Emerito M. Ramos, Sr. et al., the bank's overdrawings amounted to P33,624,743.68. During this period [from November 20, 1967 to July 26, 1968] it will be noted that the collateral position of the Central Bank on loans granted to TOBM by way of overdrawings, showed consistent net collateral deficiency, taking into consideration, appraised value of collateral documents and even at the higher of PNB or DBP appraised values. When finally the registration of the mortgages was almost complete, on July 23, 1968, the Monetary Board decided to consider a liberal loan value of 90% on the average of PNB and DBP market values. 2. Monetary Board decisions showing real intention in requiring collateral from M. E. M. Ramos, Sr. et al. From the various Monetary Board decisions and reports, there was no doubt that the requirement for Mr. Emerito M. Ramos, Sr. et al. to put up the collateral was for the purpose of securing the unsecured obligation of TOBM with the Central Bank, by way of overdrawings in the clearing account. Records show that Central Bank made this known to TOBM and Mr. Ramos, Sr. all along from the very beginning. a) No. 1735 dated September 8, 1967 To require TOBM to mortgage the Padre Faura property to the Central Bank to secure the unsecured advances given thereto especially by way of overdrawings. (Transmitted to TOBM per DSE letter dated September 14, 1967.) b) No. 1890 dated September 29, 1967 After noting the report on the disclosure of transactions at TOBM which had neither been incorporated in the books of said bank nor reported to its board of directors, the Monetary Board enjoined TOBM not to allow the overdrawings of its clearing account with CB amounting then to P16.4 million, to deteriorate any further; and required the TOBM to immediately mortgage to CB all other available properties of Mr. E. M. Ramos and family in order to secure the unsecured advances given to said bank especially by way of overdrawings. (Transmitted to TOBM per DSE letter dated October 1967.) c) No. 1918 dated October 3, 1967 Monetary Board instructed management to exert every effort to obtain collateral to secure the unsecured liabilities of TOBM to CB.

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d) No. 1975 dated October 10, 1967 Monetary Board instructed management to continue with its efforts to obtain additional collateral to secure the unsecured liabilities and for the protection of other creditors/depositors thereof. e) No. 2014 dated October 14, 1967 To effect the registration of the second mortgage on Xavierville Estate. f) No. 2015 dated October 16, 1967 To require Mr. Emerito M. Ramos, Sr., to submit a listing of his property and to mortgage and assign the same to the Central Bank to cover the overdraft balance of TOBM. (Transmitted to TOBM per DSE letter dated October 19, 1967.) g) No. 2017 dated October 17, 1967 Instruction to the Central Bank Legal Counsel to proceed immediately with the registration of the second mortgage on the Xavierville Estate in favor of the Central Bank; and thereafter, to obtain the consent of the majority of the stockholders of the Xavierville Estate, Inc. to a second mortgage in appropriate resolution approved at a regularly called stockholders' meeting; and to assign one or more lawyers for the particular purpose of (a) seeing to it that the Central Bank obtain a lien on as many properties (real or personal), including shares of stock (the corresponding certificate of which be delivered to the Central Bank) and other assets in the name of Mr. Emerito M. Ramos, Sr. and members of his family, as can be obtained, amounting to at least P100 million as represented by Mr. Ramos; and (b) drawing up and registering with the Register of Deeds of the necessary documents establishing the liens of the Central Bank on such properties. To the Acting Superintendent of Banks To obtain information on as many more properties as possible (including shares of stocks) in the name of Mr. Ramos and members of his family as are not included in a list submitted by Mr. Ramos on October 16, 1967, so that the Central Bank can obtain a lien thereon. h) No. 2132 dated November 3, 1967 Monetary Board instructed management to write a letter to TOBM to reiterate CB's demand for additional collateral to secure the unsecured liabilities of the TOBM to CB and for the protection of the other creditors and depositors. (Letter of Governor dated November 6, 1967 sent.) i) Memorandum to Monetary Board of Acting Superintendent of Banks on the matters taken up in the conference held with Mr. E. M. Ramos, Sr. and Mr. M. Oliva on October 23, 1967 disclosed that the Governor impressed upon Mr. Ramos the imperativeness of his putting up of adequate collaterals to fully secure present CB advances and before the CB can even consider the extension of additional advances to TOBM. One specific resolution to this effect was M. B. Resolution No. 2210 dated November 17, 1967 wherein the Board instructed management to acknowledge the letter dated November 17, 1967 of the Auditor of the Central Bank inviting attention to the increasing trend in the overdraft of TOBM with the CB amounting to P32,210,242.21 as of November 16, 1967; to advise the Auditor General and the CB Auditor that documentation is now being undertaken of the mortgages covering the properties (allegedly worth P100 million) offered by Mr. Emerito M. Ramos, Sr. to secure the unsecured liabilities of TOBM to the CB; and to transmit copies of the aforesaid 1st Indorsement of the Auditor General and the letter of the CB Auditor to the Board of Directors of TOBM and to require the said bank to explain why it should not be excluded from CB clearing. 3. Fraudulent transactions a) Extent of the fraudulent transactions made known to the Central Bank In a letter dated September 25, 1967, Mr. Martin R. Oliva, then TOBM President, made a disclosure to the Acting Superintendent of Banks, certain transactions amounting to P48 million which have not been incorporated in the books of TOBM and not reported to its Board of Directors. In addition to these transactions, a number of regular accounts were manipulated by top officers of TOBM whereby bank funds amounting to about P38 million (net) were channeled to various interests. These manipulated accounts were reinstated in the books of the bank through a series of adjustments and accounting entries passed upon by the bank in September 1967. The consolidated trial balance of these two sets of transactions as prepared by TOBM Acting Assistant Accountant follows: Consolidated Trial Balance As of September 22, 1967

___________________
Credits

Debits Accounts Receivable Bills Discounted Time Loans P25,235,721 .34 419,989.27

4,764,968.5 9 12,502,521.

Special

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Overdrafts Expenses

38 4,492,498.4 7 38,858,797. 87

Suspense Account in Liquidation Time Deposits Accounts Payable Cashier's Checks Acceptance s Payable Earnings Overdrawin gs C/A #1198 Demand Deposits Savings Deposits Bills Payable Due to Branches Domestic Bills Purchased (Payable) Accrued Interest Receivable

P44,110,563 .45 1,086,566.0 3 2,020,000.0 0 1,100,000.0 0 644,587.00 2,933,646.7 8

12,107,517. 78 10,005,080. 54 1,500,000.0 0 3,584,004.2 8 6,177,451.4 4

1,005,079.6 2

____________ P86,274,496 .92

___________ 86,274,496. 92

The loans and other receivable accounts shown in the above trial balance were without any loan papers and collaterals, thus their collections would be extremely difficult and hopeless to pursue. On the other hand, the liabilities, including the `unrecorded' time deposits which were ruled as liabilities of the bank, in an opinion rendered by the Secretary of Justice, were properly documented and therefore actual liabilities of the bank. The bulk of the loans and other receivable accounts were in the name of Ramoses and their various business interests. The Suspense Account in Liquidation amounting to P38.8 million, however, could not be accounted for, but verification of the fraudulent transactions, based on available documents/records tends to show that said account represents funds channeled to the benefit of the Ramoses and their business interests. However, there was no acknowledgment on their part to this effect. b) Extent of verification Verification of the above transactions has been temporarily suspended in view of lack of bank examiners. However, even with the resumption of verification, a complete reconstruction and documentation thereof are highly improbable because so many bank records are missing in the bank's files. Besides, it will take a considerable length of time, considering that the manipulations, involved thousands of transactions and verification requires the tracing of every single transaction to a number of records. Moreover, verification is made doubly difficult by the fact that so many entries in the deposit/withdrawal sheets were fictitious, alongside with the genuine ones, and the examiners had to follow the trial and error method in tracing the entries. One type of manipulation alone was done daily, with so many deposit accounts involved on a single day and this covered a period of two (2) years more or less.

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c) Modus operandi for the fraudulent transactions The "modus operandi" or mode of operation employed the opening of current or checking accounts with the bank, the signatories of which were Emerito B. Ramos, Jr. and a few selected officers. 1) Current Account No. 1198 EMRACO with the following authorized signatures: (a) Emerito B. Ramos, Jr. Executive Vice President & Treasurer (b) Rodrigo Recto Assistant Vice President & Cashier (c) Rodolfo R. Sunico Vice President & Chief Accountant (d) Manuel Moje with the Office of the Executive Vice President 2) Current Account No. 1198-A General Fund with no known authorized signatures. 3) Current Account No. 1920 COFICO SPECIAL ACCOUNT NO. 2 with the following authorized signatures: (a) Emerito B. Ramos, Jr. Executive Vice President & Treasurer (b) Rodolfo R. Sunico Vice President & Chief Accountant These fraudulent and highly devious operations involving a staggering amount of P86 million were perpetrated under two general schemes: 1) Moneys of depositors received by the bank as time deposits or in exchange for banker's acceptances and cashier's checks were not recorded in the books of the bank as money owned or liability of the bank to the depositors/creditors. Instead, the money received were recorded as deposits to Current Account No. 1920. As mentioned above, these transactions, known as "unrecorded transactions", involved P48 million. 2) The second scheme involving about P38 million as of September 30, 1967 is subdivided into three operations, namely: (a) "Segregated accounts" Ledger cards showing the balances of the deposits of either current, time or savings account depositors, usually with large balances, were removed from the respective files of depositors. Withdrawals were effected on these ledger cards without the knowledge or consent of the depositors. The aggregate amount illegally withdrawn was then shown as deposits to Current Account No. 1920, 1198, or 1198-A. (b) "Diverted accounts" Funds properly belonging to the bank were credited or shown as deposits to Current Account No. 1198 or 1198-A. Examples: (1) Payments made by La Suerte Cigar and Cigarette Co. of P6.25 million on its loan with the bank was recorded as deposit to Current Account No. 1198, instead of crediting the account of the debtor. The amount paid properly belong to the bank. (2) Call loans obtained from other banks were also credited to the current accounts controlled by the officers of TOBM. (3) Remittances from other banks for the account of a TOBM branch were likewise not shown in the books as such but instead credited to the current accounts owned/controlled by the officers. (c) "Fictitious/simulated entries" Books were made to show that funds were transferred from branches to Head Office (no actual fund transfer) and credited to current accounts owned/controlled by officers of TOBM. Checks were drawn by Ramos corporations against their unfunded current accounts. These checks were held up as asset accounts of TOBM and credited again to the current accounts owned/controlled by officers of TOBM. As fast as funds were received under either the "unrecorded transactions" or "segregated/diverted" schemes, loans were surreptitiously granted to the various firms/corporations, owned or controlled by Mr. Emerito M. Ramos, Sr., and members of his family, numbering twenty-seven (27), twelve (12) of which were established from 1964 to 1967, and also to other borrowers. As a means of control and accounting of this clandestine financing operations, Messrs. Emerito B. Ramos, Jr. and Rodolfo R. Sunico, ably assisted by trusted employees, designed and maintained a separate book of accounts accessible only to them and to nobody else. Since the nucleus of the anomalous transactions was linked to the deposit accounts, Mr. Emerito B. Ramos, Jr. and his men availed fully of the protective mantle of the provisions of R.A. No. 1405 which prohibits the disclosure of any information on deposit accounts even to bank examiners, and thus the perpetrators were able to amass an enormous amount of P86.129 million as of September 30, 1967 which they appropriated for their various firms/corporations and partially to other borrowers, in wanton disregard of banking laws, rules, regulations and orders legally issued by the Central Bank, never before recorded in the annals of banking in the Philippines. In addition to the above, Emerito B. Ramos, Jr., Executive Vice President and Treasurer, during the time that he was on an indefinite leave of absence from May 1967, and therefore no longer authorized to sign for the bank, still received funds and issued TOBM certificates of time deposit and banker's acceptances in the aggregate amount of P2.02 million. Naturally, these amounts were not

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recorded in the regular books of the bank nor in the separate set of books, and the proceeds thereof were pocketed by Mr. Ramos, Jr. 4. Loans to the Ramoses As of July 31, 1967 (date of latest regular examination of TOBM), the total outstanding loans and advances to the Ramos/family/enterprises aggregated P29.086 million, representing 41.18% of the total loan portfolio (recorded or regular loans) of P70.633 million. On September 25, 1967, Mr. Martin R. Oliva, then TOBM President, disclosed the so-called unrecorded transactions. He first reported that as per tentative trial balance as of September 13, 1967, the total unrecorded transactions totalled P48.007 million. However, as of September 30, 1967, after certain adjustments/entries have been passed, the total amount of unrecorded/diverted/segregated accounts totalled P86.129 million. From discussions of manipulation above, these funds were channeled to current accounts controlled by the E. M. Ramoses and were withdrawn or spent according to their pleasure. Certain properties of the Ramoses were offered to the bank on a "dacion en pago" arrangement in the total amount of P30.6 million and were applied to the outstanding loans and obligations (both recorded and unrecorded loans) of the Ramoses. However, even with the application of the proceeds of these properties offered to TOBM, the outstanding loans of the Ramoses/family/enterprises still stood at an enormous amount of P72.150 million (both recorded and unrecorded) or 58.90% of the total loans of P122.502 million (both recorded and unrecorded) as of June 30, 1968 summarized below: Outstanding Loans and Advances (Recorded & Unrecorded) (As of June 30, 1968) (In Millions)

Recorded

Unrecord ed % to Amount Total

Total

% to SUMMARY: Amount Total

% to Amoun t Total

Total loans and advances and other amounts to be accounted for by E. M. Ramos, Sr./family/enterpr ises Loans and advances to parties other than the Ramos family/enterprise s 31.230 62.05% 19.122* 26.50% 550.35 2 41.10% P19.100 37.95% P53.050 73.50% P72.15 0 58.90%

Total Outstanding Loans & Advances P50.330 100.00% P72.172 100.00% P122.5 02 100.00 %

* While these were shown as having been lent to third parties, promissory notes were not presented to indicate indebtedness of third parties. Considering that these amounts were derived from funds channeled to the current accounts of the Ramoses and were granted by them to third parties, these amounts could very well be amounts that will also have to be accounted for by E.M. Ramos, et al.

My fundamental purpose in quoting in full the above narration is to project the importance of certain facets of this case which were
accorded only scant attention or consideration in the majority opinion, and with reference to which I entertain a perspective different from that of the majority.

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On the basis thereof and of other facts which I will advert to in the course of my discussion, I now proceed to explain the reasons for my dissent, as well as refute certain arguments advanced and specific conclusions reached in the main opinion. Briefly stated, my reasons are as follows: 1. The Central Bank (hereinafter referred to as the CB) is without power, under the law, to enter into the voting trust agreement in question, as this agreement is construed by the majority. 2. Even assuming that the CB is legally a party thereto, (a) the said agreement expressly gave the Monetary Board authority to terminate the same at any time; (b) no express and definite commitment was therein made that the CB will extend further extraordinary financial assistance to the Overseas Bank of Manila (hereinafter referred to as the OBM); (c) contrary to the assertion that the CB has reneged on its "promise" under the said agreement, the CB has taken the necessary steps, consistent with law, to rehabilitate the OBM; and (d) the CB cannot be expected, legally and morally, to continue supporting the OBM at any and all cost. The basic assumptions of the majority opinion, vis-a-vis the CB's being a privy to the voting trust agreement, are as follows: (a) The CB rather than the Superintendent of Banks is the real party thereto because the latter is a mere officer of the CB acting under its orders. (b) The CB had executed certain acts which indicate that it is the real party to the said agreement. Thus, it is said that the CB, from the very start, had insisted upon the execution of the said agreement; had caused the nomination of the team that took over the management of the OBM; had given notice that the agreement in question will no longer be renewed or extended, which, consequently, led to the promulgation of Resolution No. 1333 on August 13, 1968 ordering the Superintendent of Banks to proceed to liquidate the OBM under section 29 of the Central Bank Act. (c) By "promising" to work for the rehabilitation, normalization and stabilization of the OBM to stave off its liquidation, the CB, in effect, impliedly obligated itself to finance the funding requirements of the OBM until these objectives are attained within the term stated in the voting trust agreement. In my view, even if it were assumed that the intention of the CB authorities relative to the said voting trust agreement was to make the CB a party thereto, its validity and binding effect upon the CB are not legally possible since under the said agreement the CB would not only be acquiring the legal title, including voting rights, over the shares of stock of the petitioners in the OBM, but it would also be actually directing the management and operation of the bank-powers and prerogatives the acquisition of which by the CB is expressly prohibited by law. Section 133 of the Central Bank Act states:
Sec. 133. Prohibitions. The Central Bank shall not acquire shares of any kind or accept them as collateral, and shall not participate in the ownership or management of any enterprise, either directly or indirectly.

Section 27 of the Central Bank Act explicitly prohibits the Superintendent of Banks from exercising the powers granted under the said voting trust agreement. Thus:
Sec. 27. Prohibition. The Superintendent and all employees of the Department of Supervision and Examination are hereby prohibited from: (a) Being an officer, director, employee or stockholder, directly or indirectly, of any institution subject to supervision or examination by the department.

Obviously, by virtue of the clear and unmistakable constraints described in the foregoing provisions of the CB Charter, the alleged intent of the CB authorities to be bound by the terms of the said voting trust agreement cannot but be interpreted as having been pursued under a clear misapprehension if not direct disregard, of the law. On this point, it appears to me to be well settled in our jurisdiction that the Government (and the CB is an instrumentality of the Government) is never estopped by the mistake or error of its agents. And since estoppel cannot give validity to an act that is prohibited by law or contrary to public policy, the CB cannot consequently be bound by any action diametrically contrary to what the law prohibits (such as those found in sections 27 and 133 of the CB Charter) which may be executed on its behalf by its agents, such as the Monetary Board. (See Eugenie vs. Perdido, L7083, May 19, 1955; Benguet Consolidated Mining Co. vs. Pineda, L-7231, March 28, 1956; Bachrach Motor Co. vs. Unson, 50 Phil. 981; San Diego vs. Municipality of Naujan, Oriental Mindoro, L-9920, February 29, 1960; also 10 Am. Jur. 802). Because the voting trust agreement ascribes to the Monetary Board certain duties and grants it certain powers, the majority opinion used this as one of the reasons to support the conclusion that the CB is a real contractual party to the agreement. I view the matter differently. As I see it, the agreement is between the OBM and the Superintendent of Banks only. Nowhere within the four corners thereof do I find any statement that, the CB is a contractual party thereto. The majority opinion loses sight of the fact that in the matter of the regulation of the banking and monetary systems of this country, the CB, as the "bank of banks," is given-all-embracing powers of supervision and superintendence. In the situation that the OBM has found itself, it was incumbent upon the CB to exercise these powers. If the agreement contains express reference to the Monetary Board it is because the OBM and the Superintendent of Banks, by themselves alone, without any assist from the CB, would be completely incapable of rehabilitating, normalizing and stabilizing the OBM. The agreement is much more than an ordinary contract between two private parties; it is a covenant unavoidably impressed with public policy: the stability of the banking and monetary systems. It must therefore be regarded, properly speaking, as one in which the provisions of the CB Charter and other pertinent laws are deemed perforce incorporated. As a matter of fact, even if there were no mention at all of the Monetary Board in the agreement, still the execution thereof would, by compulsion of the provisions of the Central Bank Charter, require direct supervision and superintendence by the CB.

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Whether the Monetary Board, in requiring the execution of the trust agreement, had in mind section 29 of the Central Bank Act or any of the general corporate powers vested in it by section 4 of the same Act, or what it honestly felt was its duty under the law "to maintain monetary stability in the Philippines" (section 2, CBA), and, in the discharge thereof, to make available its credit facilities "to regulate the volume, costs, availability and character of bank credit and to provide the banking system with liquid funds in times of need" (section 86, CBA), and "ensure that the supply, availability and cost of money are in accord with the needs of the Philippine economy and that bank credit is not granted for speculative purposes prejudicial to the national interests (Section 108, CBA), still the inescapable conclusion remains, by virtue of the statute's prescribing the principles that should guide, and the objectives that should be pursued by, the CB, that the Monetary Board required the execution of the voting trust agreement not for the purpose of binding the CB as a contracting party, but solely to fulfill its statutory obligation to superintend the banking system and forestall the occurrence of conditions that effectively lead to financial panic or that threaten monetary and banking stability. The law as well as the situation in extremis of the OBM by 1967, therefore, called for the monetary authorities to act, and act they did, by conscientiously attempting to eliminate the reported (at least, what they believed to be) causes of the bank's deterioration, by requiring the management of the bank to be passed onto new and trusted hands. But the said action, as I have stated earlier, was exercised for no other reason than to comply with the CB's statutory duty to manage and administer the banking and monetary systems of the country. I now proceed to discuss my second fundamental reason for this dissent. Assuming that the CB is legally a contracting party to the voting trust agreement, (a) the said agreement expressly gave the Monetary Board authority to terminate the same at any time; (b) no express and definite commitment was therein made that the CB would extend further extraordinary financial assistance to the OBM; (c) contrary to the assertion that the CB has taken the necessary steps, consistent with law, to rehabilitate the OBM; and (d) the CB cannot be expected, legally and morally, to continue supporting the OBM at any and all cost. Although I have divided this reason into foul parts, I will discuss all of these parts together as they are inextricably intertwined. By its very terms, the agreement could be terminated at any time at the option of the Monetary Board. The stipulated life span of the said agreement is stated in the following words:
1. That the life of this trust agreement shall be for a period of three years commencing from the date of the execution of this contract, provided, however, that the TRUSTEE may, at its option, relinquish the trust, upon approval of the Monetary Board, and provided, further that if, at the expiration of the three-year period, the purposes for which this trust agreement has been constituted have not, as yet, been fully achieved, this trust agreement shall then be considered automatically extended for such further period to be determined by the Monetary Board, similarly terminable within such further period also at the discretion of the Monetary Board. It is further agreed that if the condition of the Overseas Bank of Manila so warrant, the CESTUIS QUE TRUST may request the Monetary Board for the earlier termination of this agreement.

Without having to turn the mentioned stipulation inside out, it is unmistakably clear that under the unambiguous specific language used, the CB was not absolutely bound thereunder to any specific period during which it must restore the OBM to its feet. For, while the opening portion of the said stipulation states that the trust agreement shall be for a 3-year period, this term is, however, explicitly made subject to the condition that the "TRUSTEE may, at its option, relinquish the trust." If, as the majority opinion says, the resolutions in question contradict the "promise" of the CB that it will rehabilitate, restore and stabilize (to stave off the liquidation of) the OBM, then I can see no other conclusion but that the CB had thereby relinquished the said trust. The said trust agreement having been thus rescinded, I cannot see how the CB, in adopting the said resolutions, can be accused of having acted in "abuse of discretion equivalent to excess of jurisdiction.". Undue emphasis and reliance are placed by the majority opinion upon the argument that under the voting trust agreement in question the CB was obligated "to act and work for the "rehabilitation, normalization and stabilization" of the Overseas Bank of Manila, through the extension of adequate and necessary financial instance to stave off liquidation" an argument which, in my view, entirely fails to consider that there are contractual and statutory, if not administrative as well as market, constraints to what the CB can do in the matter of assisting banks in extremis. A reading of the scope of the powers and authority granted to the CB under the voting trust agreement provides the first step in an analysis of the contractual and legal constraints under which the OB must operate. The relevant stipulation of the said agreement recites:
3. During the life of this trust agreement the trustee shall have all and full authority, subject only to the limitations set by law and other conditions set forth therein: to direct the management of the affairs and accounts and properties of the Overseas Bank of Manila; to vote its directors and to choose the officers and employees giving due consideration to the suggestions of the cestui que trust for the employment and retention of qualified, competent and reputable persons who enjoy their confidence; to improve, modify, reorganize its operation, policies, standards, systems, methods, structure, organization, personnel, staffing, pattern, etc.; to hold and vote on the shares of stocks transferred to him as trustee; to safeguard the interests of depositors, creditors and stockholders; and in general to exercise all such powers and discharge all such functions as inherently pertain to the cestui que trust as owners, and/or for the sound management of a banking institution.

The aforementioned stipulation sets forth with definiteness and specificity the scope and reach of the alleges obligation f the CB to work for the "rehabilitation, normalization and stabilization of the Overseas Bank of Manila" under the voting trust agreement. By virtue of the said stipulation, the trustee's only duty and authority is to manage the affairs of the OBM in a manner beneficial to the bank, its equity owners, depositors and creditors. Nowhere does it appear in the said stipulation nor in any portion of the said voting trust agreement (which them majority opinion considers as the law between the parties) that the CB must pump money into the coffers of the OBM for its "rehabilitation, normalization and stabilization." Indeed, considering the precarious position of the OBM, the subsequent takeover by the CB (through its nominees) of its operations constitutes full compliance with its duty under the said agreement. For, it must be noted that the take-over of the OBM's operations was induced by the CB's considered belief, through reports submitted by its examiners, that the principal stockholders of the bank were misusing and fraudulently diverting for personal

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purposes the funds and assets of the bank to the detriment of its other stockholders and its creditors and depositors a belief which is not unfounded. The majority opinion itself states that the OBM (a) had overdrawn its clearing account with the CB beyond permissible limits, (b) had chronic reserve deficiency, and (c) had deficiency in the required liquidity floor against government deposits as early as 1965, all of which, by 1967, caused such a mounting concern at the CB that the latter
ordered the closing of all deposit accounts of Mr. Emerito Ramos and members of his family within the third degree, and firms and corporations in which they had interest; for the stockholders to put in an addition of P6.8 million, to remove Ramos and other key officials of the bank found to be responsible for irregular or anomalous transactions from their positions, to install an internal comptroller appointed by the Central Bank, and to place collection efforts of the bank under a special team headed by the Central Bank Legal Council.

Undoubtedly, the take-over by a new management of the operations of the OBM to stop the bank's assets and funds from further being fraudulently dissipated could bring about relative normalcy and stability and remove the immediate threat of closure. But no trustee can be expected to surmount what is humanly insurmountable. The CB is not expected, nor cannot it be obliged, to divert its own funds for the purpose of saving a solitary bank whose in extremis condition was, in the first place, caused by the malfeasance, and non-feasance of its principal stockholders and officers. The CB was established to discharge certain constituent functions. Its powers are necessarily circumscribed by law. The fact that it achieves a surplus fund in its operations does not mean that it can devote such surplus fund to any use not specifically and clearly described by law. Section 41 of the Central Bank Act, in fact, specifies the uses to which its net profits may be devoted. The "rehabilitation, normalization and stabilization" of a private commercial bank are not among these. And even if it be construed that the management function which the CB had supposedly assumed includes the giving of extraordinary financial assistance, I seriously dispute the observation of the majority that the CB did not conscientiously and in good faith exert every effort to rehabilitate, normalize and stabilize the OBM. The pertinent facts, narrated in chronological perspective below, conclusively rebut this observation of the majority. 1. During the five years of the existence of the OBM, the CB granted it a total of P76.11 million in the form of emergency loans (P24,185,193.74) and overdrawings in its clearing account (P51,925,381.90). (For purposes of clarity, a banking institution, by law and as ruled by the Monetary Board, is required to hold reserves against its deposit liabilities partly in the form of deposits with the CB. If this deposit account is overdrawn, which results from the clearing of checks, the bank incurs an overdraft. An overdraft in the clearing account of a bank is regarded as a loan in the books of the CB.) 2. The OBM, since early 1967, had been chronically overdrawn in its clearing account with the CB, but somehow, was able to make sufficient deposits to cover the daily overdrawings before the start of the clearing every day. It was sometime in September 1967 that it failed to cover the overdrawings. On September 25, 1967, Martin Oliva, then OBM President, informed the CB of transactions which were not recorded in the books of the OBM in the amount of 48.007 million. There were other manipulations made in the books which caused funds derived from depositors and clients of the bank to be credited to current accounts of certain OBM officers for their personal use and/or for the benefit of corporations and other interests of the Ramos family. The disclosed amount of P48.007 million was later determined to reach P86.129 million as of September 30, 1967. 3. Alarmed by this development and by the sudden increase in the overdrawings, the Monetary Board issued a series of directives requiring, among other things, the bank and Emerito M. Ramos, Sr., et al., the majority stockholders of the bank, to put up collateral to secure the unsecured obligations of the OBM with the CB, especially the overdrawings. The CB account was apparently being used to fund the operations of the OBM and the withdrawals of the depositors, since the funds originally deposited and collected to the extent of the manipulations were not invested for the benefit of the bank but were instead withdrawn for the use and benefit of the Ramos corporations.
(a) Resolution No. 1735 dated September 8, 1967 required the OBM to mortgage its Padre Faura property to the CB to secure the unsecured advances given, especially by way of overdrawings. (b) Resolution No. 1890 dated September 29, 1967 required the Xavierville Estate, Inc. to mortgage to the CB its Xavierville property situated in Quezon City to partly secure whatever liabilities the OBM had with the CB, and required the OBM to immediately mortgage to the CB all other available properties of the Ramoses (Emerito M. Ramos and family) in order to secure the unsecured advances given to the OBM especially by way of overdrawings, and place the advances so secured in a separate account. (c) Resolution No. 1918 dated October 3, 1967 instructed the CB management to exert every effort to obtain collateral to secure the unsecured liabilities of the OBM to the CB. (d) Resolution No. 1975 dated October 10, 1967 instructed the CB management to continue with its efforts to obtain additional collateral to secure the unsecured liabilities of the OBM to the CB and for the protection of other creditors/depositors thereof. (e) Resolution No. 2014 dated October 14, 1967 instructed the CB management to effect the registration of the second mortgage on the Xavierville Estate. (f) Resolution No. 2015 dated October 16, 1967 required Emerito M. Ramos, Sr., to submit a listing of his property and to mortgage and assign the same to the CB to cover the overdraft balance of the OBM. (g) Resolution No. 2017 dated October 17, 1967 instructed the CB Legal Counsel to proceed immediately with the registration of the second mortgage on the Xavierville Estate in favor of the CB, and thereafter to obtain the consent of the majority of the stockholders of the Xavierville Estate, Inc. to a second mortgage in an appropriate resolution approved at a regularly called stockholders' meeting; to assign one or more lawyers for the particular purposes of (1) seeing to it that the CB obtained a lien on as

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many properties (real or personal), including shares of stock (the corresponding certificate of which should be delivered to the CB) and other assets in the same of Emerito M. Ramos, Sr. and members of his family, as could be obtained, amounting to at least P100 million as represented by Emerito Ramos, and (2) drawing up and registering with the Register of Deeds the necessary documents establishing the liens of the CB on such properties. This resolution also instructed the Acting Superintendent of Banks to obtain information on as many more properties as possible (including shares of stocks) in the names of Emerito Ramos and members of his family as were not included in the list submitted by Emerito Ramos on October 16, 1967, so that the CB could obtain a lien thereon. (h) Resolution No. 2132 dated November 3, 1967 reiterated the CB's demand for additional collateral to secure the unsecured liabilities of the OBM to the CB and for the protection of the other creditors and/or depositors thereof. (i) Resolution No. 2185 dated November 7, 1967 noted a letter dated November 6, 1967 of the CB Governor to the OBM, which stated among other things, as follows: "As previously requested and agreed to by your principal stockholder, Mr. Emerito Ramos, Sr., immediately have Mr. Emerito M. Ramos, Sr., his associates or controlled corporations execute the necessary documentation to mortgage real properties to the Central Bank to secure the unsecured liabilities of The Overseas Bank of Manila to the Central Bank, and for the protection of the other creditors and/or depositors thereof. In this connection, it is reiterated that Mr. Ramos deliver to the Central Bank the endorsed certificates of stock of corporations in which he or his family has equity." (j) Resolution No. 2210 dated November 17, 1967 instructed the CB management to acknowledge the letter dated November 17, 1967 of the Auditor of the CB, inviting attention to the increasing trend in the overdraft of the OBM with the CB amounting to P32,210,242.21 as of November 16, 1967; to advise the Auditor General and the CB Auditor that documentation was then being undertaken of the mortgages covering the properties (allegedly worth P100 million) offered by Emerito M. Ramos, Sr. to secure the unsecured liabilities of the OBM to the CB; to transmit copies of the aforesaid 1st Indorsement of the Auditor General and the letter of the CB Auditor to the Board of Directors of the OBM and to require the OBM to explain why it should not be excluded from CB clearing.

As can be deduced from the foregoing resolutions, bad faith cannot be imputed to the CB when the voting trust agreement was executed on November 20, 1967, since all along Emerito M. Ramos, Sr. knew, as he was indeed from the very beginning, that the properties he had offered, allegedly worth P100 million, were to secure all the unsecured liabilities of the OBM with the CB. 4. In a conference held with E. M. Ramos, Sr. and M. Oliva on October 23, 1967, the CB Governor impressed upon Ramos the imperativeness of his putting up adequate collateral to fully secure the CB advances before the CB could even consider the extension of additional advances to the OBM. Moreover, the intentions of the CB in the execution of the voting trust agreement may be found in Resolution No. 2015 dated October 16, 1967 wherein the Monetary Board decided, among other things.
To require the stockholders of The Overseas Bank of Manila to subscribe to an appropriate voting trust agreement so that the Central Bank may be able to effect a complete reorganization and/or transfer management of the bank to a nominee of the Monetary Board.

In point of fact, the voting trust agreement was broached to the OBM or the Ramoses for the first time, not on October 16, 1967, but on December 23, 1966, when the Monetary Board, per its Resolution No. 2072, expressed the sense that if the OBM failed to elect a permanent President by January 31, 1967, acceptable to the Monetary Board, the bank should transfer the management of its affairs to the PNB under an appropriate voting trust agreement. 5. The CB was alarmed by the uncontrolled increase of the overdrawings in the OBM's clearing account, which continued to deteriorate despite admonitions from' the CB. The CB sought a change in the management of the OBM because the anomalies and fraudulent transactions in the OBM were being perpetrated by son of E. M. Ramos, Sr., and funds derived from the manipulation of accounts were being channeled to the corporations and interests of the Ramos family. These are borne out by the following:
(a) Resolution No. 1890 dated September 29, 1967 enjoined the OBM not to allow the state of the overdrawings in its clearing account with the CB, amounting to P16.4 million as of September 29, 1967, to deteriorate any further. (b) Resolution No. 2014 dated October 14, 1967 ordered (1) the return to clearing of OBM's Manager's and Cashiers' checks debited to clearing on Friday, October 13, 1967; (2) the listing and taking possession of outstanding Manager's, Cashiers and Treasurer's checks to be presented in the afternoon clearing on Monday, October 16, 1967; and . (3) the OBM to refrain from issuing Manager's and Cashier's checks. (c) Resolution No. 2015 dated October 16, 1967 suspended, in the meantime, the implementation of the instructions embodied in Resolution No. 2014 dated October 14, 1967 for the return of the bank's Manager's, Cashier's, and Treasurer's checks received thru the clearing to the banks which honored them, and the exclusion of the OBM from clearing, pending implementation of the requirements under paragraphs (1) re: submission of list of properties and (2) re: voting trust agreement, provided that the overdraft balance of the OBM as a result of clearing operations did not significantly increase above the level thereof of P21.2 million as of October 13, 1967. (d) Resolution No. 2017 dated October 17, 1967 instructed the Acting Superintendent of Banks to see to it that the accounts with the OBM of the enterprises owned by Ramos and members of his family were either closed or frozen in order to prevent the further deterioration of the OBM's clearing balance with the CB, and to see to it that the OBM did not issue Manager's and Cashier's checks. (e) Resolution No. 2132 dated November 3, 1967 instructed the CB management to immediately write a letter to the OBM demanding payment, within five (5) days from receipt of such demand, of whatever amount was necessary so as to reduce the

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OBM's overdraft balance with the CB to the level thereof of P21.2 million as of October 13, 1967, and the OBM not to permit drawings by its clients on their overdraft accounts until after completion of the review of such accounts by CB examiners, and to immediately advise the clients concerned accordingly. (f) Resolution No. 2188 dated November 7, 1967 stated, in connection with the report of the Acting Superintendent of Banks dated October 27, 1967 on the financial condition of the OBM as of August 31, 1967, that the general principle/policy to be carried out/applied on the OBM was to prevent the further increase of its overdrawings with the CB. Toward this end, the Board: (1) Expressed the sense that the unrecorded transactions of the OBM should not be recognized by the OBM pending study and verification thereof; and (2) Directed the CB management to require the OBM: (a) Not to convert deposits from one type to another: (b) To return all incoming checks and items from clearing which were drawn against accounts in the unrecorded transactions, against demand deposits which were converted from time or savings deposits, and, as already instructed, against overdraft lines and against accounts with insufficient balances; and (c) To take all precautions, measures and steps necessary to prevent further deterioration of the overdrawn clearing balance with the CB which as of November 7, 1967 amounted to P28.437 million. (g) Emerito M. Ramos, Sr. procrastinated in the final execution of the voting trust agreement. In the meantime, the overdrawings increased from P21.2 million on October 13, 1967 to P33.62 million on November 20, 1967. Finally, on November 17, 1967, the Monetary Board, in its Resolution No. 2190, instructed the CB management: (1) To require the stockholders of the OBM representing a substantial majority of the stock thereof to sign, not later than Monday morning, November 20, 1967, a voting trust agreement in favor of the Superintendent of Banks, called for under Resolution No. 2020 dated October 20, 1967; (2) To deny to the OBM access to CB clearing beginning Monday afternoon, November 20, 1967, should such voting trust agreement not be signed by that time; and (3) To return all incoming checks and items from clearing which were drawn against accounts in the unrecorded or falsely recorded transactions in the OBM. (h) Resolution No. 2252 dated November 23, 1967 instructed the CB management to take immediate action so that increases in overdrawings in the CB would be reflected in corresponding decrease in "recorded" deposit liabilities, impressing upon all those concerned that the unrecorded or falsely recorded transactions in the OBM were not to be recognized or honored, although evidence purporting to establish the legitimacy of such supposed transactions could be received by the CB. All transactions were to be passed upon by the Comptroller designated by the CB.

6. On November 20, 1967, the voting trust agreement between Emerito M. Ramos, Sr., et al., as trustor, and the Superintendent of Banks, as trustee, was executed. 7. It took Monetary advances the same the OBM. a considerable length of time, or up to July 23,.1968, before all the properties deemed acceptable as collateral by the Board were mortgaged/assigned in favor of the CB. Contrary to the belief that the CB withheld funds from the OBM, the by way of overdrawings on any one date were always more than the appraised value of collateral mortgaged/assigned on day. The CB later liberally changed this basis of valuation, to be able to extend more advances by way of overdrawings to

8. As of July 2, 1968, the balance of the overdrawings in the OBM's clearing account amounted to P51,661,774.90, whereas the loan value of the collaterals put up by Emerito M. Ramos, Sr., et al., computed liberally at 90% of the average PNB and DBP market values, amounted to P51,127,290, with a resulting collateral deficiency of P534,484.90. Having been apprised that no further acceptable collateral of appreciable value had been offered by the controlling stockholders and no additional fresh capital funds of the magnitude necessary to bail out the very distressed condition of the OBM was expected from the controlling stockholders, the Monetary Board was constrained to take drastic action and on July 30, 1968, under its Resolution No. 1263, decided to exclude the OBM from clearing with the CB, effective immediately. Two days Later, the Monetary Board, under its Resolution No. 1290 dated August 1, 1968, further decided to authorize the Board of Directors of the OBM to suspend the operations of the OBM. 9. At the time of the execution of the voting agreement on November 20, 1967, the overdrawings in the OBM's clearing account amounted to P33,624,743.68; as of August 13, 1968, they amounted to P51,925,381.90, or an increase of P18,300,638.22. All the above demonstrates that the CB extended P18.3 million additional financial assistance to the OBM from November 21, 1967 to August 13, 1968, or during the period of almost nine (9) months following the date of the execution of the voting trust agreement. The crucial portion of the decision relative to the alleged obligation of the CB to "rehabilitate, normalize and stabilize" the OBM is found on p. 16 thereof, the pertinent portion of which reads as follows:

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... the record becomes clear that, in consideration of the execution of the voting trust agreement by the petitioner stockholders of OBM, and of the mortgage or assignment of their personal properties to the CB (Res. No. 2015, 16 October 1967, Annex "F", Petition), the CB had agreed to announce its readiness to support the new management "in order to allay the fears of depositors and creditors" (Annex "B"), and to "stave off liquidation" by providing adequate funds for "the rehabilitation, normalization and stabilization" of the OBM, in a manner similar to what the CB had previously done with the Republic Bank (Petition, Annex "G", ante).

While no express terms in the documents refer to the provision of funds by CB for the purpose, the same is necessarily implied, for in no other way could it rehabilitate, normalize and stabilize a distressed bank. (Emphasis supplied) As I have already stressed, the CB did not commit itself to rehabilitate, normalize and stabilize the OBM. But even assuming that there was in fact such a commitment, it is obvious to me that the same cannot be unqualified. The limits thereof must be ascertained in the light of existing statutes, more particularly, the pertinent provisions of the Civil Code of the Philippines, in relation to the pertinent provisions of the Central Bank Charter. In this connection, Article 1306 Of the Civil Code provides as follows:
ART. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. (Emphasis supplied)

Thus, assuming that the CB is legally committed under the voting trust agreement to rehabilitated the OBM, any action of the CB in respect thereto must have to be particularly what it can perform within the periphery of the law. The only way by which the CB can succeed in rehabilitating the OBM, under present conditions, is to extend financial assistance through loans of astronomical magnitude granted to the latter. In this respect, section 90 of the Central Bank Charter provides as follows:
SEC. 90. Emergency loans and advances. In periods of emergency or imminent financial panic which directly threaten monetary and banking stability, the Central Bank may grant banking institutions extraordinary advances secured by any assets which are defined as acceptable security by a concurrent vote of at least five members of the Monetary Board. While such advances are outstanding, the debtor institution may not expand the total volume of its loans or investments without prior authorization of the Monetary Board. (Emphasis supplied)

It would be in palpable violation of the provisions of section 90 if the CB were to grant the OBM further loans and advances, considering that neither the OBM nor its stockholders can put in the required additional capital nor submit collaterals acceptable to at least five (5) members of the Monetary Board. Nowhere in the voting trust agreement is it provided that the CB bound itself to bring about the rehabilitation, normalization and stabilization of the OBM at all cost. The decision of this Court further states that the CB should rehabilitate the OBM in a manner similar to what the CB had previously done with the Republic Bank. The rationale of this statement, found on p. 15 of the decision, reads:
CB Resolution No. 2015 of 16 October 3331967 (Petition, Annex `F'), in addition to requiring a mortgage or assignment of petitioner's personal properties to CB, confirmed the quoted memorandum by requiring the stockholders of OBM to subscribe to an appropriate trust agreement, with the only difference that instead of the Philippine National Bank, the trust would be executed in favor of the CB as trustee "to enable it to reorganize and transfer management to a nominee of the Monetary Board." Two weeks later, on 30 October 1967, after a conference at Malacaang, the CB governor once more wrote to Ramos that the Monetary Board decided that, as a measure to stave off liquidation, a voting trust agreement should be executed by you and your family and the corporations controlled by you in favor of the Superintendent of Banks, in an instrument similar to the one executed by stockholders of the Republic Bank in favor of the Philippine National Bank. The reference to the case of the Republic Bank clarifies the purpose and scope of the demand for a voting trust agreement " as a measure to stave off liquidation"; for it is well-known, and it is not denied, that when the Republic Bank previously became distressed, the CB had advanced funds to rehabilitate it and allow it to resume operating.

The above statements are without support in the record of this case. First: It will be clearly seen that reference was made to the Republic Bank merely for the purpose of describing the "instrument" to be executed by the OBM stockholders (which must be "similar to the one executed by the stockholders of the Republic Bank.") On the basis of such reference, one cannot logically and immediately reach the conclusion that because the instrument (form) may be similar, the obligations (substance) would necessarily be similar, such that if the CB had indeed advanced funds to the Republic Bank, it is likewise obligated to advance funds to the OBM. Second: The statement that "when the Republic Bank previously become distressed, the CB had advanced funds to rehabilitate it and allow it to resume operating," appears to me to be gratuitous. There is nothing in the pleadings which shows as a fact that the CB had advanced funds to the Republic Bank, nor, if it did so, how much and for what specific purposes or ends. I have earlier stated that the mortgages or assignments of properties to the CB by the OBM stockholders were not a consideration of their entering in to the voting trust agreement. However, the decision appears to imply that the said mortgages were executed by the OBM stockholders because they were "induced" by the CB and "misled" into believing that such conveyances would "stave off liquidation." The pleadings of the respondent CB have uniformly maintained that the OBM stockholders were required to effect the mortgages in question precisely and solely because of the requirements of section 90 of the Central Bank Charter. The OBM had incurred, long before the execution of the voting trust agreement, overdrawings amounting to tens of millions of pesos; section 90 of the Central

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Bank Charter requires that these overdrawings be secured by collaterals acceptable to the Monetary Board. On November 20, 1967, the date the voting trust agreement was entered into, the OBM's overdrawings in its clearing account with the CB amounted to P33,624,743.68. Emerito Ramos had been promising the Monetary Board that fresh capital would be put into the bank, but these promises remained unfulfilled, notwithstanding repeated demands made on him by the CB, such that with the revelation of the unrecorded huge deposits in the OBM, it became obvious that Ramos could never fulfill his promises. Logic cannot sustain the statement that the OBM stockholders were induced into mortgaging their properties for the purpose of staving off liquidation. There was a moral and legal obligation on the part of the OBM to execute such mortgage because of its huge overdrawings which were not secured by sufficient and acceptable collaterals. The CB could legally demand the execution of such mortgages without need of providing any enticement or inducement to the OBM stockholders. It is, therefore, grossly erroneous to state that the execution of such mortgages was the consideration of the voting trust agreement. . The decision further states that the CB is now reneging on its commitments and on page 22 thereof, observes that the CB excuses itself by pleading that the OBM officers had resorted to non-recording of time deposits in the Bank's books and diverting such deposits to accounts controlled by certain bank officials, and other irregularities. True it is that, in its pleadings, the CB dwelt lengthily on the irregularities and anomalies, committed by the OBM management. This was done, however, not for the purpose of "excusing" itself from rehabilitating the OBM, but to show the imperativeness of the execution of the voting trust agreement as engendered by the critical condition of the OBM. I find it difficult to understand, therefore, why the majority of the Court would brush aside as being inconsequential the serious irregularities and anomalies committed by the OBM official's and stockholders, and instead "censure" the CB in deciding to liquidate the OBM. The decision further observes that "the CB made express representations to petitioners herein that it would support the OBM, and avoid its liquidation if the petitioners would execute (a) the Voting Trust Agreement turning over the management of OBM to the CB or its nominees, and (b) mortgage or assign their properties to the Central Bank to cover the overdraft balance of OBM. The petitioners having complied with these conditions and parted with value to profit of the CB (which thus acquired additional security for its own advances), the CB may not now renege on its representations and liquidation the OBM, to the detriment of its stockholders, depositors and other creditors, under the rule of promissory estoppel." As may be seen, however, the real situation is widely disparate. The CB required a change of management of the OBM by means of the voting agreement, because it had lost its confidence in the former one and it required the owners of the bank to collateralize all its obligations to the CB because that is what the law ordains. With the putting up of additional capital by the owners of the OBM and the financial assistance extended by the CB in the form of overdrawings in the OBM's clearing account, it was hoped that the OBM would be able to rehabilitate, normalize and stabilize itself. Unfortunately these expectations did not materialize partly because the owners of the OBM failed to produce the needed additional capital and the necessary collaterals for further loans from the CB. As already repeatedly stated, the conveyances of properties made by the petitioners were required by the CB in order to secure the huge amounts of loans and overdrawings which had been advanced to the OBM long before the voting trust agreement was executed. Under these circumstances, how can it be asserted that the CB is now "estopped" from "reneging" on its promise to rehabilitate, normalize and stabilize the OBM?
The doctrine of "promissory estoppel" is discussed in Corpus Juris Secundum, which, in this connection, states, Of course, a promise cannot be the basis of an estoppel if any other essential element is lacking ... Justifiable reliance and irreparable detriment to the promisee are requisite factors. (31 C.J.S. 291) .

Certainly the petitioners could not have justifiably relied upon any "promise" of the CB to rehabilitate the OBM, assuming that there was such promise, if in the fulfillment thereof the CB would have to extend further financial assistance in the form of loans, without the requisite corresponding collaterals from the OBM, or to contribute to the capital of the said bank. For these would be in flagrant violation of section 90 and 133 of the Central Bank Charter, which are mandatorily prescriptive, and would in effect compel the CB to dole out public funds in the hundreds of millions of pesos in cynical contravention of the law. It is, therefore, incomprehensible to me how the doctrine of "promissory estoppel" can be made to apply. Bad faith and abuse of discretion are imputed by the majority of the Court to the CB for ordering the liquidation of the OBM, in obedience to the mandate of section 29 Of the Central Bank Charter. To demonstrate that this charge is groundless, I quote excerpts (which are self-explanatory) from the memorandum dated July 23, 1968 of the Superintendent of Banks to the Monetary Board. Thus:
... The Bank cannot be rehabilitated unless its operational losses are stopped. As of June 30, 1968, the accumulated losses of the Bank per its books stood at P6.9 million exclusive of estimated losses on loans. In order to at least break even in its operations (that is, that there be no net profit or net loss), the Bank must be able to lend in such a magnitude as to be able to cover the large operational expenses, particularly interest on deposits and borrowings. ... However ... the Bank must put up additional capital in order to meet the requirements of Section 22 of Republic Act No. 337 and to support the necessary expansion in risk assets. Therefore, the fresh funds needed in order to break even in operations must consist not only of borrowed funds but also of additional capital contribution. On this basis, the Bank will need a total of P126.334 million of loanable funds, which must be composed of P40.730 million additional capital (P21.780 million needed for risk assets as of

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June 30, 1968 plus P18.950 million to support the expansion in risk assets of P126.334 million) and P85.604 million of borrowed funds ... xxx xxx xxx And even granting that the Bank can obtain the required loanable funds in order to break even in its operations, it cannot legally invest all the funds unless its capital structure is also increased to support the necessary expansion in risk assets. Section 22 of Republic Act No. 337 requires that the combined capital accounts of a commercial bank shall not be less than 15% of its total risk assets. As of June 30, 1968, the required minimum capital of the bank was P19.142 million while its combined capital accounts per books were only P14.356 million thus showing a capital deficiency of P4.786 million. After considering (1) the Examiners' provision for estimated losses on the recorded loans and receivables of P13.766 million (exclusive of estimated losses of P13.243 million on "unrecorded" loans and receivables), plus 2(a) the accrued interest on the emergency loans by, and overdrawings with, the Central Bank, and 2(b) penalties payable on deposit reserve deficiencies aggregating P3.228 million, or a total of P16.994 million, all of these not yet taken up in the books, the bank's capital accounts per books of P14.356 million as of June 30, 1968, would be wiped out resulting in an estimated deficiency to creditors of P2.638 million. Since the minimum capital required under Section 22 of Republic Act No. 337 as of June 30, 1968 is P19.142 million, the amount of fresh capital needed to be put up to comply with the minimum capital requirement as of June 30, 1968 would be P21.780 million. In addition, P18.950 million of new capital must be put up by the Bank to support the necessary expansion in risk assets of P126.334 million in order to break even in its operations. Therefore, the total fresh capital which the Bank must put up to meet the requirements of Section 22 of RA No. 337, after considering the estimated losses on loans and other expenses not yet taken up in the books, as well as the necessary expansion in risk assets so as to break even in its operations, would be P40.730 million. xxx xxx xxx If the capital structure cannot be strengthened to meet the requirements of Section 22 of RA No. 337, and massive financing cannot be given to enable the Bank to expand its risk assets to the level at which it can break even in operations, then there seems to be no other alternative except to liquidate the Bank under Section 29 of RA No. 265.

Unlike the majority of the Court, I recognize the existence of numerous shifting imponderables always attendant to the superintendence of the banking and monetary systems, the solutions to or resolutions of which lie peculiarly within the expertise of the CB, but assuredly beyond the ken, beyond the competence, of any member of this Tribunal or of even the entire judicial collegium that is the Supreme Court. For my part, I refuse to be simplistic; I dare not substitute my own personal judgments or predilections or predilections for the judicious exercise by the CB of the specialized discretion vested in it by law. It is thus that I cannot discern what act done or step taken by the CB in relation to the OBM, when tested against the postulates of the law and of public morality, can be condemned as deceptive or oppressive, or as amounting to bad faith or abuse of discretion. Reference was made in our deliberations on the case at bar to an offer supposedly made by a number of depositors as a partial solution to alleviate the grave situation that now besets the OBM, which in general outline is to the effect that their deposits be converted into shares of stock of the OBM. But I am not told nor does the record anywhere disclose, the names of these venturesome depositors, or the amounts of their respective deposits, or the precise meaning and details of such offer. Verily, everything about this "proposition" is a disembodied blur. I well understand the overriding concern of the majority of the Court for the plight of the innocent depositors and creditors of the OBM. I share that concern, I, too, want to see all of them retrieve the full face value of their deposits and credits. As it is, the prejudice that they have already suffered is nigh incalculable. The deposits were made and the credits were extended at a time when the foreign exchange rate was four pesos to one US dollar. When these shall be returned, if at all, the rate of exchange will probably have risen to more than the present floating rate of about six and one half pesos to one US dollar, and the purchasing power of the will have been considerably watered down. In the meantime, these depositors and creditors have been, and will continue to be, effectively prevented from investing their OBM money (which has not earned nor is now earning interest) in profitable ventures or stocks. If, on some future but highly uncertain day, fifty percent of such deposits and credits will be returned, the depositors and creditors of the OBM might well regarded what they will get as veritable manna from heaven. At all events, I should think that if and when the OBM by the grace of the majority opinion, shall have resumed operations, even under the protective solicitude of the CB, the be-all and end-all concern of most of the OBM depositors and creditors will be to extricate from the OBM, soonest possible and not to the last centavo, all their deposits and credits. More likely than not, they will not thereafter like many perceptive observers on the outside looking in touch the OBM again, not even with the proverbial ten-foot pole. Finally, I must articulate a query which, as far as I am able to perceive, the Central Bank has not explored in depth, but which the majority of the Court have apparently confidently answered in the affirmative: In the face of the well-known constraints of public policy and high public morality, is it the real amendment of the Central Bank Charter and other pertinent laws that the Central Bank must run to the total rescue of any and every private banking institution which is in extremis due to causes other than inept but bona fide management?

Banking Laws Set 1 Q & A SECOND DIVISION G.R. No. L-50031-32 : July 27, 1981. CENTRAL BANK OF THE PHILIPPINES, Petitioner, vs. HONORABLE COURT OF APPEALS, ISIDRO E. FERNANDEZ, and JESUS R. JAYME, Respondents.

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DECISION CONCEPCION, JR., J.:

Petition for Review on Certiorari of the judgment of the respondent appellate court which affirmed the decision of the Court of First Instance of Manila in Sp. Proc. No. 88415, entitled: Isidro Fernandez, et al., Petitioners, versus Central Bank of the Philippines, et al., respondents; and Sp. Proc. No. 89219, entitled: In re: Liquidation of Provident Savings Bank, Central Bank of the Philippines, petitioner, setting aside Resolution No. 1766 of the Monetary Board of the Philippines, dated September 15, 1972, which forbade the Provident Savings Bank from doing business in the Philippines. It is not disputed that the Provident Savings Bank, hereinafter referred to as PROVIDENT, for short, was incorporated after the Central Bank had approved its establishment under Monetary Board Resolution No. 572, dated May 3, 1963. Its Articles of Incorporation was registered with the Securities and Exchange Commission on October 31, 1963. PROVIDENT was granted authority to operate by the Monetary Board on December 4, 1963 and started business on December 9, 1963 with principal office at Villalobos St., Quiapo, Manila. Within four (4) years of operation, PROVIDENT had established six (6) extension offices within the greater Manila area.
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PROVIDENT has an authorized capital of P10 million, divided into 100,000 shares of common stock with a par value of P100.00 each. At the time of its incorporation, 25% of the stock was subscribed and paid for by its incorporators. There were subsequent subscriptions received so that by the end of 1967 the total paid up capital of the bank amounted to P6.7 million out of the aggregate P7.5 million subscribed shares of stock. The herein private respondents, Isidro E. Fernandez and Jesus R. Jayme, are the majority and controlling stockholders thereof, holding 41% and 22%, respectively, of the total subscribed capital stock of the bank. A major portion of PROVIDENTs loanable funds was granted to directors, officers and stockholders and their related interests and the bank was cautioned to avoid concentration of credits and to adopt a policy where loans would be granted to a larger number of borrowers who had no financial interest in the bank. 1 In September, 1968, a number of savings banks, PROVIDENT among others, experienced a bank run which was triggered off by adverse publicity in the newspapers, radio and television of investigations conducted by Congress that some banks were unable to pay deposit withdrawals. In view of the unusually heavy withdrawals, PROVIDENT had no recourse but to request emergency loans from the Central Bank to meet the demands of the depositors. The Monetary Board, however, denied these requests for emergency loans. PROVIDENT, therefore, had to borrow from other banks, foremost of which is the Banco Filipino Mortgage and Savings Bank which granted PROVIDENT advances up to P8 million, on the security of real estate properties and a pledge of P4.074 million worth of shares of stock representing about 60% of the outstanding shares of stock of PROVIDENT owned by Fernandez and Jayme. But, these loans were not enough to meet the demands of the depositors. As a result, PROVIDENT was forced to temporarily close its doors to the public on September 12, 1968. Subsequently, however, the Central Bank extended emergency loans to PROVIDENT in order to stop the bank run and to prevent the bank run from eroding the confidence of the public in the banking system, thus enabling PROVIDENT to reopen on September 16, 1968. The Hon. Alfonso Calalang, then Governor of the Central Bank, together with other high officials of the Central Bank, visited the premises of PROVIDENT soon after its reopening and assured the public that PROVIDENT was sound and had the full backing of the Central Bank. Then followed a series of emergency releases. But, the assistance given to PROVIDENT was not sufficient to meet and service the unusually heavy withdrawals of deposits. Fernandez and Jayme appealed to the Central Bank for continued assistance. At one time, Fernandez and Jayme were summoned to the Central Bank for a conference with the Governor and Deputy Governor and were introduced to representatives of the Iglesia Ni Kristo (INK) which had a sizeable deposit of P5.5 million with PROVIDENT and was having difficulty in withdrawing the same. Central Bank Deputy Governor Amado Brias voiced the decision of the Central Bank that unless Fernandez and Jayme relinquished and turned over the management and control of PROVIDENT to the Iglesia Ni Kristo, the Central Bank would not further support and assist the distressed PROVIDENT. Governor Brias, in turn, persuaded the representatives of the Iglesia Ni Kristo, headed by Rogelio Manalo, that the only way they could withdraw their deposit was to take control and management of PROVIDENT. Left with no other alternative, but to accede, and in order to protect their investment, Fernandez and Jayme reluctantly executed a Memorandum Agreement with the Eagle Broadcasting Corporation, a company identified with the Iglesia Ni Kristo, on December 6, 1968. The parties therein made the following commitments:
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1. That the Iglesia Ni Kristo will convert its time deposit with the Bank in the amount of P5.5 million into voting preferred shares of stock; 2. That the stockholders will cause the amendment of the Articles of Incorporation to increase the capital stock by creating voting preferred shares of stock at a par value of P70.00 per share; 3. That the Iglesia Ni Kristo shall purchase from Fernandez and Jayme group 53,000 shares of stock within the period of six months;

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4. That the Fernandez and Jayme group shall execute a voting trust agreement in favor of the Iglesia Ni Kristo group to subsist only until the amendment to the Articles of incorporation shall have been registered with the Securities and Exchange Commission; and 5. That the Iglesia Ni Kristo group shall not foreclose mortgages securing loans of various borrowers until after four years, provided that the schedule of payments on loans of the Fernandez and Jayme group shall be complied with. 2 Immediately thereafter, a special meeting of the stockholders of PROVIDENT was convened and the Articles of Incorporation of the bank was amended to comply with the terms and stipulations contained in the Memorandum Agreement. A Voting Trust Agreement was, likewise, executed in favor of the Eagle Broadcasting Corporation on certain shares of stock owned by Reynaldo Panopio, a stockholder identified with the Fernandez and Jayme group, after which Fernandez and Jayme withdrew from the management of PROVIDENT in favor of the Iglesia Ni Kristo group effective December 1, 1968. Following the transfer of management of PROVIDENT to the Iglesia Ni Kristo, the Central Bank forthwith released additional loans to PROVIDENT at a much reduced rate of interest of 10% instead of the 12% interest charged on previous loans. PROVIDENT was further allowed to resume its lending activities. At the time of the transfer of the management to the Iglesia Ni Kristo the net worth of PROVIDENT was P7.2 million. 3 The Eagle Broadcasting Corporation, however, did not comply with its commitment to purchase 53,000 common shares of stock and to convert its deposits into equity. Instead, the new management of PROVIDENT caused the conversion of the deposits of Iglesia Ni Kristo into bills payable earning 12% interest, which were subsequently withdrawn. 4 PROVIDENT, under the new management, also failed to comply with the Monetary Board directives relative to the rehabilitation of the bank so that it restored the interest rate of 12% on outstanding loans. 5 Various irregularities detrimental to PROVIDENT were also perpetrated by the new management despite the presence of resident Central Bank examiners. 6 The Iglesia Ni Kristo likewise facilitated or caused the assignment and mortgage of PROVIDENTs various assets, receivables, and interests in favor of the Eagle Broadcasting Corporation. 7 In view of the deteriorating financial condition of PROVIDENT, the Deputy Governor of the Central Bank separately met with the representatives of the Iglesia Ni Kristo and the majority stockholders of the bank to discuss with them the urgency of finding a solution to PROVIDENTs financial difficulties. Both parties were requested to submit their proposals pertaining to the continued operation and management of the bank. In his letter dated October 15, 1971, Rogelio W. Manalo, President and Chairman of the Board of Directors of PROVIDENT submitted a set of proposals consisting of three (3) courses of action, namely: conversion of the P4 million bills payable of the Iglesia Ni Kristo to equity; staggered payment to the Iglesia Ni Kristo of the balance of its deposits; and pre-payment of borrowings of majority stockholders at the rate of P300,000.00 monthly. But, these proposals were rejected by the Monetary Board on January 7, 1972 (Res. No. 6). 8
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On August 22, 1972, Rogelio W. Manalo resigned as Chairman and President of PROVIDENT, giving rise to large withdrawals from its big depositors which the bank could not readily meet. PROVIDENT had to seek assistance from other banks, the Savings Bankers Association of the Philippines, and other sources to prevent the recurrence of another bank run. 9 But, the financial condition of PROVIDENT continued to worsen, so that on September 15, 1972, the Monetary Board, after considering further that the principal stockholders and/or the Iglesia Ni Kristo/Eagle Broadcasting Corporation group have not come up with concrete and substantial proposals towards the rehabilitation of the Provident Savings Bank, which proposals were required of them in the conference held in September of 1971; and in pursuance of Section 29 of Republic Act No. 265, decided as follows: a) To forbid the Provident Savings Bank to do business in the Philippines; b) To instruct the Superintendent of Banks to take charge, in the name of the Monetary Board, of the assets of the Provident Savings Bank; c) To instruct the Superintendent of Banks to take such further action as may be necessary pursuant to Section 29 of Republic Act No. 265; and d) To refer the subject memoranda of the Superintendent of Banks and all pertinent reports of the examiners of the Department of Supervision and Examination to the Central Bank Legal Counsel for appropriate legal action(s). 10 Pursuant thereto, the Central Bank instructed its Legal Counsel on September 25, 1972: 1) To request the Solicitor General to file, pursuant to the last paragraph of Section 29 of Republic Act No. 265, a petition in the Court of First Instance reciting the proceedings which have been taken and praying the assistance and supervision of the court in the liquidation of the affairs of the Provident Savings Bank; and 2) To take such other action as may be appropriate and legal to safeguard the interests of the Banks creditors. 11 Consequently, on September 28, 1972, Fernandez and Jayme filed a petition for certiorari, prohibition and mandamus and/or specific performance, with preliminary injunction, against the Central Bank and Eagle Broadcasting Corporation, with the Court of First Instance of Manila, docketed therein as Sp. Proc. No. 88415, to annul and set aside the said Monetary Board Resolution No. 1766, dated September 15, 1972 and to restrain the Central Bank from liquidating PROVIDENT, and, instead, to order the Central Bank to comply with its commitments to the petitioners and reorganize and rehabilitate PROVIDENT in the manner it did to the Overseas Bank of Manila, as well as for damages and costs. 12 The Central Bank answered that PROVIDENT was insolvent and its condition warranted closure under Sec. 29 of Republic Act No. 265. Eagle Broadcasting Corporation, upon the other hand, blames both the Central Bank and Fernandez and Jayme for the failure of PROVIDENT.

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On December 11, 1972, the Central Bank filed a Petition for Assistance and Supervision in Liquidation of the Provident Savings Bank with the Court of First Instance of Manila, docketed therein as Sp. Proc. No. 89219, entitled: In re: Liquidation of the Provident Savings Bank; Central Bank of the Philippines, petitioner. 13 Upon motion, the two cases were heard jointly, 14 and on February 20, 1974, judgment was rendered, as follows: WHEREFORE, the writs prayed for in the amended petition, except the writ of mandamus, are hereby granted, and Resolution No. 1766 dated September 15, 1972 of the Monetary Board of respondent Central Bank as well as any and all resolutions issued in pursuance thereof, are hereby annulled and set aside; and said respondent Central Bank is ordered to desist from liquidating PROVIDENT and is ordered to specifically perform its obligation to reorganize and rehabilitate the Provident Savings Bank, following the precedent set in the case of the reorganization or rehabilitation of the Republic Bank and the course of action expected to be taken in the implementation of the final decision of the Supreme Court in the case of RAMOS vs. CENTRAL BANK, 41 SCRA 565, with respect to the Overseas Bank of Manila, within two (2) years from finality of this decision.
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Respondent Central Bank and Eagle Broadcasting Corporation are hereby ordered to pay the petitioners, jointly and severally: 1. The amount of P600,000.00 as actual damages; 2. The amount of P50,000.00 as moral damages; 3. The amount of P25,000.00 as exemplary damages; and 4. The amount of P50,000.00 as attorneys fees plus costs. 15 The Central Bank and the Eagle Broadcasting Corporation appealed, 16 and after appropriate proceedings, the herein respondent Court of Appeals rendered the disputed decision on January 22, 1979, the dispositive portion of which reads, as follows: WHEREFORE, the decision appealed from is hereby affirmed, but modified to exclude the award of damages and attorneys fees. Costs de oficio. 17 Hence, the present recourse. 1. The petitioner claims that the respondent Court of Appeals erred in not applying Presidential Decree No. 1007, dated September 22, 1976, which amended Section 29 of Republic Act No. 265 during the pendency of the appeal and should have dismissed the petition of Fernandez and Jayme in view of the findings of the said appellate court that there is no clear proof of gross and evident bad faith on the part of the petitioner and the Eagle Broadcasting Corporation. In support of its contention, the petitioner invokes the case of Lucas Ramirez vs. The Hon. Court of Appeals, et al. 18 Indeed, the appellate court, in reviewing a judgment on appeal, should dispose of a question according to the law prevailing at the time of such disposition and not according to the law prevailing at the time of the rendition of the appealed judgment. Accordingly, Section 29 of Republic Act No. 265, as amended by Presidential Decree No. 1007, should be applied. Under this section, as amended, the action of the Monetary Board in ordering the closure and liquidation of an insolvent bank is final and executory and can be set aside only if there is convincing proof that the action is plainly arbitrary and made in bad faith. The petition filed, however, should not be dismissed for while there may not be gross and evident bad faith on the part of the Central Bank and Eagle Broadcasting Corporation to sustain the award of damages to Fernandez and Jayme, as ordered by the trial court, the action of the Monetary Board in forbidding PROVIDENT from doing business in the Philippines and ordering its liquidation is clearly arbitrary and was made in bad faith. The arbitrariness and bad faith of the petitioner is evident from the fact that it pressured Fernandez and Jayme into relinquishing the management and control of PROVIDENT to the Iglesia Ni Kristo (INK) which did not have any intention of restoring the bank into its former sound financial condition but whose interest was merely to recover its deposits from PROVIDENT, and, thereafter, allowing the Iglesia Ni Kristo to mismanage PROVIDENT until the banks financial deterioration and subsequent closure. As the trial court said:
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Having decided in 1968 that PROVIDENT was salvageable and could be permitted to continue in business with its support, provided there is change in management and introduction of reforms, the CB should have been vigilant in its overseeing of the faithful compliance by the parties of the terms of the Memorandum Agreement, as well as in supervising and controlling the operations of the bank under the management of EAGLE. The persuasive, nay, compulsory, powers of the CB to accomplish these cannot be doubted. The CB exercises such control of private banks under its broad powers that it can decree life or death of any bank by simply withholding from it the facilitates that it normally accords banks. It was in the exercise of these powers by the CB that the Fernandez/Jayme group was constrained to give up the management and control of PROVIDENT in 1968 because the CB threatened to discontinue support of the bank unless management is transferred to EAGLE. To recapitulate, the CB: 1. Failed to exact compliance by EAGLE of its obligations under the Memorandum Agreement. 2. Failed to exercise the necessary supervision over EAGLEs management which could have checked EAGLEs excuses or abuses. 3. Failed to enforce other reforms necessary to restore PROVIDENT to its former sound financial condition.

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4. Failed to extend the support and assistance necessary to make reorganization and rehabilitation of PROVIDENT a reality. Illustrative of how PROVIDENT was being treated unfairly by the CB, one needs to take note only of the discrepancy in the interest rates on emergency loans being exacted by the CB. Under the Fernandez/Jayme management of PROVIDENT, it was 12% per annum. When management was transferred to EAGLE, the medium chosen by the CB for purposes of reorganization, interest was reduced to 10% per annum. When the conditions at PROVIDENT continued to deteriorate under EAGLEs management interest rates were again raised to 12%. And yet, the CB proposed to extend to Banco Filipino, a solid and non-distressed bank which was a creditor of PROVIDENT, an emergency loan under Sec. 90 of the CB Act of up to P7,000.000.00 if it so desires at an interest rate to be determined by Management but in no case lower than 4 per cent p.a. (Par. a-1, p. 3, Exh. 9 CBP ), which is the Memorandum dated September 14, 1972 of Governor Gregorio Licaros to the Monetary Board. 19
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The trial court further said: The penalties paid by PROVIDENT in its deficiency plus the 12% interests in its emergency loan greatly contributed to the deterioration of PROVIDENTs net worth. The CB is supposed to help a distressed bank, but in the case of PROVIDENT, the CB imposed an interest of 12% on its emergency loans. In so doing, the CB, instead of helping improve the situation of PROVIDENT, actually aggravated further its financial position. And what is most amazing, while this is being done to a bank in distress, the CB was willing to give loans to a well-off bank, the Banco Filipino, loans at an interest of only 4%. 20 Besides, the Central Bank has already rehabilitated similarly distressed banks, the Republic Bank and the Overseas Bank of Manila, among several others, so that it would be unjust to PROVIDENT to be deprived of the Central Banks continued support. 2. The petitioner next claims that the Court of Appeals erred in not holding that there can be no estoppel against the petitioner in view of the latters valid exercise of police power by its lawful overseeing of Provident Savings Bank. The contention is without merit. While the closure and liquidation of a bank may be considered an exercise of police power, the validity of such exercise of police power is subject to judicial inquiry and could be set aside if it is either capricious, discriminatory, whimsical, arbitrary, unjust, or a denial of the due process and equal protection clauses of the Constitution. In the cases under consideration, it is not disputed that the Central Bank had committed itself to support PROVIDENT and restore it to its former sound financial position provided that Fernandez and Jayme should relinquish and give up its control and management of the bank to the Iglesia Ni Kristo, and thereafter, whimsically withdrew such support to the detriment of PROVIDENT. In the case of Ramos vs. Central Bank, 21 where the Central Bank committed itself to the continued operation of, and rehabilitation of the Overseas Bank of Manila, and later on reneged on that promise, the Court therein ruled: Even in the absence of contract, the record plainly shows that the CB made express representations to petitioners herein that it would support the OBM, and avoid its liquidation if the petitioners would execute (a) the Voting Trust Agreement turning over the management of OBM to the CB or its nominees, and (b) mortgage or assign their properties to the Central Bank to cover the overdraft balance of OBM. The petitioners having complied with these conditions and parted with value to the profit of the CB (which thus acquired additional security for its own advances), the CB may not now renege on its representations and liquidate the OBM, to the detriment of its stockholders, depositors and other creditors, under the rule of promissory estoppel (19 Am. Jur., pp. 657-658, 28 Am. Jur. 2d, 656-657; Ed. Note. 115 ALR, 157).
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The broad general rule to the effect that a promise to do or not to do something in the future does not work an estoppel must be qualified, since there are numerous cases in which an estoppel has been predicated on promises or assurances as to future contract. The doctrine of promissory estoppel is by no means new, although the name has been adopted only in comparatively recent years. According to that doctrine, an estoppel may arise from the making of a promise, even though without consideration, if it was intended that the promise should be relied upon and in fact it was relied upon, and if a refusal to enforce it would be virtually to sanction the perpetration of fraud or would result in other injustice. In this respect, the reliance by the promisee is generally evidenced by action or forbearance on his part, and the idea has been expressed that such action of forbearance would reasonably have been expected by the promissor. Mere omission by the promisee to do whatever the promissor promised to do has been held insufficient forbearance to give rise to a promissory estoppel. (19 AM Jur. loc cit.).
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3. Finally, the petitioner claims that the Court of Appeals erred in not appreciating certain facts, mainly PROVIDENTs anomalous grant of substantial loans to its own directors, officers, stockholders, and related interests, which caused its insolvency, thereby rendering the remedy of liquidation proper and rehabilitation improper. The contention is without merit. We believe that the judgment complained of is based upon substantial evidence and that the trial court had not overlooked, nor misinterpreted certain facts and circumstances of weight in making its findings, so that the respondent appellate court did not commit any error in affirming the said judgment. Besides, the issue of whether or not certain alleged facts should be appreciated is a question of fact, not properly cognizable on appeal, since it involves an examination of the probative value of the evidence presented by the parties. At any rate, the fact that the directors, officers, and stockholders of PROVIDENT had been extended loans by the bank which may have caused its insolvency, is of little importance since these loans were already known to and taken into consideration by the Central Bank when it decided in 1968 to allow PROVIDENT to continue in business. In the case of Ramos vs. Central Bank, 22 the Court said: The CB excuses itself by pleading that the OBM officers had resorted to non-recording of time deposits in the Banks books and diverting such deposits to accounts controlled by certain bank officials, and other irregularities. It is well to note, however, that these

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unrecorded deposits were revealed to the CB as early as 25 September 1967 by the then President of the OBM, Mr. Martin Oliva, who had no hand in such irregularities and who informed the Superintendent of Banks that time deposits worth P43,188,099.29 had not been reported to the OBM directors. In fact, on 29 September 1967, the CB had already ordered its examiners to investigate the Banks records and determine the parties responsible. Notwithstanding knowledge of these irregularities, the CB did not withdraw its promised support, and insisted on the execution of the Voting Trust Agreement on 20 November 1967. Such attitude imports that, in its opinion, the irregularities disclosed were not to be blamed on the OBM itself or its depositors and creditors, but on the officials responsible; and further, that the OBM could still be saved by adequate aid and management reform, which was required by CBs duty to maintain the stability of the banking system and the preservation of public confidence in it. WHEREFORE, the decision of the Court of Appeals is hereby AFFIRMED. Without pronouncement as to costs. SO ORDERED.
Barredo cranad(Chairman), Fernandez *, Abad Santos and De Castro, JJ., concur.

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FIRST DIVISION

G.R. No. L-17620 August 19, 1986

APOLLO M. SALUD, as Attorney-in-Fact for its Stockholders, in his behalf and for and in behalf of the Rural Bank of Muntinlupa, Inc., Hon. VICENTE R. CAMPOS, Presiding Judge, Regional Trial Court, National Capital Region, Br. CLXIV, petitioners, vs. CENTRAL BANK OF THE PHILIPPINES, AND CONSOLACION V. ODRA, in her capacity as Liquidator of the Rural Bank of Muntinlupa, Inc., respondents.

NARVASA, J.:

The Rural Bank of Muntinlupa, Inc. and its stockholders (hereafter collectively referred to simply as the Muntinlupa Bank) have petitioned this Court for a writ of certiorari to annul two (2) resolutions of the Intermediate Appellate Court dated January 4, 1985 and July 23, 1985 upon the theory that said resolutions are so far contrary to the provisions of Section 29 of the Central Bank Act1 and relevant rulings of this Court as to constitute grave abuse of discretion. The provision in question reads as follows: 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 wen 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 notwithstanding. 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 involve probable loss to its depositors or creditors," the Monetary Board has authority:

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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. It is noteworthy that the actions of the Monetary Board in this regard are explicitly declared to be "final and executory." They may not be set aside or even restrained or enjoined by the court, except only upon "convincing proof that the action is plainly arbitrary and made in bad faith."

It was on the basis of this Section 29, expressly invoked, that on April 6, 1982, a "Petition for Assistance in the Liquidation of the Rural Bank of Muntinlupa, 1 Inc." was filed with the Court of First Instance at Pasay City by the Central Bank and the designated Liquidator, Consolacion Odra. 2 The petition alleged that on the strength of said provision, the Monetary Board had adopted two (2) resolutions, viz:
1) Resolution No. 213 (February 3, 1978), forbidding the Muntinlupa Bank to do business and designating Consolacion Odra its statutory receiver; and 2) Resolution No. 1523 (August 28, 1981), ordering liquidation of the Muntinlupa Bank after confirmation that it was insolvent and could not resume business with safety to all concerned, and that public interest did require said liquidation. The petition prayed that the Court "approve petitioners' request for assistance," that it render such assistance in fact, and also that it "grant such other reliefs as may be just and equitable."

Against this petition, docketed as Sp. Proc. No. 9697, Muntinlupa Bank filed a pleading denominated "OPPOSITION." 3 It pleaded the following defenses, or grounds of objection, viz:
1) The liquidation of Muntinlupa Bank decreed by the Monetary Board under Section 29 was premature and void, because Section 28-A of the same Central Bank Act mandates that prior to liquidation, it is the Central Bank's "primordial duty to reorganize the management (of Muntinlupa Bank) and to restore its viability;" 2) The action of liquidation was "arbitrary and in bad faith" because (a) contrary to the actuality that Muntinlupa Bank is still capable of rehabilitation, and (b) inconsistent with prior actions of the Central Bank of rehabilitating "similarly distressed banks, the Republic Bank and the Overseas Bank of Manila, among several others" (citing Central Bank vs. Court of Appeals July 27, 1981).

After a REPLY to the Opposition was in due course presented, 4 and then a REJOINDER to the reply, 5 the Regional Trial Court promulgated an ORDER on June 6, 1983 6 in which, deeming the OPPOSITION to be "tantamount to a Motion to Dismiss," it declared the actions taken by the Monetary Board to be arbitrary and dismissed the petition for assistance in liquidation for lack of merit. The Court opined that "based on the figures provided by the petitioners themselves," Muntinlupa Bank "had more assets as against liabilities" and hence could not, "under any circumstance, be considered in the state of insolvency." It also ruled that conservatorship under Section 28-A, and not liquidation under Section 29, was the appropriate and "mandatory" remedy. Failing in two attempts to have this Order reconsidered, 7 the Central Bank and its Liquidator instituted in this Court a special civil action of certiorari and mandamus, under Rule 65 of the Rules of Court, praying that the Regional Trial Court's orders be annulled because "issued without or in excess of jurisdiction or with grave abuse of discretion," and that it be compelled to grant their application for assistance. 8 The petition was referred to the Intermediate Appellate Court. 9 The IAC rendered judgment on November 22, 1984. 10 It declared that: 1) while the Monetary Board had power to determine "whether a rural bank's continuance in business would involve probable loss to its clients or creditors, etc.," the matter of "whether or not such findings by the Monetary Board is equipped with abuse in its issuance is subject to judicial inquiry," citing Central Bank vs. Court of Appeals; 11

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2) however, because the Region Trial Court "dismissed outright the petition for assistance ... on the basis of respondents' opposition" without a "hearing held for both parties to substantiate their allegations ... in their respective pleadings, "it had exceeded its authority. On these premises, the Court "remanded (the case) to the respondent court for further proceeding"

But upon motion for reconsideration of the Central Bank and its Liquidator, 12 the IAC" clarified, if not modified" its Decision. By a resolution dated January 4, 1985, after simply adverting to the motion for reconsideration which it found "to be in accordance with law and jurisprudence," it amended the dispositive part of its decision to read as follows:
WHEREFORE, the challenged Orders dated June 6, 1983, October 20, 1983 and February 24, 1984, having been issued with a grave abuse of discretion, amounting to lack of, or in excess of jurisdiction, are hereby declared NULL AND VOID. This petition for certiorari is GRANTED and is; hereby GIVEN DUE COURSE; The respondent court is ordered to approve the petition for Assistance in the Liquidation of the Rural Bank of Muntinlupa, Inc., in Sp. Proc. No. 9697 pending in his sala, and assists in its liquidation.
With costs against the private respondent. 13

This resolution of January 4, 1985, and that of July 23, 1985 denying reconsideration, 14 are now in turn assailed in this Court: by Muntinlupa Bank on the ground that they were "issued without or in excess of jurisdiction or with grave abuse of discretion." 15 Essentially, Muntinlupa Bank's position is that under Section 29 of the Central Bank Act, as amended, the Regional Trial Court has jurisdiction to adjudicate the question of whether the action of the Monetary Board in directing its dissolution (instead of its rehabilitation) was in the premises, and in the language of the statute, "arbitrary and made in bad faith;" and therefore the Decision of the Intermediate Appellate Court of November 22, 1984 16 remanding the case to the Regional Trial Court for hearing so that "both parities ... (might) substantiate their, allegations in their respective pleadings" on that precise question, was "in complete accord with the ... law." Under said Decision, Muntinlupa Bank states:
... it well be given an opportunity to adduce convincing proof that respondents' Monetary Board Resolution No. 213 directing dissolution of the bank was arbitrary and made in bad faith. ... 17

The Central Bank and its liquidator assert the contrary. According to them, a Regional Trial Court-in which a petition for assistance in the liquidation of a rural bank is filed by the Central Bank pursuant to resolution of the Monetary Board-has no jurisdiction of the issue of whether or not the Monetary Board resolution is "arbitrary and made in bad faith," where that issue is raised in the same proceeding either by an opposition or motion to dismiss. They argue that that issue may only be raised in a separate action or proceeding. They say that
... To raise the question of whether liquidation is justified in the assistance proceeding is to conduct a collateral attack on the liquidation. This can not be done. An attack on the validity of the liquidation must be made directly. A proceeding specifically for that purpose must be initiated. This is so because the factual basis of the liquidation- the insolvency of the bank-has to have a full-blown hearing. 18

The contention is untenable.

Resolutions of the Monetary Board under Section 29 of the Central Bank Act-e.g., forbidding banking 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 banking institutions may be rehabilitated, or should be liquidated and appointing a liquidator towards this end are by law "final and executory," as earlier pointed out. But they "can be set aside by the court" on one specific ground, and that is, "if there is convincing proof that the action is plainly arbitrary and made in bad faith." The Central Bank concedes this power in "the court," but insists that that setting aside can not be done in the same proceeding for assistance in liquidation, but in a separate action instituted specifically for the purpose, as was the case in Central Bank v. Court of appeals, 19 where
... the aggrieved parties (Fernandez and Jayme) filed a petition for certiorari, prohibition and mandamus precisely to annul and set aside the Monetary Board resolution directing the liquidation of the Provident Savings Bank ... (and the) petition was heard by the then Court of First Instance of Manila jointly with the Petition for Assistance and Supervision in the Liquidation of the Provident Savings Bank. ...20

This Court perceives no reason whatever why 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 cannot be asserted as an affirmative defense 21 or a counterclaim 22 in the proceeding for assistance in liquidation, but only as a cause of action in a separate and distinct action. Nor can this Court see why "a full-blown hearing" on the issue is possible only if it is asserted as a cause of action, but not when set up by way of an affirmative defense, or a counterclaim. There is no provision of law which expressly or even by implication imposes the requirement for a separate proceeding exclusively occupied with

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adjudicating this issue. Moreover, to declare the issue as beyond the scope of matters cognizable in a proceeding for assistance in liquidation would be to engender that multiplicity of proceedings which the law abhors. Indeed, the failure to assert, as a ground of defense or objection to a proceeding for assistance in liquidation, the fact that the resolution of the Monetary Board authorizing the initiation of such a proceeding is "arbitrary and made in bad faith" would constitute a waiver thereof, conformably with the rule of "Waiver of Defenses," 23 to the effect that "defenses and objections not pleaded either in a motion to dismiss or in the answer are (generally) deemed waived," or the "Omnibus Motion Rule," 24 providing that "A motion attacking a pleading or a proceeding shall include all objections then available, and all objections not so included shall be deemed waived." 25
It is inconsequential that in the cited case of Central Bank v. Court of Appeals, there were two (2) separate proceedings. This was entirely fortuitous. It came about merely because by pure chance the petition to annul the Monetary Board resolution authorizing liquidation was filed ahead of the petition for assistance in liquidation. In fact, the two (2) proceedings were at the parties' instance jointly heard and decided, a certain indication of the intimate relationship in issues between said proceedings, if not in truth of the preferential nature of the question of whether or not the Monetary Board resolution was "plainly arbitrary and made in bad faith." Central Bank v. Court of Appeals is not and canot thus be regarded as supportive of the Central Bank's theory in the case at bar, On the contrary, it is opposed to that theory, for in that case, this Court in fact ruled that
... While the closure and liquidation of a bank may be considered an exercise of police power, the validity of such exercise of police power is subject to judicial inquiry and could be set aside if it is either capricious, discriminatory, whimsical, arbitrary, unjust or a denial of the due process and equal protection clauses of the Constitution.... 26

No reason exists to preclude determination of this question in the very proceeding for assistance in liquidation instituted pursuant to Section 29 of the Central Bank Act.

The Central Bank and its Liquidator also postulate, for the very first time, that the Monetary Board is among the "quasijudicial ... boards" whose judgments are within the exclusive appellate jurisdiction of the IAC ; 27 hence, it is only said Court, "to the exclusion of the Regional Trial Courts," that may review the Monetary Board's resolutions.
The contention is utterly devoid of merit. The IAC has no appellate jurisdiction over resolutions or orders of the Monetary Board, No law prescribes any mode of appeal from the Monetary Board to the IAC. The contention is moreover inconsistent with the text of Section 29 of the Central Bank Act. It is inconsistent as well with the Central Bank's own theory in this case, which concedes original jurisdiction over the matter in the Regional Trial Court provided it is alleged as a cause of action in a suit distinct from a proceeding for assistance in liquidation. WHEREFORE, the Resolutions of the Intermediate Appellate Court in AC-G.R. No. SP-03808 dated January 4, 1985 and July 23, 1985 are set aside, and the Decision dated November 22, 1984 is reinstated and affirmed. No costs. SO ORDERED.
Yap, Melencio-Herrera, Cruz and Paras, JJ., concur.

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SECOND DIVISION

G.R. No. 73884 September 24, 1987

SPOUSES ROMEO LIPANA and MILAGROS LIPANA, petitioners, vs. DEVELOPMENT BANK OF RIZAL, respondent.

PARAS, J.:

This is a petition for review on certiorari of the August 30, 1985 Order of the Regional Trial Court of Pasig denying petitioners' Motion to Lift Stay of Execution in Civil Case No. 50802. During the period from 1982 to January, 1984, herein petitioners opened and maintained both time and savings deposits with the herein respondent Development Bank of Rizal all in the aggregate amount of P939,737.32. When some of the Time Deposit Certificates matured, petitioners were not able to cash them but instead were issued a manager's check which was dishonored upon presentment. Demands for the payment of both time and savings deposits having failed, on March 14, 1984, petitioners filed with the Regional Trial Court of Pasig a Complaint With Prayer For Issuance of a Writ of Preliminary Attachment for collection of a sum of money with damages, docketed therein as Civil Case No. 50802 (Record, pp. 3-11). Respondent Judge, in an Order dated March 19, 1984 (Ibid., p. 19-21), ordered the issuance of a writ of attachment, and pursuant thereto, a writ of attachment dated March 20, 1984 was issued in favor of the petitioners (Ibid., p. 33). On June 27, 1984, respondent bank filed its Answer (Ibid., p. 58-61). On July 23, 1984, petitioners filed a Motion For Judgment on the Pleadings (Ibid., pp. 68-73), opposed by respondent bank (Ibid., pp. 74-76), but respondent judge, in a Decision dated November 13, 1984, rendered judgment in favor of petitioners. The dispositive portion of the said Decision, reads:
IN VIEW OF ALL THE FOREGOING, the Court renders judgment in favor of the plaintiffs, ordering the defendant to pay the total sum of P939,737.32 plus stipulated interest; the sum equivalent to 15% of the amount due as attorney's fees; and costs of suit. The counterclaim is dismissed, for lack of merit.

Meanwhile, on August 10, 1984, the Monetary Board, in its Resolution No. 1009, finding that the condition of respondent bank was one of insolvency and that its continuance in business would result in probable loss to its depositors and creditors, decided to place it under receivership (Rollo, p. 84). On December 7, 1984, petitioners filed a Motion for Execution Pending Appeal (Rcd., pp. 91-93), which was opposed by respondent bank (Ibid., p. 94-96). On December 27, 1984, petitioners filed their Reply to the opposition (Ibid., pp. 98-101), to which respondent bank filed its Rejoinder on January 1, 1985 (Ibid., pp. 102-105). In an order dated January 29, 1985, respondent judge ordered the issuance of a writ of execution (Ibid., p. 106). On February 11, 1985, respondent bank filed a Motion for Reconsideration of order dated January 29, 1985 and to Stay Writ of Execution (Ibid., pp. 109-110), opposed by petitioners (Ibid., p. 111) but in an Order dated March 6, 1985, respondent judge stayed the execution (Ibid., p. 113). On August 7, 1985, petitioners filed a Motion to Lift Stay of Execution (Ibid., pp. 119-122), opposed by respondent bank (Ibid., pp. 123-127), and in an Order dated August 30, 1985, respondent judge denied the said motion (Ibid., p. 130). Hence, the instant petition (Rollo, pp. 8-17). The Second Division of the Court, in a resolution dated May 5, 1986, resolved to require the respondent to comment (Ibid., p. 52). In compliance therewith, respondent bank filed its Comment on June 9, 1986 (Ibid., pp. 53-58). The petition was given due course in a resolution dated August 11, 1986, and the parties were required to file their respective memoranda (Ibid., p. 61). In compliance therewith, petitioners filed their Memorandum on September 19, 1986 (Ibid., p. 63-75), while respondent bank filed its Memorandum on September 25, 1986 (Ibid., pp. 76-83), and the case was considered submitted for deliberation in the Resolution dated October 8, 1986 (Ibid., p. 88) Petitioners raised the following issues:
1. Respondent judge cannot legally stay execution of judgement that has already become final and executory; 2. The placing under receivership by the Central Bank of the respondent bank, long after the complaint was filed removed it from the application of the doctrine in Re: Central Bank vs. Morfe (63 SCRA 113);

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3. The filing of the complaint for a sum of money With damages against respondent bank and the subsequent attachment of its property in Pasig, Metro Manila long before the receivership took place render inapplicable the doctrine laid down by this Honorable Supreme Court in the said Morfe case; 4. The indefinite stay of execution without a ruling as to how long it will last, amounts to deprivation of petitioners of their property without due process of law. The instant petition is without merit.

I. The main issue in this case is whether or not respondent judge could legally stay execution of judgment that has already become final and executory. The answer is in the affirmative. The rule that once a decision becomes final and executory, it is the ministerial duty of the court to order its execution, admits of certain exceptions as in cases of special and exceptional nature where it becomes imperative in the higher interest of justice to direct the suspension of its execution (Vecine vs. Geronimo, 59 O.G. 579); whenever it is necessary to accomplish the aims of justice (Pascual vs. Tan, 85 Phil. 164); or when certain facts and circumstances transpired after the judgment became final which could render the execution of the judgment unjust (Cabrias vs. Adil, 135 SCRA 354). In the instant case, the stay of the execution of judgment is warranted by the fact that respondent bank was placed under receivership. To execute the judgment would unduly deplete the assets of respondent bank to the obvious prejudice of other depositors and creditors, since, as aptly stated in Central Bank of the Philippines vs. Morfe (63 SCRA 114), after the Monetary Board has declared that a bank is insolvent and has ordered it to cease operations, the Board becomes the trustee of its assets for the equal benefit of all the creditors, including depositors. The assets of the insolvent banking institution are held in trust for the equal benefit of all creditors, and after its insolvency, one cannot obtain an advantage or a preference over another by an attachment, execution or otherwise. Moreover, it will be noted that respondent bank was placed under receivership on August 10, 1984, and the Decision of respondent judge is dated November 13, 1984. Accordingly, in line with the ruling in the aforesaid Morfe case, which reads:
The circumstance that the Fidelity Savings Bank, having stopped operations since February 19, 1969, was forbidden to do business (and that ban would include the payment of time deposits) implies that suits for the payment of such deposits were prohibited. What was directly prohibited should not be encompassed indirectly. ...

petitioners 'complaint should have been dismissed. II. It is the contention of petitioners, however, that the placing under receivership of respondent bank long after the filing of the complaint removed it from the doctrine in the said Morfe case. This contention is untenable. The time of the filing of the complaint is immaterial. It is the execution that win obviously prejudice the other depositors and creditors. Moreover, as stated in the said Morfe case, the effect of the judgment is only to fix the amount of the debt, and not give priority over other depositors and creditors. III. Anent the contention of petitioners that the attachment of one of the properties of respondent bank was erased by virtue of the delayed receivership is to expand the power of the Central Bank, Suffice it to say that in the case of Central Bank of the Philippines, et al. vs. Court of Appeals, et al. (Resolution of this Court dated September 17, 1984 in G.R. No. 33302), wherein the original plaintiff Algue Inc. was able to obtain a writ of preliminary attachment against the original defendant Island Savings Bank, this Court refused to recognize any preference resulting from such attachment and ruled that after a declaration of insolvency, the remedy of the depositors is to intervene in the liquidation proceedings. IV. It is also contended by the petitioners that the indefinite stay of execution without ruling as to how long it will last, amounts to a deprivation of their property without due process of law. Said contention, likewise, is devoid of merit. Apart from the fact that the stay of execution is not only in accordance with law but is also supported by jurisprudence, such staying of execution is not without a time limit. In fact, the Monetary Board, in its resolution No. 4-33 approved the liquidation of respondent bank on April 26, 1985 and ordered, among others, the filing of a petition in the Regional Trial Court praying for assistance of said court in the liquidation of the bank. (Rollo, p. 81). The staying of the writ of execution will be lifted after approval by the liquidation court of the project of distribution, and the liquidator or his deputy will authorize payments to all claimants concerned in accordance with the approved project of distribution.

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PREMISES CONSIDERED, the instant petition is hereby DISMISSED. SO ORDERED.

Yap (Chairman), Melencio-Herrera, Padilla and Sarmiento, JJ., concur.

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EN BANC

G.R. No. 135882

June 27, 2001

LOURDES T. MARQUEZ, in her capacity as Branch Manager, UNION BANK OF THE PHILIPPINES, petitioner, vs. HONORABLE ANIANO A. DESIERTO, in his capacity as OMBUDSMAN, ANGEL C. MAYOR-ALGO, JR., MARY ANN CORPUZ-MANALAC AND JOSE T. DE JESUS, JR., in their capacity as Chairman and Members of the Panel, respectively, respondents.

PARDO, J.:

In the petition at bar, petitioner seeks to -a. Annul and set aside, for having been issued without or in excess of jurisdiction or with grave abuse of discretion amounting to lack of jurisdiction, respondents' order dated September 7, 1998 in OMB-0-97-0411, In Re: Motion to Cite Lourdes T. Marquez for indirect contempt, received by counsel of September 9,1998, and their order dated October 14,1998, denying Marquez's motion for reconsideration dated September 10, 1998, received by counsel on October 20, 1998. b. Prohibit respondents from implementing their order dated October 14, 1998, in proceeding with the hearing of the motion to cite Marquez for indirect contempt, through the issuance by this Court of a temporary restraining order and/or preliminary injunction.1 The antecedent facts are as follows: Sometime in May 1998, petitioner Marquez received an Order from the Ombudsman Aniano A. Desierto dated April 29, 1998, to produce several bank documents for purposes of inspection in camera relative to various accounts maintained at Union Bank of the Philippines, Julia Vargas Branch, where petitioner is the branch manager. The accounts to be inspected are Account Nos. 011-37270, 240-020718, 245-30317-3 and 245-30318-1, involved in a case pending with the Ombudsman entitled, Fact-Finding and Intelligence Bureau (FFIB) v. Amado Lagdameo, et al. The order further states: "It is worth mentioning that the power of the Ombudsman to investigate and to require the production and inspection of records and documents is sanctioned by the 1987 Philippine Constitution, Republic Act No. 6770, otherwise known as Ombudsman Act of 1989 and under existing jurisprudence on the matter. It must be noted that R.A. 6770 especially Section 15 thereof provides, among others, the following powers, functions and duties of the Ombudsman, to wit: xxx (8) Administer oaths, issue subpoena duces tecum and take testimony in any investigation or inquiry, including the power to examine and have access to banks accounts and records; (9) Punish for contempt in accordance with the Rules of Court and under the same procedure and with the same penalties provided therein. Clearly, the specific provision of R.A. 6770, a later legislation, modifies the law on the Secrecy of Bank Deposits (R.A.1405) and places the office of the Ombudsman in the same footing as the courts of law in this regard."2 The basis of the Ombudsman in ordering an in camera inspection of the accounts is a trail managers checks purchased by one George Trivinio, a respondent in OMB-097-0411, pending with the office of the Ombudsman. It would appear that Mr. George Trivinio, purchased fifty one (51) Managers Checks (MCs) for a total amount of P272.1 Million at Traders Royal Bank, United Nations Avenue branch, on May 2 and 3, 1995. Out of the 51 MCs, eleven (11) MCs in the amount of P70.6 million, were deposited and credited to an account maintained at the Union Bank, Julia Vargas Branch.3 On May 26, 1998, the FFIB panel met in conference with petitioner Lourdes T. Marquez and Atty. Fe B. Macalino at the bank's main office, Ayala Avenue, Makati City. The meeting was for the purpose of allowing petitioner and Atty. Macalino to view the checks furnished by Traders Royal Bank. After convincing themselves of the veracity of the checks, Atty. Macalino advised Ms. Marquez to comply with the order of the Ombudsman. Petitioner agreed to an in camera inspection set on June 3, 1998.4 However, on June 4,1998, petitioner wrote the Ombudsman explaining to him that the accounts in question cannot readily be identified and asked for time to respond to the order. The reason forwarded by the petitioner was that "despite diligent efforts and from the accounts numbers presented, we can not identify these accounts since the checks are issued in cash or bearer. We surmised that these accounts have long been dormant, hence are not covered by the new account number generated by the Union Bank system. We therefore have to verify from the Interbank records archives for the whereabouts of these accounts.5 The Ombudsman, responding to the request of the petitioner for time to comply with the order, stated: "firstly, it must be emphasized that Union Bank, Julia Vargas Branch was depositary bank of the subject Traders Royal Bank Manager's Check (MCs), as shown at its dorsal portion and as cleared by the Philippines Clearing House, not the International Corporate Bank.

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Notwithstanding the facts that the checks were payable to cash or bearer, nonetheless, the name of the depositor(s) could easily be identified since the account numbers x x x where said checks were deposited are identified in the order. Even assuming that the accounts xxx were already classified as "dormant accounts," the bank is still required to preserve the records pertaining to the accounts within a certain period of time as required by existing banking rules and regulations. And finally, the in camera inspection was already extended twice from May 13, 1998 to June 3,1998 thereby giving the bank enough time within which to sufficiently comply with the order."6 Thus, on June 16, 1998, the Ombudsman issued an order directing petitioner to produce the bank documents relative to accounts in issue. The order states: Viewed from the foregoing, your persistent refusal to comply with Ombudsman's order in unjustified, and is merely intended to delay the investigation of the case. Your act constitutes disobedience of or resistance to a lawful order issued by this office and is punishable as Indirect Contempt under Section 3(b) of R.A. 6770. The same may also constitute obstruction in the lawful exercise of the functions of the Ombudsman which is punishable under Section 36 of R.A. 6770.7 On July 10,1998, petitioner together with Union Bank of the Philippines, filed a petition for declaratory relief, prohibition and injunctions8 with the Regional Trial Court, Makati City, against the Ombudsman. The petition was intended to clear the rights and duties of petitioner. Thus, petitioner sought a declaration of her rights from the court due to the clear conflict between RA No.6770, Section 15 and R.A. No. 1405, Sections 2 and 3. Petitioner prayed for a temporary restraining order (TRO) because the Ombudsman and the other persons acting under his authority were continuously harassing her to produce the bank documents relatives to the accounts in question. Moreover, on June 16, 1998, the Ombudsman issued another order stating that unless petitioner appeared before the FFIB with the documents requested, petitioner manager would be charged with indirect contempt and obstruction of justice. In the meantime,9 on July 14, 1998, the lower court denied petitioner's prayer for a temporary restraining order and stated us: "After hearing the arguments of the parties, the court finds the application for a Temporary Restraining Order to be without merit. "Since the application prays for restraint of the respondent, in the exercise of his contempt powers under Section 15(9) in relation to paragraph (8) of RA. 6770, known as " The Ombudsman Act of 1989", there is no great or irreparable injury from which petitioners may suffer, if respondent is not so restrained. Respondent should he decide to exercise his contempt powers would still have to apply with the court. x x x Anyone who, without lawful excuse x x x refuses to produce documents for inspection, when thereunto lawfully required shall be subject to discipline as in case of contempt of Court and upon application of the individual or body exercising the power in question shall be dealt with by the Judge of the First Instance (now RTC) having jurisdiction of the case in a manner provided by the law (section 580 of the Revised Administrative Code). Under the present Constitution only judges may issue warrants, hence, respondent should apply with the Court for the issuance of the warrant needed for the enforcement of his contempt orders. It is in these proceedings where petitioner may question the propriety of respondent's exercise of his contempt powers. Petitioners are not therefore left without any adequate remedy. "The questioned orders were issued with the investigation of the case of Fact-Finding and Intelligence Bureau vs. Amado Lagdameo, et. al., OMB-0-97-0411, for violation of RA. 3019. Since petitioner failed to show prima facie evidence that the subject matter of the investigation is outside the jurisdiction of the Office of the Ombudsman, no writ of injunction may be issued by this Court to delay this investigation pursuant to section 14 of Ombudsman Act of 1989."10 On July 20,1998, petitioner filed a motion for reconsideration based on the following grounds: a. Petitioners' application for filed Temporary Restraining Order is not only to restrain the Ombudsman from exercising his contempt powers, but to stop him from implementing his Orders dated April 29, 1998 and June 16, 1998: and b. The subject matter of the investigation being conducted by the Ombudsman at petitioners' premises is outside his jurisdiction.11 On July 23, 1998, the Ombudsman filed a motion to dismiss the petition for declaratory relief12 on the ground that the Regional Trial Court has no jurisdiction to hear a petition for relief from the findings and orders of the Ombudsman, citing R.A. No. 6770, Sections 14 and 27. On August 7, 1998, the Ombudsman filed an opposition to petitioner's motion for reconsideration dated July 20, 1998.13 On August 19,1998, the lower court denied petitioner's motion for reconsideration,14 and also the Ombudsman's motion to dismiss.
15

On August 21, 1998, petitioner received a copy of the motion to cite her for contempt, filed with the Office of the Ombudsman by Agapito B. Rosales, Director, Fact Finding and Intelligence Bureau (FFIB).16

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On August 31, 1998, petitioner filed with the Ombudsman an opposition to the motion to cite her in contempt on the ground that the filing thereof was premature due to the petition pending in the lower court.17 Petitioner likewise reiterated that she had no intention to disobey the orders of the Ombudsman. However, she wanted to be clarified as to how she would comply with the orders without her breaking any law, particularly RA. No. 1405.18 Respondent Ombudsman panel set the incident for hearing on September 7, 1998.19 After hearing, the panel issued an order dated September 7, 1998, ordering petitioner and counsel to appear for a continuation of the hearing of the contempt charges against her.20 On September 10, 1998, petitioner filed with the Ombudsman a motion for reconsideration of the above order. 21 Her motion was premised on the fact that there was a pending case with the Regional Trial Court, Makati City,22 which would determine whether obeying the orders of the Ombudsman to produce bank documents would not violate any law. The FFIB opposed the motion,23 and on October 14, 1998, the Ombudsman denied the motion by order the dispositive portion of which reads: "Wherefore, respondent Lourdes T. Marquez's motion for reconsideration is hereby DENIED, for lack of merit. Let the hearing of the motion of the Fact Finding Intelligence Bureau (FFIB) to cite her for indirect contempt to be intransferrably set to 29 October 1998 at 2:00 o'clock p.m. at which date and time she should appear personally to submit her additional evidence. Failure to do so shall be deemed a waiver thereof."24 Hence, the present petition.25 The issue is whether petitioner may be cited for indirect contempt for her failure to produce the documents requested by the Ombudsman. And whether the order of the Ombudsman to have an in camera inspection of the questioned account is allowed as an exception to the law on secrecy of bank deposits (R.A. No.1405). An examination of the secrecy of bank deposits law (R.A. No.1405) would reveal the following exceptions: 1. Where the depositor consents in writing; 2. Impeachment case; 3. By court order in bribery or dereliction of duty cases against public officials; 4. Deposit is subject of litigation; 5. Sec. 8, R.A. No.3019, in cases of unexplained wealth as held in the case of PNB vs. Gancayco.26 The order of the Ombudsman to produce for in camera inspection the subject accounts with the Union Bank of the Philippines, Julia Vargas Branch, is based on a pending investigation at the Office of the Ombudsman against Amado Lagdameo, et. al. for violation of R.A. No. 3019, Sec. 3 (e) and (g) relative to the Joint Venture Agreement between the Public Estates Authority and AMARI. 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. In Union Bank of the Philippines v. Court of Appeals, we held that "Section 2 of the Law on Secrecy of Bank Deposits, as amended, declares bank deposits to be "absolutely confidential" except: (1) In an examination made in the course of a special or general examination of a bank that is specifically authorized by the Monetary Board after being satisfied that there is reasonable ground to believe that a bank fraud or serious irregularity has been or is being committed and that it is necessary to look into the deposit to establish such fraud or irregularity, (2) In an examination made by an independent auditor hired by the bank to conduct its regular audit provided that the examination is for audit purposes only and the results thereof shall be for the exclusive use of the bank, (3) Upon written permission of the depositor, (4) In cases of impeachment, (5) Upon order of a competent court in cases of bribery or dereliction of duty of public officials, or (6) In cases where the money deposited or invested is the subject matter of the litigation".27

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In the case at bar, there is yet no pending litigation before any court of competent authority. What is existing is an investigation by the Office of the Ombudsman. In short, what the office of the ombudsman would wish to do is to fish for additional evidence to formally charge Amado Lagdameo, et. al., with the Sandiganbayan. Clearly, there was no pending case in court which would warrant the opening of the bank account for inspection. Zone of privacy are recognized and protected in our laws. The Civil Code provides that" [e]very person shall respect the dignity, personality, privacy and peace of mind of his neighbors and other persons" and punishes as actionable torts several acts for meddling and prying into the privacy of another. It also holds public officer or employee or any private individual liable for damages for any violation of the rights and liberties of another person, and recognizes the privacy of letters and other private communications. The Revised Penal Code makes a crime of the violation of secrets by an officer, revelation of trade and industrial secrets, and trespass to dwelling. Invasion of privacy is an offense in special laws like the Anti-Wiretapping Law, the Secrecy of Bank Deposits Act, and the Intellectual Property Code.28 IN VIEW WHEREOF, we GRANT the petition. We order the Ombudsman to cease and desist from requiring Union Bank Manager Lourdes T. Marquez, or anyone in her place to comply with the order dated October 14,1998, and similar orders. No costs. SO ORDERED .
Davide, Jr:, C.J., Bellosillo, Melo, Puno, Vitug, Kapunan, Mendoza, Panganiban, Quisumbing, Buena, Gonzaga-Reyes, Ynares-Santiago, De Leon. Jr., and Sandoval-Gutierrez, JJ., concur.

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SECOND DIVISION

G.R. No. 84526 January 28, 1991

PHILIPPINE COMMERCIAL & INDUSTRIAL BANK and JOSE HENARES, petitioners, vs. THE HON. COURT OF APPEALS and MARINDUQUE MINING AND INDUSTRIAL CORPORATION, respondents.

Bengzon, Zarraga, Narciso, Cudala, Pecson & Bengson for petitioners.

Rexes V. Alejano for private respondent.

SARMIENTO, J.:p

This is a petition for review on certiorari which assails both the resolution 1 dated June 27, 1988 of the Court of Appeals 2 which reconsidered and set aside its earlier decisions 3 dated February 26, 1988 reversing the decision 4 of the trial court and the subsequent resolution 5 dated August 3, 1988 which denied the petitioners' motion for reconsideration. The dispositive portion of the resolution in question dated June 27, 1988 reads as follows:
xxx xxx xxx

For the reasons above adduced, We are constrained to reconsider Our aforesaid decision and to set it aside and in lieu thereof hereby enter another decision AFFIRMING the decision dated January 15, 1985 of the Regional Trial Court of Manila, Branch 11, in Civil Case No. 103100 entitled "Marinduque Mining and Industrial Corporation (MMIC) vs. Philippine Commercial and Industrial Bank, et al." 6

The undisputed facts 7 as gathered from the findings of the trial court are as follows: The instant case originated from an action 8 filed with the National Labor Relations Commission (NLRC) by a group of laborers who obtained therefrom a favorable judgment for the payment of backwages amounting to P205,853.00 against the private respondent. On April 26, 1976, the said Commission issued a writ of execution directing the Deputy Sheriff of Negros Occidental, one Damian Rojas, to enforce the aforementioned judgment. The pertinent portion of the said writ reads as follows:
xxx xxx xxx

Further, you are to collect from same respondent the total amount of P205,853.00 as their backwage (sic) for twelve (12) months and then turn over said amount to this commission for further disposition. In case you fail to collect said amount in cash, you are to cause the satisfaction of the same on the movable or immovable properties of the respondent not exempt from execution. (Exhs. G, G-1 and G-3, also Exh. 3; Emphasis supplied). 9

Accordingly, on April 28, 1976, the aforenamed deputy sheriff went to the mining site of the private respondent and served the writ of execution on the persons concerned, but nothing seemed to have happened thereat. Thereafter, the Sheriff prepared on his own a Notice of Garnishment dated April 29, 1976 addressed to six (6) banks, all located in Bacolod City, one of which being the petitioner herein, directing the bank concerned to immediately issue a check in the name of the Deputy Provincial Sheriff of Negros Occidental in an amount equivalent to the amount of the garnishment and that proper receipt would be issued therefor. Incidentally, the house lawyer of the private respondent, Atty. Rexes V. Alejano, acting on a tip regarding the existence of the said notice of garnishment, communicated with the bank manager, the petitioner Jose Henares, verbally at first at around 2:00 o'clock in the afternoon of that day, April 29, 1976, and later confirmed in a formal letter received by the petitioner Henares at about 5:00 o'clock of that same day, requesting the withholding of any release of the deposit of the private respondent with the petitioner bank. Meanwhile, at about 9:30 in the morning of April 29, 1976, the deputy sheriff presented the Notice of Garnishment and the Writ of Execution attached therewith to the petitioner Henares and later in the afternoon, demanded from the latter, under pain of contempt, the release of the deposit of the private respondent. The petitioner Henares, upon knowing from the Acting Provincial Sheriff that there was no restraining order from the National Labor Relations Commission and on the favorable advice of the bank's legal counsel, issued a debit memo for the full balance of the private respondent's account with the petitioner bank. Thereafter, he issued a manager's check in the name of the Deputy Provincial Sheriff of Negros Occidental for the amount of P37,466.18, which was the exact balance of the private respondent's account as of that day. On the following day, April 30, 1976, at about 1:00 o'clock in the afternoon, the deputy sheriff returned to the bank in order to encash the check but before the actual encashment, the petitioner Henares once again inquired about any existing restraining order from the NLRC and upon being told that there was none, the latter allowed the said encashment. On July 6, 1976, the private respondent, then plaintiff, filed a complaint before the Regional Trial Court of Manila, Branch II, against the petitioners and Damian Rojas, the Deputy Provincial Sheriff of Negros Occidental, then defendants, alleging that the former's

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current deposit with the petitioner bank was levied upon, garnished, and with undue haste unlawfully allowed to be withdrawn, and notwithstanding the alleged unauthorized disclosure of the said current deposit and unlawful release thereof, the latter have failed and refused to restore the amount of P37,466.18 to the former's account despite repeated demands. Both the petitioners and the Deputy Sheriff filed their respective answers denying the material averments of the said complaint and alleged that their actuations were all in accordance with law and likewise filed counterclaims for damages, including a cross-claim of the former against the latter. The third-party complaint of the petitioners against the forty-nine (49) laborers in the NLRC case was, however, dismissed for failure of the sheriff to serve summons upon the latter. On January 23, 1982, after several postponements, the pre-trial was finally conducted and terminated with only the petitioners and the private respondent participating, through their respective counsel. On January 15, 1985, the trial court rendered its judgment in favor of the private respondent, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the three (3) defendants by ordering the latter to pay, jointly and severally, the plaintiff the following amounts, to wit: (a) the sum of P37,466.18, with interest thereon at the rate of 12% per annum from date of first demand on April 29, 1976 until the amount shall have been fully and completely restored and paid; (b) the sum of P10,000.00 as attorney's fees. Defendants are ordered to pay, jointly and severally, double costs.
10

xxx xxx xxx

On appeal, the respondent court in a decision dated February 26, 1988, first reversed the said judgment of the lower court, but however, on the motion for reconsideration filed by the private respondent, subsequently annulled and set aside its said decision in the resolution dated June 27, 1988. On August 3, 1988, the respondent court denied the petitioner's own motion for reconsideration. Hence, this petition. The petitioners raise two issues,
11

to wit:

1. Whether or not petitioners had legal basis in releasing the garnished deposit of private respondent to the sheriff. 2. Whether or not petitioners violated Republic Act No. 1405, otherwise known as the Secrecy of Bank Deposits Act, when they allowed the sheriff to garnish the deposit of private respondent.

The petition is impressed with merit. The crux of the instant controversy boils down to the question of whether or not a bank is liable for releasing its depositor's funds on the strength of the notice of garnishment made by the deputy sheriff pursuant to a writ of execution issued by the National Labor Relations Commission (NLRC). The respondent court in its questioned resolution dated June 27, 1988, held that the petitioners were liable, in this wise:
In the case at bar, defendant-appellant PCIB, despite vigorous objections from plaintiff-appellee, with indecent haste disclosed and released the deposit of plaintiff-appellee on the strength of a mere notice of garnishment which the Honorable Supreme Court ruled upon is no authority for the release of the deposit, thus: In the second place, the mere garnishment of funds belonging to a party upon order of the court does not have the effect of delivering the money garnished to the sheriff or to the party in whose favor the attachment is issued. The fund is retained by the garnishee or the person holding the money for the defendant. The garnishee, or one in whose hands property is attached or garnished, is universally regarded as charged with its legal custody pending outcome of the attachment or garnishment unless, by local statute and practice, he is permitted to surrender or pay the garnished property or funds into court, to the attaching officer, or to a receiver or trustee appointed to receive them. (5 Am. Jur. 14) The effect of the garnishment, therefore, was to require the Philippine Trust Company, holder of the funds of the Luzon Surety Co., to set aside said amount from the funds of the Luzon Surety Co., and keep the same subject to the final orders of the Court. In the case at bar there was never an order to deliver the full amount garnished to the plaintiff-appellee; all that was ordered to be delivered after the judgment had become final was the amount found by the Court of Appeals to be due. The balance of the amount garnished, therefore, remained all the time in the possession of the bank as part of the funds of the Luzon Surety Co. although the same could not be disposed of by the owner. (De la Rama vs. Villarosa, et al., L-17927, June 29, 1963, 8 SCRA 413, 418-419; Emphasis supplied). 12

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The above-mentioned contention citing De la Rama is not exactly on all fours with the facts of the case at bar. In De la Rama, the amount garnished was not actually taken possession of by the sheriff, even from the time of garnishment, because the judgment debtor was able to appeal to the Court of Appeals and obtain from the Court an injunction prohibiting execution of the judgment. On the other hand, nowhere in the record of the present case is there any evidence of an appeal by the private respondent from the decision of the NLRC or the existence of any restraining order to prevent the release of the private respondent's deposit to the deputy sheriff at the time of the service of the notice of garnishment and writ of execution to the petitioners. On the contrary, the uncontroverted statements in the deposition of the petitioner Henares that he had previously sought the advice of the bank's counsel and that he had checked twice with the Acting Provincial Sheriff who had informed him of the absence of any restraining order, belie any allegation of undue and indecent haste in the release of the said deposit in question. The cases more in point to the present controversy are the recent decisions in Engineering Construction Inc. v. National Power Corporation 13 and Rizal Commercial Banking Corporation (RCBC) vs. De Castro 14 where the Court absolved both garnishees, MERALCO and RCBC, respectively, from any liability for their prompt compliance in the release of garnished funds, The rationale behind Engineering Construction, Inc. and which was quoted in Rizal Commercial Banking Corporation is persuasive
xxx xxx xxx

But while partial restitution is warranted in favor of NPC, we find that the Appellate Court erred in not absolving MERALCO, the garnishee, from its obligations to NPC with respect to the payment to ECI of P1,114,543.23, thus in effect subjecting MERALCO to double liability. MERALCO should not have been faulted for its prompt obedience to a writ of garnishment. Unless there are compelling reasons such as: a defect on the face of the writ or actual knowledge on the part of the garnishee of lack of entitlement on the part of the garnisher, it is not incumbent upon the garnishee to inquire or to judge for itself whether or not the order for the advance execution of a judgment is valid. Section 8, Rule 57 of the Rules of Court provides: Effect of attachment of debts and credits. All persons having in their possession or under their control any credits or other similar personal property belonging to the party against whom attachment is issued, or owing any debts to the same, at the time of service upon them of a copy of the order of attachment and notice as provided in the last preceding section, shall be liable to the applicant of the amount of such credits, debts or other property, until the attachment be discharged, or any judgment recovered by him be satisfied, unless such property be delivered or transferred, or such debts be paid, to the clerk, sheriff or other proper officer of the court issuing the attachment. Garnishment is considered as a specie of attachment for reaching credits belonging to the judgment debtor and owing to him from a stranger to the litigation. Under the above-cited rule, the garnishee [the third person] is obliged to deliver the credits, etc. to the proper officer issuing the writ and "the law exempts from liability the person having in his possession or under his control any credits or other personal property belonging to the defendant, . . . if such property be delivered or transferred, . . . to the clerk, sheriff, or other officer of the court in which the action is pending." Applying the foregoing to the case at bar, MERALCO, as garnishee, after having been judicially compelled to pay the amount of the judgment represented by funds in its possession belonging to the judgment debtor or NPC, should be released from all responsibilities over such amount after delivery thereof to the sheriff. The reason for the rule is self evident. To expose garnishees to risks for obeying court orders and processes would only undermine the administration of justice. (Emphasis ours.) 15
xxx xxx xxx

Moreover, there is no issue concerning the indebtedness of the petitioner bank to the private respondent since the latter has never denied the existence of its deposit with the former, the said deposit being considered a credit in favor of the depositor against the bank. 16 We therefore see no application for Sec. 39, Rule 39 of the Rules of Court invoked by the private respondent as to necessitate the "examination of the debtor of the judgment debtor." 17 Rather, we find the immediate release of the funds by the petitioners on the strength of the notice of garnishment and writ of execution, whose issuance, absent any patent defect, enjoys the presumption of regularity, sufficiently supported by Sec. 41, Rule 39 of the Rules of Court which reads:
xxx xxx xxx

After an execution against property has issued, a person indebted to the judgment debtor, may pay to the officer holding the execution the amount of his debt or so much thereof as may be necessary to satisfy the execution, and the officer's receipt shall be a sufficient discharge for the amount so paid or directed to be credited by the judgment creditor on the execution.
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Finally, we likewise take cognizance of the subject of the judgment sought to be enforced in the writ of execution in question, namely, laborers' backwages. We believe that the petitioners should rather be commended for having acted with urgent dispatch despite attempts by the private respondent, as with so many scheming employers, to frustrate or unjustifiably delay the prompt satisfaction of final judgments which often result in undue prejudice to the legitimate claims of labor. With regard to the second issue, we find no violation whatsoever by the petitioners of Republic Act No. 1405, otherwise known as the Secrecy of Bank Deposits Act. The Court in China Banking Corporation vs. Ortega 18 had the occasion to dispose of this issue when it stated, thus:
It is clear from the discussion of the conference committee report on Senate Bill No. 351 and House Bill No. 3977, which later became Republic Act 1405, that the prohibition against examination of or inquiry into a bank deposit under Republic Act 1405 does not preclude its being garnished to insure satisfaction of a judgment. Indeed there is no real inquiry in such a case, and if existence of the deposit is disclosed the disclosure is purely incidental to the execution process. It is hard to conceive that it was ever within the intention of Congress to enable debtors to evade payment of their just debts, even if ordered by the Court, through the expedient of converting their assets into cash and depositing the same in a bank.

Since there is no evidence that the petitioners themselves divulged the information that the private respondent had an account with the petitioner bank and it is undisputed that the said account was properly the object of the notice of garnishment and writ of execution carried out by the deputy sheriff, a duly authorized officer of the court, we can not therefore hold the petitioners liable under R.A. 1405. While the general rule is that the findings of fact of the appellate court are binding on this Court, the said rule however admits of exceptions, such as when the Court of Appeals clearly misconstrued and misapplied the law, drawn from the incorrect conclusions of fact established by evidence and otherwise at certain conclusions which are based on misapprehension of facts, 19 as in the case at bar. The petitioners are therefore absolved from any liability for the disclosure and release of the private respondent's deposit to the custody of the deputy sheriff in satisfaction of the final judgment for the laborers' backwages. WHEREFORE, the petition is GRANTED and the challenged Resolutions dated June 27, 1988 and August 13, 1988 of the Court of Appeals are hereby ANNULLED and SET ASIDE and its Decision dated February 26, 1988 dismissing the complaint is hereby REINSTATED. With costs against the private respondent. SO ORDERED.
Melencio-Herrera, Padilla and Regalado, JJ., concur.

Paras, J., ** took no part.

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EN BANC

G.R. No. L-18343

September 30, 1965

PHILIPPINE NATIONAL BANK and EDUARDO Z. ROMUALDEZ, in his capacity as President of the Philippine National Bank, plaintiffs-appellants, vs. EMILIO A. GANCAYCO and FLORENTINO FLOR, Special Prosecutors of the Dept. of Justice, defendants-appellees.

Ramon B. de los Reyes and Zoilo P. Perlas for plaintiffs-appellants. Villamor & Gancayco for defendants-appellees.

REGALA, J.:

The principal question presented in this case is whether a bank can be compelled to disclose the records of accounts of a depositor who is under investigation for unexplained wealth. This question arose when defendants Emilio A. Gancayco and Florentino Flor, as special prosecutors of the Department of Justice, required the plaintiff Philippine National Bank to produce at a hearing to be held at 10 a.m. on February 20, 1961 the records of the bank deposits of Ernesto T. Jimenez, former administrator of the Agricultural Credit and Cooperative Administration, who was then under investigation for unexplained wealth. In declining to reveal its records, the plaintiff bank invoked Republic Act No. 1405 which provides: SEC. 2. All deposits of whatever nature with banks or banking institutions in the Philippines including investments in bonds issued by the Government of the Philippines, its political subdivisions and its instrumentalities, are hereby considered as of an absolutely confidential nature and may not be examined, inquired or looked into by any person, government official, bureau or office, except 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. The plaintiff bank also called attention to the penal provision of the law which reads: SEC. 5. Any 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. On the other hand, the defendants cited the Anti-Graft and Corrupt Practices Act (Republic Act No. 3019) in support of their claim of authority and demanded anew that plaintiff Eduardo Z. Romualdez, as bank president, produce the records or he would be prosecuted for contempt. The law invoked by the defendant states: SEC. 8. Dismissal due to unexplained wealth. If in accordance with the provisions of Republic Act Numbered One thousand three hundred seventy-nine, a public official has been found to have acquired during his incumbency, whether in his name or in the name of other persons, an amount of property and/or money manifestly out of proportion to his salary and to his other lawful income, that fact shall be a ground for dismissal or removal. Properties in the name of the spouse and unmarried children of such public official may be taken into consideration, when their acquisition through legitimate means cannot be satisfactorily shown. Bank deposits shall be taken into consideration in the enforcement of this section, notwithstanding any provision of law to the contrary. Because of the threat of prosecution, plaintiffs filed an action for declaratory judgment in the Manila Court of First Instance. After trial, during which Senator Arturo M. Tolentino, author of the Anti-Graft and Corrupt Practices Act testified, the court rendered judgment, sustaining the power of the defendants to compel the disclosure of bank accounts of ACCFA Administrator Jimenez. The court said that, by enacting section 8 of, the Anti-Graft and Corrupt Practices Act, Congress clearly intended to provide an additional ground for the examination of bank deposits. Without such provision, the court added prosecutors would be hampered if not altogether frustrated in the prosecution of those charged with having acquired unexplained wealth while in public office.1awphl.nt From that judgment, plaintiffs appealed to this Court. In brief, plaintiffs' position is that section 8 of the Anti-Graft Law "simply means that such bank deposits may be included or added to the assets of the Government official or employee for the purpose of computing his unexplained wealth if and when the same are discovered or revealed in the manner authorized by Section 2 of Republic Act 1405, which are (1) Upon written permission of the depositor; (2) In cases of impeachment; (3) Upon order of a competent court in cases of bribery or dereliction of duty of public officials; and (4) In cases where the money deposited or invested is the subject matter of the litigation." In support of their position, plaintiffs contend, first, that the Anti-Graft Law (which took effect on August 17, 1960) is a general law which cannot be deemed to have impliedly repealed section 2 of Republic Act No. 1405 (which took effect on Sept. 9, 1955), because of the rule that repeals by implication are not favored. Second, they argue that to construe section 8 of the Anti-Graft Law as allowing inquiry into bank deposits would be to negate the policy expressed in section 1 of Republic Act No. 1405 which is "to give encouragement to the people to deposit their money in banking institutions and to discourage private hoarding so that the same may be utilized by banks in authorized loans to assist in the economic development of the country." Contrary to their claim that their position effects a reconciliation of the provisions of the two laws, plaintiffs are actually making the provisions of Republic Act No. 1405 prevail over those of the Anti-Graft Law, because even without the latter law the balance

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standing to the depositor's credit can be considered provided its disclosure is made in any of the cases provided in Republic Act No. 1405. The truth is that these laws are so repugnant to each other than no reconciliation is possible. Thus, while Republic Act No. 1405 provides that bank deposits are "absolutely confidential ... and [therefore] may not be examined, inquired or looked into," except in those cases enumerated therein, the Anti-Graft Law directs in mandatory terms that bank deposits "shall be taken into consideration in the enforcement of this section, notwithstanding any provision of law to the contrary." The only conclusion possible is that section 8 of the Anti-Graft Law is intended to amend section 2 of Republic Act No. 1405 by providing additional exception to the rule against the disclosure of bank deposits. Indeed, it is said that if the new law is inconsistent with or repugnant to the old law, the presumption against the intent to repeal by implication is overthrown because the inconsistency or repugnancy reveals an intent to repeal the existing law. And whether a statute, either in its entirety or in part, has been repealed by implication is ultimately a matter of legislative intent. (Crawford, The Construction of Statutes, Secs. 309-310. Cf. Iloilo Palay and Corn Planters Ass'n v. Feliciano, G.R. No. L-24022, March 3, 1965). The recent case of People v. De Venecia, G.R. No. L-20808, July 31, 1965 invites comparison with this case. There it was held: The result is that although sec. 54 [Rev. Election Code] prohibits a classified civil service employee from aiding any candidate, sec. 29 [Civil Service Act of 1959] allows such classified employee to express his views on current political problems or issues, or to mention the name of his candidate for public office, even if such expression of views or mention of names may result in aiding one particular candidate. In other words, the last paragraph of sec. 29 is an exception to sec. 54; at most, an amendment to sec. 54. With regard to the claim that disclosure would be contrary to the policy making bank deposits confidential, it is enough to point out that while section 2 of Republic Act 1405 declares bank deposits to be "absolutely confidential," it nevertheless allows such disclosure in the following instances: (1) Upon written permission of the depositor; (2) In cases of impeachment; (3) Upon order of a competent court in cases of bribery or dereliction of duty of public officials; (4) In cases where the money deposited is the subject matter of the litigation. 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 express the motion 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. WHEREFORE, the decision appealed from is affirmed, without pronouncement as to costs.
Concepcion, Reyes, J.B.L., Makalintal, Bengzon, and Zaldivar, JJ., concur. Bengzon, C.J., Bautista Angelo and Barrera, JJ., are on leave.

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THIRD DIVISION

G.R. No. 71479 October 18, 1990

MELLON BANK, N.A., petitioner, vs. HON. CELSO L. MAGSINO, in his capacity as Presiding Judge of Branch CLIX of the Regional Trial Court at Pasig; MELCHOR JAVIER, JR., VICTORIA JAVIER; HEIRS OF HONORIO POBLADOR, JR., namely: Elsa Alunan Poblador, Honorio Poblador III, Rafael Poblador, Manuel Poblador, Ma. Regina Poblador, Ma. Concepcion Poblador & Ma. Dolores Poblador; F.C. HAGEDORN & CO., INC.; DOMINGO JHOCSON, JR.; JOSE MARQUEZ; ROBERTO GARINO; ELNOR INVESTMENT CO., INC.; PARAMOUNT FINANCE CORPORATION; RAFAEL CABALLERO; and TRI-ARC INVESTMENT and MANAGEMENT CO., INC. respondents.

Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for petitioner.

Jose Buendia for respondent Jose Marquez.

Raul L. Cornea & Associates for Jhocson and Garino.

Jesus L. Santos and Conrado Valera for Tri-Arc Investment, etc.

Bernardo D. Calderon for respondent ELNOR and Rafael Caballero.

Nazareno, Azada, Sabado & Dizon for Movants.

Balgos & Perez for Paramount Finance Corporation.

Meer, Meer & Meer for Hagedorn.

Alberto Villareza for F.C. Hagedorn & Co.

FERNAN, C.J.:

The issue in the instant special civil action of certiorari is whether or not, by virtue of the principle of election of remedies, an action filed in California, U.S.A., to recover real property located therein and to constitute a constructive trust on said property precludes the filing in our jurisdiction of an action to recover the purchase price of said real property. On May 27, 1977, Dolores Ventosa requested the transfer of $1,000 from the First National Bank of Moundsville, West Virginia, U.S.A. to Victoria Javier in Manila through the Prudential Bank. Accordingly, the First National Bank requested the petitioner, Mellon Bank, to effect the transfer. Unfortunately the wire sent by Mellon Bank to Manufacturers Hanover Bank, a correspondent of Prudential Bank, indicated the amount transferred as "US$1,000,000.00" instead of US$1,000.00. Hence Manufacturers Hanover Bank transferred one million dollars less bank charges of $6.30 to the Prudential Bank for the account of Victoria Javier. On June 3, 1977, Javier opened a new dollar account (No. 343) in the Prudential Bank and deposited $999,943.70. Immediately their, Victoria Javier and her husband, Melchor Javier, Jr., made withdrawals from the account, deposited them in several banks only to withdraw them later in an apparent plan to conceal, "launder" and dissipate the erroneously sent amount. On June 14, 1977, Javier withdrew $475,000 from account No. 343 and converted it into eight cashier's checks made out to the following: (a) F.C. Hagedorn & Co., Inc., two cheeks for the total amount of P1,000,000; (b) Elnor Investment Co., Inc., two checks for P1,000,000; (c) Paramount Finance Corporation, two checks for P1,000,000; and (d) M. Javier, Jr., two checks for P496,000. The first six checks were delivered to Jose Marquez and Honorio Poblador, Jr. It appears that Melchor Javier, Jr. had requested Jose Marquez, a realtor, to look for properties for sale in the United States. Marquez offered a 160-acre lot in the Mojave desert in California City which was owned by Honorio Poblador, Jr. Javier, without having seen the property, agreed to buy it for P3,236,800 (US$437,405) although it was actually appraised at around $38,500. Consequently, as Poblador's agent, Marquez executed in Makati a deed of absolute sale in favor of the Javiers and had the document notarized in Manila before an associate of Poblador. Marquez executed another deed of sale indicating receipt of the purchase price and sent the deed to the Kern County Registrar in California for registration. Inasmuch as Poblador had requested that the purchase price should not be paid directly to him, the payment of P3,000,000 was coursed through Elnor Investment Co., Inc., allegedly Poblador's personal holding company; Paramount Finance, allegedly headed by Poblador's brother, and F.C. Hagedorn, allegedly a stock brokerage with extensive dealings with Poblador. The payment was made through the aforementioned six cashier's checks while the balance of P236,000 was paid in cash by Javier who did not even ask for a receipt. The two checks totalling P1,000,000 was delivered by Poblador to F.C. Hagedorn with specific instructions to purchase Atlas, SMC and Philex shares. The four checks for P2,000,000 with Elnor Investment and Paramount Finance as payees were delivered to the latter to purchase "bearer" notes. Meanwhile, in July, 1977, Mellon Bank filed a complaint docketed as No. 148056 in the Superior Court of California, County of Kern, against Melchor Javier, Jane Doe Javier, Honorio Poblador, Jrn, and Does I through V. In its first amended complaint to impose constructive trust dated July 14, 1977, 1 Mellon Bank alleged that it had mistakenly and inadvertently cause the transfer of the sum of $999,000.00 to Jane Doe Javier; that it believes that the defendants had withdrawn said funds; that "the defendants and each of them

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have used a portion of said funds to purchase real property located in Kern County, California"; and that because of defendants' knowledge of Mellon Bank's mistake and inadvertence and their use of the funds to purchase the property, they and "each of them are involuntary or constructive trustees of the real property and of any profits therefrom, with a duty to convey the same to plaintiff forthwith." It prayed that the defendants and each of them be declared as holders of the property in trust for the plaintiff; that defendants be compelled to transfer legal title and possession of the property to the plaintiff; that defendants be made to pay the costs of the suit, and that other reliefs be granted them. On July 29, 1977, Mellon Bank also filed in the Court of First Instance of Rizal, Branch X, a complaint against the Javier spouses, Honorio Poblador, Jr., Domingo L. Jhocson, Jr., Jose Marquez, Roberto Gario, Elnor Investment Co., Inc., F.C. Hagedorn & Co., Inc. and Paramount Finance Corporation. After its amendment, Rafael Caballero and Tri-Arc Investment & Management Company, Inc. were also named defendants. 2 The amended and supplemental complaint alleged the facts set forth above and added that Roberto Gario, chief accountant of Prudential Bank, and who was the reference of Mrs. Ventosa's dollar remittances to Victoria Javier, immediately informed the Javiers of the receipt of US$1,000,000.00; that knowing the financial circumstances of Mrs. Ventosa and the fact that a mistake had been committed, the Javiers, with undue haste, took unlawful advantage of the mistake, withdrew the whole amount and transferred the same to a "343 dollar account"; that, aided and abetted by Poblador and Domingo L. Jhocson, the Javiers "compounded and completed the conversion" of the funds by withdrawing from the account dollars or pesos equivalent to US $975,000; that by force of law, the Javiers had been constituted trustees of an implied trust for the benefit of Mellon Bank with a clear duty to return to said bank the moneys mistakenly paid to them; that, upon request of Mellon Bank and Manufacturers Hanover Bank, Prudential Bank informed the Javiers of the erroneous transmittal of one million dollars first orally and later by letter-demand; that conferences between the representatives of the Javiers, led by Jhocson and Poblador, in the latter's capacity as legal and financial counsel, and representatives of Mellon Bank, proved futile as the Javiers claimed that most of the moneys had been irretrievably spent; that the Javiers could only return the amount if the Mellon Bank should agree to make an absolute quitclaim and waiver of future rights against them, and that in a scheme to conceal and dissipate the funds, through the active participation of Jose Marquez, the Javiers bought the California property of Poblador. It further alleged that trust fund moneys totalling P3,000,000.00 were made payable to Hagedorn Paramount and Elnor; that Hagedorn on instructions of Poblador, purchased shares of stock at a stock exchange for P1,000,000.00 but later, it hastily sold said shares at a loss of approximately P150,000.00 to the prejudice of the plaintiff; that proceeds of the sale were deposited by Hagedorn in the name of Poblador and/or the law office of Poblador, Nazareno, Azada, Tomacruz and Paredes; that dividends declared on the shares were delivered by Hagedorn to Caballero after the complaint had been filed and thereafter, Caballero deposited the dividends in his personal account; that after receiving the P1,000,000.00 trust money, Paramount issued promissory notes upon maturity of which Paramount released the amount to unknown persons; that Elnor also invested P1,000,000.00 in Paramount for which the latter also issued promissory notes; that after the filing of the complaint, counsel for plaintiff requested Paramount not to release the amount after maturity; that in evident bad faith, Elnor transferred the non-negotiable Paramount promissory notes to Tri-Arc. that when the notes matured, Paramount delivered the proceeds of P1,000,000.00 to Tri-Arc; that Poblador knew or should have known that the attorney's fees he received from the Javiers came from the trust funds; and that despite formal demands even after the filing of the complaint, the defendants refused to return the trust funds which they continued concealing and dissipating. It prayed that: (a) the Javiers, Poblador, Elnor, Jhocson and Gario be ordered to account for and pay jointly and severally unto the plaintiff US$999,000.00 plus increments, additions, fruits and interests earned by the funds from receipt thereof until fully paid; (b) the other defendants be ordered to account for and pay unto the plaintiff jointly and severally with the Javiers to the extent of the amounts which each of them may have received directly or indirectly from the US$999,000.00 plus increments, additions, fruits and interests; (c) Marquez be held jointly and severally liable with Poblador for the amount received by the latter for the sale of the 160acre lot in California City; and (d) defendants be likewise held liable jointly and severally for attomey's fees and litigation expenses plus exemplary damages. In due course, the defendants filed their answers and hearing of the case ensued. In his testimony, Jose Marquez stated that Prudential Bank and Trust Company checks Nos. 2530 and 2531 in the respective amounts of P100,000 and P900,000 payable to F. C. Hagedorn were delivered to him by Melchor Javier, Jr. as partial consideration for the sale of Poblador's property in California. After receiving the checks, Hagedorn purchased shares of Atlas Mining, Philex, Marcopper and San Miguel Corporation for Account No. 3000, which, according to Fred Hagedorn belonged to the law office of Poblador. 3 F.C. Hagedorn & Co., Inc. then sold the shares for P874,490.75 as evidenced by HSBC check No. 339736 for P400,000 and HSBC check No. 339737 for P474,490.75 payable to "cash". Mellon Bank traced these checks to Account 2825-1 of the Philippine Veterans Bank in the name of Cipriano Azada, Poblador's law partner and counsel to the Javiers. 4 An employee of the Philippine Veterans Bank thereafter introduced the specimen signature cards for Account No. 2825-1 thereby confirming Azada's ownership of the account. Defendants objected to this testimony on the grounds of Azada's absence, the confidentiality of the bank account, and the best evidence rule. The court overruled the objection. Another employee of the Philippine Veterans Bank then presented the ledger card for Account No. 2825-1, a check deposit slip and a daily report of returned items. The defendants objected but they were again overruled by the court. Mellon Bank then subpoenaed Erlinda Baylosis of the Philippine Veterans Bank to show that Azada deposited HSBC checks No. 339736 and 339737 amounting to P874,490.75 in his personal current account with said bank. It also subpoenaed Pilologo Red, Jr. of Hongkong & Shanghai Banking Corporation to prove that said amount was returned by Azada to Hagedorn. The testimonies of these witnesses were objected to by the defense on the grounds of res inter alios acta, immateriality, irrelevancy and confidentiality. To resolve the matter, the court ordered the parties to submit memoranda. The defendants' objections were also discussed at the hearing on July 13, 1982. For the first time, Poblador's counsel raised the matter of "election of remedies." 5

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At the July 20, 1982 hearing, the lower court, then presided by Judge Eficio Acosta, conditionally allowed the testimonies of Baylosis and Red. Baylosis afffirmed that Azada deposited checks Nos. 339736 and 339737 in the total amount of P874,490.75 in his personal account with the Philippine Veterans Bank but almost simultaneously, Azada issued his PVB check for the same amount in favor of Hagedorn Consequently, Azada's check initially bounced. For his part, Red testified that Azada's check for P874,490.75 was received by the Hongkong & Shanghai Banking Corporation and credited to the account of Hagedorn . The defendants then moved to strike off the testimonies of Baylosis and Red from the record. Defendant Paramount Finance Corporation, which is not a party to the California case, thereafter filed its memorandum raising the matter of "election of remedies". It averred that inasmuch as the Mellon Bank had filed in California an action to impose constructive trust on the California property and to recover the same, Mellon Bank can no longer try to regain the purchase price of the same property through Civil Case No. 26899. The other defendants adopted Paramount's stand. After Mellon Bank filed its reply to the memorandum of Paramount, on September 10, 1982, Judge Acosta issued a resolution ordering that the testimonies of Baylosis and Red and the documents they testified on, which were conditionally allowed, be stricken from the records. 6 Judge Acosta explained:
After a judicious evaluation of the arguments of the parties the Court is of the view that in cases where money held in trust was diverted by the trustee, under the "rule of trust pursuit" the beneficiary "may elect whether to accept the trust estate in its new form or hold the trustee responsible for it in its original condition" (Lathrop vs. Hampton, 31 Cal. 17; Zodos vs. Marefalos 48 Idaho 291; Bahle vs. Hasselbrach 64 NW Eq. 334, 51 Sections 508-76 Am Jur. 2d p. 475), and that "an election to pursue one remedy waives and bars pursuit of any inconsistent remedy"(76 Am Jur. 2d S253). The instant complaint among others is for the recovery of the purchase price of the Kern property as held in trust for the plaintiff while in the California case the plaintiff maintains that the Kern property is held in trust for the plaintiff, which positions are inconsistent with each other. Neither can the plaintiff now abandon his complaint for the recovery of the Kern property and pursue his complaint for the recovery of the purchase price of said property for "if he has first sought to follow the res, the plaintiff cannot thereafter hold the trustee personally responsible" and "when once there has been an election to do one of two things, you cannot retract it and do the other thing. The election once made is finally made." (Fowler vs. Bowvery Savings Bank 113 N.Y. 450, 21 N.E. 172, 4 LRA 145, 10 Am. S.R. 479. 2 Silv. 280, 23, Abb. N. Cos. 133065 C. J. p. 980 Note 32). The fact that the California case has been stayed pending determination of the instant case only means that should this case be dismissed, the California case can proceed to its final determination. Furthermore, when the plaintiff filed the California case for the transfer of legal title and possession of the Kern property to the plaintiff it in effect ratified the transaction for "by taking the proceeds or product of a wrongful transfer of trust property or funds, the beneficiary ratifies the transaction" (Board of Commissioner vs. Strawn [CA6 Ohio] 157 F. 49, 76 Am Jur. 2d Section 253). Consequently the purchase price of the California property received by defendant Poblador from Javier is no longer the proper subject matter of litigation and the movement and disposition of the purchase price is therefore within the scope of the absolutely confidential nature of bank deposits as provided by Sec. 2, R.A. 1405 as amended by PD No. 1792.

Mellon Bank moved for reconsideration, alleging that said order prevented the presentation of evidence on the purchase price of the California property; that the California case cannot be considered a waiver of the pursuit of the purchase price as even if said case was filed fifteen days prior to the filing of the original complaint in this case, except for the Javiers, no other defendants raised in their answers the affirmative defense of the filing of the California case; that after the amendment of the complaint, none of the defendants raised the matter of "election of remedies" in their answers; that realizing this procedural error, Paramount sought the amendment of its answer to reflect the "defence" of "election of remedies"; that, disregarding its previous orders allowing evidence and testimonies on Account No. 2825-1, the court made a turnabout and ruled that the testimonies on said account were irrelevant and confidential under Republic Act No. 1405; that Philippine law and jurisprudence does not require the election of remedies for they favor availment of all remedies; that even United States jurisprudence frowns upon election of remedies if it will lead to an inequitable result; that, as held by this Court in Radiowealth vs. Javier, 7 there can be no binding election of remedies before the decision on the merits is had; that until Mellon Bank gets full recovery of the trust moneys, any contention of election of remedy is premature, and that, the purchase price being the subject of litigation, inquiring into its movement, including its deposit in banks, is allowed under Republic Act No. 1405. Defendants filed their respective comments and oppositions to the motion for reconsideration. In its reply, the Mellon Bank presented proof to the effect that in the California case, defendants filed motions to stake out the cross-complaint of Mellon Bank, for summary judgment and to stay or dismiss the action on the ground of inconvenient forum but the first two motions and the motion to dismiss were denied "without prejudice to renew upon determination of the Philippine action." The motion to stay proceedings was "granted until determination of the Philippine action." 8 On October 28, 1983, the lower court, through Judge Acosta, denied the motion for reconsideration and ordered the continuation of the hearing (Rollo, p. 182). The plaintiff filed a motion for the reconsideration of both the September 10, 1982 and October 28, 1983 orders. After the parties had filed comments, opposition and reply, the court, through Judge Celso L. Magsino, denied Mellon Bank's second motion for reconsideration on the ground that it was "prescribed by the 1983 Interim Rules of Court" in an order dated July 9, 1985. 9 The court ruled that the determination of the relevancy of the testimonies of Baylosis and Red was "premised directly and principally" on whether or not Mellon Bank could still recover the purchase price of the California property notwithstanding the filing of the case in California to recover title and possession of the said property. After quoting the resolution of September 10, 1982, the Court ruled that it was a "final order or a definitive judgment with respect to the claim of plaintiff for the recovery" of the purchase price of the California property. It stated:
The adjudication in the Order of September 10, 1982 and the Order of October 28, 1983, which has the effect of declaring that plaintiff has no cause of action against the defendants for the recovery of the proceeds of the sale of Kern property in the amount of Three Million Three Hundred Fifty Thousand Pesos (P3,500,000.00 [sic]) for having filed a complaint for the recovery of the Kern property in the Superior Court of California, County of Kern is a final and definitive disposition of the claim of the plaintiff to recover in the instant action the proceeds of sale of said property against the defendants. The issue of "election of remedy" by the plaintiff was lengthily and thoroughly discussed and argued by the parties before the rendition of the resolution of September 10, 1982, and in the motion for reconsideration and oppositions thereto before its resolution in the Order of October 28, 1983. Such issue is a substantive one as it refers to the existence of plaintiffs cause of action to recover the proceeds of the sale of the Kern property in this action, and that issue was presented to the Court as if a motion to dismiss or a preliminary hearing of an affirmative defense on the ground that plaintiff has no cause of action, and was resolved against plaintiff in the Order of September 10, 1982, after a full hearing of all the parties. Said Order of September 10, 1982 has

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the effect of putting an end to the controversy between the parties as to the right of plaintiff to claim or recover the proceeds of the sale of the Kern property from the defendants. It is therefore an adjudication upon the merits. 10

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Hence, Mellon Bank filed the instant petition for certiorari claiming that the resolution of September 10, 1982 and the orders of October 28, 1983 and July 9, 1985 are void for being unlawful and oppressive exercises of legal authority, subversive of the fair administration of justice, and in excess of jurisdiction. The petition is founded on its allegations that: (a) the resolution of September 10, 1982 is interlocutory as it does not dispose of Civil Case No. 26899 completely: (b) the evidence stricken from the records is relevant on the basis of the allegations of the amended and supplemental complaint, and (c) the doctrine of election of remedies, which has long been declared obsolete in the United States, is not applicable in this case. With the exception of the Javiers, all the respondents filed their respective comments on the petition. Having failed to file said comment, the Javiers' counsel of record, Azada, Tomacruz & Cacanindin, 11 was required to show cause why disciplinary action should not be taken against it. And, having also failed to show cause, it was fined P300. In his motion for reconsideration of the resolution imposing said fine, Cipriano Azada alleged that in Civil Case No. 26899, the Javiers were indeed represented by the law firm of Poblador, Azada, Tomacruz & Cacanindin but he was never the lawyer of the Javiers' in his personal capacity; that after the death of Honorio Poblador, Jr., he had withdrawn from the partnership; that he is the counsel of the Administratrix of the Estate of Honorio Poblador, Jr. for which he had filed a comment, and that should the Court still require him to file comment for the Javiers despite the lack of client-lawyer relationship, he would adopt the comment he had filed for the said Administratrix. 12 In its effort to locate the Javiers so that their side could be heard, we required the petitioner to furnish us with the Javiers' address as well as the name and address of their counsel. 13 In compliance therewith, counsel for petitioner manifested that the Javiers had two known addresses in San Juan, Metro Manila and in Sampaloc, Manila; that since their conviction in Crim. Case No. CCC-VII 2369-P.C. of the Pasig Regional Trial Court, the Javiers had gone into hiding and warrants for their arrest still remain unserved; 14 that the Javiers' counsel of record in Civil Case No. 26899 is Atty. Cipriano Azada; that the same counsel appeared for the Javiers in Criminal Case No. 39851 of the Pasig Regional Trial Court which is a tax evasion case filed by the Republic of the Philippines, and that during the hearings of the civil and tax evasion cases against the Javiers, Atty. Cipriano Azada, Jr. represented them. 15 Inasmuch as copies of the resolution requiring comment on the petition and the petition itself addressed to Melchor Javier were returned with the notations "moved" and "deceased", the Court required that said copies be sent to Mrs. Javier herself and that petitioner should inform the Court of the veracity of Javier's death. 16 A copy of the resolution addressed to Mrs. Javier was returned also with the notation "deceased." 17 Counsel for petitioner accordingly informed the Court that he learned that the Javiers had fled the country and that he had no way of verifying whether Melchor Javier had indeed died. 18 In view of these circumstances, the Javiers' comment on the petition shall be dispensed with as the Court deems the pleadings filed by the parties sufficient bases for resolving this case. The Javiers shall be served copies of this decision in accordance with Section 6, Rule 13 of the Rules of Court by delivering said copies to the clerk of court of the lower court, with proof of failure of both personal service and service by mail. We hold that the lower court gravely abused its discretion in ruling that the resolution of September 10, 1982 is a "final and definitive disposition" of petitioner's claim for the purchase price of the Kern property. The resolution is interlocutory and means no more than what it states in its dispositive portion-the testimonies of Baylosis and Red and the documents they testified on, should be stricken from the record. That the resolution discusses the common-law principle of election of remedies, a subject matter which shall be dealt with later, is beside the point. It is interlocutory because the issue resolved therein is merely the admissibility of the plaintiff's evidence. 19 As such, it does not dispose of the case completely but leaves something more to be done upon its merits. 20 There are things left undone in Civil Case No. 26899 after the issuance of the September 10, 1982 resolution not only because of its explicit dispositive portion but also due to the fact that even until now, the case is still pending and being heard. 21 Furthermore, the lower court's holding in its July 9, 1985 order that petitioner's second motion for reconsideration is proscribed by the 1983 Interim Rules of Court which disallows such motion on a final order or judgment, should be rectified. As explained above, the resolution of September 10, 1982 is not a final one. It also contains conclusions on procedural matters which, if left unchecked, would prejudice petitioner's substantive rights. In effect, therefore, the July 9, 1985 order is a shortcut disposition of Civil Case No. 26899 in total disregard of petitioner's right to a thorough ventilation of its claims. By putting a premium on procedural technicalities over the resolution of the merits of the case, the lower court rode roughshod over the basic judicial tenet that litigations should, as much as possible, be decided on their merits and not on technicalities. 22 The trial court's patent grave abuse of discretion therefore forces us to exercise supervisory authority to correct its errors notwithstanding the fact that ordinarily, this Court would not entertain a petition for certiorari questioning the legality and validity of an interlocutory order. 23 Respondents' principal objection to the testimonies of Baylosis and Red is their alleged irrelevance to the issues raised in Civil Case No. 26899. The fallacy of this objection comes to fore upon a scrutiny of the complaint. Petitioner's theory therein is that after the Javiers had maliciously appropriated unto themselves $999,000, the other private respondents conspired and participated in the concealment and dissipation of said amount. The testimonies of Baylosis and Red are therefore needed to establish the scheme to hide the erroneously sent amount.

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Private respondents' protestations that to allow the questioned testimonies to remain on record would be in violation of the provisions of Republic Act No. 1405 on the secrecy of bank deposits, is unfounded. Section 2 of said law allows the disclosure of bank deposits in cases where the money deposited is the subject matter of the litigation. 24 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. 25 We view respondents' reliance on the procedural principle of election of remedies as part of their ploy to terminate Civil Case No. 26899 prematurely. With the exception of the Javiers, respondents failed to raise it as a defense in their answers and therefore, by virtue of Section 2, Rule 9 of the Rules of Court, such defense is deemed waived. 26 Notwithstanding its lengthy and thorough discussion during the hearing and in pleadings subsequent to the answers, the issue of election of remedies has not, contrary to the lower court's assertion, been elevated to a "substantive one." Having been waived as a defense, it cannot be treated as if it has been raised in a motion to dismiss based on the nonexistence of a cause of action. Moreover, granting that the defense was properly raised, it is inapplicable in this case. In its broad sense, election of remedies refers to the choice by a party to an action of one of two or more coexisting remedial rights, where several such rights arise out of the same facts, but the term has been generally limited to a choice by a party between inconsistent remedial rights, the assertion of one being necessarily repugnant to, or a repudiation of, the other. In its technical and more restricted sense, election of remedies is the adoption of one of two or more coexisting remedies, with the effect of precluding a resort to the others. 27 As a technical rule of procedure, the purpose of the doctrine of election of remedies is not to prevent recourse to any remedy, but to prevent double redress for a single wrong. 28 It is regarded as an application of the law of estoppel, upon the theory that a party cannot, in the assertion of his right occupy inconsistent positions which form the basis of his respective remedies. However, when a certain state of facts under the law entitles a party to alternative remedies, both founded upon the Identical state of facts, these remedies are not considered inconsistent remedies. In such case, the invocation of one remedy is not an election which will bar the other, unless the suit upon the remedy first invoked shall reach the stage of final adjudication or unless by the invocation of the remedy first sought to be enforced, the plaintiff shall have gained an advantage thereby or caused detriment or change of situation to the other. 29 It must be pointed out that ordinarily, election of remedies is not made until the judicial proceedings has gone to judgment on the merits. 30 Consonant with these rulings, this Court, through Justice J.B.L. Reyes, opined that while some American authorities hold that the mere initiation of proceedings constitutes a binding choice of remedies that precludes pursuit of alternative courses, the better rule is that no binding election occurs before a decision on the merits is had or a detriment to the other party supervenes. 31 This is because the principle of election of remedies is discordant with the modern procedural concepts embodied in the Code of Civil Procedure which Permits a party to seek inconsistent remedies in his claim for relief without being required to elect between them at the pleading stage of the litigation. 32 It should be noted that the remedies pursued in the California case and in Civil Case No. 26899 are not exactly repugnant or inconsistent with each other. If ever, they are merely alternative in view of the inclusion of parties in the latter case who are not named defendants in the former. The causes of action, although they all stem from the erroneous transmittal of dollars, are distinct as shown by the complaints lengthily set out above. The bar of an election of remedies does not apply to the assertion of distinct causes of action against different persons arising out of independent transactions. 33 As correctly pointed out by the petitioner, the doctrine of election of remedies is not favored in the United States for being harsh. 34 Its application with regard to two cases filed in two different jurisdictions is also circumscribed by jurisprudence on abatement of suits. Thus, in Brooks Erection Co. v. William R. Montgomery & Associates, Inc., 35 it is held:
The pendency of an action in the courts of one state or country is not a bar to the institution of another action between the same parties and for the same cause of action in a court of another state or country, nor is it the duty of the court in which the latter action is brought to stay the same pending a determination of the earlier action, even though the court in which the earlier action is brought has jurisdiction sufficient to dispose of the entire controversy. Nevertheless, sometimes stated as a matter of comity not of right, it is usual for the court in which the later action is brought to stay proceedings under such circumstances until the earlier action is determined.

However, in view of the fact that the California court wherein the case for recovery of the Kern property was first filed against the Javiers had stayed proceedings therein until after the termination of Civil Case No. 26899, the court below can do no less than expedite the disposition of said case. We cannot dispose of this case without condemning in the strongest terms possible the acts of chicanery so apparent from the records. The respective liabilities of the respondents are still being determined by the court below. We must warn, however, against the use of technicalities and obstructive tactics to delay a just settlement of this case. The taking advantage of the petitioner's mistake to gain sudden and undeserved wealth is marked by circumstances so brazen and shocking that any further delay will reflect poorly on the kind of justice our courts dispense. The possible involvement of lawyers in this sorry scheme stamps a black mark on the legal profession. The Integrated Bar of the Philippines (IBP) must be made aware of the ostensible participation, if not instigation, in the spiriting away of the missing funds. The IBP must take the proper action at the appropriate time against all lawyers involved in any misdeeds arising from this case. WHEREFORE, the resolution of September 10, 1982 and the orders of October 28, 1982 and July 9, 1985 are hereby annulled. The lower court is ordered to proceed with dispatch in the disposition of Civil case No. 26899, considering that thirteen (13) years have gone by since the original erroneous remittance. Service of this decision on the Javier spouses shall be in accordance with Section 6, Rule 13 of the Rules of Court. A copy of this decision shall be served on the Integrated Bar of the Philippines.

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The decision is immediately executory. Costs against private respondents. SO ORDERED.

Gutierrez, Jr., Feliciano, Bidin and Cortes,JJ., concur.

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SECOND DIVISION

G.R. No. 154522

May 5, 2006

REPUBLIC OF THE PHILIPPINES, Represented by the ANTI-MONEY LAUNDERING COUNCIL, Petitioner, vs. CABRINI GREEN & ROSS, INC., MICHAEL J. FINDLAY and JANE GELBERG, Respondents,

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G.R. No. 154694

May 5, 2006

REPUBLIC OF THE PHILIPPINES, Represented by the ANTI-MONEY LAUNDERING COUNCIL, Petitioner, vs. R.A.B. REALTY, INC., MULTINATIONAL TELECOM INVESTORS CORPORATION, ROSARIO A. BALADJAY and SATURNINO M. BALADJAY, Respondents,

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G.R. No. 155554

May 5, 2006

REPUBLIC OF THE PHILIPPINES, Represented by the ANTI-MONEY LAUNDERING COUNCIL, Petitioner, vs. MARIO N. MISA, MICHAEL Z. LAFUENTE, JESUS SILVERIO, REYNALDO NICHOLAS and REX D. JAO,Respondents,

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G.R. No. 155711

May 5, 2006

REPUBLIC OF THE PHILIPPINES, Represented by the ANTI-MONEY LAUNDERING COUNCIL, Petitioner, vs. ALBERTO DE LOS REYES, LORENZO CASTRO, HERMIE DE VERA, EDUARDO LAZO and DANILO LIWAG,Respondents.

RESOLUTION

CORONA, J.:

In the exercise of its power under Section 10 of RA 9160, 1 the Anti-Money Laundering Council (AMLC) issued freeze orders against various bank accounts of respondents. The frozen bank accounts were previously foundprima facie to be related to the unlawful activities of respondents. Under RA 9160, a freeze order issued by the AMLC is effective for a period not exceeding 15 days unless extended "upon order of the court." Accordingly, before the lapse of the period of effectivity of its freeze orders, the AMLC 2 filed with the Court of Appeals (CA)3 various petitions for extension of effectivity of its freeze orders.
1avvphil.net

The AMLC invoked the jurisdiction of the CA in the belief that the power given to the CA to issue a temporary restraining order (TRO) or writ of injunction against any freeze order issued by the AMLC carried with it the power to extend the effectivity of a freeze order. In other words, the AMLC interpreted the phrase "upon order of the court" to refer to the CA. However, the CA disagreed with the AMLC and dismissed the petitions. It uniformly ruled that it was not vested by RA 9160 with the power to extend a freeze order issued by the AMLC.4 Hence, these consolidated petitions5 which present a common issue: which court has jurisdiction to extend the effectivity of a freeze order? During the pendency of these petitions, or on March 3, 2003, Congress enacted RA 9194 (An Act Amending Republic Act No. 9160, Otherwise Known as the "Anti-Money Laundering Act of 2001").6 It amended Section 10 of RA 9160 as follows: SEC. 7. Section 10 of [RA 9160] is hereby amended to read as follows: SEC. 10. Freezing of Monetary Instrument or Property. The Court of Appeals, upon application ex parte by the AMLC and after determination that probable cause exists that any monetary instrument or property is in any way related to an unlawful activity as defined in Sec. 3(i) hereof, may issue a freeze order which shall be effective immediately. The freeze order shall be for a period of twenty (20) days unless extended by the court.7(emphasis supplied) Section 12 of RA 9194 further provides: SEC 12. Transitory Provision. Existing freeze orders issued by the AMLC shall remain in force for a period of thirty (30) days after the effectivity of this Act, unless extended by the Court of Appeals. (emphasis supplied) On April 3, 2003, the Office of the Solicitor General (OSG) filed a "Very Urgent Motion to Remand Cases to the Honorable Court of Appeals (with Prayer for Issuance of Temporary Restraining Order and/or Writ of Preliminary Injunction)."8 The OSG prayed for the remand of these cases to the CA pursuant to RA 9194. It also asked for the issuance of a TRO on the ground that the freeze orders would be automatically lifted on April 22, 2003 by operation of law and the money or deposits in the concerned bank accounts may be taken out of the reach of law enforcement authorities. The OSG further

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manifested that pending in the CA were 29 other cases involving the same issue. It requested that these cases be included in the coverage of the TRO prayed for. On April 21, 2003, the Court issued a TRO in these cases and in all other similar cases pending before all courts in the Philippines. Respondents, the concerned banks, and all persons acting in their behalf were directed to give full force and effect to existing freeze orders until further orders from this Court. On May 5, 2003, the OSG informed the Court that on April 22, 2003 the CA issued a resolution in CA-G.R. SP No. 69371 (the subject of G.R. No. 154694) granting the petition for extension of freeze orders.9 Hence, the OSG prayed for the dismissal of G.R. No. 154694 for being moot. It also reiterated its earlier prayer for the remand of G.R. Nos. 154522, 155554 and 155711 to the CA. The amendment by RA 9194 of RA 9160 erased any doubt on the jurisdiction of the CA over the extension of freeze orders. As the law now stands, it is solely the CA which has the authority to issue a freeze order as well as to extend its effectivity. It also has the exclusive jurisdiction to extend existing freeze orders previously issued by the AMLC vis--vis accounts and deposits related to money-laundering activities. WHEREFORE, G.R. No. 154694 is hereby DISMISSED for being moot while G.R. Nos. 154522, 155554 and 155711 are REMANDED to the Court of Appeals for appropriate action. Pending resolution by the Court of Appeals of these cases, the April 21, 2003 temporary restraining order is hereby MAINTAINED. No costs. SO ORDERED.
RENATO C. CORONA Associate Justice

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FIRST DIVISION

147

G.R. No. 118917 December 22, 1997 PHILIPPINE DEPOSIT INSURANCE CORPORATION, petitioner, vs. COURT OF APPEALS, ROSA AQUERO, GERARD YU, ERIC YU, MINA YU, ELIZABETH NGKAION, MERLY CUESCANO, LETICIA TAN, FELY RUMBANA, LORNA ACUB, represented by their Attorney-inFact, JOHN FRANCIS COTAOCO, respondents. KAPUNAN, J.:

Petitioner Philippine Deposit Insurance Corporation (PDIC) seeks the reversal of the decision of the Court of Appeals affirming with modification the decision of the Regional Trial Court holding petitioner liable for the value of thirteen (13) certificates of time deposit (CTDs) in the possession of private respondents. The facts, as found by the Court of Appeals, are as follows:
On September 22, 1983, plaintiffs-appellees invested in money market placements with the Premiere Financing Corporation (PFC) in the sum of P10,000.00 each for which they were issued by the PFC corresponding promissory notes and checks. On the same date (September 22, 1983), John Francis Cotaoco, for and in behalf of plaintiffs-appellees, went to the PFC to encash the promissory notes and checks, but the PFC referred him to the Regent Saving Bank (RSB). Instead of paying the promissory notes and checks, the RSB, upon agreement of Cotaoco, issued the subject 13 certificates of time deposit with Nos. 09648 to 09660, inclusive, each stating, among others, that the same certifies that the bearer thereof has deposited with the RSB the sum of P10,000.00; that the certificate shall bear 14% interest per annum; that the certificate is insured up to P15,000.00 with the PDIC; and that the maturity date thereof is on November 3, 1983 (Exhs. "B", "B-1 to "B-12"). On the aforesaid maturity dated (November 3, 1983), Cotaoco went to the RSB to encash the said certificates. Thereat, RSB Executive Vice President Jose M. Damian requested Cotaoco for a deferment or an extension of a few days to enable the RSB to raise the amount to pay for the same (Exh. "D"). Cotaoco agreed. Despite said extension, the RSB still failed to pay the value of the certificates. Instead, RSB advised Cotaoco to file a claim with the PDIC. Meanwhile, on June 15, 1984, the Monetary Board of the Central Bank issued Resolution No. 788 (Exh. "2", Records, p. 159) suspending the operations of the RSB. Eventually, the records of RSB were secured and its deposit liabilities were eventually determined. On December 7, 1984, the Monetary Board issued Resolution No. 1496 (Exh. "1") liquidating the RSB. Subsequently, a masterlist or inventory of the RSB assets and liabilities was prepared. However, the certificates of time deposit of plaintiffs-appellees were not included in the list on the ground that the certificates were not funded by the PFC or duly recorded as liabilities of RSB. On September 4, 1984, plaintiffs-appellees filed with the PDIC their respective claims for the amount of the certificates (Exhs. "C," "C-1" to "C-12"). Sabina Yu, James Ngkaion, Elaine Ngkaion and Jeffrey Ngkaion, who have similar claims on their certificates of time deposit with the RSB, likewise filed their claims with the PDIC. To their dismay, PDIC refused the aforesaid claims on the ground that the Traders Royal Bank Check No. 299255 dated September 22, 1983 for the amount of P125,846.07 (Exh. "B") issued by PFC for the aforementioned certificates was returned by the drawee bank for having been drawn against insufficient funds; and said check was not replaced by the PFC, resulting in the cancellation of the certificates as indebtedness or liabilities ofRSB. 1

Consequently, on March 31, 1987, private respondents filed an action for collection against PDIC, RSB and the Central Bank. On September 14, 1987, the trial court, declared the Central Bank in default for failing to file an answer. On May 29, 1989, the trial court rendered its decision ordering the defendants therein to pay plaintiffs, jointly and severally, the amount corresponding to the latter's certificates of time deposit. Both PDIC and RSB appealed. The Central Bank, on the other hand, filed a petition for certiorari, prohibition and mandamus before the Court of Appeals praying that the writ of execution issued by the trial court against it be set aside. On February 8, 1995, the Court of Appeals rendered its decision granting the Central Bank's petition but dismissing the appeals of PDIC and RSB. Hence, this petition by PDIC assigning the following errors: I THE CA ERRED IN HOLDING THAT THE SUBJECT CTDS ARE NEGOTIABLE INSTRUMENTS II THE CA ERRED IN HOLDING THAT THE CTDS WERE ACQUIRED FOR VALUE AND CONSIDERATION III THE CA ERRED WHEN IT HELD THAT BECAUSE THE CTDS STATE THAT THESE WERE INSURED PETITIONER SHOULD BE HELD LIABLE FOR THE SAME. We deal jointly with petitioner's first and third assigned errors. Relying on this Court's ruling in Caltex (Philippines), Inc. v. Court of Appeals and Security Bank and Trust Company, 2 the Court of Appeals concluded that the subject CTDs are negotiable. Petitioner, on the other hand, contends that the CTDs are non-negotiable

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since they do not contain an unconditional promise or order to pay a sum certain in money nor are they made payable to order or bearer, as required by Section 1 of the Negotiable Instruments Law. Whether the CTDs in question are negotiable or not is, however, immaterial in the present case. The Philippine Deposit Insurance Corporation was created by law and, as such, is governed primarily by the provisions of the special law creating it. 3 The liability of the PDIC for insured deposits therefore is statutory and, under Republic Act No. 3591, 4 as amended, such liability rests upon the existence of deposits with the insured bank, not on the negotiability or non-negotiability of the certificates evidencing these deposits. The authority for this conclusion finds support in decisions by American state courts applying their respective bank guaranty laws. Invariably, the plaintiffs in these cases argued that the negotiability of the certificates of deposit in their possession entitled them to be paid out of the bank guaranty fund, a contention that the courts uniformly rejected. Thus, the plaintiffs in Fourth Nat. Bank of Wichita v. Wilson 5 argued that:
. . . the court should hold the certificates to be guaranteed because they are negotiable instruments, and were acquired by the present holders in due course; otherwise it is said certificates of deposit will be deprived of the quality of commercial paper. Certificates of deposit have been regarded as the highest form of collateral. They are of wide currency in the banking and business worlds, and are particularly useful to persons of small means, because they bear interest, and may be readily cashed; therefore to deprive them of the benefit of the guaranty fund would be a calamity. . . .

The Supreme Court of Kansas, however, found the plaintiffs' contention to be without merit, ruling thus:
. . . The argument confuses negotiability of commercial paper with statutory guaranty of deposits. The guaranty is something extrinsic to all forms of evidence of bank obligation; and negotiability of instruments has no dependence on existence or nonexistence of the guaranty. . . . Whatever the status of the plaintiffs may be as holders in due course under the Negotiable Instruments Law, they cannot be assignees of a deposit which was not made, and cannot be entitled to the benefit of a guaranty which did not come into existence. . . .

In arriving at the above decision, the Kansas Supreme Court relied on its earlier ruling in American State Bank v. Foster, 6 which arose from the same facts as the Fourth National Bank case. There, the Court held:
. . . Even if the plaintiff were to be regarded as an innocent purchaser of the certificates as negotiable instruments, its situation would be in no wise bettered so far as relate to a claim against the guaranty fund. The fund protects deposits only. And if no deposit is made, or no deposit within the protection of the guaranty law, the transfer of a certificate cannot impose a liability on the fund. . . . where a certificate of deposit is given under such circumstances that it is not protected by the guaranty fund, although that fact is not indicated by anything on its face, its indorsement to an innocent holder cannot confer that quality upon it.

In like fashion did the Supreme Court of Nebraska brush aside a similar contention in State v. Farmers' Stale Bank: 7
In this contention we think the appellants fail to distinguish between the liability of the maker of a negotiable instrument, which rests upon the law pertaining to negotiable paper, and the liability of the guaranty fund, which is purely statutory. The circumstances under which the guaranty fund may be liable are entirely apart from the law pertaining to negotiable paper. A holder of a certificate of deposit in a bank who seeks to hold the guaranty fund liable for its payment must show that the transaction leading up to the issuance of the certificate was such that the law holds the guaranty fund liable for its payment. . . .

The Farmers' State Bank ruling was reiterated by the Nebraska Supreme Court in State v. Home State Bank of Dunning 8 and in State v. Kilgore State Bank. 9 The same ruling was adopted by the Supreme Court of South Dakota in Mildenstein v. Hirning. 10 In the case at bar, the Court of Appeals initially found the subject CTDs to be negotiable. Subsequently, however, respondent court deemed the issue immaterial, albeit for entirely different reasons.
. . . Besides, whether the certificates are negotiable or not is of no moment. The fact remains that the certificates categorically state that their bearer [sic] have a deposit in the RSB; that the same will mature on November 3, 1993; and that the certificates are insured by PDIC. 11

We disagree with respondent court's rationale. The fact that the certificates state that the certificates are insured by PDIC does not ipso facto make the latter liable for the same should the contingency insured against arise. As stated earlier, the deposit liability of PDIC is determined by the provisions of R.A. No. 3519, and statements in the certificates that the same are insured by PDIC are not binding upon the latter.
. . . The mere fact that a certificate recites on its face that a certain sum has been deposited, or that officers of the bank may have stated that the deposit is protected by the guaranty law, does not make the guaranty fund liable for payment, if in fact a deposit has not been made . . . . The banks have nothing to do with the guaranty fund as such. It is a fund raised by assessments against all state banks, administered by officers of the state to protect deposits in banks. . . . 12

We come now to petitioner's second assigned error. In order that a claim for deposit insurance with the PDIC may prosper, the law requires that a corresponding deposit be placed in the insured bank. This is implicit from a reading of the following provisions of R.A. 3519:

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Sec. 1. There is hereby created a Philippine Deposit Insurance Corporation . . . which shall insure, as provided, the deposits of all banks which are entitled to the benefits of insurance under this Act . . . . (Emphasis supplied).
xxx xxx xxx

Sec. 10(a) . . .
xxx xxx xxx

(c) Whenever an insured bank shall have been closed on account of insolvency, payment of the insured deposits in such bank shall be made by the Corporation as soon as possible . . . .(Emphasis supplied.)

A deposit as defined in Section 3(f) of R.A. No. 3591, may be constituted only if money or the equivalent of money is received by a bank:
Sec. 3. As used in this Act (f) The term "deposit" means the unpaid balance of money or its equivalent received by a bank in the usual course of business and for which it has given or is obliged to give credit to a commercial, checking, savings, time or thrift account or which is evidenced by passbook, check and/or certificate of deposit printed or issued in accordance with Central Bank rules and regulations and other applicable laws, together with such other obligations of a bank which, consistent with banking usage and practices, the Board of Directors shall determine and prescribe by regulations to be deposit liabilities of the Bank . . . . (Emphasis ours.)

Did RSB receive money or its equivalent when it issued the certificates of time deposit? The Court of Appeals, in resolving who between RSB and PFC issued the certificates to private respondents, answered this question in the negative. A perusal of the impugned decision, however, reveals that such finding is grounded entirely on speculation, and thus, cannot bind this Court: 13
Equally unimpressive is the contention of PDIC and RSB that the certificates were issued to PFC which did not acquire the same for value because the check issued by the latter for the certificates bounced for insufficiency of funds. First, granting arguendo that the certificates were originally issued in favor of PFC, such issuance could only give rise to the presumption that the amount stated in the certificates have been deposited to RSB. Had not PFC deposited the amount stated therein, then RSB would have surely refused to issue the certificates certifying to such fact. Second, why did not RSB demand that PFC pay the certificates or file a claim against PFC on the ground that the latter failed to pay for the value of the certificates? It could very well be that the reason why RSB did not run after PFC for payment of the value of the certificates was because the instruments were issued to the latter by RSB for value or were already paid to RSB by plaintiffs-appellees. Third, if it is true that at the time RSB issued the certificates to PFC, the instruments were paid for with checks still to be encashed, then why did not RSB specifically state in the certificates that the validity thereof hinges on the encashment of said check? Fourth, even if it is true that PFC did not deposit with or pay the RSB the amount stated in the certificates, the latter is not be such reason freed from civil liability to plaintiffs-appellees. For, by issuing the certificates, RSB bound itself to pay the amount stated therein to whoever is the bearer upon its presentment for encashment. Truly, there is no reason to depart from the established principle that where a bank issues a certificate of deposit acknowledging a deposit made with a third person or an officer of the bank, or with another bank representing it to be the certificate of the bank, upon which assurance the depositor accepts it, the bank is liable for the amount of the deposit (Michis, Banks and Banking, Vol. 5A, pp. 48-49, as cited in the Decision on p. 3 thereof). 14

Moreover, such finding totally ignores the evidence presented by defendants. Cardola de Jesus, RSB Deputy Liquidator, testified that RSB received three (3) checks in consideration for the issuance of several CTDs, including the ones in dispute. The first check amounted to P159,153.93, the second, P121,665.95, and the third, P125,846.07 In consideration of the third check, private respondents received thirteen (13) certificates of deposit with Nos. 09648 to 09660, inclusive, with a value of P10,000.00 each or a total of P130,000.00. To conform with the value of the third check, CTD No. 09648 was "chopped," and only the sum of P5,846.07 was credited in favor of private respondents. The first two checks "made good in the clearing" while the third was returned for being "drawn against insufficient funds." The check in question appears on the records as Exhibit "3" (for Regent), 15 and is described in RSB's offer or evidence as "Traders Royal Bank Check No. 292555 dated September 22, 1983 covering the amount or P125,846.07 . . . issued by Premiere Financing Corporation." 16 At the back of said check are the words "Refer to Drawer," 17 indicating that the drawee bank (Traders Royal Bank) refused to pay the value represented by said check. By reason of the check's dishonor, RSB cancelled the corresponding as evidence by an RSB "ticket" dated November 4, 1983. 18 These pieces of evidence convincingly show that the subject CTDs were indeed issued without RSB receiving any money therefor. No deposit, as defined in Section 3 (f) of R.A. No. 3591, therefore came into existence. Accordingly, petitioner PDIC cannot be held liable for value of the certificates of time deposit held by private respondents. ACCORDINGLY, the instant petition is hereby GRANTED and the decision of the Court of Appeals REVERSED. Petitioner is absolved from any liability to private respondents. SO ORDERED.
Davide, Jr., Bellosillo and Vitug, JJ., concur.