EN BANC

G.R. No. L-20583           January 23, 1967

REPUBLIC OF THE PHILIPPINES, petitioner, vs.SECURITY CREDIT AND ACCEPTANCE CORPORATION, ROSENDO T. RESUELLO, PABLO TANJUTCO, ARTURO SORIANO, RUBEN BELTRAN, BIENVENIDO V. ZAPA, PILAR G. RESUELLO, RICARDO D. BALATBAT, JOSE SEBASTIAN and VITO TANJUTCO JR., respondents.

Office of the Solicitor General Arturo A. Alafriz and Solicitor E. M. Salva for petitioner.Sycip, Salazar, Luna, Manalo & Feliciano for respondents.Natalio M. Balboa and F. E. Evangelista for the receiver.

 

CONCEPCION, C.J.:

This is an original quo warranto proceeding, initiated by the Solicitor General, to dissolve the Security and Acceptance Corporation for allegedly engaging in banking operations without the authority required therefor by the General Banking Act (Republic Act No. 337). Named as respondents in the petition are, in addition to said corporation, the following, as alleged members of its Board of Directors and/or Executive Officers, namely:

NAME POSITION

Rosendo T. Resuello President & Chairman of the Board

Pablo Tanjutco Director

Arturo Soriano Director

Ruben Beltran Director

Bienvenido V. Zapa Director & Vice-President

Pilar G. Resuello Director & Secretary-Treasurer

Ricardo D. Balatbat Director & Auditor

Jose R. Sebastian Director & Legal Counsel

Vito Tanjutco Jr. Director & Personnel Manager

The record shows that the Articles of Incorporation of defendant corporation1 were registered with the Securities and Exchange Commission on March 27, 1961; that the next day, the Board of Directors of the corporation adopted a set of by-laws,2 which were filed with said Commission on April 5, 1961; that on September 19, 1961, the Superintendent of Banks of the Central Bank of the Philippines asked its legal counsel an opinion on whether or not said corporation is a banking institution, within the purview of Republic Act No. 337; that, acting upon this request, on October 11, 1961, said legal counsel rendered an opinion resolving the query in the affirmative; that in a letter, dated January 15, 1962, addressed to said Superintendent of Banks, the corporation through its president, Rosendo T. Resuello, one of defendants herein, sought a reconsideration of the aforementioned opinion, which reconsideration was denied on March 16, 1962; that, prior thereto, or on March 9, 1961, the corporation had applied with the Securities and Exchange Commission for the registration and licensing of its securities under the Securities Act; that, before acting on this application, the Commission referred it to the Central Bank, which, in turn, gave the former a copy of the above-mentioned opinion, in line with which, the Commission advised the corporation on December 5, 1961, to comply with the requirements of the General Banking Act; that, upon application of members of the Manila Police Department and an agent of the Central Bank, on May 18, 1962, the Municipal Court of Manila issued Search Warrant No. A-1019; that, pursuant thereto, members of the intelligence division of the Central Bank and of the Manila Police Department searched the premises of the corporation and seized documents and records thereof relative to its business operations; that, upon the return of said warrant, the seized documents and records were, with the authority of the court, placed under the custody of the Central Bank of the Philippines; that, upon examination and evaluation of said documents and records, the intelligence division of the Central Bank submitted, to the Acting Deputy Governor thereof, a memorandum dated September 10, 1962, finding that the corporation is:

Page 1 of 99

1. Performing banking functions, without requisite certificate of authority from the Monetary Board of the Central Bank, in violation of Secs. 2 and 6 of Republic Act 337, in that it is soliciting and accepting deposit from the public and lending out the funds so received;

2. Soliciting and accepting savings deposits from the general public when the company's articles of incorporation authorize it only to engage primarily in financing agricultural, commercial and industrial projects, and secondarily, in buying and selling stocks and bonds of any corporation, thereby exceeding the scope of its powers and authority as granted under its charter; consequently such acts are ultra-vires:

3. Soliciting subscriptions to the corporate shares of stock and accepting deposits on account thereof, without prior registration and/or licensing of such shares or securing exemption therefor, in violation of the Securities Act; and

4. That being a private credit and financial institution, it should come under the supervision of the Monetary Board of the Central Bank, by virtue of the transfer of the authority, power, duties and functions of the Secretary of Finance, Bank Commissioner and the defunct Bureau of Banking, to the said Board, pursuant to Secs. 139 and 140 of Republic Act 265 and Secs. 88 and 89 of Republic Act 337." (Emphasis Supplied.) that upon examination and evaluation of the same records of the corporation, as well as of other documents and pertinent pipers obtained elsewhere, the Superintendent of Banks, submitted to the Monetary Board of the Central Bank a memorandum dated August 28, 1962, stating inter alia.

11. Pursuant to the request for assistance by the Chief, Intelligence Division, contained in his Memorandum to the Governor dated May 23, 1962 and in accordance with the written instructions of Governor Castillo dated May 31, 1962, an examination of the books and records of the Security Credit and Loans Organizations, Inc. seized by the combined MPD-CB team was conducted by this Department. The examination disclosed the following findings:

a. Considering the extent of its operations, the Security Credit and Acceptance Corporation, Inc.,receives deposits from the public regularly. Such deposits are treated in the Corporation's financial statements as conditional subscription to capital stock. Accumulated deposits of P5,000 of an individual depositor may be converted into stock subscription to the capital stock of the Security Credit and Acceptance Corporation at the option of the depositor. Sale of its shares of stock or subscriptions to its capital stock are offered to the public as part of its regular operations.

b. That out of the funds obtained from the public through the receipt of deposits and/or the sale of securities, loans are made regularly to any person by the Security Credit and Acceptance Corporation.

A copy of the Memorandum Report dated July 30, 1962 of the examination made by Examiners of this Department of the seized books and records of the Corporation is attached hereto.

12. Section 2 of Republic Act No. 337, otherwise known as the General Banking Act, defines the term, "banking institution" as follows:

Sec. 2. Only duly authorized persons and entities may engage in the lending of funds obtained from the public through the receipts of deposits or the sale of bonds, securities, or obligations of any kind and all entities regularly conducting operations shall be considered as banking institutions and shall be subject to the provisions of this Act, of the Central Bank Act, and of other pertinent laws. ...

13. Premises considered, the examination disclosed that the Security Credit and Acceptance Corporation isregularly lending funds obtained from the receipt of deposits and/or the sale of securities. The Corporation therefore is performing 'banking functions' as contemplated in Republic Act No. 337, without having first complied with the provisions of said Act.

Recommendations:

In view of all the foregoing, it is recommended that the Monetary Board decide and declare:

1. That the Security Credit and Acceptance Corporation is performing banking functions without having first complied with the provisions of Republic Act No. 337, otherwise known as the General Banking Act, in violation of Sections 2 and 6 thereof; and

Page 2 of 99

2. That this case be referred to the Special Assistant to the Governor (Legal Counsel) for whatever legal actions are warranted, including, if warranted criminal action against the Persons criminally liable and/or quo warranto proceedings with preliminary injunction against the Corporation for its dissolution. (Emphasis supplied.)

that, acting upon said memorandum of the Superintendent of Banks, on September 14, 1962, the Monetary Board promulgated its Resolution No. 1095, declaring that the corporation is performing banking operations, without having first complied with the provisions of Sections 2 and 6 of Republic Act No. 337;3 that on September 25, 1962, the corporation was advised of the aforementioned resolution, but, this notwithstanding, the corporation, as well as the members of its Board of Directors and the officers of the corporation, have been and still are performing the functions and activities which had been declared to constitute illegal banking operations; that during the period from March 27, 1961 to May 18, 1962, the corporation had established 74 branches in principal cities and towns throughout the Philippines; that through a systematic and vigorous campaign undertaken by the corporation, the same had managed to induce the public to open 59,463 savings deposit accounts with an aggregate deposit of P1,689,136.74; that, in consequence of the foregoing deposits with the corporation, its original capital stock of P500,000, divided into 20,000 founders' shares of stock and 80,000 preferred shares of stock, both of which had a par value of P5.00 each, was increased, in less than one (1) year, to P3,000,000 divided into 130,000 founders' shares and 470,000 preferred shares, both with a par value of P5.00 each; and that, according to its statement of assets and liabilities, as of December 31, 1961, the corporation had a capital stock aggregating P1,273,265.98 and suffered, during the year 1961, a loss of P96,685.29. Accordingly, on December 6, 1962, the Solicitor General commenced this quo warranto proceedings for the dissolution of the corporation, with a prayer that, meanwhile, a writ of preliminary injunction be issued ex parte, enjoining the corporation and its branches, as well as its officers and agents, from performing the banking operations complained of, and that a receiver be appointed pendente lite.

Upon joint motion of both parties, on August 20, 1963, the Superintendent of Banks of the Central Bank of the Philippines was appointed by this Court receiver pendente lite of defendant corporation, and upon the filing of the requisite bond, said officer assumed his functions as such receiver on September 16, 1963.

In their answer, defendants admitted practically all of the allegations of fact made in the petition. They, however, denied that defendants Tanjutco (Pablo and Vito, Jr.), Soriano, Beltran, Zapa, Balatbat and Sebastian, are directors of the corporation, as well as the validity of the opinion, ruling, evaluation and conclusions, rendered, made and/or reached by the legal counsel and the intelligence division of the Central Bank, the Securities and Exchange Commission, and the Superintendent of Banks of the Philippines, or in Resolution No. 1095 of the Monetary Board, or of Search Warrant No. A-1019 of the Municipal Court of Manila, and of the search and seizure made thereunder. By way of affirmative allegations, defendants averred that, as of July 7, 1961, the Board of Directors of the corporation was composed of defendants Rosendo T. Resuello, Aquilino L. Illera and Pilar G. Resuello; that on July 11, 1962, the corporation had filed with the Superintendent of Banks an application for conversion into a Security Savings and Mortgage Bank, with defendants Zapa, Balatbat, Tanjutco (Pablo and Vito, Jr.), Soriano, Beltran and Sebastian as proposed directors, in addition to the defendants first named above, with defendants Rosendo T. Resullo, Zapa, Pilar G. Resuello, Balatbat and Sebastian as proposed president, vice-president, secretary-treasurer, auditor and legal counsel, respectively; that said additional officers had never assumed their respective offices because of the pendency of the approval of said application for conversion; that defendants Soriano, Beltran, Sebastian, Vito Tanjutco Jr. and Pablo Tanjutco had subsequently withdrawn from the proposed mortgage and savings bank; that on November 29, 1962 — or before the commencement of the present proceedings — the corporation and defendants Rosendo T. Resuello and Pilar G. Resuello had instituted Civil Case No. 52342 of the Court of First Instance of Manila against Purificacion Santos and other members of the savings plan of the corporation and the City Fiscal for a declaratory relief and an injunction; that on December 3, 1962, Judge Gaudencio Cloribel of said court issued a writ directing the defendants in said case No. 52342 and their representatives or agents to refrain from prosecuting the plaintiff spouses and other officers of the corporation by reason of or in connection with the acceptance by the same of deposits under its savings plan; that acting upon a petition filed by plaintiffs in said case No. 52342, on December 6, 1962, the Court of First Instance of Manila had appointed Jose Ma. Ramirez as receiver of the corporation; that, on December 12, 1962, said Ramirez qualified as such receiver, after filing the requisite bond; that, except as to one of the defendants in said case No. 52342, the issues therein have already been joined; that the failure of the corporation to honor the demands for withdrawal of its depositors or members of its savings plan and its former employees was due, not to mismanagement or misappropriation of corporate funds, but to an abnormal situation created by the mass demand for withdrawal of deposits, by the attachment of property of the corporation by its creditors, by the suspension by debtors of the corporation of the payment of their debts thereto and by an order of the Securities and Exchange Commission dated September 26, 1962, to the corporation to stop soliciting and receiving deposits; and that the withdrawal of deposits of members of the savings plan of the corporation was understood to be subject, as to time and amounts, to the financial condition of the corporation as an investment firm.

In its reply, plaintiff alleged that a photostat copy, attached to said pleading, of the anniversary publication of defendant corporation showed that defendants Pablo Tanjutco, Arturo Soriano, Ruben Beltran, Bienvenido V. Zapa, Ricardo D. Balatbat, Jose R. Sebastian and Vito Tanjutco Jr. are officers and/or directors thereof; that this is confirmed by the minutes of a meeting of stockholders of the corporation, held on September 27, 1962, showing that said defendants had been elected officers thereof;

Page 3 of 99

that the views of the legal counsel of the Central Bank, of the Securities and Exchange Commission, the Intelligence Division, the Superintendent of Banks and the Monetary Board above referred to have been expressed in the lawful performance of their respective duties and have not been assailed or impugned in accordance with law; that neither has the validity of Search Warrant No. A-1019 been contested as provided by law; that the only assets of the corporation now consist of accounts receivable amounting approximately to P500,000, and its office equipment and appliances, despite its increased capitalization of P3,000,000 and its deposits amounting to not less than P1,689,136.74; and that the aforementioned petition of the corporation, in Civil Case No. 52342 of the Court of First Instance of Manila, for a declaratory relief is now highly improper, the defendants having already committed infractions and violations of the law justifying the dissolution of the corporation.

Although, admittedly, defendant corporation has not secured the requisite authority to engage in banking, defendants deny that its transactions partake of the nature of banking operations. It is conceded, however, that, in consequence of a propaganda campaign therefor, a total of 59,463 savings account deposits have been made by the public with the corporation and its 74 branches, with an aggregate deposit of P1,689,136.74, which has been lent out to such persons as the corporation deemed suitable therefor. It is clear that these transactions partake of the nature of banking, as the term is used in Section 2 of the General Banking Act. Indeed, a bank has been defined as:

... a moneyed institute [Talmage vs. Pell 7 N.Y. (3 Seld. ) 328, 347, 348] founded to facilitate the borrowing, lending and safe-keeping of money (Smith vs. Kansas City Title & Trust Co., 41 S. Ct. 243, 255 U.S. 180, 210, 65 L. Ed. 577) and to deal, in notes, bills of exchange, and credits (State vs. Cornings Sav. Bank, 115 N.W. 937, 139 Iowa 338). (Banks & Banking, by Zellmann Vol. 1, p. 46).

Moreover, it has been held that:

An investment company which loans out the money of its customers, collects the interest and charges a commission to both lender and borrower, is a bank. (Western Investment Banking Co. vs. Murray, 56 P. 728, 730, 731; 6 Ariz 215.)

... any person engaged in the business carried on by banks of deposit, of discount, or of circulation is doing a banking business, although but one of these functions is exercised. (MacLaren vs. State, 124 N.W. 667, 141 Wis. 577, 135 Am. S.R. 55, 18 Ann. Cas. 826; 9 C.J.S. 30.)

Accordingly, defendant corporation has violated the law by engaging in banking without securing the administrative authority required in Republic Act No. 337.

That the illegal transactions thus undertaken by defendant corporation warrant its dissolution is apparent from the fact that the foregoing misuser of the corporate funds and franchise affects the essence of its business, that it is willful and has been repeated 59,463 times, and that its continuance inflicts injury upon the public, owing to the number of persons affected thereby.

It is urged, however, that this case should be remanded to the Court of First Instance of Manila upon the authority of Veraguth vs. Isabela Sugar Co. (57 Phil. 266). In this connection, it should be noted that this Court is vested with original jurisdiction, concurrently with courts of first instance, to hear and decide quo warranto cases and, that, consequently, it is discretionary for us to entertain the present case or to require that the issues therein be taken up in said Civil Case No. 52342. The Veraguth case cited by herein defendants, in support of the second alternative, is not in point, because in said case there were issues of fact which required the presentation of evidence, and courts of first instance are, in general, better equipped than appellate courts for the taking of testimony and the determination of questions of fact. In the case at bar, there is, however, no dispute as to the principal facts or acts performed by the corporation in the conduct of its business. The main issue here is one of law, namely, the legal nature of said facts or of the aforementioned acts of the corporation. For this reason, and because public interest demands an early disposition of the case, we have deemed it best to determine the merits thereof.

Wherefore, the writ prayed for should be, as it is hereby granted and defendant corporation is, accordingly, ordered dissolved. The appointment of receiver herein issued pendente lite is hereby made permanent, and the receiver is, accordingly, directed to administer the properties, deposits, and other assets of defendant corporation and wind up the affairs thereof conformably to Rules 59 and 66 of the Rules of Court. It is so ordered.

Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ., concur.

Footnotes

1Which, as amended on May 8, 1961, authorized it:

"1. To extend credit facilities for home building and agricultural, commercial and industrial projects;

Page 4 of 99

2. To extend credit, give loans, mortgages and pledges, either as principal, agent, broker or attorney-in-fact, upon every and all kind and classes of products, materials, goods, merchandise, and other properties, real or personal of every kind and nature;

3. To draw, accept, endorse, purchase, own, sell, discount, mortgage, assign or otherwise dispose of, negotiate or collect accounts or notes receivables, negotiable instruments, letters of credit and other evidence of indebtedness;

4. To purchase, acquire, and take over, all or any part of the rights, assets and business of any person, partnership, corporation or association, and to undertake and assume the liabilities and obligations of such person, partnership, corporation or association whose rights, assets, business or property may be purchased, acquired or taken over;

5. To issue bonds, debentures, securities, collaterals and other obligations or otherwise incur indebtedness in such manner as may be ascertained by the corporation; and

6. To undertake the management, promotion, financing and/or collection services of the operation of the business, industry or enterprises of any person, partnership, corporation or association in so far as may be permitted under the laws of the Philippines." (Emphasis supplied.).

2Empowering said Board, inter alia:

"c) To pay for any property or rights acquired by the corporation or to discharge obligations of the corporation either wholly or partly in money or in stock, bonds, debentures or other securities of the corporation;

"d) To lend or borrow money for the corporation with or without security and for such purpose to accept or create, make and issue mortgages, bonds, deeds of trust and negotiable instruments or securities, secured by mortgage or pledge of property belonging to the corporation; provided, that as hereinafter provided, the proper officers of the corporation shall have these powers, unless expressly limited by the Board of Directors: ... (Emphasis supplied).

3"Sec. 2. Only duly authorized persons and entities may engage in the lending of funds obtained from the public through the receipts of deposits or the sale of bonds, securities, or obligations of any kind, and all entities regularly conducting such operations shall be considered as banking institutions and shall be subject to the provisions of this Act, of the General Bank Act, and of other pertinent laws. The terms 'banking institution and 'bank', as used in this Act, are synonymous and interchangeable and specially include banks, banking institutions, commercial banks, savings banks, mortgage banks, trust companies, building and loan associations, branches and agencies in the Philippines of foreign banks, hereinafter called Philippine branches, and all other corporations, companies, partnerships, and associations performing banking functions in the Philippines.

"Persons and entities which receive deposits only occasionally shall not be considered as banks, but such persons and entities shall be subject to regulation by the Monetary Board of the Central Bank; nevertheless in no case may the Central Bank authorize the drawing of checks against deposits not maintained in banks, or branches or agencies thereof.

"The Monetary Board may similarly regulate the activities of persons and entities which act as agents of banks.

"Sec. 6. No person, association or corporation not conducting the business of a commercial banking corporation, trust corporation, savings and mortgage banks, or building and loan association, as defined in this Act, shall advertise or hold itself out as being engaged in the business of such bank, corporation or association, or use in connection with its business title the word or words, 'bank', 'banking,' 'banker,' 'building and loan association,' 'trust corporation,' 'trust company,' or words of similar import, or solicit or receive deposits of money for deposit, disbursement, safekeeping, or otherwise, or transact in any manner the business of any such bank, corporation or association without having first complied with the provisions of this Act in so far as it relates to commercial banking corporations, trust corporations, savings and mortgage banks, or building and loan association as the case may be. For any violation of the provisions of this section by a corporation, the officers and directors thereof shall be jointly and severally liable. Any violation of the provisions of this section shall be punished by a fine of five hundred pesos for each day during which such violation is continued or repeated, and, in default of the payment thereof, subsidiary imprisonment as prescribed by law."

Page 5 of 99

Page 6 of 99

SECOND DIVISION

[G.R. No. 128703. October 18, 2000]

TEODORO BAÑAS,* C. G. DIZON CONSTRUCTION, INC., and CENEN DIZON, petitioners, vs. ASIA PACIFIC FINANCE CORPORATION,[1]substituted by INTERNATIONAL CORPORATE BANK now known as UNION BANK OF THE PHILIPPINES, respondent.

D E C I S I O N

BELLOSILLO, J.:

C. G. DIZON CONSTRUCTION INC. and CENEN DIZON in this petition for review seek the reversal of the 24 July 1996 Decision of the Court of Appeals dismissing their appeal for lack of merit and affirming in toto the decision of the trial court holding them liable to Asia Pacific Finance Corporation in the amount of P87,637.50 at 14% interest per annum in addition to attorney's fees and costs of suit, as well as its 21 March 1997 Resolution denying reconsideration thereof. [2]

On 20 March 1981 Asia Pacific Finance Corporation (ASIA PACIFIC for short) filed a complaint for a sum of money with prayer for a writ of replevin against Teodoro Bañas, C. G. Dizon Construction and Cenen Dizon. Sometime in August 1980 Teodoro Bañas executed a Promissory Note in favor of C. G. Dizon Construction whereby for value received he promised to pay to the order of C. G. Dizon Construction the sum of P390,000.00 in installments of "P32,500.00 every 25th day of the month starting from September 25, 1980 up to August 25, 1981."[3]

Later, C. G. Dizon Construction endorsed with recourse the Promissory Note to ASIA PACIFIC, and to secure payment thereof, C. G. Dizon Construction, through its corporate officers, Cenen Dizon, President, and Juliette B. Dizon, Vice President and Treasurer, executed a Deed of Chattel Mortgage covering three (3) heavy equipment units of Caterpillar Bulldozer Crawler Tractors with Model Nos. D8-14A, D8-2U and D8H in favor of ASIA PACIFIC. [4] Moreover, Cenen Dizon executed on 25 August 1980 a Continuing Undertakingwherein he bound himself to pay the obligation jointly and severally with C. G. Dizon Construction.[5]

In compliance with the provisions of the Promissory Note, C. G. Dizon Construction made the following installment payments to ASIA PACIFIC: P32,500.00 on 25 September 1980, P32,500.00 on 27 October 1980 and P65,000.00 on 27 February 1981, or a total of P130,000.00. Thereafter, however, C. G. Dizon Construction defaulted in the payment of the remaining installments, prompting ASIA PACIFIC to send a Statement of Account to Cenen Dizon for the unpaid balance of P267,737.50 inclusive of interests and charges, andP66,909.38 representing attorney's fees. As the demand was unheeded, ASIA PACIFIC sued Teodoro Bañas, C. G. Dizon Construction and Cenen Dizon.

While defendants (herein petitioners) admitted the genuineness and due execution of the Promissory Note, the Deed of Chattel Mortgage and the Continuing Undertaking, they nevertheless maintained that these documents were never intended by the parties to be legal, valid and binding but a mere subterfuge to conceal the loan of P390,000.00 with usurious interests.

Defendants claimed that since ASIA PACIFIC could not directly engage in banking business, it proposed to them a scheme wherein plaintiff ASIA PACIFIC could extend a loan to them without violating banking laws: first, Cenen Dizon would secure a promissory note from Teodoro Bañas with a face value of P390,000.00 payable in installments; second, ASIA PACIFIC would then make it appear that the promissory note was sold to it by Cenen Dizon with the 14% usurious interest on the loan or P54,000.00 discounted and collected in advance by ASIA PACIFIC; and, lastly, Cenen Dizon would provide sufficient collateral to answer for the loan in case of default in payment and execute a continuing guaranty to assure continuous and prompt payment of the loan. Defendants also alleged that out of the loan of P390,000.00 defendants actually received only P329,185.00 after ASIA PACIFIC deducted the discounted interest, service handling charges, insurance premium, registration and notarial fees.

Sometime in October 1980 Cenen Dizon informed ASIA PACIFIC that he would be delayed in meeting his monthly amortization on account of business reverses and promised to pay instead in February 1981. Cenen Dizon made good his promise and tendered payment to ASIA PACIFIC in an amount equivalent to two (2) monthly amortizations.  But ASIA PACIFIC attempted to impose a 3% interest for every month of delay, which he flatly refused to pay for being usurious.

Afterwards, ASIA PACIFIC allegedly made a verbal proposal to Cenen Dizon to surrender to it the ownership of the two (2) bulldozer crawler tractors and, in turn, the latter would treat the former's account as closed and the loan fully paid.  Cenen Dizon supposedly agreed and accepted the offer. Defendants averred that the value of the bulldozer crawler tractors was more than adequate to cover their obligation to ASIA PACIFIC.

Page 7 of 99

Meanwhile, on 21 April 1981 the trial court issued a writ of replevin against defendant C. G. Dizon Construction for the surrender of the bulldozer crawler tractors subject of theDeed of Chattel Mortgage. Of the three (3) bulldozer crawler tractors, only two (2) were actually turned over by defendants - D8-14A and D8-2U - which units were subsequently foreclosed by ASIA PACIFIC to satisfy the obligation. D8-14A was sold for P120,000.00 and D8-2U for P60,000.00 both to ASIA PACIFIC as the highest bidder.

During the pendency of the case, defendant Teodoro Bañas passed away, and on motion of the remaining defendants, the trial court dismissed the case against him. On the other hand, ASIA PACIFIC was substituted as party plaintiff by International Corporate Bank after the disputed Promissory Note was assigned and/or transferred by ASIA PACIFIC to International Corporate Bank. Later, International Corporate Bank merged with Union Bank of the Philippines. As the surviving entity after the merger, and having succeeded to all the rights and interests of International Corporate Bank in this case, Union Bank of the Philippines was substituted as a party in lieu of International Corporate Bank.[6]

On 25 September 1992 the Regional Trial Court ruled in favor of ASIA PACIFIC holding the defendants jointly and severally liable for the unpaid balance of the obligation under the Promissory Note in the amount of P87,637.50 at 14% interest per annum, and attorney's fees equivalent to 25% of the monetary award.[7]

On 24 July 1996 the Court of Appeals affirmed in toto the decision of the trial court thus -

Defendant-appellants' contention that the instruments were executed merely as a subterfuge to skirt banking laws is an untenable defense. If that were so then they too were parties to the illegal scheme. Why should they now be allowed to take advantage of their own knavery to escape the liabilities that their own chicanery created?

Defendant-appellants also want us to believe their story that there was an agreement between them and the plaintiff-appellee that if the former would deliver their 2 bulldozer crawler tractors to the latter, the defendant-appellants' obligation would fully be extinguished. Again, nothing but the word that comes out between the teeth supports such story. Why did they not write down such an important agreement? Is it believable that seasoned businessmen such as the defendant-appellant Cenen G. Dizon and the other officers of the appellant corporation would deliver the bulldozers without a receipt of acquittance from the plaintiff-appellee x x x x In our book, that is not credible.

The pivotal issues raised are: (a) Whether the disputed transaction between petitioners and ASIA PACIFIC violated banking laws, hence, null and void; and (b) Whether the surrender of the bulldozer crawler tractors to respondent resulted in the extinguishment of petitioners' obligation.

On the first issue, petitioners insist that ASIA PACIFIC was organized as an investment house which could not engage in the lending of funds obtained from the public through receipt of deposits. The disputed Promissory Note, Deed of Chattel Mortgage and Continuing Undertaking were not intended to be valid and binding on the parties as they were merely devices to conceal their real intention which was to enter into a contract of loan in violation of banking laws.

We reject the argument. An investment company refers to any issuer which is or holds itself out as being engaged or proposes to engage primarily in the business of investing, reinvesting or trading in securities.[8] As defined in Sec. 2, par. (a), of the Revised Securities Act,[9] securities "shall include x x x x commercial papers evidencing indebtedness of any person, financial or non-financial entity, irrespective of maturity, issued, endorsed, sold, transferred or in any manner conveyed to another with or without recourse, such aspromissory notes x x x x" Clearly, the transaction between petitioners and respondent was one involving not a loan but purchase of receivables at a discount, well within the purview of "investing, reinvesting or trading in securities" which an investment company, like ASIA PACIFIC, is authorized to perform and does not constitute a violation of the General Banking Act.[10] Moreover, Sec. 2 of the General Banking Act provides in part -

Sec. 2. Only entities duly authorized by the Monetary Board of the Central Bank may engage in the lending of funds obtained from the public through the receipt of deposits of any kind, and all entities regularly conducting such operations shall be considered as banking institutions and shall be subject to the provisions of this Act, of the Central Bank Act, and of other pertinent laws (underscoring supplied).

Indubitably, what is prohibited by law is for investment companies to lend funds obtained from the public through receipts of deposit, which is a function of banking institutions. But here, the funds supposedly "lent" to petitioners have not been shown to have been obtained from the public by way of deposits, hence, the inapplicability of banking laws.

On petitioners' submission that the true intention of the parties was to enter into a contract of loan, we have examined the Promissory Note and failed to discern anything therein that would support such theory. On the contrary, we find the terms and conditions of the instrument clear, free from any ambiguity, and expressive of the real intent and agreement of the parties. We quote the pertinent portions of the Promissory Note -

FOR VALUE RECEIVED, I/We, hereby promise to pay to the order of C.G. Dizon Construction, Inc. the sum of THREE HUNDRED NINETY THOUSAND ONLY (P390,000.00), Philippine Currency in the following manner:

Page 8 of 99

P32,500.00 due every 25th of the month starting from September 25, 1980 up to August 25, 1981.

I/We agree that if any of the said installments is not paid as and when it respectively falls due, all the installments covered hereby and not paid as yet shall forthwith become due and payable at the option of the holder of this note with interest at the rate of 14% per annum on each unpaid installment until fully paid.

If any amount due on this note is not paid at its maturity and this note is placed in the hands of an attorney for collection, I/We agree to pay in addition to the aggregate of the principal amount and interest due, a sum equivalent to TEN PERCENT (10%) thereof as Attorney's fees, in case no action is filed, otherwise, the sum will be equivalent to TWENTY FIVE (25%) of the said principal amount and interest due x x x x

Makati, Metro Manila, August 25, 1980.

(Sgd) Teodoro Bañas

ENDORSED TO ASIA PACIFIC FINANCE CORPORATION WITH RECOURSE, C.G. DIZON CONSTRUCTION, INC.

By: (Sgd.) Cenen Dizon (Sgd.) Juliette B. DizonPresident VP/Treasurer

Likewise, the Deed of Chattel Mortgage and Continuing Undertaking were duly acknowledged before a notary public and, as such, have in their favor the presumption of regularity. To contradict them there must be clear, convincing and more than merely preponderant evidence. In the instant case, the records do not show even a preponderance of evidence in favor of petitioners' claim that the Deed of Chattel Mortgage and Continuing Undertaking were never intended by the parties to be legal, valid and binding. Notarial documents are evidence of the facts in clear and unequivocal manner therein expressed. [11]

Interestingly, petitioners' assertions were based mainly on the self-serving testimony of Cenen Dizon, and not on any other independent evidence. His testimony is not only unconvincing, as found by the trial court and the Court of Appeals, but also self-defeating in light of the documents presented by respondent, i.e., Promissory Note, Deed of Chattel Mortgage and Continuing Undertaking, the accuracy, correctness and due execution of which were admitted by petitioners.  Oral evidence certainly cannot prevail over the written agreements of the parties. The courts need only rely on the faces of the written contracts to determine their true intention on the principle that when the parties have reduced their agreements in writing, it is presumed that they have made the writings the only repositories and memorials of their true agreement.

The second issue deals with a question of fact. We have ruled often enough that it is not the function of this Court to analyze and weigh the evidence all over again, its jurisdiction being limited to reviewing errors of law that might have been committed by the lower court.[12] At any rate, while we are not a trier of facts, hence, not required as a rule to look into the factual bases of the assailed decision of the Court of Appeals, we did so just the same in this case if only to satisfy petitioners that we have carefully studied and evaluated the case, all too mindful of the tenacity and vigor with which the parties, through their respective counsel, have pursued this case for nineteen (19) years.

Petitioners contend that the parties already had a verbal understanding wherein ASIA PACIFIC actually agreed to consider petitioners' account closed and the principal obligation fully paid in exchange for the ownership of the two (2) bulldozer crawler tractors.

We are not persuaded. Again, other than the bare allegations of petitioners, the records are bereft of any evidence of the supposed agreement. As correctly observed by the Court of Appeals, it is unbelievable that the parties entirely neglected to write down such an important agreement. Equally incredulous is the fact that petitioner Cenen Dizon, a seasoned businessman, readily consented to deliver the bulldozers to respondent without a corresponding receipt of acquittance. Indeed, even the testimony of petitioner Cenen Dizon himself negates the supposed verbal understanding between the parties -

Q: You said and is it not a fact that you surrendered the bulldozers to APCOR by virtue of the seizure order?

A: There was no seizure order. Atty. Carag during that time said if I surrender the two equipment, we might finally close a deal if the equipment would come up to the balance of the loan. So I voluntarily surrendered, I pulled them from the job site and returned them to APCOR x x x x

Q: You mentioned a certain Atty. Carag, who is he?

A: He was the former legal counsel of APCOR. They were handling cases. In fact, I talked with Atty. Carag, we have a verbal agreement if I surrender the equipment it might suffice to pay off the debt so I did just that (underscoring ours).[13]

In other words, there was no binding and perfected contract between petitioners and respondent regarding the settlement of the obligation, but only a conditional one, a mere conjecture in fact, depending on whether the value of the tractors to be surrendered would equal the balance of the loan plus interests. And since the bulldozer crawler tractors were sold at the

Page 9 of 99

foreclosure sale for only P180,000.00,[14] which was not enough to cover the unpaid balance of P267,637.50, petitioners are still liable for the deficiency.

Barring therefore a showing that the findings complained of are totally devoid of support in the records, or that they are so glaringly erroneous as to constitute serious abuse of discretion, we see no valid reason to discard them.  More so in this case where the findings of both the trial court and the appellate court coincide with each other on the matter.

With regard to the computation of petitioners' liability, the records show that petitioners actually paid to respondent a total sum of P130,000.00 in addition to the P180,000.00 proceeds realized from the sale of the bulldozer crawler tractors at public auction. Deducting these amounts from the principal obligation of P390,000.00 leaves a balance ofP80,000.00, to which must be added P7,637.50 accrued interests and charges as of 20 March 1981, or a total unpaid balance of P87,637.50 for which petitioners are jointly and severally liable. Furthermore, the unpaid balance should earn 14% interest per annum as stipulated in the Promissory Note, computed from 20 March 1981 until fully paid.

On the amount of attorney's fees which under the Promissory Note is equivalent to 25% of the principal obligation and interests due, it is not, strictly speaking, the attorney's fees recoverable as between the attorney and his client regulated by the Rules of Court. Rather, the attorney's fees here are in the nature of liquidated damages and the stipulation therefor is aptly called a penal clause. It has been said that so long as such stipulation does not contravene the law, morals and public order, it is strictly binding upon the obligor. It is the litigant, not the counsel, who is the judgment creditor entitled to enforce the judgment by execution.[15]

Nevertheless, it appears that petitioners' failure to fully comply with their part of the bargain was not motivated by ill will or malice, but due to financial distress occasioned by legitimate business reverses. Petitioners in fact paid a total of P130,000.00 in three (3) installments, and even went to the extent of voluntarily turning over to respondent their heavy equipment consisting of two (2) bulldozer crawler tractors, all in a bona fide effort to settle their indebtedness in full. Article 1229 of the New Civil Code specifically empowers the judge to equitably reduce the civil penalty when the principal obligation has been partly or irregularly complied with. Upon the foregoing premise, we hold that the reduction of the attorney's fees from 25% to 15% of the unpaid principal plus interests is in order.

Finally, while we empathize with petitioners, we cannot close our eyes to the overriding considerations of the law on obligations and contracts which must be upheld and honored at all times. Petitioners have undoubtedly benefited from the transaction; they cannot now be allowed to impugn its validity and legality to escape the fulfillment of a valid and binding obligation.

WHEREFORE, no reversible error having been committed by the Court of Appeals, its assailed Decision of 24 July 1996 and its Resolution of 21 March 1997 are AFFIRMED.Accordingly, petitioners C.G. Construction Inc. and Cenen Dizon are ordered jointly and severally to pay respondent Asia Pacific Finance Corporation, substituted by International Corporate Bank (now known as Union Bank of the Philippines), P87,637.50 representing the unpaid balance on the Promissory Note, with interest at fourteen percent (14%) per annum computed from 20 March 1981 until fully paid, and fifteen percent (15%) of the principal obligation and interests due by way of attorney's fees. Costs against petitioners.

SO ORDERED.

Mendoza, Quisumbing, Buena and De Leon, Jr., JJ., concur.

* Petitioner Teodoro Bañas should not have been included in the caption of this case as his name was ordered excluded by the trial court on 23 October 1997 since he died during the pendency of the case thereat.

[1] This case was originally titled "Teodoro Bañas, C.G. Dizon Construction, Inc., and Cenen Dizon v. Court of Appeals and Asia Pacific Finance Corporation." The Court of Appeals, which was inadvertently made party-respondent, was excluded on motion of petitioners since the court which rendered the decision appealed from is not required to be joined as party-respondent (Rule 45, 1997 Rules of Civil Procedure).

Page 10 of 99

THIRD DIVISION

[G.R. No. 95326.  March 11, 1999]

ROMEO P. BUSUEGO, CATALINO F. BANEZ and RENATO F. LIM, petitioners, vs. THE HONORABLE COURT OF APPEALS and THE MONETARY BOARD OF THE CENTRAL BANK OF THE PHILIPPINES, respondents.

D E C I S I O N

PURISIMA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking a reversal of the Decision [1], dated September 14, 1990, of  the Court of Appeals in CA-G.R. CV No. 23656.

As culled from the records, the facts of the case are as follows:

The 16th regular examination of the books and records of the PAL Employees Savings and Loan Association, Inc. ("PESALA") was conducted from March 14 to April 16, 1988 by a team of CB examiners headed by Belinda Rodriguez.  Following the said examination, several anomalies and irregularities committed by the herein petitioners; PESALA's directors and officers, were uncovered, among which are:

1.  Questionable investment In a multi-million peso real estate project (Pesalaville)

2.  Conflict of interest in the conduct of business

3.  Unwarranted declaration and payment of dividends

4.  Commission of unsound and unsafe business practices.

On July 19, 1988,, Central Bank ("CB") Supervision and Examination Section ("SES") Department IV Director Ricardo. F. Lirio sent a letter to the Board of Directors of PESALA inviting them to a conference on July 21, 1988 to discuss subject findings noted in the said 16th regular examination, but petitioners did not attend such conference.

On July 28, 1988, petitioner Renato Lim wrote the PESALA's Board of Directors explaining his side on the said examination of PESALA's records and requesting that a copy of his letter be furnished the CB, which was fortwith made by the Board.[2]

On July 29, 1988, PESALA's Board of Directors sent to Director Lirio a letter concerning the 16th regular examination of PESALA's records.

On September 9, 1988, the Monetary Board adopted and issued MB Resolution No. 805 the pertinent provisions of which are as follows:

"1. To note the report on the examination of the PAL Employees' Savings and Loan Association, Inc. (PESALA) as of December 31, 1987, as submitted in a memorandum of the Director, Supervision and Examination Section (SES) Department IV, dated August 19, 1988;

2.  To require the board of directors of PESALA to immediately inform the members of PESALA of the results of the Central Bank examination and their effects on the financial condition of the Association;

x x x

5.  To include the names of Mr. Catalino Banez, Mr. Romeo Busuego and Mr. Renato Lim in the Sector's watchlist to prevent them from holding responsible positions in any institution under Central Bank supervision;

6.  To require PESALA to enforce collection of the overpayment to the Vista Grande Management and Development Corporation and to require the accounting of P12.28 million unaccounted and unremitted bank loan proceeds and P3.9 million other unsupported cash disbursements from the responsible directors and officers; or to properly charge these against their respective accounts, if necessary;

7.  To require the board of directors of PESALA to file civil and criminal cases against Messrs.  Catalino Banez, Romeo Busuego and Renato Lim for all the misfeasance and malfeasance committed by them, as warranted by the evidence;

Page 11 of 99

8.  To require the board of directors of PESALA to improve the operations of the Association, correct all violations noted, and adopt internal control measures to prevent the recurrence of similar incidents as shown in Annex E of the subject memorandum of the Director, SES Department IV;"[3]

xxx xxx                               xxx

On January 23, 1989, petitioners filed a Petition for Injunction with Prayer for the Immediate Issuance of a Temporary Restraining Order[4] docketed as Civil Case No. Q-89-1617 before Branch 104 of the Regional Trial Court of Quezon City.

On January 26 1989, the said court issued a temporary restraining order [5] enjoining the defendant, the Monetary Board of the Central Bank, (now Banko Sentral ng Pilipinas) from including the names of petitioners in the watchlist.

On February 10, 1989, the same trial court issued a writ of preliminary injunction [6], conditioned upon the filing by petitioners of a bond in the amount of Ten Thousand (P10,000.00) Pesos each.  The Monetary Board presented a Motion for Reconsideration[7] of the said Order, but the same was denied.

On September 11, 1989, the trial court handed down its Decision,[8] disposing thus:

"WHEREFORE, judgment is hereby rendered declaring Monetary Board Resolution No. 805 as void and inexistent.  The writ of preliminary prohibitory injunctions issued on February 10, 1989 is deemed permanent.  Costs against respondent."

The Monetary Board appealed the aforesaid Decision to the Court of Appeals which came out with a Decision [9] of reversal on September 14, 1990, the decretal portion of which is to the following effect:

"WHEREFORE, the decision appealed from is hereby reversed and another one entered dismissing the petition for injunction."

Dissatisfied with the said Decision of the Court of Appeals, petitioners have come to this Court via the present petition for review on certiorari.

On June 5, 1992, petitioners filed an "Urgent Motion for the Immediate Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction against the Secretary of Justice and the City Prosecutor of Pasay" [10] stating that several complaints were lodged against the petitioners before the Office of the City Prosecutor of Pasay City pursuant to Monetary Board Resolution No. 805; that the said complaints were dismissed by the City Prosecutor and the dismissals were appealed to the Secretary of Justice for review, some of which have been reversed already.  Petitioners prayed that a Temporary Restraining Order and/or Writ of Preliminary Injunction issue "restraining and enjoining the Secretary of Justice and the City Prosecutor of Pasay City from proceeding and taking further actions, and more specially from filing Informations in I.S. Nos.-90-1836; 90-1831; 90-1835; 90-1832; 90-1248; 90-1249; 90-3031; 90-3032; 90-1837; 90-1834, pending the final resolution of the case at bar xxx."  However, in the Resolution[11] dated September 9, 1992, the court denied the said motion.

The petition poses as issues for resolution.

I

WHETHER OR NOT THE PETITIONERS WERE DEPRIVED OF THEIR RIGHT TO A NOTICE AND THE OPPORTUNITY TO BE HEARD BY THE MONETARY BOARD PRIOR TO ITS ISSUANCE OF MONETARY BOARD RESOLUTION NO. 805.

II

WHETHER OR NOT THE RESPONDENT BOARD IS LEGALLY BOUND TO OBSERVE THE ESSENTIAL REQUIREMENTS OF DUE PROCESS OF A VALID CHARGE, NOTICE AND OPPORTUNITY TO BE HEARD INSOFAR AS THE PETITIONERS' SUBJECT CASE IS CONCERNED.

III

WHETHER OR NOT MONETARY BOARD RESOLUTION NO. 805 IS NULL AND VOID FOR BEING VIOLATIVE OF PETITIONERS' RIGHTS TO DUE PROCESS.

With respect to the first issue, the trial court said:

"The evidence submitted preponderates in favor of petitioners.  The deprivation of petitioners' rights in the Resolution undermines the constitutional guarantee of due process.  Petitioners were never notified that they were being investigated, much so, they were not informed of any charges against them and were not afforded the opportunity to adduce countervailing evidence so as to deserve the punitive measures promulgated in Resolution No. 805 of the Monetary Board. xxx”[12]

Page 12 of 99

The foregoing disquisition by the trial court is untenable under the facts and circumstances of the case.   Petitioners were duly afforded their right to due process by the Monetary Board, it appearing that:

1.  Petitioners were invited by Director Lirio to a conference scheduled for July 21, 1988 to discuss the findings made in the 16th regular examination of PESALA's records.  Petitioners did not attend, said conference;

2.  Petitioner Renato Lim's letter of July 28, 1988 to PESALA's Board of Directors, explaining his side of the controversy, was forwarded to the Monetary Board which the latter considered in adopting Monetary Board Resolution No. 805; and

3.  PESALA's Board of Director's letter, dated July 29, 1988, to the Monetary Board, explaining the Board's side of the controversy, was properly considered in the adoption of Monetary Board Resolution No. 805.

Petitioners therefore cannot complain of deprivation of their right to due process, as they were given ample opportunity by the Monetary Board to air their Submission and defenses as to the findings of irregularity during the said 16th regular examination.  The essence of due process is to be afforded a reasonable opportunity to be heard and to submit any evidence one may have in support of his defense. [13]What is offensive to due process is the denial of the opportunity to be heard. [14] Petitioners having availed of their opportunity to present their position to the Monetary Board by their letters-explanation, they were not denied due process[15].

Petitioners cite Ang Tibay v. CIR[16] and assert that the following requisites of procedural due process were not observed by the Monetary Board:

1.  The right to a hearing, which includes the right to present one's case and submit evidence in support thereof;

2.  The tribunal must consider the evidence presented;

3.  The decision must have something to support itself;

4.  The evidence must be substantial;

5.  The decision must be rendered on the evidence presented at the hearing, or at least contained in the record and disclosed to the parties affected;

6.  The tribunal or body or any of its judges must act or its or his own independent consideration of the law and facts of the controversy and not simply accept the view of a subordinate in arriving at a decision;

7.  The board or body should, in all controversial questions, render its decision in such a manner that the parties to the proceedings can know the various issues involved, and the reason for the decision rendered.

Contrary to petitioners' allegation, it appears that the requisites of procedural due process were complied with by the Monetary Board before it issued the questioned Monetary Board Resolution No. 805.  Firstly, the petitioners were invited to a conference to discuss the findings gathered during the 16th regular examination of PESALA's records.  (The requirement of a hearing is complied with as long as there was an opportunity to be heard, and not necessarily that an actual hearing was conducted. [17])  Secondly, the Monetary Board considered the evidence presented.  Thirdly, fourthly and fifthly, Monetary Board Resolution No. 805 was adopted on  the basis of said findings unearthed during the 16th regular examination of PESALA's records and derived from the letter-comments submitted by the parties. Sixthly, the members of the Monetary Board acted independently on their own in issuing subject Resolution, placing reliance on the said findings made during the 16th regular examination.  Lastly, the reason for the issuance of Monetary Board Resolution No. 805 is readily apparent, which is to prevent further irregularities from being committed and to prosecute the officials responsible therefor.

With respect to the second issue, there is tenability in petitioners' contention that the Monetary Board, as an administrative agency, is legally bound to observe due process, although they are free from the rigidity of certain procedural requirements.  As held in Adamson and Adamson, Inc.  v.  Amores[18]:

"While administrative tribunals exercising quasi-judicial functions are free from the rigidity of certain procedural requirements they are bound by law and practice to observe the fundamental and essential requirements of due process in justiciable cases presented before them.  However, the standard of due process that must be met in administrative tribunals allows a certain latitude as  long as the element of fairness is not ignored.  Hence, there is no denial of due process where records show that hearings were held with prior notice to adverse parties.  But even in the absence of previous notice, there is no denial of procedural due, process as long as the parties are given the opportunity to be heard."

Even Section 28, (c) and (d), of Republic Act No. 3779 ("RA 3779") delineating the powers of the Monetary Board over savings and loan associations, require observance of due process in the exercise of its powers:

“x x x

(c) To conduct at least once every year, and whenever necessary, any inspection, examination or investigation of the books, and records, business affairs, administration, and financial condition of any savings and loan association with or without prior notice but always with fairness and reasonable opportunity for the association or any of its officials to give their side of the case. x x x

Page 13 of 99

(d) After proper notice and hearing, to suspend a savings and loan association for violation of law, for unsafe and unsound practices or for reason of insolvency. x x x

x x x.

(f) To decide, after appropriate notice and hearings any controversy as to the rights or obligations of the savings and loan association, its directors, officers, stockholders and members under its charter, and, by order, to enforce the same;

x x x" (italics supplied)

Anent the third issue, petitioners theorize that Monetary Board Resolution No. 805 is null and void for being violative of petitioners' right to due process.  To support their stance, they cite the trial court's ruling, to wit:

"A reading of Monetary Board Resolution No. 805 discloses that it imposes administrative sanctions against petitioners.  In fact, it does not only penalize petitioners by including them in the watchlist to prevent them from holding responsible positions in any institution under Central Bank supervision,' it mandates the PESALA Board of Directors as well to file Civil and Criminal charges against them 'for all the misfeasance and malfeasance committed by them, as warranted by the evidence.' Monetary Board Resolution No. 805 virtually deprives petitioners their respective gainful employment, and at the same time marks them for judicial prosecution.  The crucial question here is that were petitioners afforded due process in the investigations conducted which prompted the issuance of Monetary Board Resolution No. 805?

x x x Although the Monetary Board is free from the rigidity of certain procedural requirements, it failed 'to observe the essential requirement of due process' (Adamson and Adamson, Inc. v. Amores, 152 SCRA 237) specifically its failure to afford petitioners the opportunity to be heard.  In short, there is a clear showing of arbitrariness resulting in an irreparable injury against petitioners as the Resolution certainly affects their 'life, liberty and property.'

Monetary Board Resolution No. 805 Violates basic and essential requirements.  It must therefore be, as it is hereby, declared, as void and inexistent because among other things, it openly derogates the fundamental rights of petitioners."

Petitioners opine that with the issuance of Monetary Board Resolution No. 805, "they are now barred from being elected or designated as officers again of PESALA, and are likewise prevented from future engagements or employments in all institutions under the supervision of the Central Bank thereby virtually depriving them of the opportunity to seek employments in the field which they can excel and are best fitted."  According to them, the Monetary Board is not vested with "the authority to disqualify persons from occupying positions in institutions under the supervision of the Central Bank without proper notice and hearing" nor is it vested with authority "to file civil and criminal cases against its officers/directors for suspected fraudulent acts."

Petitioners' contentions are untenable.  It must be remembered that the Central Bank of the.  Philippines (now Bangko Sentral ng Pilipinas), through the Monetary Board, is the government agency charged with the responsibility of administering the monetary, banking and credit system of the country[19] and is granted the power of supervision and examination over banks and non-bank financial institutions performing quasi-banking functions, of which savings and loan associations, such as PESALA, form part of[20].

The special law governing savings and loan association is Republic Act No. 3779, as amended, otherwise known as the "Savings and Loan Association Act."  Said law authorizes the Monetary Board to conduct regular yearly examinations of the books and records of savings and loan associations, to suspend, a savings and loan association for violation of law, to decide any controversy over the obligations and duties of directors and officers, and to take remedial measures, among others.  Section 28 of Rep. Act No. 3779, reads:

"SEC. 28.  Supervisory powers over savings and loan associations. - In addition to whatever powers have been conferred by the foregoing provisions, the Monetary Board shall have the power to exercise the following:

         x x x

(c) To conduct at least once every year, and whenever- necessary, any inspection, examination or investigation of the books and records, business affairs, administration, and financial condition of any savings and loan association with or without prior notice but always with fairness and reasonable opportunity for the association or any of its officials to give their side of the case.  Whenever an inspection, examination or investigation is conducted under this grant of power, the person authorized to do so may seize books and records and keep them under his custody after giving proper receipts therefor; may make any marking or notation on any paper, record, document or book to show that it has been examined and verified and may padlock or seal shelves, vaults, safes, receptacles or similar containers and prohibit the opening thereof without first securing authority therefor, for as long as may be necessary in connection with the investigation or examination being conducted.  The official of the Central Bank in charge of savings and loan associations and his deputies are hereby authorized to administer oaths to any director, officer or employee of any association under the supervision of the Monetary Board;

         x x x

Page 14 of 99

(d) After proper notice and hearing, to suspend a savings and loan association for violation of law, for unsafe and unsound practices or for reason of insolvency.  The Monetary Board may likewise, upon the proof that a savings and loan association or its board or directors or officers are conducting and managing its affairs in a manner contrary to laws, orders, instructions, rules and regulations promulgated by the Monetary Board or in a manner substantially prejudicial to the interest of the government, depositors or creditor, take over the management of the savings and loan association after due hearing, until a new board of directors and officers are elected and qualified without prejudice to the prosecution of the persons responsible for such violations.  The management by the Monetary Board shall be without expense to the savings and loan association, except such as is actually necessary for its operation, pending the election and qualification of a new board of directors and officers to take the place of those responsible for the violation or acts contrary to the interest of the government, depositors or creditors;

x x x

(f) To decide, after appropriate notice and hearings any controversy as to the rights or obligations of the savings and loan association, its directors, officers, stockholders and members under its charter, and, by order, to enforce the same;

         x x x

(l) To conduct such investigations, take such remedial measures, exercise all powers which are now or may hereafter be conferred upon it by Republic Act Numbered Two Hundred sixty-five in the enforcement of this legislation, and impose upon associations, whether stock or noti-stock their directors and/or officers administrative sanctions under Sections 34-A or 34-B of Republic Act Two Hundred sixty-five, as amended."

From the foregoing, it is gleanable that the Central Bank, through the Monetary Board,  is empowered to conduct investigations and examine the records of savings and loan associations.  If any irregularity is discovered in the process, the Monetary Board may impose appropriate sanctions, such as suspending the offender from holding office or from being employed with the Central Bank, or placing the names of the offenders in a watchlist.

The requirement of prior notice is also relaxed under Section 28 (c) of RA 3779 as investigations or examinations may be conducted with or without prior notice "but always with fairness and reasonable opportunity for the association or any of its officials to give their side." As may be gathered from the records, the said requirement was properly complied with by the respondent Monetary Board.

We sustain the ruling of the Court of Appeals that petitioners' suspension was only preventive in nature and therefore, no notice or, hearing was necessary.  Until such time that the petitioners have proved their innocence, they may be preventively suspended from holding office so as not to influence the conduct of investigation, and to prevent the commission of further irregularities.

Neither were petitioners deprived of their lawful calling as they are free to look for another employment so long as the agency or company involved is not subject to Central Bank control and supervision. Petitioners can still practise their profession or engage in business as long as these are not within the ambit of Monetary Board Resolution No. 805.

All things studiedly considered, the court upholds the validity of Monetary Board Resolution No. 805 and affirms the decision of the respondent court.

WHEREFORE, the petition is DENIED, and the assailed Decision dated September 14, 1990 of the Court of Appeals AFFIRMED.  No pronouncement as to costs.

SO ORDERED.

Romero, (Chairman), Vitug, Panganiban, and Gonzaga-Reyes, JJ., concur.

Page 15 of 99

Page 16 of 99

EN BANC

G.R. No. 70054 December 11, 1991

BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioner, vs.THE MONETARY BOARD, CENTRAL BANK OF THE PHILIPPINES, JOSE B. FERNANDEZ, CARLOTA P. VALENZUELA, ARNULFO B. AURELLANO and RAMON V. TIAOQUI, respondents.

G.R. No. 68878 December 11, 1991

BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioner, vs.HON. INTERMEDIATE APPELLATE COURT and CELESTINA S. PAHIMUNTUNG, assisted by her husband,respondents.

G.R. No. 77255-58 December 11, 1991

TOP MANAGEMENT PROGRAMS CORPORATION AND PILAR DEVELOPMENT CORPORATION, petitioners, vs.THE COURT OF APPEALS, The Executive Judge of the Regional Trial Court of Cavite, Ex-Officio Sheriff REGALADO E. EUSEBIO, BANCO FILIPINO SAVINGS AND MORTGAGE BANK, CARLOTA P. VALENZUELA AND SYCIP, SALAZAR, HERNANDEZ AND GATMAITAN, respondents.

G.R. No. 78766 December 11, 1991

EL GRANDE CORPORATION, petitioner, vs.THE COURT OF APPEALS, THE EXECUTIVE JUDGE of The Regional Trial Court and Ex-Officio Sheriff REGALADO E. EUSEBIO, BANCO FILIPINO SAVINGS AND MORTGAGE BANK, CARLOTA P. VALENZUELA AND SYCIP, SALAZAR, FELICIANO AND HERNANDEZ, respondents.

G.R. No. 78767 December 11, 1991

METROPOLIS DEVELOPMENT CORPORATION, petitioner, vs.COURT OF APPEALS, CENTRAL BANK OF THE PHILIPPINES, JOSE B. FERNANDEZ, JR., CARLOTA P. VALENZUELA, ARNULFO AURELLANO AND RAMON TIAOQUI, respondents.

G.R. No. 78894 December 11, 1991

BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitionervs.COURT OF APPEALS, THE CENTRAL BANK OF THE PHILIPPINES, JOSE B. FERNANDEZ, JR., CARLOTA P. VALENZUELA, ARNULFO B. AURELLANO AND RAMON TIAOQUI, respondents.

G.R. No. 81303 December 11, 1991

PILAR DEVELOPMENT CORPORATION, petitionervs.COURT OF APPEALS, HON. MANUEL M. COSICO, in his capacity as Presiding Judge of Branch 136 of the Regional Trial Court of Makati, CENTRAL BANK OF THE PHILIPPINES AND CARLOTA P. VALENZUELA,respondents.

G.R. No. 81304 December 11, 1991

BF HOMES DEVELOPMENT CORPORATION, petitioner, vs.THE COURT OF APPEALS, CENTRAL BANK AND CARLOTA P. VALENZUELA, respondents.

Page 17 of 99

G.R. No. 90473 December 11, 1991

EL GRANDE DEVELOPMENT CORPORATION, petitioner, vs.THE COURT OF APPEALS, THE EXECUTIVE JUDGE of the Regional Trial Court of Cavite, CLERK OF COURT and Ex-Officio Sheriff ADORACION VICTA, BANCO FILIPINO SAVINGS AND MORTGAGE BANK, CARLOTA P. VALENZUELA AND SYCIP, SALAZAR, HERNANDEZ AND GATMAITAN, respondents.

Panganiban, Benitez, Barinaga & Bautista Law Offices collaborating counsel for petitioner.

Florencio T. Domingo, Jr. and Crisanto S. Cornejo for intervenors.

 

MEDIALDEA, J.:p

This refers to nine (9) consolidated cases concerning the legality of the closure and receivership of petitioner Banco Filipino Savings and Mortgage Bank (Banco Filipino for brevity) pursuant to the order of respondent Monetary Board. Six (6) of these cases, namely, G.R. Nos. 68878, 77255-68, 78766, 81303, 81304 and 90473 involve the common issue of whether or not the liquidator appointed by the respondent Central Bank (CB for brevity) has the authority to prosecute as well as to defend suits, and to foreclose mortgages for and in behalf of the bank while the issue on the validity of the receivership and liquidation of the latter is pending resolution in G.R. No. 7004. Corollary to this issue is whether the CB can be sued to fulfill financial commitments of a closed bank pursuant to Section 29 of the Central Bank Act. On the other hand, the other three (3) cases, namely, G.R. Nos. 70054, which is the main case, 78767 and 78894 all seek to annul and set aside M.B. Resolution No. 75 issued by respondents Monetary Board and Central Bank on January 25, 1985.

 

The antecedent facts of each of the nine (9) cases are as follows:

G.R No. 68878

This is a motion for reconsideration, filed by respondent Celestina Pahimuntung, of the decision promulgated by thisCourt on April 8, 1986, granting the petition for review on certiorari and reversing the questioned decision of respondent appellate court, which annulled the writ of possession issued by the trial court in favor of petitioner.

The respondent-movant contends that the petitioner has no more personality to continue prosecuting the instant case considering that petitioner bank was placed under receivership since January 25, 1985 by the Central Bank pursuant to the resolution of the Monetary Board.

G.R. Nos. 77255-58

Petitioners Top Management Programs Corporation (Top Management for brevity) and Pilar Development Corporation (Pilar Development for brevity) are corporations engaged in the business of developing residential subdivisions.

Top Management obtained a loan of P4,836,000 from Banco Filipino as evidenced by a promissory note dated January 7, 1982 payable in three years from date. The loan was secured by real estate mortgage in its various properties in Cavite. Likewise, Pilar Development obtained loans from Banco Filipino between 1982 and 1983 in the principal amounts of P6,000,000, P7,370,000 and P5,300,000 with maturity dates on December 28, 1984, January 5, 1985 and February 16, 1984, respectively. To secure the loan, Pilar Development mortgaged to Banco Filipino various properties in Dasmariñas, Cavite.

On January 25, 1985, the Monetary Board issued a resolution finding Banco Filipino insolvent and unable to do business without loss to its creditors and depositors. It placed Banco Filipino under receivership of Carlota Valenzuela, Deputy Governor of the Central Bank.

On March 22, 1985, the Monetary Board issued another resolution placing the bank under liquidation and designating Valenzuela as liquidator. By virtue of her authority as liquidator, Valenzuela appointed the law firm of Sycip, Salazar, et al. to represent Banco Filipino in all litigations.

Page 18 of 99

On March 26, 1985, Banco Filipino filed the petition for certiorari in G.R. No. 70054 questioning the validity of the resolutions issued by the Monetary Board authorizing the receivership and liquidation of Banco Filipino.

In a resolution dated August 29, 1985, this Court in G.R. No. 70054 resolved to issue a temporary restraining order, effective during the same period of 30 days, enjoining the respondents from executing further acts of liquidation of the bank; that acts such as receiving collectibles and receivables or paying off creditors' claims and other transactions pertaining to normal operations of a bank are not enjoined. The Central Bank is ordered to designate a comptroller for Banco Filipino.

Subsequently, Top Management failed to pay its loan on the due date. Hence, the law firm of Sycip, Salazar, et al. acting as counsel for Banco Filipino under authority of Valenzuela as liquidator, applied for extra-judicial foreclosure of the mortgage over Top Management's properties. Thus, the Ex-Officio Sheriff of the Regional Trial Court of Cavite issued a notice of extra-judicial foreclosure sale of the properties on December 16, 1985.

On December 9, 1985, Top Management filed a petition for injunction and prohibition with the respondent appellate court docketed as CA-G.R. SP No. 07892 seeking to enjoin the Regional Trial Court of Cavite, the ex-officio sheriff of said court and Sycip, Salazar, et al. from proceeding with foreclosure sale.

Similarly, Pilar Development defaulted in the payment of its loans. The law firm of Sycip, Salazar, et al. filed separate applications with the ex-officio sheriff of the Regional Trial Court of Cavite for the extra-judicial foreclosure of mortgage over its properties.

Hence, Pilar Development filed with the respondent appellate court a petition for prohibition with prayer for the issuance of a writ of preliminary injunction docketed as CA-G.R SP Nos. 08962-64 seeking to enjoin the same respondents from enforcing the foreclosure sale of its properties. CA-G.R. SP Nos. 07892 and 08962-64 were consolidated and jointly decided.

On October 30, 1986, the respondent appellate court rendered a decision dismissing the aforementioned petitions.

Hence, this petition was filed by the petitioners Top Management and Pilar Development alleging that Carlota Valenzuela, who was appointed by the Monetary Board as liquidator of Banco Filipino, has no authority to proceed with the foreclosure sale of petitioners' properties on the ground that the resolution of the issue on the validity of the closure and liquidation of Banco Filipino is still pending with this Court in G.R. 70054.

G.R. No. 78766

Petitioner El Grande Development Corporation (El Grande for brevity) is engaged in the business of developing residential subdivisions. It was extended by respondent Banco Filipino a credit accommodation to finance its housing program. Hence, petitioner was granted a loan in the amount of P8,034,130.00 secured by real estate mortgages on its various estates located in Cavite.

On January 15, 1985, the Monetary Board forbade Banco Filipino to do business, placed it under receivership and designated Deputy Governor Carlota Valenzuela as receiver. On March 22, 1985, the Monetary Board confirmed Banco Filipino's insolvency and designated the receiver Carlota Valenzuela as liquidator.

When petitioner El Grande failed to pay its indebtedness to Banco Filipino, the latter thru its liquidator, Carlota Valenzuela, initiated the foreclosure with the Clerk of Court and Ex-officio sheriff of RTC Cavite. Subsequently, on March 31, 1986, the ex-officio sheriff issued the notice of extra-judicial sale of the mortgaged properties of El Grande scheduled on April 30, 1986.

In order to stop the public auction sale, petitioner El Grande filed a petition for prohibition with the Court of Appeals alleging that respondent Carlota Valenzuela could not proceed with the foreclosure of its mortgaged properties on the ground that this Court in G.R. No. 70054 issued a resolution dated August 29, 1985, which restrained Carlota Valenzuela from acting as liquidator and allowed Banco Filipino to resume banking operations only under a Central Bank comptroller.

On March 2, 1987, the Court of Appeals rendered a decision dismissing the petition.

Hence this petition for review on certiorari was filed alleging that the respondent court erred when it held in its decision that although Carlota P. Valenzuela was restrained by this Honorable Court from exercising acts in liquidation of Banco Filipino Savings & Mortgage Bank, she was not legally precluded from foreclosing the mortgage over the properties of the petitioner through counsel retained by her for the purpose.

G.R. No. 81303Page 19 of 99

On November 8, 1985, petitioner Pilar Development Corporation (Pilar Development for brevity) filed an action against Banco Filipino, the Central Bank and Carlota Valenzuela for specific performance, docketed as Civil Case No. 12191. It appears that the former management of Banco Filipino appointed Quisumbing & Associates as counsel for Banco Filipino. On June 12, 1986 the said law firm filed an answer for Banco Filipino which confessed judgment against Banco Filipino.

On June 17, 1986, petitioner filed a second amended complaint. The Central Bank and Carlota Valenzuela, thru the law firm Sycip, Salazar, Hernandez and Gatmaitan filed an answer to the complaint.

On June 23, 1986, Sycip, et al., acting for all the defendants including Banco Filipino moved that the answer filed by Quisumbing & Associates for defendant Banco Filipino be expunged from the records. Despite opposition from Quisumbing & Associates, the trial court granted the motion to expunge in an order dated March 17, 1987. Petitioner Pilar Development moved to reconsider the order but the motion was denied.

Petitioner Pilar Development filed with the respondent appellate court a petition for certiorari and mandamus to annul the order of the trial court. The Court of Appeals rendered a decision dismissing the petition. A petition was filed with this Court but was denied in a resolution dated March 22, 1988. Hence, this instant motion for reconsideration.

G.R. No. 81304

On July 9, 1985, petitioner BF Homes Incorporated (BF Homes for brevity) filed an action with the trial court to compel the Central Bank to restore petitioner's; financing facility with Banco Filipino.

The Central Bank filed a motion to dismiss the action. Petitioner BF Homes in a supplemental complaint impleaded as defendant Carlota Valenzuela as receiver of Banco Filipino Savings and Mortgage Bank.

On April 8, 1985, petitioner filed a second supplemental complaint to which respondents filed a motion to dismiss.

On July 9, 1985, the trial court granted the motion to dismiss the supplemental complaint on the grounds (1) that plaintiff has no contractual relation with the defendants, and (2) that the Intermediate Appellate Court in a previous decision in AC-G.R. SP. No. 04609 had stated that Banco Filipino has been ordered closed and placed under receivership pending liquidation, and thus, the continuation of the facility sued for by the plaintiff has become legally impossible and the suit has become moot.

The order of dismissal was appealed by the petitioner to the Court of Appeals. On November 4, 1987, the respondent appellate court dismissed the appeal and affirmed the order of the trial court.

Hence, this petition for review on certiorari was filed, alleging that the respondent court erred when it found that the private respondents should not be the ones to respond to the cause of action asserted by the petitioner and the petitioner did not have any cause of action against the respondents Central Bank and Carlota Valenzuela.

G.R. No. 90473

Petitioner El Grande Development Corporation (El Grande for brevity) obtained a loan from Banco Filipino in the amount of P8,034,130.00, secured by a mortgage over its five parcels of land located in Cavite which were covered by Transfer Certificate of Title Nos. T-82187, T-109027, T-132897, T-148377, and T-79371 of the Registry of Deeds of Cavite.

When Banco Filipino was ordered closed and placed under receivership in 1985, the appointed liquidator of BF, thru its counsel Sycip, Salazar, et al. applied with the ex-officio sheriff of the Regional Trial Court of Cavite for the extrajudicial foreclosure of the mortgage constituted over petitioner's properties. On March 24, 1986, the ex-officio sheriff issued a notice of extrajudicial foreclosure sale of the properties of petitioner.

Thus, petitioner filed with the Court of Appeals a petition for prohibition with prayer for writ of preliminary injunction to enjoin the respondents from foreclosing the mortgage and to nullify the notice of foreclosure.

On June 16, 1989, respondent Court of Appeals rendered a decision dismissing the petition.

Not satisfied with the decision, petitioner filed the instant petition for review on certiorari.

G.R. No. 70054

Page 20 of 99

Banco Filipino Savings and Mortgage Bank was authorized to operate as such under M.B. Resolution No. 223 dated February 14, 1963. It commenced operations on July 9, 1964. It has eighty-nine (89) operating branches, forty-six (46) of which are in Manila, with more than three (3) million depositors.

As of July 31, 1984, the list of stockholders showed the major stockholders to be: Metropolis Development Corporation, Apex Mortgage and Loans Corporation, Filipino Business Consultants, Tiu Family Group, LBH Inc. and Anthony Aguirre.

Petitioner Bank had an approved emergency advance of P119.7 million under M.B. Resolution No. 839 dated June 29, 1984. This was augmented with a P3 billion credit line under M.B. Resolution No. 934 dated July 27, 1984.

On the same date, respondent Board issued M.B. Resolution No. 955 placing petitioner bank under conservatorship of Basilio Estanislao. He was later replaced by Gilberto Teodoro as conservator on August 10, 1984. The latter submitted a report dated January 8, 1985 to respondent Board on the conservatorship of petitioner bank, which report shall hereinafter be referred to as the Teodoro report.

Subsequently, another report dated January 23, 1985 was submitted to the Monetary Board by Ramon Tiaoqui, Special Assistant to the Governor and Head, SES Department II of the Central Bank, regarding the major findings of examination on the financial condition of petitioner BF as of July 31, 1984. The report, which shall be referred to herein as the Tiaoqui Report contained the following conclusion and recommendation:

The examination findings as of July 31, 1984, as shown earlier, indicate one of insolvency and illiquidity and further confirms the above conclusion of the Conservator.

All the foregoing provides sufficient justification for forbidding the bank from engaging in banking.

Foregoing considered, the following are recommended:

1. Forbid the Banco Filipino Savings & Mortgage Bank to do business in the Philippines effective the beginning of office January 1985, pursuant to Sec. 29 of R.A No. 265, as amended;

2. Designate the Head of the Conservator Team at the bank, as Receiver of Banco Filipino Savings & Mortgage Bank, to immediately take charge of the assets and liabilities, as expeditiously as possible collect and gather all the assets and administer the same for the benefit of all the creditors, and exercise all the powers necessary for these purposes including but not limited to bringing suits and foreclosing mortgages in the name of the bank.

3. The Board of Directors and the principal officers from Senior Vice Presidents, as listed in the attached Annex "A" be included in the watchlist of the Supervision and Examination Sector until such time that they shall have cleared themselves.

4. Refer to the Central Bank's Legal Department and Office of Special Investigation the report on the findings on Banco Filipino for investigation and possible prosecution of directors, officers, and employees for activities which led to its insolvent position. (pp- 61-62, Rollo)

On January 25, 1985, the Monetary Board issued the assailed MB Resolution No. 75 which ordered the closure of BF and which further provides:

After considering the report dated January 8, 1985 of the Conservator for Banco Filipino Savings and Mortgage Bank that the continuance in business of the bank would involve probable loss to its depositors and creditors, and after discussing and finding to be true the statements of the Special Assistant to the Governor and Head, Supervision and Examination Sector (SES) Department II as recited in his memorandum dated January 23, 1985, that the Banco Filipino Savings & Mortgage Bank is insolvent and that its continuance in business would involve probable loss to its depositors and creditors, and in pursuance of Sec. 29 of RA 265, as amended, the Board decided:

1. To forbid Banco Filipino Savings and Mortgage Bank and all its branches to do business in the Philippines;

Page 21 of 99

2. To designate Mrs. Carlota P. Valenzuela, Deputy Governor as Receiver who is hereby directly vested with jurisdiction and authority to immediately take charge of the bank's assets and liabilities, and 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 bank;

3. To designate Mr. Arnulfo B. Aurellano, Special Assistant to the Governor, and Mr. Ramon V. Tiaoqui, Special Assistant to the Governor and Head, Supervision and Examination Sector Department II, as Deputy Receivers who are likewise hereby directly vested with jurisdiction and authority to do all things necessary or proper to carry out the functions entrusted to them by the Receiver and otherwise to assist the Receiver in carrying out the functions vested in the Receiver by law or Monetary Board Resolutions;

4. To direct and authorize Management to do all other things and carry out all other measures necessary or proper to implement this Resolution and to safeguard the interests of depositors, creditors and the general public; and

5. In consequence of the foregoing, to terminate the conservatorship over Banco Filipino Savings and Mortgage Bank. (pp. 10-11, Rollo, Vol. I)

On February 2, 1985, petitioner BF filed a complaint docketed as Civil Case No. 9675 with the Regional Trial Court of Makati to set aside the action of the Monetary Board placing BF under receivership.

On February 28, 1985, petitioner filed with this Court the instant petition for certiorari and mandamus under Rule 65 of the Rules of Court seeking to annul the resolution of January 25, 1985 as made without or in excess of jurisdiction or with grave abuse of discretion, to order respondents to furnish petitioner with the reports of examination which led to its closure and to afford petitioner BF a hearing prior to any resolution that may be issued under Section 29 of R.A. 265, also known as Central Bank Act.

On March 19, 1985, Carlota Valenzuela, as Receiver and Arnulfo Aurellano and Ramon Tiaoqui as Deputy Receivers of Banco Filipino submitted their report on the receivership of BF to the Monetary Board, in compliance with the mandate of Sec. 29 of R.A. 265 which provides that the Monetary Board shall determine within sixty (60) days from date of receivership of a bank whether such bank may be reorganized/permitted to resume business or ordered to be liquidated. The report contained the following recommendation:

In view of the foregoing and considering that the condition of the banking institution continues to be one of insolvency, i.e., its realizable assets are insufficient to meet all its liabilities and that the bank cannot resume business with safety to its depositors, other creditors and the general public, it is recommended that:

1. Banco Filipino Savings & Mortgage Bank be liquidated pursuant to paragraph 3, Sec. 29 of RA No. 265, as amended;

2. The Legal Department, through the Solicitor General, be authorized to file in the proper court a petition for assistance in th liquidation of the Bank;

3. The Statutory Receiver be designated as the Liquidator of said bank; and

4. Management be instructed to inform the stockholders of Banco Filipino Savings & Mortgage Bank of the Monetary Board's decision liquidate the Bank. (p. 167, Rollo, Vol. I)

On July 23, 1985, petitioner filed a motion before this Court praying that a restraining order or a writ of preliminary injunction be issued to enjoin respondents from causing the dismantling of BF signs in its main office and 89 branches. This Court issued a resolution on August 8, 1985 ordering the issuance of the aforesaid temporary restraining order.

On August 20, 1985, the case was submitted for resolution.

In a resolution dated August 29, 1985, this Court Resolved direct the respondents Monetary Board and Central Bank hold hearings at which the petitioner should be heard, and terminate such hearings and submit its resolution within thirty (30) days. This Court further resolved to issue a temporary restraining order enjoining the respondents from executing further acts of liquidation of a bank. Acts such as receiving collectibles and receivables or paying off creditors' claims and other transactions pertaining to normal operations of a bank were no enjoined. The Central Bank was also ordered to designate comptroller for the

Page 22 of 99

petitioner BF. This Court also ordered th consolidation of Civil Cases Nos. 8108, 9676 and 10183 in Branch 136 of the Regional Trial Court of Makati.

However, on September 12, 1985, this Court in the meantime suspended the hearing it ordered in its resolution of August 29, 1985.

On October 8, 1985, this Court submitted a resolution order ing Branch 136 of the Regional Trial Court of Makati the presided over by Judge Ricardo Francisco to conduct the hear ing contemplated in the resolution of August 29, 1985 in the most expeditious manner and to submit its resolution to this Court.

In the Court's resolution of February 19, 1987, the Court stated that the hearing contemplated in the resolution of August 29, 1985, which is to ascertain whether substantial administrative due process had been observed by the respondent Monetary Board, may be expedited by Judge Manuel Cosico who now presides the court vacated by Judge Ricardo Francisco, who was elevated to the Court of Appeals, there being no legal impediment or justifiable reason to bar the former from conducting such hearing. Hence, this Court directed Judge Manuel Cosico to expedite the hearing and submit his report to this Court.

On February 20, 1988, Judge Manuel Cosico submitted his report to this Court with the recommendation that the resolutions of respondents Monetary Board and Central Bank authorizing the closure and liquidation of petitioner BP be upheld.

On October 21, 1988, petitioner BF filed an urgent motion to reopen hearing to which respondents filed their comment on December 16, 1988. Petitioner filed their reply to respondent's comment of January 11, 1989. After having deliberated on the grounds raised in the pleadings, this Court in its resolution dated August 3, 1989 declared that its intention as expressed in its resolution of August 29, 1985 had not been faithfully adhered to by the herein petitioner and respondents. The aforementioned resolution had ordered a healing on the reports that led respondents to order petitioner's closure and its alleged pre-planned liquidation. This Court noted that during the referral hearing however, a different scheme was followed. Respondents merely submitted to the commissioner their findings on the examinations conducted on petitioner, affidavits of the private respondents relative to the findings, their reports to the Monetary Board and several other documents in support of their position while petitioner had merely submitted objections to the findings of respondents, counter-affidavits of its officers and also documents to prove its claims. Although the records disclose that both parties had not waived cross-examination of their deponents, no such cross-examination has been conducted. The reception of evidence in the form of affidavits was followed throughout, until the commissioner submitted his report and recommendations to the Court. This Court also held that the documents pertinent to the resolution of the instant petition are the Teodoro Report, Tiaoqui Report, Valenzuela, Aurellano and Tiaoqui Report and the supporting documents which were made as the bases by the reporters of their conclusions contained in their respective reports. This Court also Resolved in its resolution to re-open the referral hearing that was terminated after Judge Cosico had submitted his report and recommendation with the end in view of allowing petitioner to complete its presentation of evidence and also for respondents to adduce additional evidence, if so minded, and for both parties to conduct the required cross-examination of witnesses/deponents, to be done within a period of three months. To obviate all doubts on Judge Cosico's impartiality, this Court designated a new hearing commissioner in the person of former Judge Consuelo Santiago of the Regional Trial Court, Makati, Branch 149 (now Associate Justice of the Court of Appeals).

Three motions for intervention were filed in this case as follows: First, in G.R. No. 70054 filed by Eduardo Rodriguez and Fortunate M. Dizon, stockholders of petitioner bank for and on behalf of other stockholders of petitioner; second, in G.R. No. 78894, filed by the same stockholders, and, third, again in G.R. No. 70054 by BF Depositors' Association and others similarly situated. This Court, on March 1, 1990, denied the aforesaid motions for intervention.

On January 28, 1991, the hearing commissioner, Justice Consuelo Santiago of the Court of Appeals submitted her report and recommendation (to be hereinafter called, "Santiago Report") on the following issues stated therein as follows:

l) Had the Monetary Board observed the procedural requirements laid down in Sec. 29 of R.A. 265, as amended to justify th closure of the Banco Filipino Savings and Mortgage Bank?

2) On the date of BF's closure (January 25, 1985) was its condition one of insolvency or would its continuance in business involve probable loss to its depositors or creditors?

The commissioner after evaluation of the evidence presented found and recommended the following:

1. That the TEODORO and TIAOQUI reports did not establish in accordance with See. 29 of the R.A. 265, as amended, BF's insolvency as of July 31, 1984 or that its continuance in business thereafter would involve probable loss to its depositors or creditors. On the contrary, the

Page 23 of 99

evidence indicates that BF was solvent on July 31, 1984 and that on January 25, 1985, the day it was closed, its insolvency was not clearly established;

2. That consequently, BF's closure on January 25, 1985, not having satisfied the requirements prescribed under Sec. 29 of RA 265, as amended, was null and void.

3. That accordingly, by way of correction, BF should be allowed to re-open subject to such laws, rules and regulations that apply to its situation.

Respondents thereafter filed a motion for leave to file objections to the Santiago Report. In the same motion, respondents requested that the report and recommendation be set for oral argument before the Court. On February 7, 1991, this Court denied the request for oral argument of the parties.

On February 25, 1991, respondents filed their objections to the Santiago Report. On March 5, 1991, respondents submitted a motion for oral argument alleging that this Court is confronted with two conflicting reports on the same subject, one upholding on all points the Monetary Board's closure of petitioner, (Cosico Report dated February 19, 1988) and the other (Santiago Report dated January 25, 1991) holding that petitioner's closure was null and void because petitioner's insolvency was not clearly established before its closure; and that such a hearing on oral argrument will therefore allow the parties to directly confront the issues before this Court.

On March 12, 1991 petitioner filed its opposition to the motion for oral argument. On March 20, 1991, it filed its reply to respondents' objections to the Santiago Report.

On June 18, 1991, a hearing was held where both parties were heard on oral argument before this Court. The parties, having submitted their respective memoranda, the case is now submitted for decision.

G.R. No. 78767

On February 2, 1985, Banco Filipino filed a complaint with the trial court docketed as Civil Case No. 9675 to annul the resolution of the Monetary Board dated January 25, 1985, which ordered the closure of the bank and placed it under receivership.

On February 14, 1985, the Central Bank and the receivers filed a motion to dismiss the complaint on the ground that the receivers had not authorized anyone to file the action. In a supplemental motion to dismiss, the Central Bank cited the resolution of this Court dated October 15, 1985 in G.R. No. 65723 entitled, "Central Bank et al. v. Intermediate Appellate Court" whereby We held that a complaint questioning the validity of the receivership established by the Central Bank becomes moot and academic upon the initiation of liquidation proceedings.

While the motion to dismiss was pending resolution, petitioner herein Metropolis Development Corporation (Metropolis for brevity) filed a motion to intervene in the aforestated civil case on the ground that as a stockholder and creditor of Banco Filipino, it has an interest in the subject of the action.

On July 19, 1985, the trial court denied the motion to dismiss and also denied the motion for reconsideration of the order later filed by Central Bank. On June 5, 1985, the trial court allowed the motion for intervention.

Hence, the Central Bank and the receivers of Banco Filipino filed a petition for certiorari with the respondent appellate court alleging that the trial court committed grave abuse of discretion in not dismissing Civil Case No. 9675.

On March 17, 1986, the respondent appellate court rendered a decision annulling and setting aside the questioned orders of the trial court, and ordering the dismissal of the complaint filed by Banco Filipino with the trial court as well as the complaint in intervention of petitioner Metropolis Development Corporation.

Hence this petition was filed by Metropolis Development Corporation questioning the decision of the respondent appellate court.

G.R. No. 78894

On February 2, 1985, a complaint was filed with the trial court in the name of Banco Filipino to annul the resolution o the Monetary Board dated January 25, 1985 which ordered the closure of Banco Filipino and placed it under receivership. The receivers appointed by the Monetary Board were Carlota Valenzuela, Arnulfo Aurellano and Ramon Tiaoqui.

Page 24 of 99

On February 14, 1985, the Central Bank and the receiver filed a motion to dismiss the complaint on the ground that the receiver had not authorized anyone to file the action.

On March 22, 1985, the Monetary Board placed the bank under liquidation and designated Valenzuela as liquidator and Aurellano and Tiaoqui as deputy liquidators.

The Central Bank filed a supplemental motion to dismiss which was denied. Hence, the latter filed a petition forcertiorari with the respondent appellate court to set aside the order of the trial court denying the motion to dismiss. On March 17, 1986, the respondent appellate court granted the petition and dismissed the complaint of Banco Filipino with the trial court.

Thus, this petition for certiorari was filed with the petitioner contending that a bank which has been closed and placed under receivership by the Central Bank under Section 29 of RA 265 could file suit in court in its name to contest such acts of the Central Bank, without the authorization of the CB-appointed receiver.

After deliberating on the pleadings in the following cases:

1. In G.R. No. 68878, the respondent's motion for reconsideration;

2. In G.R. Nos. 77255-58, the petition, comment, reply, rejoinder and sur-rejoinder;

2. In G.R. No. 78766, the petition, comment, reply and rejoinder;

3. In G.R. No. 81303, the petitioner's motion for reconsideration;

4. In G.R.No. 81304, the petition, comment and reply;

5. Finally, in G.R. No. 90473, the petition comment and reply.

We find the motions for reconsideration in G.R. Nos. 68878 and 81303 and the petitions in G.R. Nos. 77255-58, 78766, 81304 and 90473 devoid of merit.

Section 29 of the Republic Act No. 265, as amended known as the Central Bank Act, provides that when a bank is forbidden to do business in the Philippines and placed under receivership, the person designated as receiver shall immediately take charge of the bank's assets and liabilities, as expeditiously as possible, collect and gather all the assets and administer the same for the benefit of its creditors, and represent the bank personally or through counsel as he may retain in all actions or proceedings for or against the institution, exercising all the powers necessary for these purposes including, but not limited to, bringing and foreclosing mortgages in the name of the bank. If the Monetary Board shall later determine and confirm that banking institution is insolvent or cannot resume business safety to depositors, creditors and the general public, it shall, public interest requires, order its liquidation and appoint a liquidator who shall take over and continue the functions of receiver previously appointed by Monetary Board. The liquid for may, in the name of the bank and with the assistance counsel as he may retain, institute such actions as may necessary in the appropriate court to collect and recover a counts and assets of such institution or defend any action ft against the institution.

When the issue on the validity of the closure and receivership of Banco Filipino bank was raised in G.R. No. 70054, pendency of the case did not diminish the powers and authority of the designated liquidator to effectuate and carry on the a ministration of the bank. In fact when We adopted a resolute on August 25, 1985 and issued a restraining order to respondents Monetary Board and Central Bank, We enjoined me further acts of liquidation. Such acts of liquidation, as explained in Sec. 29 of the Central Bank Act are those which constitute the conversion of the assets of the banking institution to money or the sale, assignment or disposition of the s to creditors and other parties for the purpose of paying debts of such institution. We did not prohibit however acts a as receiving collectibles and receivables or paying off credits claims and other transactions pertaining to normal operate of a bank. There is no doubt that the prosecution of suits collection and the foreclosure of mortgages against debtors the bank by the liquidator are among the usual and ordinary transactions pertaining to the administration of a bank. their did Our order in the same resolution dated August 25, 1985 for the designation by the Central Bank of a comptroller Banco Filipino alter the powers and functions; of the liquid insofar as the management of the assets of the bank is concerned. The mere duty of the comptroller is to supervise counts and finances undertaken by the liquidator and to d mine the propriety of the latter's expenditures incurred behalf of the bank. Notwithstanding this, the liquidator is empowered under the law to continue the functions of receiver is preserving and keeping intact the assets of the bank in substitution of its former management, and to prevent the dissipation of its assets to the detriment of the creditors of the bank. These powers and functions of the liquidator in directing the operations of the bank in place of the former management or former officials of the bank include the retaining of counsel of his choice in actions and proceedings for purposes of administration.

Page 25 of 99

Clearly, in G.R. Nos. 68878, 77255-58, 78766 and 90473, the liquidator by himself or through counsel has the authority to bring actions for foreclosure of mortgages executed by debtors in favor of the bank. In G.R. No. 81303, the liquidator is likewise authorized to resist or defend suits instituted against the bank by debtors and creditors of the bank and by other private persons. Similarly, in G.R. No. 81304, due to the aforestated reasons, the Central Bank cannot be compelled to fulfill financial transactions entered into by Banco Filipino when the operations of the latter were suspended by reason of its closure. The Central Bank possesses those powers and functions only as provided for in Sec. 29 of the Central Bank Act.

While We recognize the actual closure of Banco Filipino and the consequent legal effects thereof on its operations, We cannot uphold the legality of its closure and thus, find the petitions in G.R. Nos. 70054, 78767 and 78894 impressed with merit. We hold that the closure and receivership of petitioner bank, which was ordered by respondent Monetary Board on January 25, 1985, is null and void.

It is a well-recognized principle that administrative and discretionary functions may not be interfered with by the courts. In general, courts have no supervising power over the proceedings and actions of the administrative departments of the government. This is generally true with respect to acts involving the exercise of judgment or discretion, and findings of fact. But when there is a grave abuse of discretion which is equivalent to a capricious and whimsical exercise of judgment or where the power is exercised in an arbitrary or despotic manner, then there is a justification for the courts to set aside the administrative determination reached (Lim, Sr. v. Secretary of Agriculture and Natural Resources, L-26990, August 31, 1970, 34 SCRA 751)

The jurisdiction of this Court is called upon, once again, through these petitions, to undertake the delicate task of ascertaining whether or not an administrative agency of the government, like the Central Bank of the Philippines and the Monetary Board, has committed grave abuse of discretion or has acted without or in excess of jurisdiction in issuing the assailed order. Coupled with this task is the duty of this Court not only to strike down acts which violate constitutional protections or to nullify administrative decisions contrary to legal mandates but also to prevent acts in excess of authority or jurisdiction, as well as to correct manifest abuses of discretion committed by the officer or tribunal involved.

The law applicable in the determination of these issues is Section 29 of Republic Act No. 265, as amended, also known as the Central Bank Act, which provides:

SEC. 29. Proceedings upon insolvency. — Whenever, upon examination by the head of the appropriate supervising or examining department or his examiners or agents into the condition of any bank or non-bank financial intermediary performing quasi-banking functions, it shall be disclosed that the condition of the same is one of insolvency, or that its continuance in business would involve probable loss to its depositors or creditors, it shall be the duty of the department head concerned forthwith, in writing, to inform the Monetary Board of the facts. The Board may, upon finding the statements of the department head to be true, forbid the institution to do business in the Philippines and designate an official of the Central Bank or a person of recognized competence in banking or finance, as receiver to immediately take charge of its assets and liabilities, as expeditiously as possible collect and gather all the assets and administer the same for the benefit's of its creditors, and represent the bank personally or through counsel as he may retain in all actions or proceedings for or against the institution, exercising all the powers necessary for these purposes including, but not limited to, bringing and foreclosing mortgages in the name of the bank or non-bank financial intermediary performing quasi-banking functions.

The Monetary Board shall thereupon determine within sixty 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 depositors and creditors and the general public and shall prescribe the conditions under which such resumption of business shall take place as well 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 institution.

If the Monetary Board shall determine and confirm within the said period that the bank or non-bank financial intermediary performing quasi-banking functions 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 which may, when warranted, involve disposition of any or all assets in consideration for the assumption of equivalent liabilities. The liquidator designated as hereunder provided shall, by the Solicitor General, file a petition in the regional trial court reciting the proceedings which have been taken and praying the assistance of the court in the liquidation of such institutions. The court shall have jurisdiction in the same proceedings to assist in the adjudication of the disputed claims against the bank or non-bank financial intermediary performing quasi-banking functions and in the enforcement of individual liabilities of the stockholders and do all that is necessary to preserve the assets of such institutions and to implement the liquidation plan approved by the Monetary Board. The Monetary Board shall designate an

Page 26 of 99

official of the Central bank or a person of recognized competence in banking or finance, as liquidator who shall take over and continue 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 institutions or non-bank financial intermediary performing quasi-banking function 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 institution and he may, in the name of the bank or non-bank financial intermediary performing quasi-banking functions and with the assistance of counsel as he may retain, institute such actions as may be necessary in the appropriate court to collect and recover accounts and assets of such institution or defend any action filed against the institution: Provided, However, That after having reasonably established all claims against the institution, the liquidator may, with the approval of the court, effect partial payments of such claims for assets of the institution in accordance with their legal priority.

The assets of an institution under receivership or liquidation shall be deemed in custodia legis in the hands of the receiver or liquidator and shall from the moment of such receivership or liquidation, be exempt from any order of garnishment, levy, attachment, orexecution.

The provisions of any law to the contrary notwithstanding, the actions of the Monetary Board under this Section, Section 28-A, an the second paragraph of Section 34 of this Act shall be final an executory, and can be set aside by a court only if there is convince proof, after hearing, that the action is plainly arbitrary and made in bad faith: Provided, That the same is raised in an appropriate pleading filed by the stockholders of record representing the majority of th capital stock within ten (10) days from the date the receiver take charge of the assets and liabilities of the bank or non-bank financial intermediary performing quasi-banking functions or, in case of conservatorship or liquidation, within ten (10) days from receipt of notice by the said majority stockholders of said bank or non-bank financial intermediary of the order of its placement under conservatorship o liquidation. No restraining order or injunction shall be issued by an court enjoining the Central Bank from implementing its actions under this Section and the second paragraph of Section 34 of this Act in th absence of any convincing proof that the action of the Monetary Board is plainly arbitrary and made in bad faith and the petitioner or plaintiff files a bond, executed in favor of the Central Bank, in an amount 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 th 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 provision of this Section shall govern the issuance and dissolution of the re straining order or injunction contemplated in this Section.

xxx xxx xxx

Based on the aforequoted provision, the Monetary Board may order the cessation of operations of a bank in the Philippine and place it under receivership upon a finding of insolvency or when its continuance in business would involve probable loss its depositors or creditors. If the Monetary Board shall determine and confirm within sixty (60) days that the bank is insolvent or can no longer resume business with safety to its depositors, creditors and the general public, it shall, if public interest will be served, order its liquidation.

Specifically, the basic question to be resolved in G.R. Nos. 70054, 78767 and 78894 is whether or not the Central Bank and the Monetary Board acted arbitrarily and in bad faith in finding and thereafter concluding that petitioner bank is insolvent, and in ordering its closure on January 25, 1985.

As We have stated in Our resolution dated August 3, 1989, the documents pertinent to the resolution of these petitions are the Teodoro Report, Tiaoqui Report, and the Valenzuela, Aurellano and Tiaoqui Report and the supporting documents made as bases by the supporters of their conclusions contained in their respective reports. We will focus Our study and discussion however on the Tiaoqui Report and the Valenzuela, Aurellano and Tiaoqui Report. The former recommended the closure and receivership of petitioner bank while the latter report made the recommendation to eventually place the petitioner bank under liquidation. This Court shall likewise take into consideration the findings contained in the reports of the two commissioners who were appointed by this Court to hold the referral hearings, namely the report by Judge Manuel Cosico submitted February 20, 1988 and the report submitted by Justice Consuelo Santiago on January 28, 1991.

There is no question that under Section 29 of the Central Bank Act, the following are the mandatory requirements to be complied with before a bank found to be insolvent is ordered closed and forbidden to do business in the Philippines: Firstly, an examination shall be conducted by the head of the appropriate supervising or examining department or his examiners or agents into the condition of the bank; secondly, it shall be disclosed in the examination that the condition of the bank is one of insolvency, or that its continuance in business would involve probable loss to its depositors or creditors; thirdly, the department

Page 27 of 99

head concerned shall inform the Monetary Board in writing, of the facts; and lastly, the Monetary Board shall find the statements of the department head to be true.

Anent the first requirement, the Tiaoqui report, submitted on January 23, 1985, revealed that the finding of insolvency of petitioner was based on the partial list of exceptions and findings on the regular examination of the bank as of July 31, 1984 conducted by the Supervision and Examination Sector II of the Central Bank of the PhilippinesCentral Bank (p. 1, Tiaoqui Report).

On December 17, 1984, this list of exceptions and finding was submitted to the petitioner bank (p. 6, Tiaoqui Report) This was attached to the letter dated December 17, 1984, of examiner-in-charge Dionisio Domingo of SES Department II of the Central Bank to Teodoro Arcenas, president of petitione bank, which disclosed that the examination of the petitioner bank as to its financial condition as of July 31, 1984 was not yet completed or finished on December 17, 1984 when the Central Bank submitted the partial list of findings of examination to th petitioner bank. The letter reads:

In connection with the regular examination of your institution a of July 31, 1984, we are submitting herewith a partial list of our exceptions/findings for your comments.

Please be informed that we have not yet officially terminated our examination (tentatively scheduled last December 7, 1984) and that we are still awaiting for the unsubmitted replies to our previous letters requests. Moreover, other findings/ observations are still being summarized including the classification of loans and other risk assets. These shall be submitted to you in due time (p. 810, Rollo, Vol. III; emphasis ours).

It is worthy to note that a conference was held on January 21, 1985 at the Central Bank between the officials of the latter an of petitioner bank. What transpired and what was agreed upon during the conference was explained in the Tiaoqui report.

... The discussion centered on the substantial exposure of the bank to the various entities which would have a relationship with the bank; the manner by which some bank funds were made indirectly available to several entities within the group; and the unhealth financial status of these firms in which the bank was additionally exposed through new funds or refinancing accommodation including accrued interest.

Queried in the impact of these clean loans, on the bank solvency Mr. Dizon (BF Executive Vice President) intimated that, collectively these corporations have large undeveloped real estate properties in the suburbs which can be made answerable for the unsecured loans a well as the Central Bank's credit accommodations. A formal reply of the bank would still be forthcoming. (pp. 58-59, Rollo, Vol. I; emphasis ours)

Clearly, Tiaoqui based his report on an incomplete examination of petitioner bank and outrightly concluded therein that the latter's financial status was one of insolvency or illiquidity. He arrived at the said conclusion from the following facts: that as of July 31, 1984, total capital accounts consisting of paid-in capital and other capital accounts such as surplus, surplus reserves and undivided profits aggregated P351.8 million; that capital adjustments, however, wiped out the capital accounts and placed the bank with a capital deficiency amounting to P334.956 million; that the biggest adjustment which contributed to the deficit is the provision for estimated losses on accounts classified as doubtful and loss which was computed at P600.4 million pursuant to the examination. This provision is also known as valuation reserves which was set up or deducted against the capital accounts of the bank in arriving at the latter's financial condition.

Tiaoqui however admits the insufficiency and unreliability of the findings of the examiner as to the setting up of recommended valuation reserves from the assets of petitioner bank. He stated:

The recommended valuation reserves as bases for determining the financial status of the bank would need to be discussed with the bank, consistent with standard examination procedure, for which the bank would in turn reply. Also, the examination has not been officially terminated. (p. 7. Tiaoqui report; p. 59, Rollo, Vol. I)

In his testimony in the second referral hearing before Justice Santiago, Tiaoqui testified that on January 21, 1985, he met with officers of petitioner bank to discuss the advanced findings and exceptions made by Mr. Dionisio Domingo which covered 70%-80% of the bank's loan portfolio; that at that meeting, Fortunato Dizon (BF's Executive Vice President) said that as regards the unsecured loans granted to various corporations, said corporations had large undeveloped real estate properties which could be answerable for the said unsecured loans and that a reply from BF was forthcoming, that he (Tiaoqui) however prepared his report despite the absence of such reply; that he believed, as in fact it is stated in his report, that despite the meeting on January 21, 1985, there was still a need to discuss the recommended valuation reserves of petitioner bank and; that he however, did not wait anymore for a discussion of the recommended valuation reserves and instead prepared his report two days after January 21, 1985 (pp. 3313-3314, Rollo).

Page 28 of 99

Records further show that the examination of petitioner bank was officially terminated only when Central Bank Examination-charge Dionisio Domingo submitted his final report of examination on March 4,1985.

It is evident from the foregoing circumstances that the examination contemplated in Sec. 29 of the CB Act as a mandatory requirement was not completely and fully complied with. Despite the existence of the partial list of findings in the examination of the bank, there were still highly significant items to be weighed and determined such as the matter of valuation reserves, before these can be considered in the financial condition of the bank. It would be a drastic move to conclude prematurely that a bank is insolvent if the basis for such conclusion is lacking and insufficient, especially if doubt exists as to whether such bases or findings faithfully represent the real financial status of the bank.

The actuation of the Monetary Board in closing petitioner bank on January 25, 1985 barely four days after a conference with the latter on the examiners' partial findings on its financial position is also violative of what was provided in the CB Manual of Examination Procedures. Said manual provides that only after the examination is concluded, should a pre-closing conference led by the examiner-in-charge be held with the officers/representatives of the institution on the findings/exception, and a copy of the summary of the findings/violations should be furnished the institution examined so that corrective action may be taken by them as soon as possible (Manual of Examination Procedures, General Instruction, p. 14). It is hard to understand how a period of four days after the conference could be a reasonable opportunity for a bank to undertake a responsive and corrective action on the partial list of findings of the examiner-in-charge.

We recognize the fact that it is the responsibility of the Central Bank of the Philippines to administer the monetary, banking and credit system of the country and that its powers and functions shall be exercised by the Monetary Board pursuant to Rep. Act No. 265, known as the Central Bank Act. Consequently, the power and authority of the Monetary Board to close banks and liquidate them thereafter when public interest so requires is an exercise of the police power of the state. Police power, however, may not be done arbitratrily or unreasonably and could be set aside if it is either capricious, discriminatory, whimsical, arbitrary, unjust or is tantamount to a denial of due process and equal protection clauses of the Constitution (Central Bank v. Court of Appeals, Nos. L-50031-32, July 27, 1981, 106 SCRA 143).

In the instant case, the basic standards of substantial due process were not observed. Time and again, We have held in several cases, that the procedure of administrative tribunals must satisfy the fundamentals of fair play and that their judgment should express a well-supported conclusion.

In the celebrated case of Ang Tibay v. Court of Industrial Relations, 69 Phil. 635, this Court laid down several cardinal primary rights which must be respected in a proceeding before an administrative body.

However, as to the requirement of notice and hearing, Sec. 29 of RA 265 does not require a previous hearing before the Monetary Board implements the closure of a bank, since its action is subject to judicial scrutiny as provided for under the same law (Rural Bank of Bato v. IAC, G.R. No. 65642, October 15, 1984, Rural Bank v. Court of Appeals, G.R. 61689, June 20, 1988,162 SCRA 288).

Notwithstanding the foregoing, administrative due process does not mean that the other important principles may be dispensed with, namely: the decision of the administrative body must have something to support itself and the evidence must be substantial. Substantial evidence is more than a mere scintilla. It means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion (Ang Tibay vs. CIR, supra). Hence, where the decision is merely based upon pieces of documentary evidence that are not sufficiently substantial and probative for the purpose and conclusion they are presented, the standard of fairness mandated in the due process clause is not met. In the case at bar, the conclusion arrived at by the respondent Board that the petitioner bank is in an illiquid financial position on January 23, 1985, as to justify its closure on January 25, 1985 cannot be given weight and finality as the report itself admits the inadequacy of its basis to support its conclusion.

The second requirement provided in Section 29, R.A. 265 before a bank may be closed is that the examination should disclose that the condition of the bank is one of insolvency.

As to the concept of whether the bank is solvent or not, the respondents contend that under the Central Bank Manual of Examination Procedures, Central Bank examiners must recommend valuation reserves, when warranted, to be set up or deducted against the corresponding asset account to determine the bank's true condition or net worth. In the case of loan accounts, to which practically all the questioned valuation reserves refer, the manual provides that:

1. For doubtful loans, or loans the ultimate collection of which is doubtful and in which a substantial loss is probable but not yet definitely ascertainable as to extent, valuation reserves of fifty per cent (50%) of the accounts should be recommended to be set up.

Page 29 of 99

2. For loans classified as loss, or loans regarded by the examiner as absolutely uncollectible or worthless, valuation reserves of one hundred percent (100%) of the accounts should be recommended to be set up (p. 8, Objections to Santiago report).

The foregoing criteria used by respondents in determining the financial condition of the bank is based on Section 5 of RA 337, known as the General Banking Act which states:

Sec. 5. The following terms shall be held to be synonymous and interchangeable:

... f. Unimpaired Capital and Surplus, "Combined capital accounts," and "Net worth," which terms shall mean for the purposes of this Act, the total of the "unimpaired paid-in capital, surplus, and undivided profits net of such valuation reserves as may be required by the Central Bank."

There is no doubt that the Central Bank Act vests authority upon the Central Bank and Monetary Board to take charge and administer the monetary and banking system of the country and this authority includes the power to examine and determine the financial condition of banks for purposes provided for by law, such as for the purpose of closure on the ground of insolvency stated in Section 29 of the Central Bank Act. But express grants of power to public officers should be subjected to a strict interpretation, and will be construed as conferring those powers which are expressly imposed or necessarily implied (Floyd Mechem, Treatise on the Law of Public Offices and Officers, p. 335).

In this case, there can be no clearer explanation of the concept of insolvency than what the law itself states. Sec. 29 of the Central Bank Act provides that insolvency under the Act, shall be understood to mean that "the realizable assets of a bank or a non-bank financial intermediary performing quasi-banking functions as determined by the Central Bank are insufficient to meet its liabilities."

Hence, the contention of the Central Bank that a bank's true financial condition is synonymous with the terms "unimpaired capital and surplus," "combined capital accounts" and net worth after deducting valuation reserves from the capital, surplus and unretained earnings, citing Sec. 5 of RA 337 is misplaced.

Firstly, it is clear from the law that a solvent bank is one in which its assets exceed its liabilities. It is a basic accounting principle that assets are composed of liabilities and capital. The term "assets" includes capital and surplus" (Exley v. Harris, 267 p. 970, 973, 126 Kan., 302). On the other hand, the term "capital" includes common and preferred stock, surplus reserves, surplus and undivided profits. (Manual of Examination Procedures, Report of Examination on Department of Commercial and Savings Banks, p. 3-C). If valuation reserves would be deducted from these items, the result would merely be the networth or the unimpaired capital and surplus of the bank applying Sec. 5 of RA 337 but not the total financial condition of the bank.

Secondly, the statement of assets and liabilities is used in balance sheets. Banks use statements of condition to reflect the amounts, nature and changes in the assets and liabilities. The Central Bank Manual of Examination Procedures provides a format or checklist of a statement of condition to be used by examiners as guide in the examination of banks. The format enumerates the items which will compose the assets and liabilities of a bank. Assets include cash and those due from banks, loans, discounts and advances, fixed assets and other property owned or acquired and other miscellaneous assets. The amount of loans, discounts and advances to be stated in the statement of condition as provided for in the manual is computed after deducting valuation reserves when deemed necessary. On the other hand, liabilities are composed of demand deposits, time and savings deposits, cashier's, manager's and certified checks, borrowings, due to head office, branches; and agencies, other liabilities and deferred credits (Manual of Examination Procedure, p. 9). The amounts stated in the balance sheets or statements of condition including the computation of valuation reserves when justified, are based however, on the assumption that the bank or company will continue in business indefinitely, and therefore, the networth shown in the statement is in no sense an indication of the amount that might be realized if the bank or company were to be liquidated immediately (Prentice Hall Encyclopedic Dictionary of Business Finance, p. 48). Further, based on respondents' submissions, the allowance for probable losses on loans and discounts represents the amount set up against current operations to provide for possible losses arising from non-collection of loans and advances, and this account is also referred to as valuation reserve (p. 9, Objections to Santiago report). Clearly, the statement of condition which contains a provision for recommended valuation reserves should not be used as the ultimate basis to determine the solvency of an institution for the purpose of termination of its operations.

Respondents acknowledge that under the said CB manual, CB examiners must recommend valuation reserves,when warranted, to be set up against the corresponding asset account (p. 8, Objections to Santiago report). Tiaoqui himself, as author of the report recommending the closure of petitioner bank admits that the valuation reserves should still be discussed with the petitioner bank in compliance with standard examination procedure. Hence, for the Monetary Board to unilaterally deduct an uncertain amount as valuation reserves from the assets of a bank and to conclude therefrom without sufficient basis that the bank is insolvent, would be totally unjust and unfair.

Page 30 of 99

The test of insolvency laid down in Section 29 of the Central Bank Act is measured by determining whether the realizable assets of a bank are leas than its liabilities. Hence, a bank is solvent if the fair cash value of all its assets, realizable within a reasonable time by a reasonable prudent person, would equal or exceed its total liabilities exclusive of stock liability; but if such fair cash value so realizable is not sufficient to pay such liabilities within a reasonable time, the bank is insolvent. (Gillian v. State, 194 N.E. 360, 363, 207 Ind. 661). Stated in other words, the insolvency of a bank occurs when the actual cash market value of its assets is insufficient to pay its liabilities, not considering capital stock and surplus which are not liabilities for such purpose (Exley v. Harris, 267 p. 970, 973,126 Kan. 302; Alexander v. Llewellyn, Mo. App., 70 S.W. 2n 115,117).

In arriving at the computation of realizable assets of petitioner bank, respondents used its books which undoubtedly are not reflective of the actual cash or fair market value of its assets. This is not the proper procedure contemplated in Sec. 29 of the Central Bank Act. Even the CB Manual of Examination Procedures does not confine examination of a bank solely with the determination of the books of the bank. The latter is part of auditing which should not be confused with examination. Examination appraises the soundness of the institution's assets, the quality and character of management and determines the institution's compliance with laws, rules and regulations. Audit is a detailed inspection of the institution's books, accounts, vouchers, ledgers, etc. to determine the recording of all assets and liabilities. Hence, examination concerns itself with review and appraisal, while audit concerns itself with verification (CB Manual of Examination Procedures, General Instructions, p. 5). This Court however, is not in the position to determine how much cash or market value shall be assigned to each of the assets and liabilities of the bank to determine their total realizable value. The proper determination of these matters by using the actual cash value criteria belongs to the field of fact-finding expertise of the Central Bank and the Monetary Board. Notwithstanding the fact that the figures arrived at by the respondent Board as to assets and liabilities do not truly indicate their realizable value as they were merely based on book value, We will however, take a look at the figures presented by the Tiaoqui Report in concluding insolvency as of July 31, 1984 and at the figures presented by the CB authorized deputy receiver and by the Valenzuela, Aurellano and Tiaoqui Report which recommended the liquidation of the bank by reason of insolvency as o January 25,1985.

The Tiaoqui report dated January 23, 1985, which was based on partial examination findings on the bank's condition as of July 31, 1984, states that total liabilities of P5,282.1 million exceeds total assets of P4,947.2 million after deducting from the assets valuation reserves of P612.2 million. Since, as We have explained in our previous discussion that valuation reserves can not be legally deducted as there was no truthful and complete evaluation thereof as admitted by the Tiaoqui report itself, then an adjustment of the figures win show that the liabilities of P5,282.1 million will not exceed the total assets which will amount to P5,559.4 if the 612.2 million allotted to valuation reserves will not be deducted from the assets. There can be no basis therefore for both the conclusion of insolvency and for the decision of the respondent Board to close petitioner bank and place it under receivership.

Concerning the financial position of the bank as of January 25, 1985, the date of the closure of the bank, the consolidated statement of condition thereof as of the aforesaid date shown in the Valenzuela, Aurellano and Tiaoqui report on the receivership of petitioner bank, dated March 19, 1985, indicates that total liabilities of 4,540.84 million does not exceed the total assets of 4,981.53 million. Likewise, the consolidated statement of condition of petitioner bank as of January 25, 1985 prepared by the Central Bank Authorized Deputy Receiver Artemio Cruz shows that total assets amounting to P4,981,522,996.22 even exceeds total liabilities amounting to P4,540,836,834.15. Based on the foregoing, there was no valid reason for the Valenzuela, Aurellano and Tiaoqui report to finally recommend the liquidation of petitioner bank instead of its rehabilitation.

We take note of the exhaustive study and findings of the Cosico report on the petitioner bank's having engaged in unsafe, unsound and fraudulent banking practices by the granting of huge unsecured loans to several subsidiaries and related companies. We do not see, however, that this has any material bearing on the validity of the closure. Section 34 of the RA 265, Central Bank Act empowers the Monetary Board to take action under Section 29 of the Central Bank Act when a bank "persists in carrying on its business in an unlawful or unsafe manner." There was no showing whatsoever that the bank had persisted in committing unlawful banking practices and that the respondent Board had attempted to take effective action on the bank's alleged activities. During the period from July 27, 1984 up to January 25, 1985, when petitioner bank was under conservatorship no official of the bank was ever prosecuted, suspended or removed for any participation in unsafe and unsound banking practices, and neither was the entire management of the bank replaced or substituted. In fact, in her testimony during the second referral hearing, Carlota Valenzuela, CB Deputy Governor, testified that the reason for petitioner bank's closure was not unsound, unsafe and fraudulent banking practices but the alleged insolvency position of the bank (TSN, August 3, 1990, p. 3316, Rollo, Vol. VIII).

Finally, another circumstance which point to the solvency of petitioner bank is the granting by the Monetary Board in favor of the former a credit line in the amount of P3 billion along with the placing of petitioner bank under conservatorship by virtue of M.B. Resolution No. 955 dated July 27, 1984. This paved the way for the reopening of the bank on August 1, 1984 after a self-imposed bank holiday on July 23, 1984.

On emergency loans and advances, Section 90 of RA 265 provides two types of emergency loans that can be granted by the Central Bank to a financially distressed bank:

Page 31 of 99

Sec. 90. ... In periods of emergency or of 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 by 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 the prior authorization of the Monetary Board.

The Central Bank may, at its discretion, likewise grant advances to banking institutions, even during normal periods, for the purpose of assisting a bank in a precarious financial condition or under serious financial pressures brought about by unforeseen events, or events which, though foreseeable, could not be prevented by the bank concerned. Provided, however, That the Monetary Board has ascertained that the bank is not insolvent and has clearly realizable assets to secure the advances. Provided, further, That a concurrent vote of at least five members of the Monetary Board is obtained. (Emphasis ours)

The first paragraph of the aforequoted provision contemplates a situation where the whole banking community is confronted with financial and economic crisis giving rise to serious and widespread confusion among the public, which may eventually threaten and gravely prejudice the stability of the banking system. Here, the emergency or financial confusion involves the whole banking community and not one bank or institution only. The second situation on the other hand, provides for a situation where the Central Bank grants a loan to a bank with uncertain financial condition but not insolvent.

As alleged by the respondents, the following are the reasons of the Central Bank in approving the resolution granting the P3 billion loan to petitioner bank and the latter's reopening after a brief self-imposed banking holiday:

WHEREAS, the closure by Banco Filipino Savings and Mortgage Bank of its Banking offices on its own initiative has worked serious hardships on its depositors and has affected confidence levels in the banking system resulting in a feeling of apprehension among depositors and unnecessary deposit withdrawals;

WHEREAS, the Central Bank is charged with the function of administering the banking system;

WHEREAS, the reopening of Banco Filipino would require additional credit resources from the Central Bank as well as an independent management acceptable to the Central Bank;

WHEREAS, it is the desire of the Central Bank to rapidly diffuse the uncertainty that presently exists;

... (M.B. Min. No. 35 dated July 27, 1984 cited in Respondents' Objections to Santiago Report, p. 26; p. 3387, Rollo, Vol. IX; Emphasis ours).

A perusal of the foregoing "Whereas" clauses unmistakably show that the clear reason for the decision to grant the emergency loan to petitioner bank was that the latter was suffering from financial distress and severe bank "run" as a result of which it closed on July 23, 1984 and that the release of the said amount is in accordance with the Central Bank's full support to meet Banco Filipino's depositors' withdrawal requirements (Excerpts of minutes of meeting on MB Min. No. 35, p. 25, Rollo, Vol. IX). Nothing therein shows that an extraordinary emergency situation exists affecting most banks, not only as regards petitioner bank. This Court thereby finds that the grant of the said emergency loan was intended from the beginning to fall under the second paragraph of Section 90 of the Central Bank Act, which could not have occurred if the petitioner bank was not solvent. Where notwithstanding knowledge of the irregularities and unsafe banking practices allegedly committed by the petitioner bank, the Central Bank even granted financial support to the latter and placed it under conservatorship, such actuation means that petitioner bank could still be saved from its financial distress by adequate aid and management reform, which was required by Central Bank's duty to maintain the stability of the banking system and the preservation of public confidence in it (Ramos v. Central Bank, No. L-29352, October 4, 1971, 41 SCRA 565).

In view of the foregoing premises, We believe that the closure of the petitioner bank was arbitrary and committed with grave abuse of discretion. Granting in gratia argumenti that the closure was based on justified grounds to protect the public, the fact that petitioner bank was suffering from serious financial problems should not automatically lead to its liquidation. Section 29 of the Central Bank provides that a closed bank may be reorganized or otherwise placed in such a condition that it may be permitted to resume business with safety to its depositors, creditors and the general public.

We are aware of the Central Bank's concern for the safety of Banco Filipino's depositors as well as its creditors including itself which had granted substantial financial assistance up to the time of the latter's closure. But there are alternatives to permanent closure and liquidation to safeguard those interests as well as those of the general public for the failure of Banco Filipino or any bank for that matter may be viewed as an irreversible decline of the country's entire banking system and ultimately, it may reflect on the Central Bank's own viability. For one thing, the Central Bank and the Monetary Board should exercise strict supervision

Page 32 of 99

over Banco Filipino. They should take all the necessary steps not violative of the laws that will fully secure the repayment of the total financial assistance that the Central Bank had already granted or would grant in the future.

ACCORDINGLY, decision is hereby rendered as follows:

1. The motion for reconsideration in G.R. Nos. 68878 and 81303, and the petitions in G.R. Nos. 77255-58, 78766, 81304 and 90473 are DENIED;

2. The petitions in G.R. No. 70054, 78767 and 78894 are GRANTED and the assailed order of the Central Bank and the Monetary Board dated January 25, 1985 is hereby ANNULLED AND SET ASIDE. The Central Bank and the Monetary Board are ordered to reorganize petitioner Banco Filipino Savings and Mortgage Bank and allow the latter to resume business in the Philippines under the comptrollership of both the Central Bank and the Monetary Board and under such conditions as may be prescribed by the latter in connection with its reorganization until such time that petitioner bank can continue in business with safety to its creditors, depositors and the general public.

SO ORDERED.

Narvasa, C.J., Gutierrez, Jr., Cruz, Bidin and Regalado, JJ., concur.

Paras, Feliciano, Padilla, Davide, Jr. and Nocon, JJ., took no part.

Page 33 of 99

Page 34 of 99

EN BANC

G.R. No. L-20119             June 30, 1967

CENTRAL BANK OF THE PHILIPPINES, petitioner, vs.THE HONORABLE JUDGE JESUS P. MORFE and FIRST MUTUAL SAVING AND LOAN ORGANIZATION, INC.,respondents.

Natalio M. Balboa, F. E. Evangelista and Mariano Abaya for petitioner.Halili, Bolinao, Bolinao and Associates for respondents.

CONCEPCION, C.J.:

This is an original action for certiorari, prohibition and injunction, with preliminary injunction, against an order of the Court of First Instance of Manila, the dispositive part of which reads:

WHEREFORE, upon the petitioner filing an injunction bond in the amount of P3,000.00, let a writ of preliminary preventive and/or mandatory injunction issue, restraining the respondents, their agents or representatives, from further searching the premises and properties and from taking custody of the various documents and papers of the petitioner corporation, whether in its main office or in any of its branches; and ordering the respondent Central Bank and/or its co-respondents to return to the petitioner within five (5) days from service on respondents of the writ of preventive and/or mandatory injunction, all the books, documents, and papers so far seized from the petitioner pursuant to the aforesaid search warrant.1äwphï1.ñët

Upon the filing of the petition herein and of the requisite bond, we issued, on August 14, 1962, a writ of preliminary injunction restraining and prohibiting respondents herein from enforcing the order above quoted.

The main respondent in this case, the First Mutual Savings and Loan Organization, Inc. — hereinafter referred to as the Organization — is a registered non-stock corporation, the main purpose of which, according to its Articles of Incorporation, dated February 14, 1961, is "to encourage . . . and implement savings and thrift among its members, and to extend financial assistance in the form of loans," to them. The Organization has three (3) classes of "members,"1 namely: (a) founder members — who originally joined the organization and have signed the pre-incorporation papers — with the exclusive right to vote and be voted for ; (b) participating members — with "noright to vote or be voted for" — to which category all other members belong; except (c) honorary members, so made by the board of trustees, — "at the exclusive discretion" thereof — due to "assistance, honor, prestige or help extended in the propagation" of the objectives of the Organization — without any pecuniary expenses on the part of said honorary members.

On February 14, 1962, the legal department of the Central Bank of the Philippines — hereinafter referred to as the Bank — rendered an opinion to the effect that the Organization and others of similar nature are banking institutions, falling within the purview of the Central Bank Act.2 Hence, on April 1 and 3, 1963, the Bank caused to be published in the newspapers the following:

A N N O U N C E M E N T

To correct any wrong impression which recent newspaper reports on "savings and loan associations" may have created in the minds of the public and other interested parties, as well as to answer numerous inquiries from the public, the Central Bank of the Philippines wishes to announce that all "savings and loan associations" now in operation and other organizations using different corporate names, but engaged in operations similar in nature to said "associations" HAVE NEVER BEEN AUTHORIZED BY THE MONETARY BOARD OF THE CENTRAL BANK OF THE PHILIPPINES TO ACCEPT DEPOSIT OF FUNDS FROM THE PUBLIC NOR TO ENGAGE IN THE BANKING BUSINESS NOR TO PERFORM ANY BANKING ACTIVITY OR FUNCTION IN THE PHILIPPINES.

Such institutions violate Section. 2 of the General Banking Act, Republic Act No. 337, should they engage in the "lending of funds obtained from the public through the receipts of deposits or the sale of bonds, securities or obligations of any kind" without authority from the Monetary Board. Their activities and operations are not supervised by the Superintendent of Banks and persons dealing with such institutions do so at their risk.

CENTRAL BANK OF THE PHILIPPINES

Page 35 of 99

Moreover, on April 23, 1962, the Governor of the Bank directed the coordination of "the investigation and gathering of evidence on the activities of the savings and loan associations which are operating contrary to law." Soon thereafter, or on May 18, 1962, a member of the intelligence division of the Bank filed with the Municipal Court of Manila a verified application for a search warrant against the Organization, alleging that "after close observation and personal investigation, the premises at No. 2745 Rizal Avenue, Manila" — in which the offices of the Organization were housed — "are being used unlawfully," because said Organization is illegally engaged in banking activities, "by receiving deposits of money for deposit, disbursement, safekeeping or otherwise or transacts the business of a savings and mortgage bank and/or building and loan association . . . without having first complied with the provisions of Republic Act No. 337" and that the articles, papers, or effects enumerated in a list attached to said application, as Annex A thereof.3 are kept in said premises, and "being used or intended to be used in the commission of a felony, to wit: violation of Sections 2 and 6 of Republic Act No. 337."4 Said articles, papers or effects are described in the aforementioned Annex A, as follows:

I. BOOKS OF ORIGINAL ENTRY(1) General Journal(2) Columnar Journal or Cash Book

(a) Cash Receipts Journal or Cash Receipt Book(b) Cash Disbursements Journal or Cash Disbursement Book

II. BOOKS OF FINAL ENTRY(1) General Ledger(2) Individual Deposits and Loans Ledgers(3) Other Subsidiary Ledgers

III. OTHER ACCOUNTING RECORDS(1) Application for Membership(2) Signature Card(3) Deposit Slip(4) Passbook Slip(5) Withdrawal Slip(6) Tellers Daily Deposit Report(7) Application for Loan Credit Statement(8) Credit Report(9) Solicitor's Report(10) Promissory Note(11) I n d o r s e m e n t(12) Co-makers' Statements(13) Chattel Mortgage Contracts(14) Real Estate Mortgage Contracts(15) Trial Balance(16) Minutes Book — Board of Directors

IV. FINANCIAL STATEMENTS(1) Income and Expenses Statements(2) Balance Sheet or Statement of Assets and Liabilities

V. OTHERS(1) Articles of Incorporation(2) By-Laws(3) Prospectus, Brochures Etc.(4) And other documents and articles which are being used or intended to be used in unauthorized banking activities and operations contrary to law.

Upon the filing of said application, on May 18, 1962, Hon. Roman Cancino, as Judge of the said municipal court, issued the warrant above referred to,5 commanding the search of the aforesaid premises at No. 2745 Rizal Avenue, Manila, and the seizure of the foregoing articles, there being "good and sufficient reasons to believe" upon examination, under oath, of a detective of the Manila Police Department and said intelligence officer of the Bank — that the Organization has under its control, in the address given, the aforementioned articles, which are the subject of the offense adverted to above or intended to be used as means for the commission of said off offense.

Forthwith, or on the same date, the Organization commenced Civil Case No. 50409 of the Court of First Instance of Manila, an original action for "certiorari, prohibition, with writ of preliminary injunction and/or writ of preliminary mandatory injunction," against said municipal court, the Sheriff of Manila, the Manila Police Department, and the Bank, to annul the aforementioned search warrant, upon the ground that, in issuing the same, the municipal court had acted "with grave abuse of discretion, without jurisdiction and/or in excess of jurisdiction" because: (a) "said search warrant is a roving commission general in its terms . . .;" (b) "the use of the word 'and others' in the search warrant . . . permits the unreasonable search and seizure of documents which

Page 36 of 99

have no relation whatsoever to any specific criminal act . . .;" and (c) "no court in the Philippines has any jurisdiction to try a criminal case against a corporation . . ."

The Organization, likewise, prayed that, pending hearing of the case on the merits, a writ of preliminary injunction be issued ex parte restraining the aforementioned search and seizure, or, in the alternative, if the acts complained of have been partially performed, that a writ of preliminary mandatory injunction be forthwith issued ex parte, ordering the preservation of the status quo of the parties, as well as the immediate return to the Organization of the documents and papers so far seized under, the search warrant in question. After due hearing, on the petition for said injunction, respondent, Hon. Jesus P. Morfe, Judge, who presided over the branch of the Court of First Instance of Manila to which said Case No. 50409 had been assigned, issued, on July 2, 1962, the order complained of.

Within the period stated in said order, the Bank moved for a reconsideration thereof, which was denied on August 7, 1962. Accordingly, the Bank commenced, in the Supreme Court, the present action, against Judge Morfe and the Organization, alleging that respondent Judge had acted with grave abuse of discretion and in excess of his jurisdiction in issuing the order in question.

At the outset, it should be noted that the action taken by the Bank, in causing the aforementioned search to be made and the articles above listed to be seized, was predicated upon the theory that the Organization was illegally engaged in banking — by receiving money for deposit, disbursement, safekeeping or otherwise, or transacting the business of a savings and mortgage bank and/or building and loan association, — without first complying with the provisions of R.A. No. 337, and that the order complained of assumes that the Organization had violated sections 2 and 6 of said Act.6 Yet respondent Judge found the searches and, seizures in question to be unreasonable, through the following process of reasoning: the deposition given in support of the application for a search warrant states that the deponent personally knows that the premises of the Organization, at No. 2745 Rizal Avenue, Manila,7 were being used unlawfully for banking and purposes. Respondent judge deduce, from this premise, that the deponent " knows specific banking transactions of the petitioner with specific persons," and, then concluded that said deponent ". . . could have, if he really knew of actual violation of the law, applied for a warrant to search and seize only books" or records:

covering the specific purportedly illegal banking transactions of the petitioner with specific persons who are the supposed victims of said illegal banking transactions according to his knowledge. To authorize and seizeall the records listed in Annex A to said application for search warrant, without reference to specific alleged victims of the purported illegal banking transactions, would be to harass the petitioner, and its officers with a roving commission or fishing expedition for evidence which could be discovered by normal intelligence operations or inspections (not seizure) of books and records pursuant to Section 4 of Republic Act No 337 . . ."

The concern thus shown by respondent judge for the civil liberty involved is, certainly, in line with the function of courts, as ramparts of justice and liberty and deserves the greatest encouragement and warmest commendation. It lives up to the highest traditions of the Philippine Bench, which underlies the people's faith in and adherence to the Rule of Law and the democratic principle in this part of the World.

At the same time, it cannot be gainsaid the Constitutional injunction against unreasonable searches and seizures seeks to forestall, not purely abstract or imaginary evils, but specific and concrete ones. Indeed, unreasonableness is, in the very nature of things, a condition dependent upon the circumstances surrounding each case, in much the same way as the question whether or not "probable cause" exists is one which must be decided in the light of the conditions obtaining in given situations.

Referring particularly to the one at bar, it is not clear from the order complained of whether respondent Judge opined that the above mentioned statement of the deponent — to the effect that the Organization was engaged in the transactions mentioned in his deposition — deserved of credence or not. Obviously, however, a mere disagreement with Judge Cancino, who issued the warrant, on the credibility of said statement, would not justify the conclusion that said municipal Judge had committed a grave abuse of discretion, amounting to lack of jurisdiction or excess of jurisdiction. Upon the other hand, the failure of the witness to mention particular individuals does not necessarily prove that he had no personal knowledge of specific illegal transactions of the Organization, for the witness might be acquainted with specific transactions, even if the names of the individuals concerned were unknown to him.

Again, the aforementioned order would seem to assume that an illegal banking transaction, of the kind contemplated in the contested action of the officers of the Bank, must always connote the existence of a "victim." If this term is used to denote a party whose interests have been actually injured, then the assumption is not necessarily justified. The law requiring compliance with certain requirements before anybody can engage in banking obviously seeks to protect the public against actual, as well as potential, injury. Similarly, we are not aware of any rule limiting the use of warrants to papers or effects which cannot be secured otherwise.

Page 37 of 99

The line of reasoning of respondent Judge might, perhaps, be justified if the acts imputed to the Organization consisted of isolated transactions, distinct and different from the type of business in which it is generally engaged. In such case, it may be necessary to specify or identify the parties involved in said isolated transactions, so that the search and seizure be limited to the records pertinent thereto. Such, however, is not the situation confronting us. The records suggest clearly that the transactions objected to by the Bank constitute the general pattern of the business of the Organization. Indeed, the main purpose thereof, according to its By-laws, is "to extend financial assistance, in the form of loans, to its members," with funds deposited by them.

It is true, that such funds are referred to — in the Articles of Incorporation and the By-laws — as their "savings." and that the depositors thereof are designated as "members," but, even a cursory examination of said documents will readily show that anybody can be a depositor and thus be a "participating member." In other words, the Organization is, in effect, open to the "public" for deposit accounts, and the funds so raised may be lent by the Organization. Moreover, the power to so dispose of said funds is placed under the exclusive authority of the "founder members," and "participating members" are expressly denied the right to vote or be voted for, their "privileges and benefits," if any, being limited to those which the board of trustees may, in its discretion, determine from time to time. As a consequence, the "membership" of the "participating members" is purely nominal in nature. This situation is fraught, precisely, with the very dangers or evils which Republic Act No. 337 seeks to forestall, by exacting compliance with the requirements of said Act, before the transactions in question could be undertaken.

It is interesting to note, also, that the Organization does not seriously contest the main facts, upon which the action of the Bank is based. The principal issue raised by the Organization is predicated upon the theory that the aforementioned transactions of the Organization do not amount to " banking," as the term is used in Republic Act No. 337. We are satisfied, however, in the light of the circumstance obtaining in this case, that the Municipal Judge did not commit a grave abuse of discretion in finding that there was probable cause that the Organization had violated Sections 2 and 6 of the aforesaid law and in issuing the warrant in question, and that, accordingly, and in line with Alverez vs. Court of First Instance (64 Phil. 33), the search and seizure complained of have not been proven to be unreasonable.

Wherefore, the order of respondent Judge dated July 2, 1962, and the writ of preliminary mandatory injunction issued in compliance therewith are hereby annulled, and the writ of preliminary injunction issued by this Court on August 14, 1962, accordingly, made permanent, with costs against respondent First Mutual Savings and Loan Organization, Inc. It is so ordered.

Reyes, J.B.L., Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ., concur.Dizon, J., took no part.

Page 38 of 99

[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.

D E C I S I O N

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 Appeals[1] 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’s[2] 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. T-106932 to T-106937, inclusive, of the Land Records of Laguna, between the plaintiffs as buyers and the defendant Producers Bank for an agreed price of Five and One Half Million (P5,500,000.00) Pesos;

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

“3. Ordering the defendants, jointly and severally, to pay plaintiffs Jose A. Janolo and Demetrio Demetria the sums of P 200,000.00 each in moral damages;

“4. Ordering the defendants, jointly and severally, to pay plaintiffs the sum of P 100,000.00 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;

Page 39 of 99

“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

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

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

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

The Facts

The facts of this case are summarized in the respondent Court’s Decision,[3] 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. Rosa, Laguna, and covered by Transfer Certificates of Title Nos. T-106932 to T-106937. The property used to be owned by BYME Investment and Development Corporation which had them mortgaged with the bank as collateral fora 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 PhilippinesMakati, Metro Manila

Attn.                         Mr. Mercurio Q. RiveraManager, Property Management Dept.

Gentlemen:

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

   TCT NO.         AREA

   T-106932         113,580  sq.m.   T-106933           70,899  sq.m.   T-106934           52,246  sq.m.   T-106935           96,768  sq.m.   T-106936         187,114  sq.m.   T-106937         481,481  sq.m.

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

Page 40 of 99

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

J-P    M-P GUTIERREZ ENTERPRISES142 Charisma St., Doña Andres IIRosario, Pasig, Metro Manila

Attention:         JOSE O. JANOLO Dear Sir:

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 matter.

Best regards.

“(4)On September 17, 1987, plaintiff Janolo, responding to Rivera’s aforequoted reply, wrote (Exh.

September 17, 1987

Producers BankPaseo de RoxasMakati, 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 PhilippinesPaseo de Roxas, MakatiMetro 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 In-vestment, for a total price of PESOS: FIVE MILLION FIVE HUNDRED THOUSAND (P5,500,000.00).

Thank you.

Page 41 of 99

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

Attention:         Atty. Demetrio Demetria

Dear Sir:

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

For your information.

“(7) What thereafter transpired was a series of demands by the plaintiffs for compliance by the bank with what plaintiff considered as a perfected contract of sale, which demands were in one form or another refused by the bank. As detailed by the trial court in its decision, on November 17, 1987, plaintiffs through a letter to defendant Rivera (Exhibit “G”) tendered payment of the amount of P5.5 million “pursuant to (our) perfected sale agreement.” Defendants refused to receive both the payment and the letter. Instead, the parcels of land involved in the transaction were advertised by the bank for sale to any interested buyer (Exhs. “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 RiveraManager, Producers BankPaseo de Roxas, MakatiMetro 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 x x x 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 (Exhs. “L” and “L-1”), this time through the Acting Conservator, defendant Encarnacion. Plaintiffs’ letter reads:

PRODUCERS BANK OFTHE PHILIPPINESPaseo de Roxas,Makati, Metro Manila

Attn.:     Atty. NIDA ENCARNACION Central Bank Conservator

Gentlemen:

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.

Page 42 of 99

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 Rivera and Acting Conservator Encarnacion. The basis of the suit was that the transaction had with the bank resulted in a perfected contract of sale. The defendants took the position that there was no such perfected sale because the defendant Rivera is not authorized to sell the property, and that there was no meeting of the minds as to the price.”

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

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

On July 11, 1992, during the pendency of the proceedings in the Court of Appeals, Henry Co and several other stockholders of the Bank, through counsel Angara Abello Concepcion Regala and Cruz, filed an action (hereafter, the “Second Case”) -purportedly a “derivative suit” - with the Regional Trial Court of Makati, Branch 134, docketed as Civil Case No. 92-1606, against Encarnacion, Demetria and Janolo “to declare any perfected sale of the property as unenforceable and to stop Ejercito from enforcing or implementing the sale.”[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 Petition[6] and Memorandum,[7] 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, private respondents prayed for dismissal of the instant suit on the ground [8] that:

I.

“Petitioners have engaged in forum shopping.

Page 43 of 99

II.

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

III.

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

IV.

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

The Issues

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

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

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

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

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

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

The First Issue: Was There Forum-Shopping?

In order to prevent the vexations of multiple petitions and actions, the Supreme Court promulgated Revised Circular No. 28-91 requiring that a party “must certify under oath x x x [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 intertwined that a judgment 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 the 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 as they mentioned it in the said VERIFICATION/CERTIFICATION.

Page 44 of 99

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 Phrases,[14] “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 expense and vexatious situations on the courts.”

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

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

“Eventually, however, instead of actually making a choice of the forum of their actions, litigants, through the encouragement of their lawyers, file their actions in all available courts, or invoke all relevant remedies simultaneously. This practice had not only resulted to (sic) conflicting adjudications among different courts and consequent confusion enimical (sic) to an orderly administration of justice. It had created extreme inconvenience to some of the parties to the action.

“Thus, ‘forum-shopping’ had acquired a different concept - which is unethical professional legal practice. And this necessitated or had given rise to the formulation of rules and canons discouraging or altogether prohibiting the practice.”[15]

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

To avoid or minimize this unethical practice of subverting justice, the Supreme Court, as already mentioned, promulgated Circular 28-91. And even before that, the Court had proscribed 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 x x x.”[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 down 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

Page 45 of 99

“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 a 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 the 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, the 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.” (italics supplied)

In an earlier case,[23] 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 oflcio. 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:

Page 46 of 99

“An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stock 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]; italics 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 the 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.” (italics supplied)

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

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

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

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

Page 47 of 99

The Second Issue: Was The Contract Perfected?

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

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

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

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

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

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

Q:   Please answer the question.

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

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

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

“There were averments by defendants below, as well as before this Court, that the P5.5 Million price was not discussed by the Committee and that it was merely quoted to start negotiations regarding the 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

Page 48 of 99

declarations, the bank’s submission on this point does not inspire belief. Both Co and 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 amount of P5.5 Million has a definite significance. It is the official bank price. At any rate, the bank placed its official, Rivera, in a position of authority to accept offers to buy and negotiate the sale by having the offer officially acted upon by the bank. The bank cannot turn around and later say, as it now does, that what Rivera states as the bank’s action on the matter is not in fact so. It is a familiar doctrine, the doctrine of ostensible authority, that if a corporation knowingly permits one of its officers, or any other agent, to do acts within the scope of an apparent authority, and thus holds him out to the public as possessing power to do those acts, the corporation will, as against any one who has in good faith dealt with the corporation through such agent, he estopped from denying his authority (Francisco v. GSIS, 7 SCRA 577, 583-584; PNB v. Court of Appeals, 94 SCRA 357, 369-370; Prudential Bank v. Court of Appeals, G.R. No. 103957, June 14, 1993).”[29]

Article 1318 of the Civil Code enumerates the requisites of a valid and perfected contract as follows: “(1) Consent of the contracting parties; (2) Object certain which is the subject matter  of the contract; (3)      Cause of the obligation which is established.”

There is no dispute on requisite no. 2. The object of the questioned contract consists of the six (6) parcels of land in Sta. Rosa, Laguna with an aggregate area of about 101 hectares, more or less, and covered by Transfer Certificates of Title Nos.  T-106932 to T-106937. There is, however, a dispute on the first and third requisites.

Petitioners allege that “there is no counter-offer made by the Bank, and any supposed counter-offer which Rivera (or Co) may have made is unauthorized. Since there was no counter-offer by the Bank, there was nothing for Ejercito (in substitution of Demetria and Janolo) to accept.”[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 Appeals, [31] 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 scope of their authority (9 C.J.S., p. 417). A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by the frauds they may thus be enabled to perpetrate in the apparent scope of their employment; nor will it be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking corporation is liable to innocent third persons where the representation is made in the course of its business by an agent acting within the general scope of his authority even though, in the particular case, the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his principal or some other person, for his own ultimate benefit (McIntosh v. Dakota Trust Co., 52 ND 752, 204 NW 818, 40 ALR 1021).

“Application of these principles is especially necessary because banks have a fiduciary relationship with the public and their stability depends on the confidence of the people in their honesty and efficiency. Such faith will be eroded where banks do not exercise strict care in the selection and supervision of its employees, resulting in prejudice to their depositors.”

From the evidence found by respondent Court, it is obvious that petitioner Rivera has apparent or implied authority to act for the Bank in the matter of selling its acquired assets. This evidence includes the following:

(a) The petition itself in par. II-1 (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);

Page 49 of 99

(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, 1987, 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-I”).

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 Paras, [35] 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 x x x.”

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.

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)

Page 50 of 99

months after Janolo’s 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]

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

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

The Third Issue:     Is the Contract Enforceable?

The petition alleged:[42]

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

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

“x x x 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 aplenty -and the silence of petitioners all throughout the presentation makes the evidence binding on them thus:

Page 51 of 99

A -   Yes, sir. I think it was September 28, 1987 and I was again present because Atty. Demetria told me to accompany him and 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 statment (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.]

----0----

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.]

---- 0 ----

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

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

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

Page 52 of 99

The Fourth Issue: May the Conservator Revokethe 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. ZarateZarate Carandang Perlas & Ass.Suite 323 Rufino BuildingAyala 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 noauthority, 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 Secs. 23 and 36 of the Corporation Code of the Philippines (Batas 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 corporation/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.

Page 53 of 99

Please be advised accordingly.

Very truly yours,

(Sgd.) Leonida T. EncarnacionLEONIDA T. ENCARNACION

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 notbe 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 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 Fact?

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:

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

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

Likewise, in Bernardo vs. Court of Appeals,[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. x x x”

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

Page 54 of 99

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:

“We see no valid reason to discard the factual conclusions of the appellate court. x x x (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.” (italics 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 x x x. 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

“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 reasonably 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

Page 55 of 99

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 x x x 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 x x x and there were (other) offers to buy the subject properties for a substantial amount of money.” [53]

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

This Court cannot just gloss over private respondent’s submission that, while the subject properties may currently command a much higher price, it is equally true that at the time of the transaction in 1987, the price agreed upon of P5.5 million was reasonable, considering that the Bank acquired these properties at a foreclosure sale for no more than P 3.5 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. (Chairman), Davide, Jr., Melo, and Francisco, JJ., concur.

Page 56 of 99

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 certiorariunder 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

Page 57 of 99

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 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

Page 58 of 99

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,  16which 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.

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.

Page 59 of 99

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

Page 60 of 99

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 —

. . . 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 facieshowing 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, Griño-Aquino, Regalado, Davide, Jr., Romero, Nocon, Campos, Jr. and Quiason, JJ., concur.

Feliciano and Melo, JJ., took no part.Page 61 of 99

Page 62 of 99

THIRD DIVISION

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

ABACUS REAL ESTATE DEVELOPMENT CENTER, INC., petitioner, vs. THE MANILA BANKING CORPORATION, respondent.

D E C I S I O N

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 petitioner’s 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 Bank’s then acting president, the late Vicente G. Puyat, in a bid to save the bank’s investment, started scouting for possible investors who could finance the completion of the building earlier mentioned. 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 Bank’s closure, an arrangement was thought of whereby the property would first be leased toManila 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 group’s offer and granted it an “exclusive option to purchase” the lot and building for One Hundred Fifty Million Pesos (P150,000,000.00). Later, or on October 31, 1989, the building was leased to MEQCO for a period of ten (10) years pursuant to a contract of lease bearing that date. 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

Page 63 of 99

Abacus’ offer. Bitanga further alleged that, over lunch, Atty. Santos then verbally approved his entry into Abacus and his take-over of the sublease and option to purchase.

On March 30, 1990, the Laureano group transferred and assigned to Bitanga all of its rights in Abacus and the “exclusive option to purchase” the subject land and building.

On September 16, 1994, Abacus sent a letter to Manila Bank informing the latter of its desire to exercise its “exclusive option to purchase”. However, Manila Bank refused to honor the same.

Such was the state of things when, on November 10, 1995, in the Regional Trial Court (RTC) at Makati, Abacus Real Estate Development Center, Inc. filed a complaint[3] for specific performance and damages against Manila Bank and/or the Estate of Vicente G. Puyat. In its complaint, docketed as Civil Case No. 96-1638 and raffled to Branch 59 of the court, plaintiff Abacus prayed for a judgment ordering Manila Bank, inter alia, to sell, transfer and convey unto it for P150,000,000.00 the land and building in dispute “free from all liens and encumbrances”, plus payment of damages and attorney’s 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 latter’s 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 attorney’s fees;

3. Ordering the DISMISSAL of defendant’s 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.

Page 64 of 99

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 Bank’s 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 BANK’S APPEAL TO THE COURT OF APPEALS WAS FILED ON TIME; and

WHETHER OR NOT PETITIONER ABACUS HAS ACQUIRED THE RIGHT TO PURCHASE THE LOT AND BUILDING IN QUESTION.

We rule for respondent Manila Bank on both issues.

Addressing the first issue, petitioner submits that respondent bank’s 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 court’s 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 respondent’s 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 respondent’s appeal was filed on time. Explained that court in its Resolution of February 17, 2004, denying petitioner’s 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 themotion for reconsideration was truly filed by registered mail on July 6, 1999 through registry receipt no. 1633.

Secondly, the appellant’s 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 Bank’s] 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 appellant’s 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 appellee’s counsel, found in pages 728 and 729 of the rollo, indicate that the contents were themotion 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

Page 65 of 99

self-serving, the fact remains that the envelope addressed to the appellee’s 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 appellant’s appeal was not late by one day. (Emphasis in the original)

Petitioner would, however, contest the above findings of the appellate court, stating, among other things, that if it were true that respondent filed its Motion for Reconsideration by registered mail and then furnished the trial court with a copy of said Motion the very next day, then the rollo should have had two copies of the Motion for Reconsideration in question. Respondent, on the other hand, insists that it indeed filed a Motion for Reconsideration on July 6, 1999 through registered mail.

It is evident that the issue raised by petitioner relates to the correctness of the factual finding of the Court of Appeals as to the precise date when respondent filed its motion for reconsideration before the trial court. Such issue, however, is beyond the province of this Court to review. It is not the function of the Court to analyze or weigh all over again the evidence or premises supportive of such factual determination.[9] The Court has consistently held that the findings of the Court of Appeals and other lower courts are, as a rule, accorded great weight, if not binding upon it,[10] save for the most compelling and cogent reasons.[11] As nothing in the record indicates any of such exceptions, the factual conclusion of the appellate court that respondent filed its appeal on time, supported as it is by substantial evidence, must be affirmed.

Going to the second issue, petitioner insists that the option to purchase the lot and building in question granted to it by the late Vicente G. Puyat, then acting president of Manila Bank, was binding upon the latter. On the other hand, respondent has consistently maintained that the late Vicente G. Puyat had no authority to act for and represent Manila Bank, the latter having been placed under receivership by the Central Bank at the time of the granting of the “exclusive option to purchase.”

There can be no quibbling that respondent Manila Bank was under receivership, pursuant to Central Bank’s MB Resolution No. 505 dated May 22, 1987, at the time the late Vicente G. Puyat granted the “exclusive option to purchase” to the Laureano group of investors. Owing to this defining reality, the appellate court was correct in declaring that Vicente G. Puyat was without authority to grant the exclusive option to purchase the lot and building in question. The invocation by the appellate court of the following pronouncement inVillanueva vs. Court of Appeals[12] was apropos, to say the least:

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

With respondent bank having been already placed under receivership, its officers, inclusive of its acting president, Vicente G. Puyat, were no longer authorized to transact business in connection with the bank’s assets and property. Clearly then, the “exclusive option to purchase” granted by Vicente G. Puyat was and still is unenforceable against Manila Bank. [13]

Petitioner, however, asseverates that the “exclusive option to purchase” was ratified by Manila Bank’s receiver, Atty. Renan Santos, during a lunch meeting held with Benjamin Bitanga in March 1990.

Petitioner’s 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 Bank’s 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:

Page 66 of 99

Sec. 29. Proceedings upon insolvency. – Whenever, upon examination by the head of the appropriate supervising and examining department or his examiners or agents into the condition of any banking institution, it shall be disclosed that the condition of the same is one of insolvency, or that its continuance in business would involve probable loss to its depositors or creditors, it shall be the duty of the department head concerned forthwith, in writing, to inform the Monetary Board of the facts, and the Board may, upon finding the statements of the department head to be true, forbid the institution to do business in the Philippines and shall designate an official of the Central Bank as receiver to immediately take charge of its assets and liabilities, as expeditiously as possible collect and gather all the assets and administer the same for the benefit of its creditors, exercising all the powers necessary for these purposes including, but not limited to, bringing suits and foreclosing mortgages in the name of the banking institution. (Emphasis supplied)

Clearly, the receiver appointed by the Central Bank to take charge of the properties of Manila Bank only had authority to administer the same for the benefit of its creditors. Granting or approving an “exclusive option to purchase” is not an act of administration, but an act of strict ownership, involving, as it does, the disposition of property of the bank. Not being an act of administration, the so-called “approval” by Atty. Renan Santos amounts to no approval at all, a bank receiver not being authorized to do so on his own.

For sure, Congress itself has recognized that a bank receiver only has powers of administration. Section 30 of the New Central Bank Act[15] expressly provides that “[t]he receiver shall immediately gather and take charge of all the assets and liabilities of the institution, administer the same for the benefit of its creditors, and exercise the general powers of a receiver under the Revised Rules of Court but shall not, with the exception of administrative expenditures, pay or commit any act that will involve the transfer or disposition of any asset of the institution…”

In all, respondent bank’s 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 latter’s “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.

Page 67 of 99

Page 68 of 99

FIRST DIVISION

G.R. No. 69162 February 21, 1992

BANK OF THE PHILIPPINE ISLANDS, petitioner, vs.THE INTERMEDIATE APPELLATE COURT and the SPOUSES ARTHUR CANLAS and VIVIENE CANLAS,respondents.

Leonen, Ramirez & Associates for petitioner.

L. Emmanuel B. Canilao for private respondents.

GRIÑO-AQUINO, J.:

In a decision dated September 3, 1984, the Intermediate Appellate Court (now Court of Appeals) in AC-G.R. CV No. 69178 entitled, "Arthur A. Canlas, et al., Plaintiff-Appellees vs. Commercial Bank and Trust Company of the Philippines, Defendant-Appellant," reduced to P105,000 the P465,000 damage-award of the trial court to the private respondents for an error of a bank teller which resulted in the dishonor of two small checks which the private respondents had issued against their joint current account. This petition for review of that decision was filed by the Bank.

The respondent spouses, Arthur and Vivienne Canlas, opened a joint current account No. 210-520-73 on April 25, 1977 in the Quezon City branch of the Commercial Bank and Trust Company of the Philippines (CBTC) with an initial deposit of P2,250. Prior thereto, Arthur Canlas had an existing separate personal checking account No. 210-442-41 in the same branch.

When the respondent spouses opened their joint current account, the "new accounts" teller of the bank pulled out from the bank's files the old and existing signature card of respondent Arthur Canlas for Current Account No. 210-442-41 for use as I D and reference. By mistake, she placed the old personal account number of Arthur Canlas on the deposit slip for the new joint checking account of the spouses so that the initial deposit of P2,250 for the joint checking account was miscredited to Arthur's personal account (p. 9, Rollo). The spouses subsequently deposited other amounts in their joint account.

However, when respondent Vivienne Canlas issued a check for Pl,639.89 in April 1977 and another check for P1,160.00 on June 1, 1977, one of the checks was dishonored by the bank for insufficient funds and a penalty of P20 was deducted from the account in both instances. In view of the overdrawings, the bank tried to call up the spouses at the telephone number which they had given in their application form, but the bank could not contact them because they actually reside in Porac, Pampanga. The city address and telephone number which they gave to the bank belonged to Mrs. Canlas' parents.

On December 15, 1977, the private respondents filed a complaint for damages against CBTC in the Court of First Instance of Pampanga (p. 113, Rollo).

On February 27, 1978, the bank filed a motion to dismiss the complaint for improper venue. The motion was denied.

During the pendency of the case, the Bank of the Philippine Islands (BPI) and CBTC were merged. As the surviving corporation under the merger agreement and under Section 80 (5) of the Corporation Code of the Philippines, BPI took over the prosecution and defense of any pending claims, actions or proceedings by and against CBTC.

On May 5, 1981, the Regional Trial Court of Pampanga rendered a decision against BPI, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered sentencing defendant to pay the plaintiff the following:

1. P 5,000.00 as actual damages;

2. P 150,000.00 for plaintiff Arthur Canlas and P150,000.00 for plaintiff Vivienne S. Canlas representing moral damages;

Page 69 of 99

3. P 150.000.00 as exemplary damages;

4. P 10,000.00 as attorney's fees; and

5. Costs. (p. 36, Rollo).

On appeal, the Intermediate Appellate Court deleted the actual damages and reduced the other awards. The dispositive portion of its decision reads:

WHEREFORE, the judgment appealed from is hereby modified as follows:

1. The award of P50,000.00 in actual damages is herewith deleted.

2. Moral damages of P50,000.00 is awarded to plaintiffs-appellees Arthur Canlas and Vivienne S. Canlas, not P50,000.00 each.

3. Exemplary damages is likewise reduced to the sum of P50,000.00 and attorney's fees to P5,000.00.

Costs against the defendants appellant. (p. 40, Rollo.)

Petitioner filed this petition for review alleging that the appellate court erred in holding that:

1. The venue of the case had been properly laid at Pampanga in the light of private respondents' earlier declaration that Quezon City is their true residence.

2. The petitioner was guilty of gross negligence in the handling of private respondents' bank account.

3. Private respondents are entitled to the moral and exemplary damages and attorney's fees adjudged by the respondent appellate court.

On the question of venue raised by petitioner, it is evident that personal actions may be instituted in the Court of First Instance (now Regional Trial Court) of the province 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 (Section 2[b], Rule 4 of the Rules of Court). In this case, there was ample proof that the residence of the plaintiffs is B. Sacan, Porac, Pampanga (p. 117, Rollo). The city address of Mrs. Canlas' parents was placed by the private respondents in their application for a joint checking account, at the suggestion of the new accounts teller, presumably to facilitate mailing of the bank statements and communicating with the private respondents in case any problems should arise involving the account. No waiver of their provincial residence for purposes of determining the venue of an action against the bank may be inferred from the so-called "misrepresentation" of their true residence.

The appellate court based its award of moral and exemplary damages, and attorney's fees on its finding that the mistake committed by the new accounts teller of the petitioner constituted "serious" negligence (p. 38, Rollo). Said court further stressed that it cannot absolve the petitioner from liability for damages to the private respondents, even on the assumption of an honest mistake on its part, because of the embarrassment that even an honest mistake can cause its depositors (p. 31, Rollo).

There is no merit in petitioner's argument that it should not be considered negligent, much less held liable for damages on account of the inadvertence of its bank employee for Article 1173 of the Civil Code only requires it to exercise the diligence of a good father of family.

In Simex International (Manila), Inc. vs. Court of Appeals (183 SCRA 360, 367), this Court stressed the fiduciary nature of the relationship between a bank and its depositors and the extent of diligence expected of it in handling the accounts entrusted to its care.

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. . . .

Page 70 of 99

The bank is not expected to be infallible but, as correctly observed by respondent Appellate Court, in this instance, it must bear the blame for not discovering the mistake of its teller despite the established procedure requiring the papers and bank books to pass through a battery of bank personnel whose duty it is to check and countercheck them for possible errors. Apparently, the officials and employees tasked to do that did not perform their duties with due care, as may be gathered from the testimony of the bank's lone witness, Antonio Enciso, who casually declared that "the approving officer does not have to see the account numbers and all those things.Those are very petty things for the approving manager to look into" (p. 78, Record on Appeal). Unfortunately, it was a "petty thing," like the incorrect account number that the bank teller wrote on the initial deposit slip for the newly-opened joint current account of the Canlas spouses, that sparked this half-a-million-peso damage suit against the bank.

While the bank's negligence may not have been attended with malice and bad faith, nevertheless, it caused serious anxiety, embarrassment and humiliation to the private respondents for which they are entitled to recover reasonable moral damages (American Express International, Inc. vs. IAC, 167 SCRA 209). The award of reasonable attorney's fees is proper for the private respondents were compelled to litigate to protect their interest (Art. 2208, Civil Code). However, the absence of malice and bad faith renders the award of exemplary damages improper (Globe Mackay Cable and Radio Corp. vs. Court of Appeals, 176 SCRA 778).

WHEREFORE, the petition for review is granted. The appealed decision is MODIFIED by deleting the award of exemplary damages to the private respondents. In all other respects, the decision of the Intermediate Appellate Court, now Court of Appeals, is AFFIRMED. No costs.

SO ORDERED.

Narvasa, C.J., Cruz and Medialdea, JJ., concur.

Page 71 of 99

Page 72 of 99

THIRD DIVISION

G.R. No. 84281 May 27, 1994

CITYTRUST BANKING CORPORATION, petitioner, vs.THE INTERMEDIATE APPELLATE COURT and EMME HERRERO, respondents.

Agcaoili and Associates for petitioner.

David B. Agoncillo for private respondent.

Humberto B. Basco, collaborating counsel for private respondent.

VITUG, J.:

This case emanated from a complaint filed by private respondent Emme Herrero for damages against petitioner Citytrust Banking Corporation. In her complaint, private respondent averred that she, a businesswoman, made regular deposits, starting September of 1979, with petitioner Citytrust Banking Corporation at its Burgos branch in Calamba, Laguna. On 15 May 1980, she deposited with petitioner the amount of Thirty One Thousand Five Hundred Pesos (P31,500.00), in cash, in order to amply cover six (6) postdated checks she issued, viz:

Check No. Amount

007383 — P1,507.00007384 — 1,262.00007387 — 4,299.00007387 — 2,204.00007492 — 6,281.00007400 — 4,716.00

When presented for encashment upon maturity, all the checks were dishonored due to "insufficient funds." The last check No. 007400, however, was personally redeemed by private respondent in cash before it could be redeposited.

Petitioner, in its answer, asserted that it was due to private respondent's fault that her checks were dishonored. It averred that instead of stating her correct account number, i.e., 29000823, in her deposit slip, she inaccurately wrote 2900823.

The Regional Trial Court (Branch XXXIV) of Calamba, Laguna, on 27 February 1984, dismissed the complaint for lack of merit; thus:

WHEREFORE, judgment is hereby rendered in favor of the defendant and against the plaintiff, DISMISSING the complaint for lack of merit, plaintiff is hereby adjudged to pay the defendant reasonable attorney's fee in the amount of FIVE THOUSAND PESOS (P5,000.00) plus cost of suit.

Private respondent went to the Court of Appeals, which found the appeal meritorious. Hence, it rendered judgment, on 15 July 1988, reversing the trial court's decision. The appellate court ruled:

WHEREFORE, the judgment appealed from is REVERSED and a new one entered thereby ordering defendant to pay plaintiff nominal damages of P2,000.00, temperate and moderate damages of P5,000.00, and attorney's fees of P4,000.00.

The counterclaim of defendant is dismissed for lack of merit, with costs against him.

Petitioner Citytrust Banking Corporation is now before us in this petition for review on certiorari.

Page 73 of 99

Petitioner bank concedes that it is its obligation to honor checks issued by private respondent which are sufficiently funded, but, it contends, private respondent has also the duty to use her account in accordance with the rules of petitioner bank to which she has contractually acceded. Among such rules, contained in its "brochures" governing current account deposits, is the following printed provision:

In making a deposit . . . kindly insure accuracy in filing said deposit slip forms as we hold ourselves free of any liability for loss due to an incorrect account number indicated in the deposit slip although the name of the depositor is correctly written.

Exactly the same issue was addressed by the appellate court, which, after its deliberations, made the following findings and conclusions: 1

We cannot uphold the position of defendant. For, even if it be true that there was error on the part of the plaintiff in omitting a "zero" in her account number, yet, it is a fact that her name, "Emme E. Herrero", is clearly written on said deposit slip (Exh. "B"). This is controlling in determining in whose account the deposit is made or should be posted. This is so because it is not likely to commit an error in one's name than merely relying on numbers which are difficult to remember, especially a number with eight (8) digits as the account numbers of defendant's depositors. We view the use of numbers as simply for the convenience of the bank but was never intended to disregard the real name of its depositors. The bank is engaged in business impressed with public interest, and it is its duty to protect in return its many clients and depositors who transact business with it. It should not be a matter of the bank alone receiving deposits, lending out money and collecting interests. It is also its obligation to see to it that all funds invested with it are properly accounted for and duly posted in its ledgers.

In the case before Us, We are not persuaded that defendant bank was not free from blame for the fiasco. In the first place, the teller should not have accepted plaintiff's deposit without correcting the account number on the deposit slip which, obviously, was erroneous because, as pointed out by defendant, it contained only seven (7) digits instead of eight (8). Second, the complete name of plaintiff depositor appears in bold letters on the deposit slip (Exh. "B"). There could be no mistaking in her name, and that the deposit was made in her name, "Emma E. Herrero." In fact, defendant's teller should not have fed her deposit slip to the computer knowing that her account number written thereon was wrong as it contained only seven (7) digits. As it happened, according to defendant, plaintiff's deposit had to be consigned to the suspense accounts pending verification. This, indeed, could have been avoided at the first instance had the teller of defendant bank performed her duties efficiently and well. For then she could have readily detected that the account number in the name of "Emma E. Herrero" was erroneous and would be rejected by the computer. That is, or should be, part of the training and standard operating procedure of the bank's employees. On the other hand, the depositors are not concerned with banking procedure. That is the responsibility of the bank and its employees. Depositors are only concerned with the facility of depositing their money, earning interest thereon, if any, and withdrawing therefrom, particularly businessmen, like plaintiff, who are supposed to be always "on-the-go". Plaintiff's account is a "current account" which should immediately be posted. After all, it does not earn interest. At least, the forbearance should be commensurated with prompt, efficient and satisfactory service.

Bank clients are supposed to rely on the services extended by the bank, including the assurance that their deposits will be duly credited them as soon as they are made. For, any delay in crediting their account can be embarrassing to them as in the case of plaintiff.

We agree with plaintiff that —

. . . even in computerized systems of accounts, ways and means are available whereby deposits with erroneous account numbers are properly credited depositor's correct account numbers. They add that failure on the part of the defendant to do so is negligence for which they are liable. As proof thereof plaintiff alludes to five particular incidents where plaintiff admittedly wrongly indicated her account number in her deposit slips (Exhs. "J", "L", "N", "O" and "P"), but were nevertheless properly credited her deposit (pp. 4-5, Decision).

We have already ruled in Mundin v. Far East Bank & Trust Co., AC-G.R. CV No. 03639, prom. Nov. 2, 1985, quoting the court a quo in an almost identical set of facts, that —

Having accepted a deposit in the course of its business transactions, it behooved upon defendant bank to see to it and without recklessness — that the depositor was accurately credited therefor. To post a deposit in somebody else's name despite the name of the depositor clearly written on the deposit slip is indeed sheer negligence which could have easily been avoided if defendant bank exercised due diligence and circumspection in the acceptance and posting of plaintiff's deposit.

Page 74 of 99

We subscribe to the above disquisitions of the appellate court. In Simex International (Manila), Inc. vs. Court of Appeals, 183 SCRA 360, reiterated in Bank of Philippine Islands vs. Intermediate Appellate Court, 206 SCRA 408, we similarly said, in cautioning depository banks on their fiduciary responsibility, that —

In every case, the depositor expects the bank to treat his account with 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.

We agree with petitioner, however, that it is wrong to award, along with nominal damages, temperate or moderate damages. The two awards are incompatible and cannot be granted concurrently. Nominal damages are given 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 (Art. 2221, New Civil Code; Manila Banking Corp. vs. Intermediate Appellate Court, 131 SCRA 271). Temperate or moderate damages, which are more than nominal but less than compensatory damages, on the other hand, may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with reasonable certainty (Art. 2224, New Civil Code).

In the instant case, we also find need for vindicating the wrong done on private respondent, and we accordingly agree with the Court of Appeals in granting to her nominal damages but not in similarly awarding temperate or moderate damages.

WHEREFORE, the appealed decision is MODIFIED by deleting the award of temperate or moderate damages. In all other respects, the appellate court's decision is AFFIRMED. No costs in this instance.

SO ORDERED.

Feliciano, Bidin, Romero and Melo, JJ., concur.

#Footnotes

1 Penned by Mr. Justice Josue N. Bellosillo, concurred in by Justices Felipe B. Kalalo and Regina G. Ordoñez-Benitez.

Page 75 of 99

Page 76 of 99

EN BANC

JOSEPH VICTOR G. EJERCITO, Petitioner, - versus - SANDIGANBAYAN (SPECIAL DIVISION) AND PEOPLE OF THEPHILIPPINES, Respondents.

G.R. Nos. 157294-95 Present: PANGANIBAN, C.J.,PUNO,QUISUMBING,YNARES-SANTIAGO,SANDOVAL-GUTIERREZ,CARPIO,AUSTRIA-MARTINEZ,CORONA,CARPIO MORALES,CALLEJO, SR.,AZCUNA,TINGA,CHICO-NAZARIO, GARCIA, andVELASCO, JR., JJ. Promulgated: November 30, 2006

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x D E C I S I O N CARPIO MORALES, J.: The present petition for certiorari under Rule 65 assails the Sandiganbayan Resolutions dated February 7 and 12, 2003 denying petitioner Joseph Victor G. Ejercito’s Motions to Quash Subpoenas Duces Tecum/Ad Testificandum, and Resolution dated March 11, 2003 denying his Motion for Reconsideration of the first two resolutions. The three resolutions were issued in Criminal Case No. 26558, “People of the Philippines v. Joseph Ejercito Estrada, et al.,” for plunder, defined and penalized in R.A. 7080, “AN ACT DEFINING AND PENALIZING THE CRIME OF PLUNDER.” In above-stated case of People v. Estrada, et al., the Special Prosecution Panel[1] filed on January 20, 2003 before the Sandiganbayan a Request for Issuance of Subpoena Duces Tecum for the issuance of a subpoena directing the President of Export and Industry Bank (EIB, formerly Urban Bank) or his/her authorized representative to produce the following documents during the hearings scheduled on January 22 and 27, 2003: I. For Trust Account No. 858;1. Account Opening Documents;2. Trading Order No. 020385 dated January 29, 1999;3. Confirmation Advice TA 858;4. Original/Microfilm copies, including the dorsal side, of the following: a. Bank of Commerce MC # 0256254 in the amount of P2,000,000.00;b. Urban bank Corp. MC # 34181 dated November 8, 1999 in the amount of P10,875,749.43;c. Urban Bank MC # 34182 dated November 8, 1999 in the amount of P42,716,554.22;d. Urban Bank Corp. MC # 37661 dated November 23, 1999 in the amount of P54,161,496.52; 5. Trust Agreement dated January 1999:Trustee: Joseph Victor C. EjercitoNominee: URBAN BANK-TRUST DEPARTMENTSpecial Private Account No. (SPAN) 858; and6. Ledger of the SPAN # 858.

Page 77 of 99

II. For Savings Account No. 0116-17345-9 SPAN No. 858 1. Signature Cards; and2. Statement of Account/Ledger III. Urban Bank Manager’s Check and their corresponding Urban Bank Manager’s Check Application Forms, as follows: 1. MC # 039975 dated January 18, 2000 in the amount of P70,000,000.00;2. MC # 039976 dated January 18, 2000 in the amount of P2,000,000.00;3. MC # 039977 dated January 18, 2000 in the amount of P2,000,000.00;4. MC # 039978 dated January 18, 2000 in the amount of P1,000,000.00; The Special Prosecution Panel also filed on January 20, 2003, a Request for Issuance of Subpoena Duces Tecum/Ad Testificandum directed to the authorized representative of Equitable-PCI Bank to produce statements of account pertaining to certain accounts in the name of “Jose Velarde” and to testify thereon. The Sandiganbayan granted both requests by Resolution of January 21, 2003 and subpoenas were accordingly issued. The Special Prosecution Panel filed still another Request for Issuance of Subpoena Duces Tecum/Ad Testificandum dated January 23, 2003 for the President of EIB or his/her authorized representative to produce the same documents subject of the Subpoena Duces Tecum dated January 21, 2003 and to testify thereon on the hearings scheduled on January 27 and 29, 2003 and subsequent dates until completion of the testimony. The request was likewise granted by the Sandiganbayan. A Subpoena Duces Tecum/Ad Testificandum was accordingly issued on January 24, 2003. Petitioner, claiming to have learned from the media that the Special Prosecution Panel had requested for the issuance of subpoenas for the examination of bank accounts belonging to him, attended the hearing of the case on January 27, 2003 and filed before the Sandiganbayan a letter of even date expressing his concerns as follows, quoted verbatim: Your Honors: It is with much respect that I write this court relative to the concern of subpoenaing the undersigned’s bank account which I have learned through the media. I am sure the prosecution is aware of our banking secrecy laws everyone supposed to observe. But, instead of prosecuting those who may have breached such laws, it seems it is even going to use supposed evidence which I have reason to believe could only have been illegally obtained. The prosecution was not content with a general request. It even lists and identifies specific documents meaning someone else in the bank illegally released confidential information. If this can be done to me, it can happen to anyone. Not that anything can still shock our family. Nor that I have anything to hide. Your Honors. But, I am not a lawyer and need time to consult one on a situation that affects every bank depositor in the country and should interest the bank itself, the Bangko Sentral ng Pilipinas, and maybe the Ombudsman himself, who may want to investigate, not exploit, the serious breach that can only harm the economy, a consequence that may have been overlooked. There appears to have been deplorable connivance. x x x x I hope and pray, Your Honors, that I will be given time to retain the services of a lawyer to help me protect my rights and those of every banking depositor. But the one I have in mind is out of the country right now. May I, therefore, ask your Honors, that in the meantime, the issuance of the subpoena be held in abeyance for at least ten (10) days to enable me to take appropriate legal steps in connection with the prosecution’s request for the issuance of subpoena concerning my accounts. (Emphasis supplied)

Page 78 of 99

From the present petition, it is gathered that the “accounts” referred to by petitioner in his above-quoted letter are Trust Account No. 858 and Savings Account No. 0116-17345-9.[2] In open court, the Special Division of the Sandiganbayan, through Associate Justice Edilberto Sandoval, advised petitioner that his remedy was to file a motion to quash, for which he was given up to 12:00 noon the following day, January 28, 2003. Petitioner, unassisted by counsel, thus filed on January 28, 2003 a Motion to Quash Subpoena Duces Tecum/Ad Testificandum praying that the subpoenas previously issued to the President of the EIB dated January 21 and January 24, 2003 be quashed.[3] In his Motion to Quash, petitioner claimed that his bank accounts are covered by R.A. No. 1405 (The Secrecy of Bank Deposits Law) and do not fall under any of the exceptions stated therein. He further claimed that the specific identification of documents in the questioned subpoenas, including details on dates and amounts, could only have been made possible by an earlier illegal disclosure thereof by the EIB and the Philippine Deposit Insurance Corporation (PDIC) in its capacity as receiver of the then Urban Bank. The disclosure being illegal, petitioner concluded, the prosecution in the case may not be allowed to make use of the information. Before the Motion to Quash was resolved by the Sandiganbayan, the prosecution filed another Request for the Issuance of Subpoena Duces Tecum/Ad Testificandum dated January 31, 2003, again to direct the President of the EIB to produce, on the hearings scheduled on February 3 and 5, 2003, the same documents subject of the January 21 and 24, 2003 subpoenas with the exception of the Bank of Commerce MC #0256254 in the amount of P2,000,000 as Bank of Commerce MC #0256256 in the amount of P200,000,000 was instead requested. Moreover, the request covered the following additional documents: IV. For Savings Account No. 1701-00646-1:1. Account Opening Forms;2. Specimen Signature Card/s; and3. Statements of Account. The prosecution also filed a Request for the Issuance of Subpoena Duces Tecum/Ad Testificandum bearing the same date, January 31, 2003, directed to Aurora C. Baldoz, Vice President-CR-II of the PDIC for her to produce the following documents on the scheduled hearings on February 3 and 5, 2003: 1. Letter of authority dated November 23, 1999 re: SPAN [Special Private Account Number] 858; 2. Letter of authority dated January 29, 2000 re: SPAN 858; 3. Letter of authority dated April 24, 2000 re: SPAN 858; 4. Urban Bank check no. 052092 dated April 24, 2000 for the amount of P36, 572, 315.43; 5. Urban Bank check no. 052093 dated April 24, 2000 for the amount of P107,191,780.85; and 6. Signature Card Savings Account No. 0116-17345-9. (Underscoring supplied) The subpoenas prayed for in both requests were issued by the Sandiganbayan on January 31, 2003. On February 7, 2003, petitioner, this time assisted by counsel, filed an Urgent Motion to Quash Subpoenae Duces Tecum/Ad Testificandum praying that the subpoena dated January 31, 2003 directed to Aurora Baldoz be quashed for the same reasons which he cited in the Motion to Quash[4] he had earlier filed. On the same day, February 7, 2003, the Sandiganbayan issued a Resolution denying petitioner’s Motion to Quash Subpoenae Duces Tecum/Ad Testificandum dated January 28, 2003. Subsequently or on February 12, 2003, the Sandiganbayan issued a Resolution denying petitioner’s Urgent Motion to Quash Subpoena Duces Tecum/Ad Testificandum dated February 7, 2003.

Page 79 of 99

Petitioner’s Motion for Reconsideration dated February 24, 2003 seeking a reconsideration of the Resolutions of February 7 and 12, 2003 having been denied by Resolution of March 11, 2003, petitioner filed the present petition. Raised as issues are: 1. Whether petitioner’s Trust Account No. 858 is covered by the term “deposit” as used in R.A. 1405; 2. Whether petitioner’s Trust Account No. 858 and Savings Account No. 0116-17345-9 are excepted from the protection of R.A. 1405; and 3. Whether the “extremely-detailed” information contained in the Special Prosecution Panel’s requests for subpoena was obtained through a prior illegal disclosure of petitioner’s bank accounts, in violation of the “fruit of the poisonous tree” doctrine. Respondent People posits that Trust Account No. 858[5] may be inquired into, not merely because it falls under the exceptions to the coverage of R.A. 1405, but because it is not even contemplated therein. For, to respondent People, the law applies only to “deposits” which strictly means the money delivered to the bank by which a creditor-debtor relationship is created between the depositor and the bank. The contention that trust accounts are not covered by the term “deposits,” as used in R.A. 1405, by the mere fact that they do not entail a creditor-debtor relationship between the trustor and the bank, does not lie. An examination of the law shows that the term “deposits” used therein is to be understood broadly and not limited only to accounts which give rise to a creditor-debtor relationship between the depositor and the bank. The policy behind the law is laid down in Section 1: SECTION 1. It is hereby declared to be the policy of the Government to give encouragement to the people to deposit their money in banking institutions and to discourage private hoarding so that the same may be properly utilized by banks in authorized loans to assist in the economic development of the country. (Underscoring supplied) If the money deposited under an account may be used by banks for authorized loans to third persons, then such account, regardless of whether it creates a creditor-debtor relationship between the depositor and the bank, falls under the category of accounts which the law precisely seeks to protect for the purpose of boosting the economic development of the country. Trust Account No. 858 is, without doubt, one such account. The Trust Agreement between petitioner and Urban Bank provides that the trust account covers “deposit, placement or investment of funds” by Urban Bank for and in behalf of petitioner.[6] The money deposited under Trust Account No. 858, was, therefore, intended not merely to remain with the bank but to be invested by it elsewhere. To hold that this type of account is not protected by R.A. 1405 would encourage private hoarding of funds that could otherwise be invested by banks in other ventures, contrary to the policy behind the law. Section 2 of the same law in fact even more clearly shows that the term “deposits” was intended to be understood broadly: SECTION 2. All deposits of whatever nature with banks or banking institutions in the Philippines including investments in bonds issued by the Government of the Philippines, its political subdivisions and its instrumentalities, are hereby considered as of an absolutely confidential nature and may not be examined, inquired or looked into by any person, government official, bureau or office, except upon written permission of the depositor, or in cases of impeachment, or upon order of a competent court in cases of bribery or dereliction of duty of public officials, or in cases where the money deposited or invested is the subject matter of the litigation. (Emphasis and underscoring supplied) The phrase “of whatever nature” proscribes any restrictive interpretation of “deposits.” Moreover, it is clear from the immediately quoted provision that, generally, the law applies not only to money which is deposited but also to those which are invested. This further shows that the law was not intended to apply only to “deposits” in the strict sense of the word. Otherwise, there would have been no need to add the phrase “or invested.” Clearly, therefore, R.A. 1405 is broad enough to cover Trust Account No. 858.

Page 80 of 99

The protection afforded by the law is, however, not absolute, there being recognized exceptions thereto, as above-quoted Section 2 provides. In the present case, two exceptions apply, to wit: (1) the examination of bank accounts is upon order of a competent court in cases of bribery or dereliction of duty of public officials, and (2) the money deposited or invested is the subject matter of the litigation. Petitioner contends that since plunder is neither bribery nor dereliction of duty, his accounts are not excepted from the protection of R.A. 1405. Philippine National Bank v. Gancayco[7] holds otherwise: Cases of unexplained wealth are similar to cases of bribery or dereliction of duty and no reason is seen why these two classes of cases cannot be excepted from the rule making bank deposits confidential. The policy as to one cannot be different from the policy as to the other. This policy expresses the notion that a public office is a public trust and any person who enters upon its discharge does so with the full knowledge that his life, so far as relevant to his duty, is open to public scrutiny. Undoubtedly, cases for plunder involve unexplained wealth. Section 2 of R.A. No. 7080 states so. SECTION 2. Definition of the Crime of Plunder; Penalties. — Any public officer who, by himself or in connivance with members of his family, relatives by affinity or consanguinity, business associates, subordinates or other persons, amasses, accumulates or acquires ill- gotten wealth through a combination or series of overt or criminal acts as described in Section 1(d) hereof, in the aggregate amount or total value of at least Seventy-five million pesos (P75,000,000.00), shall be guilty of the crime of plunder and shall be punished by life imprisonment with perpetual absolute disqualification from holding any public office. Any person who participated with said public officer in the commission of plunder shall likewise be punished. In the imposition of penalties, the degree of participation and the attendance of mitigating and extenuating circumstances shall be considered by the court. The court shall declare any and all ill-gotten wealth and their interests and other incomes and assets including the properties and shares of stock derived from the deposit or investment thereof forfeited in favor of the State. (Emphasis and underscoring supplied) An examination of the “overt or criminal acts as described in Section 1(d)” of R.A. No. 7080 would make the similarity between plunder and bribery even more pronounced since bribery is essentially included among these criminal acts. Thus Section 1(d) states: d) “Ill-gotten wealth” means any asset, property, business enterprise or material possession of any person within the purview of Section Two (2) hereof, acquired by him directly or indirectly through dummies, nominees, agents, subordinates and or business associates by any combination or series of the following means or similar schemes. 1) Through misappropriation, conversion, misuse, or malversation of public funds or raids on the public treasury; 2) By receiving, directly or indirectly, any commission, gift, share, percentage, kickbacks or any other form of pecuniary benefit from any person and/or entity in connection with any government contract or project or by reason of the office or position of the public officer concerned; 3) By the illegal or fraudulent conveyance or disposition of assets belonging to the National Government or any of its subdivisions, agencies or instrumentalities or government-owned or -controlled corporations and their subsidiaries; 4) By obtaining, receiving or accepting directly or indirectly any shares of stock, equity or any other form of interest or participation including promise of future employment in any business enterprise or undertaking; 5) By establishing agricultural, industrial or commercial monopolies or other combinations and/or implementation of decrees and orders intended to benefit particular persons or special interests; or 6) By taking undue advantage of official position, authority, relationship, connection or influence to unjustly enrich himself or themselves at the expense and to the damage and prejudice of the Filipino people and the Republic of the Philippines. (Emphasis supplied) Indeed, all the above-enumerated overt acts are similar to bribery such that, in each case, it may be said that “no reason is seen why these two classes of cases cannot be excepted from the rule making bank deposits confidential.”[8] The crime of bribery and the overt acts constitutive of plunder are crimes committed by public officers, and in either case the noble idea that “a public office is a public trust and any person who enters upon its discharge does so with the full knowledge that his life, so far as relevant to his duty, is open to public scrutiny” applies with equal force.

Page 81 of 99

Plunder being thus analogous to bribery, the exception to R.A. 1405 applicable in cases of bribery must also apply to cases of plunder. Respecting petitioner’s claim that the money in his bank accounts is not the “subject matter of the litigation,” the meaning of the phrase “subject matter of the litigation” as used in R.A. 1405 is explained in Union Bank of the Philippines v. Court of Appeals,[9] thus: Petitioner contends that the Court of Appeals confuses the “cause of action” with the “subject of the action”. In Yusingco v. Ong Hing Lian, petitioner points out, this Court distinguished the two concepts. x x x “The cause of action is the legal wrong threatened or committed, while the object of the action is to prevent or redress the wrong by obtaining some legal relief; but the subject of the action is neither of these since it is not the wrong or the relief demanded, the subject of the action is the matter or thing with respect to which the controversy has arisen, concerning which the wrong has been done, and this ordinarily is the property or the contract and its subject matter, or the thing in dispute.” The argument is well-taken. We note with approval the difference between the ‘subject of the action’ from the ‘cause of action.’ We also find petitioner’s definition of the phrase ‘subject matter of the action’ is consistent with the term ‘subject matter of the litigation’, as the latter is used in the Bank Deposits Secrecy Act. In Mellon Bank, N.A. v. Magsino , where the petitioner bank inadvertently caused the transfer of the amount of US$1,000,000.00 instead of only US$1,000.00, the Court sanctioned the examination of the bank accounts where part of the money was subsequently caused to be deposited: ‘x x x Section 2 of [Republic Act No. 1405] allows the disclosure of bank deposits in cases where the money deposited is the subject matter of the litigation. Inasmuch as Civil Case No. 26899 is aimed at recovering the amount converted by the Javiers for their own benefit, necessarily, an inquiry into the whereabouts of the illegally acquired amount extends to whatever is concealed by being held or recorded in the name of persons other than the one responsible for the illegal acquisition.” Clearly, Mellon Bank involved a case where the money deposited was the subject matter of the litigation since the money deposited was the very thing in dispute. x x x” (Emphasis and underscoring supplied) The plunder case now pending with the Sandiganbayan necessarily involves an inquiry into the whereabouts of the amount purportedly acquired illegally by former President Joseph Estrada. In light then of this Court’s pronouncement in Union Bank, the subject matter of the litigation cannot be limited to bank accounts under the name of President Estrada alone, but must include those accounts to which the money purportedly acquired illegally or a portion thereof was alleged to have been transferred. Trust Account No. 858 and Savings Account No. 0116-17345-9 in the name of petitioner fall under this description and must thus be part of the subject matter of the litigation. In a further attempt to show that the subpoenas issued by the Sandiganbayan are invalid and may not be enforced, petitioner contends, as earlier stated, that the information found therein, given their “extremely detailed” character, could only have been obtained by the Special Prosecution Panel through an illegal disclosure by the bank officials concerned. Petitioner thus claims that, following the “fruit of the poisonous tree” doctrine, the subpoenas must be quashed. Petitioner further contends that even if, as claimed by respondent People, the “extremely-detailed” information was obtained by the Ombudsman from the bank officials concerned during a previous investigation of the charges against President Estrada, such inquiry into his bank accounts would itself be illegal. Petitioner relies on Marquez v. Desierto[10] where the Court held: We rule that before an in camera inspection may be allowed there must be a pending case before a court of competent jurisdiction. Further, the account must be clearly identified, the inspection limited to the subject matter of the pending case before the court of competent jurisdiction. The bank personnel and the account holder must be notified to be present during the inspection, and such inspection may cover only the account identified in the pending case. (Underscoring supplied) As no plunder case against then President Estrada had yet been filed before a court of competent jurisdiction at the time the Ombudsman conducted an investigation, petitioner concludes that the information about his bank accounts were acquired illegally, hence, it may not be lawfully used to facilitate a subsequent inquiry into the same bank accounts.

Page 82 of 99

Petitioner’s attempt to make the exclusionary rule applicable to the instant case fails. R.A. 1405, it bears noting, nowhere provides that an unlawful examination of bank accounts shall render the evidence obtained therefrom inadmissible in evidence. Section 5 of R.A. 1405 only states that “[a]ny violation of this law will subject the offender upon conviction, to an imprisonment of not more than five years or a fine of not more than twenty thousand pesos or both, in the discretion of the court.” The case of U.S. v. Frazin,[11] involving the Right to Financial Privacy Act of 1978 (RFPA) of the United States, is instructive. Because the statute, when properly construed, excludes a suppression remedy, it would not be appropriate for us to provide one in the exercise of our supervisory powers over the administration of justice. Where Congress has both established a right and provided exclusive remedies for its violation, we would “encroach upon the prerogatives” of Congress were we to authorize a remedy not provided for by statute. United States v. Chanen, 549 F.2d 1306, 1313 (9th Cir.) , cert. denied, 434 U.S. 825, 98 S.Ct. 72, 54 L.Ed.2d 83 (1977) . The same principle was reiterated in U.S. v. Thompson:[12]

x x x When Congress specifically designates a remedy for one of its acts, courts generally presume that it engaged in the necessary balancing of interests in determining what the appropriate penalty should be. See Michaelian, 803 F.2d at 1049 (citing cases); Frazin, 780 F.2d at 1466 . Absent a specific reference to an exclusionary rule, it is not appropriate for the courts to read such a provision into the act. Even assuming arguendo, however, that the exclusionary rule applies in principle to cases involving R.A. 1405, the Court finds no reason to apply the same in this particular case. Clearly, the “fruit of the poisonous tree” doctrine[13] presupposes a violation of law. If there was no violation of R.A. 1405 in the instant case, then there would be no “poisonous tree” to begin with, and, thus, no reason to apply the doctrine. How the Ombudsman conducted his inquiry into the bank accounts of petitioner is recounted by respondent People of the Philippines, viz: x x x [A]s early as February 8, 2001, long before the issuance of the Marquez ruling, the Office of the Ombudsman, acting under the powers granted to it by the Constitution and R.A. No. 6770, and acting on information obtained from various sources, including impeachment (of then Pres. Joseph Estrada) related reports, articles and investigative journals, issued aSubpoena Duces Tecum addressed to Urban Bank. (Attachment “1-b”) It should be noted that the description of the documents sought to be produced at that time included that of numbered accounts 727, 737, 747, 757, 777 and 858 and included such names as Jose Velarde, Joseph E. Estrada, Laarni Enriquez, Guia Gomez, Joy Melendrez, Peachy Osorio, Rowena Lopez, Kevin or Kelvin Garcia. The subpoena did not single out account 858. x x x x Thus, on February 13, 2001, PDIC, as receiver of Urban Bank, issued a certification as to the availability of bank documents relating to A/C 858 and T/A 858 and the non-availability of bank records as to the other accounts named in the subpoena. (Attachments “2”, “2-1” and “2-b) Based on the certification issued by PDIC, the Office of the Ombudsman on February 16, 2001 again issued a Subpoena Duces Tecum directed to Ms. Corazon dela Paz, as Interim Receiver, directing the production of documents pertinent to account A/C 858 and T/C 858. (Attachment “3”) In compliance with the said subpoena dated February 16, 2001, Ms. Dela Paz, as interim receiver, furnished the Office of the Ombudsman certified copies of documents under cover latter dated February 21, 2001: 1. Transaction registers dated 7-02-99, 8-16-99, 9-17-99, 10-18-99, 11-22-99, 1-07-00, 04-03-00 and 04-24-00;2. Report of Unregularized TAFs & TDs for UR COIN A & B Placements of Various Branches as of February 29, 2000 and as of December 16, 1999; and3. Trading Orders Nos. A No. 78102 and A No. 078125. Trading Order A No. 07125 is filed in two copies – a white copy which showed “set up” information; and a yellow copy which showed “reversal” information. Both copies have been reproduced and are enclosed with this letter. We are continuing our search for other records and documents pertinent to your request and we will forward to you on Friday, 23 February 2001, such additional records and documents as we might find until then. (Attachment “4”)

Page 83 of 99

The Office of the Ombudsman then requested for the manger’s checks, detailed in the Subpoena Duces Tecum dated March 7, 2001. (Attachment “5”) PDIC again complied with the said Subpoena Duces Tecum dated March 7, 2001 and provided copies of the manager’s checks thus requested under cover letter dated March 16, 2001. (Attachment “6”)[14] (Emphasis in the original) The Sandiganbayan credited the foregoing account of respondent People.[15] The Court finds no reason to disturb this finding of fact by the Sandiganbayan. The Marquez ruling notwithstanding, the above-described examination by the Ombudsman of petitioner’s bank accounts, conducted before a case was filed with a court of competent jurisdiction, was lawful. For the Ombudsman issued the subpoenas bearing on the bank accounts of petitioner about four months before Marquez was promulgated on June 27, 2001. While judicial interpretations of statutes, such as that made in Marquez with respect to R.A. No. 6770 or the Ombudsman Act of 1989, are deemed part of the statute as of the date it was originally passed, the rule is not absolute. Columbia Pictures, Inc. v. Court of Appeals[16] teaches: It is consequently clear that a judicial interpretation becomes a part of the law as of the date that law was originally passed, subject only to the qualification that when a doctrine of this Court is overruled and a different view is adopted, and more so when there is a reversal thereof, the new doctrine should be applied prospectively and should not apply to parties who relied on the old doctrine and acted in good faith. (Emphasis and underscoring supplied) When this Court construed the Ombudsman Act of 1989, in light of the Secrecy of Bank Deposits Law in Marquez, that “before an in camera inspection may be allowed there must be a pending case before a court of competent jurisdiction”, it was, in fact, reversing an earlier doctrine found in Banco Filipino Savings and Mortgage Bank v. Purisima[17]. Banco Filipino involved subpoenas duces tecum issued by the Office of the Ombudsman, then known as the Tanodbayan,[18] in the course of its preliminary investigation of a charge of violation of the Anti-Graft and Corrupt Practices Act. While the main issue in Banco Filipino was whether R.A. 1405 precluded the Tanodbayan’s issuance of subpoena duces tecum of bank records in the name of persons other than the one who was charged, this Court, citing P.D. 1630,[19] Section 10, the relevant part of which states: (d) He may issue a subpoena to compel any person to appear, give sworn testimony, or produce documentary or other evidence the Tanodbayan deems relevant to a matter under his inquiry, held that “The power of the Tanodbayan to issue subpoenae ad testificandum and subpoenae duces tecum at the time in question is not disputed, and at any rate does not admit of doubt.”[20] As the subpoenas subject of Banco Filipino were issued during a preliminary investigation, in effect this Court upheld the power of the Tandobayan under P.D. 1630 to issue subpoenas duces tecum for bank documents prior to the filing of a case before a court of competent jurisdiction. Marquez, on the other hand, practically reversed this ruling in Banco Filipino despite the fact that the subpoena power of the Ombudsman under R.A. 6770 was essentially the same as that under P.D. 1630. Thus Section 15 of R.A. 6770 empowers the Office of the Ombudsman to (8) Administer oaths, issue subpoena and subpoena duces tecum, and take testimony in any investigation or inquiry, including the power to examine and have access to bank accounts and records; A comparison of this provision with its counterpart in Sec. 10(d) of P.D. 1630 clearly shows that it is only more explicit in stating that the power of the Ombudsman includes the power to examine and have access to bank accounts and records which power was recognized with respect to the Tanodbayan through Banco Filipino.

Page 84 of 99

The Marquez ruling that there must be a pending case in order for the Ombudsman to validly inspect bank records in camera thus reversed a prevailing doctrine.[21] Hence, it may not be retroactively applied. The Ombudsman’s inquiry into the subject bank accounts prior to the filing of any case before a court of competent jurisdiction was therefore valid at the time it was conducted. Likewise, the Marquez ruling that “the account holder must be notified to be present during the inspection” may not be applied retroactively to the inquiry of the Ombudsman subject of this case. This ruling is not a judicial interpretation either of R.A. 6770 or R.A. 1405, but a “judge-made” law which, as People v. Luvendino[22] instructs, can only be given prospective application: x x x The doctrine that an uncounselled waiver of the right to counsel is not to be given legal effect was initially a judge-made one and was first announced on 26 April 1983 in Morales v. Enrile and reiterated on 20 March 1985 in People v. Galit. x x x While the Morales-Galit doctrine eventually became part of Section 12(1) of the 1987 Constitution, that doctrine affords no comfort to appellant Luvendino for the requirements and restrictions outlined in Morales and Galit have no retroactive effect and do not reach waivers made prior to 26 April 1983 the date of promulgation of Morales. (Emphasis supplied) In fine, the subpoenas issued by the Ombudsman in this case were legal, hence, invocation of the “fruit of the poisonous tree” doctrine is misplaced. AT ALL EVENTS, even if the challenged subpoenas are quashed, the Ombudsman is not barred from requiring the production of the same documents based solely on information obtained by it from sources independent of its previous inquiry. In particular, the Ombudsman, even before its inquiry, had already possessed information giving him grounds to believe that (1) there are bank accounts bearing the number “858,” (2) that such accounts are in the custody of Urban Bank, and (3) that the same are linked with the bank accounts of former President Joseph Estrada who was then under investigation for plunder. Only with such prior independent information could it have been possible for the Ombudsman to issue the February 8, 2001 subpoena duces tecum addressed to the President and/or Chief Executive Officer of Urban Bank , which described the documents subject thereof as follows: (a) bank records and all documents relative thereto pertaining to all bank accounts (Savings, Current, Time Deposit, Trust, Foreign Currency Deposits, etc…) under the account namesof Jose Velarde, Joseph E. Estrada, Laarni Enriquez, Guia Gomez, Joy Melendrez, Peach Osorio, Rowena Lopez, Kevin or Kelvin Garcia, 727, 737, 747, 757, 777 and 858 . (Emphasis and underscoring supplied) The information on the existence of Bank Accounts bearing number “858” was, according to respondent People of the Philippines, obtained from various sources including the proceedings during the impeachment of President Estrada, related reports, articles and investigative journals.[23] In the absence of proof to the contrary, this explanation proffered by respondent must be upheld. To presume that the information was obtained in violation of R.A. 1405 would infringe the presumption of regularity in the performance of official functions. Thus, with the filing of the plunder case against former President Estrada before the Sandiganbayan, the Ombudsman, using the above independent information, may now proceed to conduct the same investigation it earlier conducted, through which it can eventually obtain the same information previously disclosed to it by the PDIC, for it is an inescapable fact that the bank records of petitioner are no longer protected by R.A. 1405 for the reasons already explained above. Since conducting such an inquiry would, however, only result in the disclosure of the same documents to the Ombudsman, this Court, in avoidance of what would be a time-wasteful and circuitous way of administering justice,[24] upholds the challenged subpoenas. Respecting petitioner’s claim that the Sandiganbayan violated his right to due process as he was neither notified of the requests for the issuance of the subpoenas nor of the grant thereof, suffice it to state that the defects were cured when petitioner ventilated his arguments against the issuance thereof through his earlier quoted letter addressed to the Sandiganbayan and when he filed his motions to quash before the Sandiganbayan. IN SUM, the Court finds that the Sandiganbayan did not commit grave abuse of discretion in issuing the challenged subpoenas for documents pertaining to petitioner’s Trust Account No. 858 and Savings Account No. 0116-17345-9 for the following reasons:

Page 85 of 99

1. These accounts are no longer protected by the Secrecy of Bank Deposits Law, there being two exceptions to the said law applicable in this case, namely: (1) the examination of bank accounts is upon order of a competent court in cases of bribery or dereliction of duty of public officials, and (2) the money deposited or invested is the subject matter of the litigation. Exception (1) applies since the plunder case pending against former President Estrada is analogous to bribery or dereliction of duty, while exception (2) applies because the money deposited in petitioner’s bank accounts is said to form part of the subject matter of the same plunder case. 2. The “fruit of the poisonous tree” principle, which states that once the primary source (the “tree”) is shown to have been unlawfully obtained, any secondary or derivative evidence (the “fruit”) derived from it is also inadmissible, does not apply in this case. In the first place, R.A. 1405 does not provide for the application of this rule. Moreover, there is no basis for applying the same in this case since the primary source for the detailed information regarding petitioner’s bank accounts – the investigation previously conducted by the Ombudsman – was lawful. 3. At all events, even if the subpoenas issued by the Sandiganbayan were quashed, the Ombudsman may conduct on its own the same inquiry into the subject bank accounts that it earlier conducted last February-March 2001, there being a plunder case already pending against former President Estrada. To quash the challenged subpoenas would, therefore, be pointless since the Ombudsman may obtain the same documents by another route. Upholding the subpoenas avoids an unnecessary delay in the administration of justice. WHEREFORE, the petition is DISMISSED. The Sandiganbayan Resolutions dated February 7 and 12, 2003 and March 11, 2003 are upheld. The Sandiganbayan is hereby directed, consistent with this Court’s ruling in Marquez v. Desierto, to notify petitioner as to the date the subject bank documents shall be presented in court by the persons subpoenaed. SO ORDERED.

Page 86 of 99

EN BANC

G.R. No. L-34964 January 31, 1973

CHINA BANKING CORPORATION and TAN KIM LIONG, petitioners-appellants, vs.HON. WENCESLAO ORTEGA, as Presiding Judge of the Court of First Instance of Manila, Branch VIII, and VICENTE G. ACABAN, respondents-appellees.

Sy Santos, Del Rosario and Associates for petitioners-appellants.

Tagalo, Gozar and Associates for respondents-appellees.

MAKALINTAL, J.:

The only issue in this petition for certiorari to review the orders dated March 4, 1972 and March 27, 1972, respectively, of the Court of First Instance of Manila in its Civil Case No. 75138, is whether or not a banking institution may validly refuse to comply with a court process garnishing the bank deposit of a judgment debtor, by invoking the provisions of Republic Act No. 1405. *

On December 17, 1968 Vicente Acaban filed a complaint in the court a quo against Bautista Logging Co., Inc., B & B Forest Development Corporation and Marino Bautista for the collection of a sum of money. Upon motion of the plaintiff the trial court declared the defendants in default for failure to answer within the reglementary period, and authorized the Branch Clerk of Court and/or Deputy Clerk to receive the plaintiff's evidence. On January 20, 1970 judgment by default was rendered against the defendants.

To satisfy the judgment, the plaintiff sought the garnishment of the bank deposit of the defendant B & B Forest Development Corporation with the China Banking Corporation. Accordingly, a notice of garnishment was issued by the Deputy Sheriff of the trial court and served on said bank through its cashier, Tan Kim Liong. In reply, the bank' cashier invited the attention of the Deputy Sheriff to the provisions of Republic Act No. 1405 which, it was alleged, prohibit the disclosure of any information relative to bank deposits. Thereupon the plaintiff filed a motion to cite Tan Kim Liong for contempt of court.

In an order dated March 4, 1972 the trial court denied the plaintiff's motion. However, Tan Kim Liong was ordered "to inform the Court within five days from receipt of this order whether or not there is a deposit in the China Banking Corporation of defendant B & B Forest Development Corporation, and if there is any deposit, to hold the same intact and not allow any withdrawal until further order from this Court." Tan Kim Liong moved to reconsider but was turned down by order of March 27, 1972. In the same order he was directed "to comply with the order of this Court dated March 4, 1972 within ten (10) days from the receipt of copy of this order, otherwise his arrest and confinement will be ordered by the Court." Resisting the two orders, the China Banking Corporation and Tan Kim Liong instituted the instant petition.

The pertinent provisions of Republic Act No. 1405 relied upon by the petitioners reads:

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 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.

Sec 3. It shall be unlawful for any official or employee of a banking institution to disclose to any person other than those mentioned in Section two hereof any information concerning said deposits.

Sec. 5. Any violation of this law will subject 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.

Page 87 of 99

The petitioners argue that the disclosure of the information required by the court does not fall within any of the four (4) exceptions enumerated in Section 2, and that if the questioned orders are complied with Tan Kim Liong may be criminally liable under Section 5 and the bank exposed to a possible damage suit by B & B Forest Development Corporation. Specifically referring to this case, the position of the petitioners is that the bank deposit of judgment debtor B & B Forest Development Corporation cannot be subject to garnishment to satisfy a final judgment against it in view of the aforequoted provisions of law.

We do not view the situation in that light. The lower court did not order an examination of or inquiry into the deposit of B & B Forest Development Corporation, as contemplated in the law. It merely required Tan Kim Liong to inform the court whether or not the defendant B & B Forest Development Corporation had a deposit in the China Banking Corporation only for purposes of the garnishment issued by it, so that the bank would hold the same intact and not allow any withdrawal until further order. It will be noted from the discussion of the conference committee report on Senate Bill No. 351 and House Bill No. 3977, which later became Republic Act 1405, that it was not the intention of the lawmakers to place bank deposits beyond the reach of execution to satisfy a final judgment. Thus:

Mr. MARCOS. Now, for purposes of the record, I should like the Chairman of the Committee on Ways and Means to clarify this further. Suppose an individual has a tax case. He is being held liable by the Bureau of Internal Revenue for, say, P1,000.00 worth of tax liability, and because of this the deposit of this individual is attached by the Bureau of Internal Revenue.

Mr. RAMOS. The attachment will only apply after the court has pronounced sentence declaring the liability of such person. But where the primary aim is to determine whether he has a bank deposit in order to bring about a proper assessment by the Bureau of Internal Revenue, such inquiry is not authorized by this proposed law.

Mr. MARCOS. But under our rules of procedure and under the Civil Code, the attachment or garnishment of money deposited is allowed. Let us assume, for instance, that there is a preliminary attachment which is for garnishment or for holding liable all moneys deposited belonging to a certain individual, but such attachment or garnishment will bring out into the open the value of such deposit. Is that prohibited by this amendment or by this law?

Mr. RAMOS. It is only prohibited to the extent that the inquiry is limited, or rather, the inquiry is made only for the purpose of satisfying a tax liability already declared for the protection of the right in favor of the government; but when the object is merely to inquire whether he has a deposit or not for purposes of taxation, then this is fully covered by the law.

Mr. MARCOS. And it protects the depositor, does it not?

Mr. RAMOS. Yes, it protects the depositor.

Mr. MARCOS. The law prohibits a mere investigation into the existence and the amount of the deposit.

Mr. RAMOS. Into the very nature of such deposit.

Mr. MARCOS. So I come to my original question. Therefore, preliminary garnishment or attachment of the deposit is not allowed?

Mr. RAMOS. No, without judicial authorization.

Mr. MARCOS. I am glad that is clarified. So that the established rule of procedure as well as the substantive law on the matter is amended?

Mr. RAMOS. Yes. That is the effect.

Mr. MARCOS. I see. Suppose there has been a decision, definitely establishing the liability of an individual for taxation purposes and this judgment is sought to be executed ... in the execution of that judgment, does this bill, or this proposed law, if approved, allow the investigation or scrutiny of the bank deposit in order to execute the judgment?

Mr. RAMOS. To satisfy a judgment which has become executory.

Mr. MARCOS. Yes, but, as I said before, suppose the tax liability is P1,000,000 and the deposit is half a million, will this bill allow scrutiny into the deposit in order that the judgment may be executed?

Page 88 of 99

Mr. RAMOS. Merely to determine the amount of such money to satisfy that obligation to the Government, but not to determine whether a deposit has been made in evasion of taxes.

xxx xxx xxx

Mr. MACAPAGAL. But let us suppose that in an ordinary civil action for the recovery of a sum of money the plaintiff wishes to attach the properties of the defendant to insure the satisfaction of the judgment. Once the judgment is rendered, does the gentleman mean that the plaintiff cannot attach the bank deposit of the defendant?

Mr. RAMOS. That was the question raised by the gentleman from Pangasinan to which I replied that outside the very purpose of this law it could be reached by attachment.

Mr. MACAPAGAL. Therefore, in such ordinary civil cases it can be attached?

Mr. RAMOS. That is so.

(Vol. II, Congressional Record, House of Representatives, No. 12, pp. 3839-3840, July 27, 1955).

It is sufficiently clear from the foregoing discussion of the conference committee report of the two houses of Congress 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 the 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.

WHEREFORE, the orders of the lower court dated March 4 and 27, 1972, respectively, are hereby affirmed, with costs against the petitioners-appellants.

Zaldivar, Castro, Fernando, Barredo, Makasiar, Antonio and Esguerra, JJ., concur.

Concepcion, C.J. and Teehankee, J., took no part.

Footnotes

* An Act Probihiting Disclosure of or Inquiry into, Deposits with any Banking Institution and Providing Penalty Therefor.

Page 89 of 99

Page 90 of 99

EN BANC

[G.R. No. 94723. August 21, 1997]

KAREN E. SALVACION, minor, thru Federico N. Salvacion, Jr., father and Natural Guardian, and Spouses FEDERICO N. SALVACION, JR., and EVELINA E. SALVACION, petitioners, vs. CENTRAL BANK OF THE PHILIPPINES, CHINA BANKING CORPORATION and GREG BARTELLI y NORTHCOTT, respondents.

D E C I S I O N

TORRES, JR., J.:

In our predisposition to discover the “original intent” of a statute, courts become the unfeeling pillars of the status quo. Little do we realize that statutes or even constitutions are bundles of compromises thrown our way by their framers. Unless we exercise vigilance, the statute may already be out of tune and irrelevant to our day.

The petition is for declaratory relief. It prays for the following reliefs:

a.) Immediately upon the filing of this petition, an Order be issued restraining the respondents from applying and enforcing Section 113 of Central Bank Circular No. 960;

b.) After hearing, judgment be rendered:

1.) Declaring the respective rights and duties of petitioners and respondents;

2.) Adjudging Section 113 of Central Bank Circular No. 960 as contrary to the provision of the Constitution, hence void; because its provision that “Foreign currency deposits shall be exempt from attachment, garnishment, or any other order to process of any court, legislative body, government agency or any administrative body whatsoever”

i.) has taken away the right of petitioners to have the bank deposit of defendant Greg Bartelli y Northcott garnished to satisfy the judgment rendered in petitioners’ favor in violation of substantive due process guaranteed by the Constitution;

ii.) has given foreign currency depositors an undue favor or a class privilege in violation of the equal protection clause of the Constitution;

iii.) has provided a safe haven for criminals like the herein respondent Greg Bartelli y Northcott since criminals could escape civil liability for their wrongful acts by merely converting their money to a foreign currency and depositing it in a foreign currency deposit account with an authorized bank.

The antecedents facts:

On February 4, 1989, Greg Bartelli y Northcott, an American tourist, coaxed and lured petitioner Karen Salvacion, then 12 years old to go with him to his apartment. Therein, Greg Bartelli detained Karen Salvacion for four days, or up to February 7, 1989 and was able to rape the child once on February 4, and three times each day on February 5, 6, and 7, 1989. On February 7, 1989, after policemen and people living nearby, rescued Karen, Greg Bartelli was arrested and detained at the Makati Municipal Jail. The policemen recovered from Bartelli the following items: 1.) Dollar Check No. 368, Control No. 021000678-1166111303, US 3,903.20; 2.) COCOBANK Bank Book No. 104-108758-8 (Peso Acct.); 3.) Dollar Account – China Banking Corp., US $/A#54105028-2; 4.) ID-122-30-8877; 5.) Philippine Money (P234.00) cash; 6.) Door Keys 6 pieces; 7.) Stuffed Doll (Teddy Bear) used in seducing the complainant.

On February 16, 1989, Makati Investigating Fiscal Edwin G. Condaya filed against Greg Bartelli, Criminal Case No. 801 for Serious Illegal Detention and Criminal Cases Nos. 802, 803, 804, and 805 for four (4) counts of Rape. On the same day, petitioners filed with the Regional Trial Court of Makati Civil Case No. 89-3214 for damages with preliminary attachment against Greg Bartelli. On February 24, 1989, the day there was a scheduled hearing for Bartelli’s petition for bail the latter escaped from jail.

On February 28, 1989, the court granted the fiscal’s Urgent Ex-Parte Motion for the Issuance of Warrant of Arrest and Hold Departure Order. Pending the arrest of the accused Greg Bartelli y Northcott, the criminal cases were archived in an Order dated February 28, 1989.

Page 91 of 99

Meanwhile, in Civil Case No. 89-3214, the Judge issued an Order dated February 22, 1989 granting the application of herein petitioners, for the issuance of the writ of preliminary attachment. After petitioners gave Bond No. JCL (4) 1981 by FGU Insurance Corporation in the amount P100,000.00, a Writ of Preliminary Attachment was issued by the trial court on February 28, 1989.

On March 1, 1989, the Deputy Sheriff of Makati served a Notice of Garnishment on China Banking Corporation. In a letter dated March 13, 1989 to the Deputy Sheriff of Makati, China Banking Corporation invoked Republic Act No. 1405 as its answer to the notice of garnishment served on it. On March 15, 1989, Deputy Sheriff of Makati Armando de Guzman sent his reply to China Banking Corporation saying that the garnishment did not violate the secrecy of bank deposits since the disclosure is merely incidental to a garnishment properly and legally made by virtue of a court order which has placed the subject deposits in custodia legis. In answer to this letter of the Deputy Sheriff of Makati, China Banking Corporation, in a letter dated March 20, 1989, invoked Section 113 of Central Bank Circular No. 960 to the effect that the dollar deposits of defendant Greg Bartelli are exempt from attachment, garnishment, or any other order or process of any court, legislative body, government agency or any administrative body, whatsoever.

This prompted the counsel for petitioners to make an inquiry with the Central Bank in a letter dated April 25, 1989 on whether Section 113 of CB Circular No. 960 has any exception or whether said section has been repealed or amended since said section has rendered nugatory the substantive right of the plaintiff to have the claim sought to be enforced by the civil action secured by way of the writ of preliminary attachment as granted to the plaintiff under Rule 57 of the Revised Rules of Court. The Central Bank responded as follows:

“May 26, 1989

“Ms. Erlinda S. Carolino

12 Pres. Osmeña Avenue

South Admiral Village

Paranaque, Metro Manila

“Dear Ms. Carolino:

“This is in reply to your letter dated April 25, 1989 regarding your inquiry on Section 113, CB Circular No. 960 (1983).

“The cited provision is absolute in application. It does not admit of any exception, nor has the same been repealed nor amended.

“The purpose of the law is to encourage dollar accounts within the country’s banking system which would help in the development of the economy. There is no intention to render futile the basic rights of a person as was suggested in your subject letter. The law may be harsh as some perceive it, but it is still the law. Compliance is, therefore, enjoined.

“Very truly yours,

(SGD) AGAPITO S. FAJARDO

Director”[1]

Meanwhile, on April 10, 1989, the trial court granted petitioners’ motion for leave to serve summons by publication in the Civil Case No. 89-3214 entitled “Karen Salvacion. et al. vs. Greg Bartelli y Northcott.” Summons with the complaint was published in the Manila Times once a week for three consecutive weeks. Greg Bartelli failed to file his answer to the complaint and was declared in default on August 7, 1989. After hearing the case ex-parte, the court rendered judgment in favor of petitioners on March 29, 1990, the dispositive portion of which reads:

“WHEREFORE, judgment is hereby rendered in favor of plaintiffs and against defendant, ordering the latter:

“1. To pay plaintiff Karen E. Salvacion the amount of P500,000.00 as moral damages;

“2. To pay her parents, plaintiffs spouses Federico N. Salvacion, Jr., and Evelina E. Salvacion the amount of P150,000.00 each or a total of P300,000.00 for both of them;

Page 92 of 99

“3. To pay plaintiffs exemplary damages of P100,000.00; and

“4. To pay attorney’s fees in an amount equivalent to 25% of the total amount of damages herein awarded;

“5. To pay litigation expenses of P10,000.00; plus

“6. Costs of the suit.

“SO ORDERED.”

The heinous acts of respondents Greg Bartelli which gave rise to the award were related in graphic detail by the trial court in its decision as follows:

“The defendant in this case was originally detained in the municipal jail of Makati but was able to escape therefrom on February 24, 1989 as per report of the Jail Warden of Makati to the Presiding Judge, Honorable Manuel M. Cosico of the Regional Trial Court of Makati, Branch 136, where he was charged with four counts of Rape and Serious Illegal Detention (Crim. Cases Nos. 802 to 805). Accordingly, upon motion of plaintiffs, through counsel, summons was served upon defendant by publication in the Manila Times, a newspaper of general circulation as attested by the Advertising Manager of the Metro Media Times, Inc., the publisher of the said newspaper. Defendant, however, failed to file his answer to the complaint despite the lapse of the period of sixty (60) days from the last publication; hence, upon motion of the plaintiffs through counsel, defendant was declared in default and plaintiffs were authorized to present their evidence ex parte.

“In support of the complaint, plaintiffs presented as witness the minor Karen E. Salvacion, her father, Federico N. Salacion, Jr., a certain Joseph Aguilar and a certain Liberato Mandulio, who gave the following testimony:

“Karen took her first year high school in St. Mary’s Academy in Pasay City but has recently transferred to Arellano University for her second year.

“In the afternoon of February 4, 1989, Karen was at the Plaza Fair Makati Cinema Square, with her friend Edna Tangile whiling away her free time. At about 3:30 p.m. while she was finishing her snack on a concrete bench in front of Plaza Fair, an American approached her. She was then alone because Edna Tangile had already left, and she was about to go home. (TSN, Aug. 15, 1989, pp. 2 to 5)

“The American asked her name and introduced himself as Greg Bartelli. He sat beside her when he talked to her. He said he was a Math teacher and told her that he has a sister who is a nurse in New York. His sister allegedly has a daughter who is about Karen’s age and who was with him in his house along Kalayaan Avenue. (TSN, Aug. 15, 1989, pp. 4-5).

“The American asked Karen what was her favorite subject and she told him it’s Pilipino. He then invited her to go with him to his house where she could teach Pilipino to his niece. He even gave her a stuffed toy to persuade her to teach his niece. (Id., pp.5-6)

“They walked from Plaza Fair along Pasong Tamo, turning right to reach the defendant’s house along Kalayaan Avenue. ( Id., p.6)

“When they reached the apartment house, Karen notices that defendant’s alleged niece was not outside the house but defendant told her maybe his niece was inside. When Karen did not see the alleged niece inside the house, defendant told her maybe his niece was upstairs, and invited Karen to go upstairs. (Id., p. 7)

“Upon entering the bedroom defendant suddenly locked the door. Karen became nervous because his niece was not there. Defendant got a piece of cotton cord and tied Karen’s hands with it, and then he undressed her. Karen cried for help but defendant strangled her. He took a packing tape and he covered her mouth with it and he circled it around her head. (Id., p. 7)

“Then, defendant suddenly pushed Karen towards the bed which was just near the door. He tied her feet and hands spread apart to the bed posts. He knelt in front of her and inserted his finger in her sex organ. She felt severe pain. She tried to shout but no sound could come out because there were tapes on her mouth. When defendant withdrew his finger it was full of blood and Karen felt more pain after the withdrawal of the finger. (Id., p.8)

“He then got a Johnsons Baby Oil and he applied it to his sex organ as well as to her sex organ. After that he forced his sex organ into her but he was not able to do so. While he was doing it, Karen found it difficult to breathe and she perspired a lot while feeling severe

Page 93 of 99

pain. She merely presumed that he was able to insert his sex organ a little, because she could not see. Karen could not recall how long the defendant was in that position. (Id., pp. 8-9)

“After that, he stood up and went to the bathroom to wash. He also told Karen to take a shower and he untied her hands. Karen could only hear the sound of the water while the defendant, she presumed, was in the bathroom washing his sex organ. When she took a shower more blood came out from her. In the meantime, defendant changed the mattress because it was full of blood. After the shower, Karen was allowed by defendant to sleep. She fell asleep because she got tired crying. The incident happened at about 4:00 p.m. Karen had no way of determining the exact time because defendant removed her watch. Defendant did not care to give her food before she went to sleep. Karen woke up at about 8:00 o’clock the following morning. (Id., pp. 9-10)

“The following day, February 5, 1989, a Sunday, after breakfast of biscuit and coke at about 8:30 to 9:00 a.m. defendant raped Karen while she was still bleeding. For lunch, they also took biscuit and coke. She was raped for the second time at about 12:00 to 2:00 p.m. In the evening, they had rice for dinner which defendant had stored downstairs; it was he who cooked the rice that is why it looks like “lugaw”. For the third time, Karen was raped again during the night. During those three times defendant succeeded in inserting his sex organ but she could not say whether the organ was inserted wholly.

“Karen did not see any firearm or any bladed weapon. The defendant did not tie her hands and feet nor put a tape on her mouth anymore but she did not cry for help for fear that she might be killed; besides, all those windows and doors were closed. And even if she shouted for help, nobody would hear her. She was so afraid that if somebody would hear her and would be able to call a police, it was still possible that as she was still inside the house, defendant might kill her. Besides, the defendant did not leave that Sunday, ruling out her chance to call for help. At nighttime he slept with her again. (TSN, Aug. 15, 1989, pp. 12-14)

“On February 6, 1989, Monday, Karen was raped three times, once in the morning for thirty minutes after breakfast of biscuits; again in the afternoon; and again in the evening. At first, Karen did not know that there was a window because everything was covered by a carpet, until defendant opened the window for around fifteen minutes or less to let some air in, and she found that the window was covered by styrofoam and plywood. After that, he again closed the window with a hammer and he put the styrofoam, plywood, and carpet back. (Id., pp. 14-15)

“That Monday evening, Karen had a chance to call for help, although defendant left but kept the door closed. She went to the bathroom and saw a small window covered by styrofoam and she also spotted a small hole. She stepped on the bowl and she cried for help through the hole. She cried: ‘Maawa na po kayo sa akin. Tulungan n’yo akong makalabas dito. Kinidnap ako!’ Somebody heard her. It was a woman, probably a neighbor, but she got angry and said she was ‘istorbo.’ Karen pleaded for help and the woman told her to sleep and she will call the police. She finally fell asleep but no policeman came. (TSN, Aug. 15, 1989, pp. 15-16)

“She woke up at 6:00 o’clock the following morning, and she saw defendant in bed, this time sleeping. She waited for him to wake up. When he woke up, he again got some food but he always kept the door locked. As usual, she was merely fed with biscuit and coke. On that day, February 7, 1989, she was again raped three times. The first at about 6:30 to 7:00 a.m., the second at about 8:30 – 9:00, and the third was after lunch at 12:00 noon. After he had raped her for the second time he left but only for a short while. Upon his return, he caught her shouting for help but he did not understand what she was shouting about. After she was raped the third time, he left the house. (TSN, Aug. 15, 1989, pp. 16-17) She again went to the bathroom and shouted for help. After shouting for about five minutes, she heard many voices. The voices were asking for her name and she gave her name as Karen Salvacion. After a while, she heard a voice of a woman saying they will just call the police. They were also telling her to change her clothes. She went from the bathroom to the room but she did not change her clothes being afraid that should the neighbors call the police and the defendant see her in different clothes, he might kill her. At that time she was wearing a T-shirt of the American bacause the latter washed her dress. (Id., p. 16)

“Afterwards, defendant arrived and opened the door. He asked her if she had asked for help because there were many policemen outside and she denied it. He told her to change her clothes, and she did change to the one she was wearing on Saturday. He instructed her to tell the police that she left home and willingly; then he went downstairs but he locked the door. She could hear people conversing but she could not understand what they were saying. (Id., p. 19)

“When she heard the voices of many people who were conversing downstairs, she knocked repeatedly at the door as hard as she could. She heard somebody going upstairs and when the door was opened, she saw a policeman. The policeman asked her name and the reason why she was there. She told him she was kidnapped. Downstairs, he saw about five policemen in uniform and the defendant was talking to them. ‘Nakikipag-areglo po sa mga pulis,’ Karen added. “The policeman told him to just explain at the precinct. (Id., p. 20)

Page 94 of 99

“They went out of the house and she saw some of her neighbors in front of the house. They rode the car of a certain person she called Kuya Boy together with defendant, the policeman, and two of her neighbors whom she called Kuya Bong Lacson and one Ate Nita. They were brought to Sub-Station I and there she was investigated by a policeman. At about 2:00 a.m., her father arrived, followed by her mother together with some of their neighbors. Then they were brought to the second floor of the police headquarters. (Id., p. 21)

“At the headquarters, she was asked several questions by the investigator. The written statement she gave to the police was marked Exhibit A. Then they proceeded to the National Bureau of Investigation together with the investigator and her parents. At the NBI, a doctor, a medico-legal officer, examined her private parts. It was already 3:00 in early morning, of the following day when they reached the NBI, (TSN, Aug. 15, 1989, p. 22) The findings of the medico-legal officer has been marked as Exhibit B.

“She was studying at the St. Mary’s Academy in Pasay City at the time of the Incident but she subsequently transferred to Apolinario Mabini, Arellano University, situated along Taft Avenue, because she was ashamed to be the subject of conversation in the school. She first applied for transfer to Jose Abad Santos, Arellano University along Taft Avenue near the Light Rail Transit Station but she was denied admission after she told the school the true reason for her transfer. The reason for their denial was that they might be implicated in the case. (TSN, Aug. 15, 1989, p. 46)

xxx xxx xxx

“After the incident, Karen has changed a lot. She does not play with her brother and sister anymore, and she is always in a state of shock; she has been absent-minded and is ashamed even to go out of the house. (TSN, Sept. 12, 1989, p. 10) She appears to be restless or sad. (Id., p. 11) The father prays for P500,000.00 moral damages for Karen for this shocking experience which probably, she would always recall until she reaches old age, and he is not sure if she could ever recover from this experience.” (TSN, Sept. 24, 1989, pp. 10-11)

Pursuant to an Order granting leave to publish notice of decision, said notice was published in the Manila Bulletin once a week for three consecutive weeks. After the lapse of fifteen (15) days from the date of the last publication of the notice of judgment and the decision of the trial court had become final, petitioners tried to execute on Bartelli’s dollar deposit with China Banking Corporation. Likewise, the bank invoked Section 113 of Central Bank Circular No. 960.

Thus, petitioners decided to seek relief from this Court.

The issues raised and the arguments articulated by the parties boil down to two:

May this Court entertain the instant petition despite the fact that original jurisdiction in petitions for declaratory relief rests with the lower court? She Section 113 of Central Bank Circular No. 960 and Section 8 of R.A. 6426, as amended by P.D. 1246, otherwise known as the Foreign Currency Deposit Act be made applicable to a foreign transient?

Petitioners aver as heretofore stated that Section 113 of Central Bank Circular No. 960 providing that “Foreign currency deposits shall be exempt from attachment, garnishment, or any other order or process of any court, legislative body, government agency or any administrative body whatsoever.” should be adjudged as unconstitutional on the grounds that: 1.) it has taken away the right of petitioners to have the bank deposit of defendant Greg Bartelli y Northcott garnished to satisfy the judgment rendered in petitioners’ favor in violation of substantive due process guaranteed by the Constitution; 2.) it has given foreign currency depositors an undue favor or a class privilege n violation of the equal protection clause of the Constitution; 3.) it has provided a safe haven for criminals like the herein respondent Greg Bartelli y Northcott since criminal could escape civil liability for their wrongful acts by merely converting their money to a foreign currency and depositing it in a foreign currency deposit account with an authorized bank; and 4.) The Monetary Board, in issuing Section 113 of Central Bank Circular No. 960 has exceeded its delegated quasi- legislative power when it took away: a.) the plaintiff’s substantive right to have the claim sought to be enforced by the civil action secured by way of the writ of preliminary attachment as granted by Rule 57 of the Revised Rules of Court; b.) the plaintiff’s substantive right to have the judgment credit satisfied by way of the writ of execution out of the bank deposit of the judgment debtor as granted to the judgment creditor by Rule 39 of the Revised Rules of Court, which is beyond its power to do so.

On the other hand, respondent Central Bank, in its Comment alleges that the Monetary Board in issuing Section 113 of CB Circular No. 960 did not exceed its power or authority because the subject Section is copied verbatim from a portion of R.A. No. 6426 as amended by P.D. 1246. Hence, it was not the Monetary Board that grants exemption from attachment or garnishment to foreign currency deposits, but the law (R.A. 6426 as amended) itself; that it does not violate the substantive due process guaranteed by the Constitution because a.) it was

Page 95 of 99

based on a law; b.) the law seems to be reasonable; c.) it is enforced according to regular methods of procedure; and d.) it applies to all members of a class.

Expanding, the Central Bank said; that one reason for exempting the foreign currency deposits from attachment, garnishment or any other order process of any court, is to assure the development and speedy growth of the Foreign Currency Deposit System and the Offshore Banking System in the Philippines; that another reason is to encourage the inflow of foreign currency deposits into the banking institutions thereby placing such institutions more in a position to properly channel the same to loans and investments in the Philippines, thus directly contributing to the economic development of the country; that the subject section is being enforced according to the regular methods of procedure; and that it applies to all currency deposits made by any person and therefore does not violate the equal protection clause of the Constitution.

Respondent Central Bank further avers that the questioned provision is needed to promote the public interest and the general welfare; that the State cannot just stand idly by while a considerable segment of the society suffers from economic distress; that the State had to take some measures to encourage economic development; and that in so doing persons and property may be subjected to some kinds of restraints or burdens to secure the general welfare or public interest. Respondent Central Bank also alleges that Rule 39 and Rule 57 of the Revised Rules of Court provide that some properties are exempted from execution/attachment especially provided by law and R.A. No. 6426 as amended is such a law, in that it specifically provides, among others, that foreign currency deposits shall be exempted from attachment, garnishment, or any other order or process of any court, legislative body, government agency or any administrative body whatsoever.

For its part, respondent China Banking Corporation, aside from giving reasons similar to that of respondent Central Bank, also stated that respondent China Bank is not unmindful of the inhuman sufferings experienced by the minor Karen E. Salvacion from the beastly hands of Greg Bartelli; that it is not only too willing to release the dollar deposit of Bartelli which may perhaps partly mitigate the sufferings petitioner has undergone; but it is restrained from doing so in view of R.A. No. 6426 and Section 113 of Central Bank Circular No. 960; and that despite the harsh effect to these laws on petitioners, CBC has no other alternative but to follow the same.

This court finds the petition to be partly meritorious.

Petitioner deserves to receive the damages awarded to her by the court. But this petition for declaratory relief can only be entertained and treated as a petition for mandamus to require respondents to honor and comply with the writ of execution in Civil Case No. 89-3214.

The Court has no original and exclusive jurisdiction over a petition for declatory relief. [2] However, exceptions to this rule have been recognized. Thus, where the petition has far-reaching implications and raises questions that should be resolved, it may be treated as one for mandamus.[3]

Here is a child, a 12-year old girl, who in her belief that all Americans are good and in her gesture of kindness by teaching his alleged niece the Filipino language as requested by the American, trustingly went with said stranger to his apartment, and there she was raped by said American tourist Greg Bartelli. Not once, but ten times. She was detained therein for four (4) days. This American tourist was able to escape from the jail and avoid punishment. On the other hand, the child, having received a favorable judgment in the Civil Case for damages in the amount of more than P1,000,000.00, which amount could alleviate the humiliation, anxiety, and besmirched reputation she had suffered and may continue to suffer for a long, long time; and knowing that this person who had wronged her has the money, could not, however get the award of damages because of this unreasonable law. This questioned law, therefore makes futile the favorable judgment and award of damages that she and her parents fully deserve. As stated by the trial court in its decision,

“Indeed, after hearing the testimony of Karen, the Court believes that it was indoubtedly a shocking and traumatic experience she had undergone which could haunt her mind for a long, long time, the mere recall of which could make her feel so humiliated, as in fact she had been actually humiliated once when she was refused admission at the Abad Santos High School, Arellano University, where she sought to transfer from another school, simply because the school authorities of the said High School learned about what happened to her and allegedly feared that they might be implicated in the case.

xxx

The reason for imposing exemplary or corrective damages is due to the wanton and bestial manner defendant had committed the acts of rape during a period of serious illegal detention of his hapless victim, the minor Karen Salvacion whose only fault was in her being so naive

Page 96 of 99

and credulous to believe easily that defendant, an American national, could not have such a bestial desire on her nor capable of committing such heinous crime. Being only 12 years old when that unfortunate incident happened, she has never heard of an old Filipino adage that in every forest there is a snake, xxx.”[4]

If Karen’s sad fate had happened to anybody’s own kin, it would be difficult for him to fathom how the incentive for foreign currency deposit could be more important than his child’s right to said award of damages; in this case, the victim’s claim for damages from this alien who had the gall to wrong a child of tender years of a country where he is mere visitor. This further illustrates the flaw in the questioned provisions.

It is worth mentioning that R.A. No. 6426 was enacted in 1983 or at a time when the country’s economy was in a shambles; when foreign investments were minimal and presumably, this was the reason why said statute was enacted. But the realities of the present times show that the country has recovered economically; and even if not, the questioned law still denies those entitled to due process of law for being unreasonable and oppressive. The intention of the questioned law may be good when enacted. The law failed to anticipate the inquitous effects producing outright injustice and inequality such as as the case before us.

It has thus been said that-

“But I also know,[5] that laws and institutions must go hand in hand with the progress of the human mind. As that becomes more developed, more enlightened, as new discoveries are made, new truths are disclosed and manners and opinions change with the change of circumstances, institutions must advance also, and keep pace with the times… We might as well require a man to wear still the coat which fitted him when a boy, as civilized society to remain ever under the regimen of their barbarous ancestors.”

In his comment, the Solicitor General correctly opined, thus:

"The present petition has far-reaching implications on the right of a national to obtain redress for a wrong committed by an alien who takes refuge under a law and regulation promulgated for a purpose which does not contemplate the application thereof envisaged by the allien. More specifically, the petition raises the question whether the protection against attachment, garnishment or other court process accorded to foreign currency deposits PD No. 1246 and CB Circular No. 960 applies when the deposit does not come from a lender or investor but from a mere transient who is not expected to maintain the deposit in the bank for long.

“The resolution of this question is important for the protection of nationals who are victimized in the forum by foreigners who are merely passing through.

xxx

“xxx Respondents China Banking Corporation and Central Bank of the Philippines refused to honor the writ of execution issued in Civil Case No. 89-3214 on the strength of the following provision of Central Bank Circular No. 960:

‘Sec. 113 Exemption from attachment. – Foreign currency deposits shall be exempt from attachment, garnishment, or any other order or process of any court, legislative body, government agency or any administrative body whatsoever.’

“Central Bank Circular No. 960 was issued pursuant to Section 7 of Republic Act No. 6426:

‘Sec. 7. Rules and Regulations. The Monetary Board of the Central Bank shall promulgate such rules and regulations as may be necessary to carry out the provisions of this Act which shall take effect after the publication of such rules and regulations in the Official Gazette and in a newspaper of national circulation for at least once a week for three consecutive weeks. In case the Central Bank promulgates new rules and regulations decreasing the rights of depositors, the rules and regulations at the time the deposit was made shall govern.”

“The aforecited Section 113 was copied from Section 8 of Republic Act No. 6426. As amended by P.D. 1246, thus:

‘Sec. 8. Secrecy of Foreign Currency Deposits. -- All foreign currency deposits authorized under this Act, as amended by Presidential Decree No. 1035, as well as foreign currency deposits authorized under Presidential Decree No. 1034, are hereby declared as and considered of an absolutely confidential nature and, except upon the written permission of the depositor, in no instance shall such foreign currency deposits be examined, inquired or looked into by any person, government official, bureau or office whether judicial or administrative or legislative or any other entity whether public or private: Provided, however, that said foreign currency deposits shall be exempt from attachment, garnishment, or any other order or process of any court, legislative body, government agency or any administrative body whatsoever.’

Page 97 of 99

“The purpose of PD 1246 in according protection against attachment, garnishment and other court process to foreign currency deposits is stated in its whereases, viz.:

‘WHEREAS, under Republic Act No. 6426, as amended by Presidential Decree No. 1035, certain Philippine banking institutions and branches of foreign banks are authorized to accept deposits in foreign currency;

‘WHEREAS, under provisions of Presidential Decree No. 1034 authorizing the establishment of an offshore banking system in the Philippines, offshore banking units are also authorized to receive foreign currency deposits in certain cases;

‘WHEREAS, in order to assure the development and speedy growth of the Foreign Currency Deposit System and the Offshore Banking System in the Philippines, certain incentives were provided for under the two Systems such as confidentiality subject to certain exceptions and tax exemptions on the interest income of depositors who are nonresidents and are not engaged in trade or business in the Philippines;

‘WHEREAS, making absolute the protective cloak of confidentiality over such foreign currency deposits, exempting such deposits from tax, and guaranteeing the vested right of depositors would better encourage the inflow of foreign currency deposits into the banking institutions authorized to accept such deposits in the Philippines thereby placing such institutions more in a position to properly channel the same to loans and investments in the Philippines, thus directly contributing to the economic development of the country;’

“Thus, one of the principal purposes of the protection accorded to foreign currency deposits is to assure the development and speedy growth of the Foreign Currency Deposit system and the Offshore Banking in the Philippines’ (3rd Whereas).

“The Offshore Banking System was established by PD No. 1034. In turn, the purposes of PD No. 1034 are as follows:

‘WHEREAS, conditions conducive to the establishment of an offshore banking system, such as political stability, a growing economy and adequate communication facilities, among others, exist in the Philippines;

‘WHEREAS, it is in the interest of developing countries to have as wide access as possible to the sources of capital funds for economic development;

‘WHEREAS, an offshore banking system based in the Philippines will be advantageous and beneficial to the country by increasing our links with foreign lenders, facilitating the flow of desired investments into the Philippines, creating employment opportunities and expertise in international finance, and contributing to the national development effort.

‘WHEREAS, the geographical location, physical and human resources, and other positive factors provide the Philippines with the clear potential to develop as another financial center in Asia;’

“On the other hand, the Foreign Currency Deposit system was created by PD No. 1035. Its purpose are as follows:

‘WHEREAS, the establishment of an offshore banking system in the Philippines has been authorized under a separate decree;

‘WHEREAS, a number of local commercial banks, as depository bank under the Foreign Currency Deposit Act (RA No. 6426), have the resources and managerial competence to more actively engage in foreign exchange transactions and participate in the grant of foreign currency loans to resident corporations and firms;

‘WHEREAS, it is timely to expand the foreign currency lending authority of the said depository banks under RA 6426 and apply to their transactions the same taxes as would be applicable to transaction of the proposed offshore banking units;’

“It is evident from the above [Whereas clauses] that the Offshore Banking System and the Foreign Currency Deposit System were designed to draw deposits from foreign lenders and investors (Vide second Whereas of PD No. 1034; third Whereas of PD No. 1035). It is these depositors that are induced by the two laws and given protection and incentives by them.

“Obviously, the foreign currency deposit made by a transient or a tourist is not the kind of deposit encourage by PD Nos. 1034 and 1035 and given incentives and protection by said laws because such depositor stays only for a few days in the country and, therefore, will maintain his deposit in the bank only for a short time.

Page 98 of 99

“Respondent Greg Bartelli, as stated, is just a tourist or a transient. He deposited his dollars with respondent China Banking Corporation only for safekeeping during his temporary stay in the Philippines.

“For the reasons stated above, the Solicitor General thus submits that the dollar deposit of respondent Greg Bartelli is not entitled to the protection of Section 113 of Central Bank Circular No. 960 and PD No. 1246 against attachment, garnishment or other court processes.” [6]

In fine, the application of the law depends on the extent of its justice. Eventually, if we rule that the questioned Section 113 of Central Bank Circular No. 960 which exempts from attachment, garnishment, or any other order or process of any court. Legislative body, government agency or any administrative body whatsoever, is applicable to a foreign transient, injustice would result especially to a citizen aggrieved by a foreign guest like accused Greg Bartelli. This would negate Article 10 of the New Civil Code which provides that “in case of doubt in the interpretation or application of laws, it is presumed that the lawmaking body intended right and justice to prevail. “Ninguno non deue enriquecerse tortizerzmente con damo de otro.” Simply stated, when the statute is silent or ambiguous, this is one of those fundamental solutions that would respond to the vehement urge of conscience. (Padilla vs. Padilla, 74 Phil. 377)

It would be unthinkable, that the questioned Section 113 of Central Bank No. 960 would be used as a device by accused Greg Bartelli for wrongdoing, and in so doing, acquitting the guilty at the expense of the innocent.

Call it what it may – but is there no conflict of legal policy here? Dollar against Peso? Upholding the final and executory judgment of the lower court against the Central Bank Circular protecting the foreign depositor? Shielding or protecting the dollar deposit of a transient alien depositor against injustice to a national and victim of a crime? This situation calls for fairness legal tyranny.

We definitely cannot have both ways and rest in the belief that we have served the ends of justice.

IN VIEW WHEREOF, the provisions of Section 113 of CB Circular No. 960 and PD No. 1246, insofar as it amends Section 8 of R.A. 6426 are hereby held to be INAPPLICABLE to this case because of its peculiar circumstances. Respondents are hereby REQUIRED to COMPLY with the writ of execution issued in Civil Case No. 89-3214, “Karen Salvacion, et al. vs. Greg Bartelli y Northcott, by Branch CXLIV, RTC Makati and to RELEASE to petitioners the dollar deposit of respondent Greg Bartelli y Northcott in such amount as would satisfy the judgment.

SO ORDERED.

Narvasa, C.J., Regalado, Davide, Jr., Romero, Bellosillo, Melo, Puno, Vitug, Kapunan, Francisco, and Panganiban, JJ., concur.

Padilla, J., no part.

Mendoza, and Hermosisima, Jr., JJ., on leave.

Page 99 of 99