EN BANC

[G.R. Nos. 151809-12. April 12, 2005]

PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT

(PCGG), petitioner, vs. SANDIGANBAYAN (Fifth Division),
LUCIO C. TAN, CARMEN KHAO TAN, FLORENCIO T.
SANTOS, NATIVIDAD P. SANTOS, DOMINGO CHUA, TAN
HUI NEE, MARIANO TAN ENG LIAN, ESTATE OF BENITO
TAN KEE HIONG (represented by TARCIANA C. TAN),
FLORENCIO N. SANTOS, JR., HARRY C. TAN, TAN ENG
CHAN, CHUNG POE KEE, MARIANO KHOO, MANUEL
KHOO, MIGUEL KHOO, JAIME KHOO, ELIZABETH KHOO,
CELSO RANOLA, WILLIAM T. WONG, ERNESTO B. LIM,
BENJAMIN T. ALBACITA, WILLY CO, ALLIED BANKING
CORP., ALLIED LEASING AND FINANCE CORPORATION,
ASIA BREWERY, INC., BASIC HOLDINGS CORP.,
FOREMOST FARMS, INC., FORTUNE TOBACCO CORP.,
GRANDSPAN DEVELOPMENT CORP., HIMMEL
INDUSTRIES, IRIS HOLDINGS AND DEVELOPMENT
CORP., JEWEL HOLDINGS, INC., MANUFACTURING
SERVICES AND TRADE CORP., MARANAW HOTELS
AND RESORT CORP., NORTHERN TOBACCO REDRYING
PLANT, PROGRESSIVE FARMS, INC., SHAREHOLDINGS,
INC., SIPALAY TRADING CORP., VIRGO HOLDINGS &
DEVELOPMENT CORP., and ATTY. ESTELITO P.
MENDOZA, respondents.

DECISION
PUNO, J.:

This case is prima impressiones and it is weighted with significance for it

concerns on one hand, the efforts of the Bar to upgrade the ethics of lawyers in
government service and on the other, its effect on the right of government to
recruit competent counsel to defend its interests.
In 1976, General Bank and Trust Company (GENBANK) encountered
financial difficulties. GENBANK had extended considerable financial support to
Filcapital Development Corporation causing it to incur daily overdrawings on
its current account with the Central Bank.[1] It was later found by the Central
Bank that GENBANK had approved various loans to directors, officers,
stockholders and related interests totaling P172.3 million, of which 59% was
classified as doubtful and P0.505 million as uncollectible.[2] As a bailout, the
Central Bank extended emergency loans to GENBANK which reached a
total of P310 million.[3] Despite the mega loans, GENBANK failed to recover
from its financial woes. On March 25, 1977, the Central Bank issued a
resolution declaring GENBANK insolvent and unable to resume business
with safety to its depositors, creditors and the general public, and ordering its
liquidation.[4] A public bidding of GENBANKs assets was held from March
26 to 28, 1977, wherein the Lucio Tan group submitted the winning
bid.[5] Subsequently, former Solicitor General Estelito P. Mendoza filed a
petition with the then Court of First Instance praying for the assistance and
supervision of the court in GENBANKs liquidation as mandated by Section 29
of Republic Act No. 265.
In February 1986, the EDSA I revolution toppled the Marcos government.
One of the first acts of President Corazon C. Aquino was to establish the
Presidential Commission on Good Government (PCGG) to recover the alleged
ill-gotten wealth of former President Ferdinand Marcos, his family and his
cronies. Pursuant to this mandate, the PCGG, on July 17, 1987, filed with
the Sandiganbayan a complaint for reversion, reconveyance, restitution,
accounting and damages against respondents Lucio Tan, Carmen Khao Tan,
Florencio T. Santos, Natividad P. Santos, Domingo Chua, Tan Hui Nee,
Mariano Tan Eng Lian, Estate of Benito Tan Kee Hiong, Florencio N. Santos,
Jr., Harry C. Tan, Tan Eng Chan, Chung Poe Kee, Mariano Khoo, Manuel
Khoo, Miguel Khoo, Jaime Khoo, Elizabeth Khoo, Celso Ranola, William T.
Wong, Ernesto B. Lim, Benjamin T. Albacita, Willy Co, Allied Banking
Corporation (Allied Bank), Allied Leasing and Finance Corporation, Asia
Brewery, Inc., Basic Holdings Corp., Foremost Farms, Inc., Fortune Tobacco
Corporation, Grandspan Development Corp., Himmel Industries, Iris Holdings
and Development Corp., Jewel Holdings, Inc., Manufacturing Services and
Trade Corp., Maranaw Hotels and Resort Corp., Northern Tobacco Redrying
Plant, Progressive Farms, Inc., Shareholdings, Inc., Sipalay Trading Corp.,
Virgo Holdings & Development Corp., (collectively referred to herein as
respondents Tan, et al.), then President Ferdinand E. Marcos, Imelda R.
Marcos, Panfilo O. Domingo, Cesar Zalamea, Don Ferry and Gregorio
Licaros. The case was docketed as Civil Case No. 0005 of the Second
Division of the Sandiganbayan.[6] In connection therewith, the PCGG issued
several writs of sequestration on properties allegedly acquired by the
above-named persons by taking advantage of their close relationship and
influence with former President Marcos.
Respondents Tan, et al. repaired to this Court and filed petitions
for certiorari, prohibition and injunction to nullify, among others, the writs of
sequestration issued by the PCGG.[7] After the filing of the parties comments,
this Court referred the cases to the Sandiganbayan for proper disposition.
These cases were docketed as Civil Case Nos. 0096-0099. In all these cases,
respondents Tan, et al. were represented by their counsel, former Solicitor
General Estelito P. Mendoza, who has then resumed his private practice of
law.
On February 5, 1991, the PCGG filed motions to disqualify respondent
Mendoza as counsel for respondents Tan, et al. with the Second Division of
the Sandiganbayan in Civil Case Nos. 0005[8] and 0096-0099.[9] The motions
alleged that respondent Mendoza, as then Solicitor General[10] and counsel to
Central Bank, actively intervened in the liquidation of GENBANK, which was
subsequently acquired by respondents Tan, et al. and became Allied Banking
Corporation. Respondent Mendoza allegedly intervened in the acquisition of
GENBANK by respondents Tan, et al. when, in his capacity as then Solicitor
General, he advised the Central Banks officials on the procedure to bring
about GENBANKs liquidation and appeared as counsel for the Central Bank in
connection with its petition for assistance in the liquidation of GENBANK which
he filed with the Court of First Instance (now Regional Trial Court) of Manila
and was docketed as Special Proceeding No. 107812. The motions to
disqualify invoked Rule 6.03 of the Code of Professional
Responsibility. Rule 6.03 prohibits former government lawyers from
accepting engagement or employment in connection with any matter in which
he had intervened while in said service.
On April 22, 1991 the Second Division of the Sandiganbayan issued a
resolution denying PCGGs motion to disqualify respondent Mendoza in Civil
Case No. 0005.[11] It found that the PCGG failed to prove the existence of an
inconsistency between respondent Mendozas former function as Solicitor
General and his present employment as counsel of the Lucio Tan group. It
noted that respondent Mendoza did not take a position adverse to that taken
on behalf of the Central Bank during his term as Solicitor General. [12] It further
ruled that respondent Mendozas appearance as counsel for respondents
Tan, et al. was beyond the one-year prohibited period under Section 7(b) of
Republic Act No. 6713 since he ceased to be Solicitor General in the year
1986. The said section prohibits a former public official or employee from
practicing his profession in connection with any matter before the office he
used to be with within one year from his resignation, retirement or separation
from public office.[13] The PCGG did not seek any reconsideration of the
ruling.[14]
It appears that Civil Case Nos. 0096-0099 were transferred from
the Sandiganbayans Second Division to the Fifth Division.[15] In its resolution
dated July 11, 2001, the Fifth Division of the Sandiganbayan denied the other
PCGGs motion to disqualify respondent Mendoza.[16] It adopted the resolution
of its Second Division dated April 22, 1991, and observed that the arguments
were the same in substance as the motion to disqualify filed in Civil Case No.
0005. The PCGG sought reconsideration of the ruling but its motion was
denied in its resolution dated December 5, 2001.[17]
 Hence, the recourse to this Court by the PCGG assailing the resolutions
dated July 11, 2001 and December 5, 2001 of the Fifth Division of
the Sandiganbayan via a petition for certiorari and prohibition under Rule 65
of the 1997 Rules of Civil Procedure.[18] The PCGG alleged that the Fifth
Division acted with grave abuse of discretion amounting to lack or excess of
jurisdiction in issuing the assailed resolutions contending that: 1) Rule 6.03 of
the Code of Professional Responsibility prohibits a former government lawyer
from accepting employment in connection with any matter in which he
intervened; 2) the prohibition in the Rule is not time-bound; 3) that Central
Bank could not waive the objection to respondent Mendozas appearance on
behalf of the PCGG; and 4) the resolution in Civil Case No. 0005 was
interlocutory, thus res judicata does not apply.[19]
The petition at bar raises procedural and substantive issues of law. In view,
however, of the import and impact of Rule 6.03 of the Code of Professional
Responsibility to the legal profession and the government, we shall cut our
way and forthwith resolve the substantive issue.

Substantive Issue

The key issue is whether Rule 6.03 of the Code of Professional

Responsibility applies to respondent Mendoza. Again, the prohibition states: A
lawyer shall not, after leaving government service, accept engagement or
employment in connection with any matter in which he had intervened while
in the said service.

I.A. The history of Rule 6.03

A proper resolution of this case necessitates that we trace the historical

lineage of Rule 6.03 of the Code of Professional Responsibility.
In the seventeenth and eighteenth centuries, ethical standards for
lawyers were pervasive in England and other parts of Europe. The early
statements of standards did not resemble modern codes of conduct. They
were not detailed or collected in one source but surprisingly were
comprehensive for their time. The principal thrust of the standards was
directed towards the litigation conduct of lawyers. It underscored the central
duty of truth and fairness in litigation as superior to any obligation to the client.
The formulations of the litigation duties were at times intricate, including
specific pleading standards, an obligation to inform the court of falsehoods and
a duty to explore settlement alternatives. Most of the lawyer's other basic
duties -- competency, diligence, loyalty, confidentiality, reasonable fees and
service to the poor -- originated in the litigation context, but ultimately had
broader application to all aspects of a lawyer's practice.
 The forms of lawyer regulation in colonial and early post-revolutionary
America did not differ markedly from those in England. The colonies and early
states used oaths, statutes, judicial oversight, and procedural rules to govern
attorney behavior. The difference from England was in the pervasiveness and
continuity of such regulation. The standards set in England varied over time,
but the variation in early America was far greater. The American regulation
fluctuated within a single colony and differed from colony to colony. Many
regulations had the effect of setting some standards of conduct, but the
regulation was sporadic, leaving gaps in the substantive standards. Only three
of the traditional core duties can be fairly characterized as pervasive in the
formal, positive law of the colonial and post-revolutionary period: the duties of
litigation fairness, competency and reasonable fees.[20]
The nineteenth century has been termed the dark ages of legal
ethics in the United States. By mid-century, American legal reformers were
filling the void in two ways. First, David Dudley Field, the drafter of the highly
influential New York Field Code, introduced a new set of uniform standards of
conduct for lawyers. This concise statement of eight statutory duties became
law in several states in the second half of the nineteenth century. At the same
time, legal educators, such as David Hoffman and George Sharswood, and
many other lawyers were working to flesh out the broad outline of a lawyer's
duties. These reformers wrote about legal ethics in unprecedented detail and
thus brought a new level of understanding to a lawyer's duties. A number of
mid-nineteenth century laws and statutes, other than the Field Code, governed
lawyer behavior. A few forms of colonial regulations e.g., the do no falsehood
oath and the deceit prohibitions -- persisted in some states. Procedural law
continued to directly, or indirectly, limit an attorney's litigation behavior. The
developing law of agency recognized basic duties of competence, loyalty and
safeguarding of client property. Evidence law started to recognize with less
equivocation the attorney-client privilege and its underlying theory of
confidentiality. Thus, all of the core duties, with the likely exception of service
to the poor, had some basis in formal law. Yet, as in the colonial and early
post-revolutionary periods, these standards were isolated and did not provide
a comprehensive statement of a lawyer's duties. The reformers, by contrast,
were more comprehensive in their discussion of a lawyer's duties, and they
actually ushered a new era in American legal ethics.[21]
Toward the end of the nineteenth century, a new form of ethical
standards began to guide lawyers in their practice the bar association code of
legal ethics. The bar codes were detailed ethical standards formulated by
lawyers for lawyers. They combined the two primary sources of ethical
guidance from the nineteenth century. Like the academic discourses, the bar
association codes gave detail to the statutory statements of duty and the oaths
of office. Unlike the academic lectures, however, the bar association codes
retained some of the official imprimatur of the statutes and oaths. Over time,
the bar association codes became extremely popular that states adopted them
as binding rules of law. Critical to the development of the new codes was the
re-emergence of bar associations themselves. Local bar associations formed
sporadically during the colonial period, but they disbanded by the early
nineteenth century. In the late nineteenth century, bar associations began to
form again, picking up where their colonial predecessors had left off. Many of
the new bar associations, most notably the Alabama State Bar Association and
the American Bar Association, assumed on the task of drafting substantive
standards of conduct for their members.[22]
In 1887, Alabama became the first state with a comprehensive bar
association code of ethics. The 1887 Alabama Code of Ethics was the model
for several states codes, and it was the foundation for the American Bar
Association's (ABA) 1908 Canons of Ethics.[23]
In 1917, the Philippine Bar found that the oath and duties of a lawyer
were insufficient to attain the full measure of public respect to which the legal
profession was entitled. In that year, the Philippine Bar Association adopted as
its own, Canons 1 to 32 of the ABA Canons of Professional Ethics.[24]
As early as 1924, some ABA members have questioned the form and
function of the canons. Among their concerns was the revolving door or the
process by which lawyers and others temporarily enter government service
from private life and then leave it for large fees in private practice, where they
can exploit information, contacts, and influence garnered in government
service.[25] These concerns were classified as adverse-interest
conflicts and congruent-interest conflicts. Adverse-interest
conflicts exist where the matter in which the former government lawyer
represents a client in private practice is substantially related to a matter that
the lawyer dealt with while employed by the government and the interests of
the current and former are adverse.[26] On the other hand, congruent-interest
representation conflicts are unique to government lawyers and apply
primarily to former government lawyers.[27] For several years, the ABA
attempted to correct and update the canons through new canons, individual
amendments and interpretative opinions. In 1928, the ABA amended one
canon and added thirteen new canons.[28] To deal with problems peculiar to
former government lawyers, Canon 36 was minted which disqualified them
both for adverse-interest conflicts and congruent-interest representation
conflicts.[29] The rationale for disqualification is rooted in a concern that the
government lawyers largely discretionary actions would be influenced by the
temptation to take action on behalf of the government client that later could be
to the advantage of parties who might later become private practice
clients.[30] Canon 36 provides, viz.:

36. Retirement from judicial position or public employment

A lawyer should not accept employment as an advocate in any matter upon

the merits of which he has previously acted in a judicial capacity.
A lawyer, having once held public office or having been in the public
employ should not, after his retirement, accept employment in
connection with any matter he has investigated or passed upon while in
such office or employ.

Over the next thirty years, the ABA continued to amend many of the
canons and added Canons 46 and 47 in 1933 and 1937, respectively.[31]
In 1946, the Philippine Bar Association again adopted as its own
Canons 33 to 47 of the ABA Canons of Professional Ethics.[32]
By the middle of the twentieth century, there was growing consensus
that the ABA Canons needed more meaningful revision. In 1964, the ABA
President-elect Lewis Powell asked for the creation of a committee to study the
adequacy and effectiveness of the ABA Canons. The committee
recommended that the canons needed substantial revision, in part because
the ABA Canons failed to distinguish between the inspirational and the
proscriptive and were thus unsuccessful in enforcement. The legal profession
in the United States likewise observed that Canon 36 of the ABA Canons of
Professional Ethics resulted in unnecessary disqualification of lawyers for
negligible participation in matters during their employment with the
government.
The unfairness of Canon 36 compelled ABA to replace it in the 1969
ABA Model Code of Professional Responsibility.[33] The basic ethical
principles in the Code of Professional Responsibility were supplemented by
Disciplinary Rules that defined minimum rules of conduct to which the lawyer
must adhere.[34] In the case of Canon 9, DR 9-101(b)[35]became the applicable
supplementary norm. The drafting committee reformulated the canons into the
Model Code of Professional Responsibility, and, in August of 1969, the ABA
House of Delegates approved the Model Code.[36]
Despite these amendments, legal practitioners remained unsatisfied with
the results and indefinite standards set forth by DR 9-101(b) and the Model
Code of Professional Responsibility as a whole. Thus, in August 1983, the
ABA adopted new Model Rules of Professional Responsibility. The Model
Rules used the restatement format, where the conduct standards were set-out
in rules, with comments following each rule. The new format was intended to
give better guidance and clarity for enforcement because the only enforceable
standards were the black letter Rules. The Model Rules eliminated the broad
canons altogether and reduced the emphasis on narrative discussion, by
placing comments after the rules and limiting comment discussion to the
content of the black letter rules. The Model Rules made a number of
substantive improvements particularly with regard to conflicts of interests.[37] In
particular, the ABA did away with Canon 9, citing the hopeless
dependence of the concept of impropriety on the subjective views of
anxious clients as well as the norms indefinite nature.[38]
 In cadence with these changes, the Integrated Bar of the Philippines
(IBP) adopted a proposed Code of Professional Responsibility in 1980
which it submitted to this Court for approval. The Code was drafted to
reflect the local customs, traditions, and practices of the bar and to conform
with new realities. On June 21, 1988, this Court promulgated the Code of
Professional Responsibility.[39] Rule 6.03 of the Code of Professional
Responsibility deals particularly with former government lawyers, and
provides, viz.:

Rule 6.03 A lawyer shall not, after leaving government service, accept
engagement or employment in connection with any matter in which he
had intervened while in said service.

Rule 6.03 of the Code of Professional Responsibility retained the general

structure of paragraph 2, Canon 36 of the Canons of Professional Ethics
but replaced the expansive phrase investigated and passed upon with the
word intervened. It is, therefore, properly applicable to both adverse-interest
conflicts and congruent-interest conflicts.
The case at bar does not involve the adverse interest aspect of Rule
6.03. Respondent Mendoza, it is conceded, has no adverse interest problem
when he acted as Solicitor General in Sp. Proc. No. 107812 and later as
counsel of respondents Tan, et al. in Civil Case No. 0005 and Civil Case Nos.
0096-0099 before the Sandiganbayan. Nonetheless, there remains the
issue of whether there exists a congruent-interest conflict sufficient to
disqualify respondent Mendoza from representing respondents Tan, et al.

I.B. The congruent interest aspect of Rule 6.03

The key to unlock Rule 6.03 lies in comprehending first, the meaning
of matter referred to in the rule and, second, the metes and bounds of
the intervention made by the former government lawyer on the matter. The
American Bar Association in its Formal Opinion 342, defined matter as any
discrete, isolatable act as well as identifiable transaction or conduct involving a
particular situation and specific party, and not merely an act of drafting,
enforcing or interpreting government or agency procedures, regulations or
laws, or briefing abstract principles of law.
Firstly, it is critical that we pinpoint the matter which was the subject of
intervention by respondent Mendoza while he was the Solicitor General. The
PCGG relates the following acts of respondent Mendoza as constituting
the matter where he intervened as a Solicitor General, viz:[40]

The PCGGs Case for Atty. Mendozas Disqualification

The PCGG imputes grave abuse of discretion on the part of

the Sandiganbayan (Fifth Division) in issuing the assailed Resolutions dated
July 11, 2001 and December 5, 2001 denying the motion to disqualify Atty.
Mendoza as counsel for respondents Tan, et al. The PCGG insists that Atty.
Mendoza, as then Solicitor General, actively intervened in the closure of
GENBANK by advising the Central Bank on how to proceed with the said
banks liquidation and even filing the petition for its liquidation with the CFI
of Manila.

As proof thereof, the PCGG cites the Memorandum dated March 29, 1977
prepared by certain key officials of the Central Bank, namely, then Senior
Deputy Governor Amado R. Brinas, then Deputy Governor Jaime C. Laya,
then Deputy Governor and General Counsel Gabriel C. Singson, then
Special Assistant to the Governor Carlota P. Valenzuela, then Asistant to the
Governor Arnulfo B. Aurellano and then Director of Department of
Commercial and Savings Bank Antonio T. Castro, Jr., where they averred
that on March 28, 1977, they had a conference with the Solicitor General
(Atty. Mendoza), who advised them on how to proceed with the liquidation
of GENBANK. The pertinent portion of the said memorandum states:

Immediately after said meeting, we had a conference with the Solicitor

General and he advised that the following procedure should be taken:

1. Management should submit a memorandum to the Monetary

Board reporting that studies and evaluation had been made since
the last examination of the bank as of August 31, 1976 and it is
believed that the bank can not be reorganized or placed in a
condition so that it may be permitted to resume business with
safety to its depositors and creditors and the general public.

2. If the said report is confirmed by the Monetary Board, it shall

order the liquidation of the bank and indicate the manner of its
liquidation and approve a liquidation plan.

3. The Central Bank shall inform the principal stockholders of

Genbank of the foregoing decision to liquidate the bank and the
liquidation plan approved by the Monetary Board.

4. The Solicitor General shall then file a petition in the Court of First
Instance reciting the proceedings which had been taken and
praying the assistance of the Court in the liquidation of Genbank.

The PCGG further cites the Minutes No. 13 dated March 29, 1977 of the
Monetary Board where it was shown that Atty. Mendoza was furnished
copies of pertinent documents relating to GENBANK in order to aid him in
filing with the court the petition for assistance in the banks liquidation. The
pertinent portion of the said minutes reads:

The Board decided as follows:

...

E. To authorize Management to furnish the Solicitor General

with a copy of the subject memorandum of the Director,
Department of Commercial and Savings Bank dated March
29, 1977, together with copies of:

1. Memorandum of the Deputy Governor, Supervision and

Examination Sector, to the Monetary Board, dated
March 25, 1977, containing a report on the current
situation of Genbank;

2. Aide Memoire on the Antecedent Facts Re: General Bank

and Trust Co., dated March 23, 1977;

3. Memorandum of the Director, Department of Commercial

and Savings Bank, to the Monetary Board, dated March
24, 1977, submitting, pursuant to Section 29 of R.A. No.
265, as amended by P.D. No. 1007, a repot on the state
of insolvency of Genbank, together with its attachments;
and

4. Such other documents as may be necessary or needed by

the Solicitor General for his use in then CFI-praying the
assistance of the Court in the liquidation of Genbank.

Beyond doubt, therefore, the matter or the act of respondent Mendoza as

Solicitor General involved in the case at bar is advising the Central Bank,
on how to proceed with the said banks liquidation and even filing the petition
for its liquidation with the CFI of Manila. In fine, the Court should resolve
whether his act of advising the Central Bank on the legal procedure to
liquidate GENBANK is included within the concept of matter under Rule
6.03. The procedure of liquidation is given in black and white in Republic Act
No. 265, section 29, viz:

The provision reads in part:

 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, and the Board may, upon
finding the statements of the department head to be true, forbid the
institution to do business in the Philippines and shall designate an
official of the Central Bank or a person of recognized competence in
banking 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 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 or non-bank financial intermediary performing
quasi-banking functions.

...

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.
The Central Bank shall, by the Solicitor General, file a petition in
the Court of First Instance reciting the proceedings which have been
taken and praying the assistance of the court in the liquidation of
such institution. The court shall have jurisdiction in the same
proceedings to adjudicate disputed claims against the bank or
non-bank financial intermediary performing quasi-banking functions
and enforce individual liabilities of the stockholders and do all that
is necessary to preserve the assets of such institution and to
implement the liquidation plan approved by the Monetary Board.
The Monetary Board shall designate an official of the Central Bank,
or a person of recognized competence in banking or finance, as
liquidator who shall take over the functions of the receiver
previously appointed by the Monetary Board under this Section. The
liquidator shall, with all convenient speed, convert the assets of the
banking institution or non-bank financial intermediary performing
quasi-banking functions 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, institute such actions as may be necessary in the
appropriate court to collect and recover accounts and assets of such
institution.

The provisions of any law to the contrary notwithstanding, the

actions of the Monetary Board under this Section and the second
paragraph of Section 34 of this Act shall be final and executory, and
can be set aside by the court only if there is convincing proof that
the action is plainly arbitrary and made in bad faith. No restraining
order or injunction shall be issued by the court enjoining the Central
Bank from implementing its actions under this Section and the
second paragraph of Section 34 of this Act, unless there is
convincing proof that the action of the Monetary Board is plainly
arbitrary and made in bad faith and the petitioner or plaintiff files
with the clerk or judge of the court in which the action is pending a
bond executed in favor of the Central Bank, in an amount to be fixed
by the court. The restraining order or injunction shall be refused or,
if granted, shall be dissolved upon filing by the Central Bank of a
bond, which shall be in the form of cash or Central Bank cashier(s)
check, in an amount twice the amount of the bond of the petitioner
or plaintiff conditioned that it will pay the damages which the
petitioner or plaintiff may suffer by the refusal or the dissolution of
the injunction. The provisions of Rule 58 of the New Rules of Court
insofar as they are applicable and not inconsistent with the
provisions of this Section shall govern the issuance and dissolution
of the restraining order or injunction contemplated in this Section.

Insolvency, under this Act, shall be understood to mean the

inability of a bank or non-bank financial intermediary performing
quasi-banking functions to pay its liabilities as they fall due in the
usual and ordinary course of business. Provided, however, That this
shall not include the inability to pay of an otherwise non-insolvent
bank or non-bank financial intermediary performing quasi-banking
functions caused by extraordinary demands induced by financial
panic commonly evidenced by a run on the bank or non-bank
financial intermediary performing quasi-banking functions in the
banking or financial community.
 The appointment of a conservator under Section 28-A of this
Act or the appointment of a receiver under this Section shall be
vested exclusively with the Monetary Board, the provision of any
law, general or special, to the contrary notwithstanding. (As
amended by PD Nos. 72, 1007, 1771 & 1827, Jan. 16, 1981)

We hold that this advice given by respondent Mendoza on the procedure

to liquidate GENBANK is not the matter contemplated by Rule 6.03 of the
Code of Professional Responsibility. ABA Formal Opinion No. 342 is clear
as daylight in stressing that the drafting, enforcing or
interpreting government or agency procedures, regulations or laws, or
briefing abstract principles of law are acts which do not fall within the scope of
the term matter and cannot disqualify.
Secondly, it can even be conceded for the sake of argument that the
above act of respondent Mendoza falls within the definition of matter per ABA
Formal Opinion No. 342. Be that as it may, the said act of respondent
Mendoza which is the matter involved in Sp. Proc. No. 107812 is entirely
different from the matter involved in Civil Case No. 0096. Again, the plain
facts speak for themselves. It is given that respondent Mendoza had nothing to
do with the decision of the Central Bank to liquidate GENBANK. It is also given
that he did not participate in the sale of GENBANK to Allied Bank. The matter
where he got himself involved was in informing Central Bank on
the procedure provided by law to liquidate GENBANK thru the courts and in
filing the necessary petition in Sp. Proc. No. 107812 in the then Court of First
Instance. The subject matter of Sp. Proc. No. 107812, therefore, is not the
same nor is related to but is different from the subject matter in Civil
Case No. 0096. Civil Case No. 0096 involves the sequestration of the
stocks owned by respondents Tan, et al., in Allied Bank on the alleged ground
that they are ill-gotten. The case does not involve the liquidation of GENBANK.
Nor does it involve the sale of GENBANK to Allied Bank. Whether the shares
of stock of the reorganized Allied Bank are ill-gotten is far removed from the
issue of the dissolution and liquidation of GENBANK. GENBANK was
liquidated by the Central Bank due, among others, to the alleged banking
malpractices of its owners and officers. In other words, the legality of the
liquidation of GENBANK is not an issue in the sequestration cases. Indeed, the
jurisdiction of the PCGG does not include the dissolution and liquidation of
banks. It goes without saying that Code 6.03 of the Code of Professional
Responsibility cannot apply to respondent Mendoza because his alleged
intervention while a Solicitor General in Sp. Proc. No. 107812 is an
intervention on a matter different from the matter involved in Civil Case
No. 0096.
Thirdly, we now slide to the metes and bounds of
the intervention contemplated by Rule 6.03. Intervene means, viz.:
1: to enter or appear as an irrelevant or extraneous feature or
circumstance . . . 2: to occur, fall, or come in between points of time or
events . . . 3: to come in or between by way of hindrance or modification:
INTERPOSE . . . 4: to occur or lie between two things (Paris, where the
same city lay on both sides of an intervening river . . .)[41]

On the other hand, intervention is defined as:

1: the act or fact of intervening: INTERPOSITION; 2:

interference that may affect the interests of others.[42]

There are, therefore, two possible interpretations of the word intervene.

Under the first interpretation, intervene includes participation in a proceeding
even if the intervention is irrelevant or has no effect or little influence. [43] Under
the second interpretation, intervene only includes an act of a person who has
the power to influence the subject proceedings.[44]We hold that this second
meaning is more appropriate to give to the word intervention under Rule 6.03
of the Code of Professional Responsibility in light of its history. The evils
sought to be remedied by the Rule do not exist where the government lawyer
does an act which can be considered as innocuous such as x x x drafting,
enforcing or interpreting government or agency procedures, regulations or
laws, or briefing abstract principles of law.
In fine, the intervention cannot be insubstantial and insignificant.
Originally, Canon 36 provided that a former government lawyer should not,
after his retirement, accept employment in connection with any matter which
he has investigated or passed upon while in such office or employ. As
aforediscussed, the broad sweep of the phrase which he has investigated or
passed upon resulted in unjust disqualification of former government lawyers.
The 1969 Code restricted its latitude, hence, in DR 9-101(b), the prohibition
extended only to a matter in which the lawyer, while in the government service,
had substantial responsibility. The 1983 Model Rules further constricted the
reach of the rule. MR 1.11(a) provides that a lawyer shall not represent a
private client in connection with a matter in which the lawyer participated
personally and substantially as a public officer or employee.
It is, however, alleged that the intervention of respondent Mendoza in Sp.
Proc. No. 107812 is significant and substantial. We disagree. For one, the
petition in the special proceedings is an initiatory pleading, hence, it has to
be signed by respondent Mendoza as the then sitting Solicitor General. For
another, the record is arid as to the actual participation of respondent
Mendoza in the subsequent proceedings. Indeed, the case was in slumberville
for a long number of years. None of the parties pushed for its early termination.
Moreover, we note that the petition filed merely seeks the assistance of the
court in the liquidation of GENBANK. The principal role of the court in this type
of proceedings is to assist the Central Bank in determining claims of
creditors against the GENBANK. The role of the court is not strictly as a court
of justice but as an agent to assist the Central Bank in determining the claims
of creditors. In such a proceeding, the participation of the Office of the Solicitor
General is not that of the usual court litigator protecting the interest of
government.

II

Balancing Policy Considerations

To be sure, Rule 6.03 of our Code of Professional Responsibility

represents a commendable effort on the part of the IBP to upgrade the ethics
of lawyers in the government service. As aforestressed, it is a take-off from
similar efforts especially by the ABA which have not been without difficulties.
To date, the legal profession in the United States is still fine tuning its DR
9-101(b) rule.
In fathoming the depth and breadth of Rule 6.03 of our Code of
Professional Responsibility, the Court took account of various policy
considerations to assure that its interpretation and application to the case at
bar will achieve its end without necessarily prejudicing other values of equal
importance. Thus, the rule was not interpreted to cause a chilling effect on
government recruitment of able legal talent. At present, it is already difficult
for government to match compensation offered by the private sector and it is
unlikely that government will be able to reverse that situation. The observation
is not inaccurate that the only card that the government may play to recruit
lawyers is have them defer present income in return for the experience and
contacts that can later be exchanged for higher income in private
practice.[45] Rightly, Judge Kaufman warned that the sacrifice of entering
government service would be too great for most men to endure should ethical
rules prevent them from engaging in the practice of a technical specialty which
they devoted years in acquiring and cause the firm with which they become
associated to be disqualified.[46] Indeed, to make government service more
difficult to exit can only make it less appealing to enter.[47]
In interpreting Rule 6.03, the Court also cast a harsh eye on its use as
a litigation tactic to harass opposing counsel as well as deprive his client
of competent legal representation. The danger that the rule will be misused to
bludgeon an opposing counsel is not a mere guesswork. The Court of Appeals
for the District of Columbia has noted the tactical use of motions to disqualify
counsel in order to delay proceedings, deprive the opposing party of counsel of
its choice, and harass and embarrass the opponent, and observed that the
tactic was so prevalent in large civil cases in recent years as to prompt
frequent judicial and academic commentary.[48] Even the United States
Supreme Court found no quarrel with the Court of Appeals description of
disqualification motions as a dangerous game.[49] In the case at bar, the new
attempt to disqualify respondent Mendoza is difficult to divine. The
disqualification of respondent Mendoza has long been a dead issue. It was
resuscitated after the lapse of many years and only after PCGG has lost many
legal incidents in the hands of respondent Mendoza. For a fact, the recycled
motion for disqualification in the case at bar was filed more than four
years after the filing of the petitions for certiorari, prohibition and injunction
with the Supreme Court which were subsequently remanded to
the Sandiganbayan and docketed as Civil Case Nos. 0096-0099.[50] At the
very least, the circumstances under which the motion to disqualify in the case
at bar were refiled put petitioners motive as highly suspect.
Similarly, the Court in interpreting Rule 6.03 was not unconcerned
with the prejudice to the client which will be caused by its misapplication. It
cannot be doubted that granting a disqualification motion causes the client to
lose not only the law firm of choice, but probably an individual lawyer in whom
the client has confidence.[51] The client with a disqualified lawyer must start
again often without the benefit of the work done by the latter.[52] The effects of
this prejudice to the right to choose an effective counsel cannot be overstated
for it can result in denial of due process.
The Court has to consider also the possible adverse effect of a
truncated reading of the rule on the official independence of lawyers in
the government service. According to Prof. Morgan: An individual who has
the security of knowing he or she can find private employment upon leaving
the government is free to work vigorously, challenge official positions when he
or she believes them to be in error, and resist illegal demands by superiors. An
employee who lacks this assurance of private employment does not enjoy
such freedom.[53] He adds: Any system that affects the right to take a new job
affects the ability to quit the old job and any limit on the ability to quit inhibits
official independence.[54] The case at bar involves the position of Solicitor
General, the office once occupied by respondent Mendoza. It cannot be overly
stressed that the position of Solicitor General should be endowed with a
great degree of independence. It is this independence that allows the
Solicitor General to recommend acquittal of the innocent; it is this
independence that gives him the right to refuse to defend officials who violate
the trust of their office. Any undue dimunition of the independence of the
Solicitor General will have a corrosive effect on the rule of law.
No less significant a consideration is the deprivation of the former
government lawyer of the freedom to exercise his profession. Given the
current state of our law, the disqualification of a former government lawyer
may extend to all members of his law firm.[55] Former government lawyers
stand in danger of becoming the lepers of the legal profession.
It is, however, proffered that the mischief sought to be remedied by Rule
6.03 of the Code of Professional Responsibility is the possible appearance of
impropriety and loss of public confidence in government. But as well
observed, the accuracy of gauging public perceptions is a highly speculative
exercise at best[56] which can lead to untoward results.[57] No less than Judge
Kaufman doubts that the lessening of restrictions as to former government
attorneys will have any detrimental effect on that free flow of information
between the government-client and its attorneys which the canons seek to
protect.[58] Notably, the appearance of impropriety theory has been
rejected in the 1983 ABA Model Rules of Professional Conduct[59]and
some courts have abandoned per se disqualification based on Canons 4 and 9
when an actual conflict of interest exists, and demand an evaluation of the
interests of the defendant, government, the witnesses in the case, and the
public.[60]
It is also submitted that the Court should apply Rule 6.03 in all its strictness
for it correctly disfavors lawyers who switch sides. It is claimed that switching
sides carries the danger that former government employee may compromise
confidential official information in the process. But this concern does not
cast a shadow in the case at bar. As afore-discussed, the act of respondent
Mendoza in informing the Central Bank on the procedure how to liquidate
GENBANK is a different matter from the subject matter of Civil Case No.
0005 which is about the sequestration of the shares of respondents Tan, et al.,
in Allied Bank. Consequently, the danger that confidential official information
might be divulged is nil, if not inexistent. To be sure, there are no inconsistent
sides to be bothered about in the case at bar. For there is no question that in
lawyering for respondents Tan, et al., respondent Mendoza is not working
against the interest of Central Bank. On the contrary, he is indirectly defending
the validity of the action of Central Bank in liquidating GENBANK and selling it
later to Allied Bank. Their interests coincide instead of colliding. It is for this
reason that Central Bank offered no objection to the lawyering of respondent
Mendoza in Civil Case No. 0005 in defense of respondents Tan, et al. There is
no switching of sides for no two sides are involved.
It is also urged that the Court should consider that Rule 6.03 is intended to
avoid conflict of loyalties, i.e., that a government employee might be subject
to a conflict of loyalties while still in government service.[61] The example given
by the proponents of this argument is that a lawyer who plans to work for the
company that he or she is currently charged with prosecuting might be
tempted to prosecute less vigorously.[62] In the cautionary words of the
Association of the Bar Committee in 1960: The greatest public risks arising
from post employment conduct may well occur during the period of
employment through the dampening of aggressive administration of
government policies.[63] Prof. Morgan, however, considers this concern as
probably excessive.[64] He opines x x x it is hard to imagine that a private firm
would feel secure hiding someone who had just been disloyal to his or her last
client the government. Interviews with lawyers consistently confirm that law
firms want the best government lawyers the ones who were hardest to beat not
the least qualified or least vigorous advocates.[65] But again, this particular
concern is a non factor in the case at bar. There is no charge against
respondent Mendoza that he advised Central Bank on how to liquidate
GENBANK with an eye in later defending respondents Tan, et al. of Allied
Bank. Indeed, he continues defending both the interests of Central Bank and
respondents Tan, et al. in the above cases.
 Likewise, the Court is nudged to consider the need to curtail what is
perceived as the excessive influence of former officials or their
clout.[66] Prof. Morgan again warns against extending this concern too far. He
explains the rationale for his warning, viz: Much of what appears to be an
employees influence may actually be the power or authority of his or her
position, power that evaporates quickly upon departure from government x x
x.[67] More, he contends that the concern can be demeaning to those sitting in
government. To quote him further: x x x The idea that, present officials make
significant decisions based on friendship rather than on the merit says more
about the present officials than about their former co-worker friends. It implies
a lack of will or talent, or both, in federal officials that does not seem justified or
intended, and it ignores the possibility that the officials will tend to disfavor their
friends in order to avoid even the appearance of favoritism.[68]

III

The question of fairness

Mr. Justices Panganiban and Carpio are of the view, among others, that
the congruent interest prong of Rule 6.03 of the Code of Professional
Responsibility should be subject to a prescriptive period. Mr. Justice Tinga
opines that the rule cannot apply retroactively to respondent Mendoza.
Obviously, and rightly so, they are disquieted by the fact that (1) when
respondent Mendoza was the Solicitor General, Rule 6.03 has not yet adopted
by the IBP and approved by this Court, and (2) the bid to disqualify respondent
Mendoza was made after the lapse of time whose length cannot, by any
standard, qualify as reasonable. At bottom, the point they make relates to the
unfairness of the rule if applied without any prescriptive period and
retroactively, at that. Their concern is legitimate and deserves to be initially
addressed by the IBP and our Committee on Revision of the Rules of Court.
IN VIEW WHEREOF, the petition assailing the resolutions dated July 11,
2001 and December 5, 2001 of the Fifth Division of the Sandiganbayan in Civil
Case Nos. 0096-0099 is denied.
No cost.
SO ORDERED.
Davide, Jr., C.J., Quisumbing, Ynares-Santiago, Sandoval-Gutierrez,
Carpio, Austria-Martinez, Corona and Garcia, JJ., concur.
Panganiban and Tinga, JJ., Please see separate opinion.
Carpio-Morales and Callejo, Sr., JJ., Please see dissenting opinion.
Azcuna, J., I was former PCGG Chair.
Chico-Nazario, J., No part.
[1] Rollo, p. 240; Filcapital Development Corporation was a related interest of the Yujuico
Family Group and the directors and officers of GENBANK.
[2] Rollo, pp. 240, 242.
[3] Rollo, p. 7.
[4] Rollo, pp. 7, 108, 248.
[5] Rollo, pp. 110-114, 248.
[6] Rollo, pp. 217-218.
[7] Rollo, p. 143.
[8] Rollo, pp. 216-220.
[9] Rollo, pp. 44, 221- 225.
[10] Atty. Mendoza served as Solicitor General from 1972 to 1986.
[11] Rollo, p. 63.
[12] Rollo, p. 61.
[13] Rollo, pp. 57-63.
[14] Rollo, p. 178.
[15] Rollo, pp. 42, 44; The Motion to disqualify Atty. Estelito P. Mendoza as counsel for
petitioners in Civil Case Nos. 0096-0099 was filed with the Sandiganbayans Second
Division. However, the motion was ultimately resolved by the Sandiganbayans Fifth
Division in its proceedings held on July 11, 2001.
[16] Rollo, p. 42.
[17] Rollo, p. 43.
[18] Rollo, pp. 2-40.
[19] Rollo, pp. 12-14.
[20] Andrews, Standards of Conduct for Lawyers: An 800-Year Revolution, 57 SMU L. Rev.
1385 (2004).
[21] Ibid.
[22] Ibid.
[23] Ibid.
[24] Agpalo, Legal and Judicial Ethics, pp. 24-25 (2002); In re Tagorda, 53 Phil. 37 (1927).
[25] Wolfram, Modern Legal Ethics, p. 456 (1986).
[26] Id. at 457.
[27] Ibid.; The use of the word conflict is a misnomer; congruent-interest representation conflicts
arguably do not involve conflicts at all, as it prohibits lawyers from representing a
private practice client even if the interests of the former government client and the new
client are entirely parallel.
[28] Supra, note 20.
[29] ABA Canons of Professional Ethics, Canon 36 (1908); ABA Model Code of Professional
Responsibility (1963), DR 9-101(b); ABA Model Rules of Professional Responsibility,
MR 1.11(a) and (b) (1983).
[30] Supra, note 25 at 458.
[31] Supra, note 20.
[32] Agpalo, Legal and Judicial Ethics, p. 25 (2002).
[33] Canon 9 was adopted to replace Canon 36 because Canon 36 "proved to be too broadly
encompassing." ABA Opinion No. 342 (1975); Canon 9 states: A lawyer should avoid
even the appearance of professional impropriety.
[34] Model Code of Professional Responsibility, Preliminary Statement (1983); "The Disciplinary
Rules ... are mandatory in character. The Disciplinary Rules state the minimum level
of conduct below which no lawyer can fall without being subject to disciplinary action."
[35] DR 9-101(b): A lawyer shall not accept private employment in a matter in which he had
substantial responsibility while he was a public employee.
[36] Supra, note 20.
[37] Ibid.
[38] Model Rules of Professional Conduct, Rule 1.09 comment (1984): The other rubric formerly
used for dealing with disqualification is the appearance of impropriety proscribed in
Canon 9 of the ABA Model Code of Professional Responsibility. This rubric has a
two-fold problem. First, the appearance of impropriety can be taken to include any
new client-lawyer relationship that might make a former client feel anxious. If that
meaning were adopted, disqualification would become little more than a question of
subjective judgment by the former client. Second, since impropriety is undefined, the
term appearance of impropriety is question-begging. It therefore has to be recognized
that the problem of disqualification cannot be properly resolved . . . by the very general
concept of appearance of impropriety.
[39] Supra, note 32.
[40] See Dissent of J. Callejo, Sr., pp.19-20.
[41] Websters Third New International Dictionary of the English Language Unabridged, p. 1183
(1993).
[42] Id.
[43] Id.; This may be inferred from the second definition of intervene which is to occur, fall, or
come in between points of time or events.
[44] Id.; This may be inferred from the third definition of intervene which is to come in or
between by way of hindrance or modification, and the second definition of intervention
which is interference that may affect the interests of others.
[45] Wolfram, Modern Legal Ethics, p. 461 (1986).
[46] Kaufman, The Former Government Attorney and Canons of Professional Ethics, 70 Harv. L.
Rev. 657 (1957).
[47] Remarks of Federal Trade Commission Chairman Calvin Collier before Council on Younger
Lawyers, 1976 Annual Convention of the Federal Bar Association (September 16,
1976).
[48] Koller v. Richardson-Merrell, Inc., 737 F.2d 1038, 1051 (D.C. Cir. 1984); Board of
Education of New York City v. Nyquist, 590 F.2d 1241, 1246 (2d Cir. 1979);
 Williamsburg Wax Museum v. Historic Figures, Inc., 501 F.Supp. 326, 331 (D.D.C.
1980).
[49] Richardson-Merrell, Inc. v. Koller, 472 U.S. 424, 436 (1985).
[50] Rollo, p. 143; The petitions for certiorari, prohibition and injunction were filed sometime in
August 1986. The motion for disqualification in Civil Case No. 0096-0099 was filed on
February 5, 1991.
[51] United States v. Brothers, 856 F. Supp. 370, 375 (M.D. Tenn. 1992).
[52] First Wis. Mortgage Trust v. First Wis. Corp., 584 F.2d 201 (7th Cir. 1978); EZ Paintr
Corp. v. Padco, Inc., 746 F.2d 1459, 1463 (Fed. Cir. 1984); Realco Serv. v. Holt, 479
F. Supp. 867, 880 (E.D. Pa. 1979).
[53] Morgan, Appropriate Limits on Participation by a former Agency Official in Matters Before
an Agency, Duke L.J., Vol. 1980, February, No. 1, p. 54.
[54] Ibid.
[55] Agpalo, Legal and Judicial Ethics, pp. 292-293; Hilado v. David, 84 Phil. 569 (1949).
[56] Wolfram, Modern Legal Ethics, p. 320 (1986).
[57] Id. at p. 321.
[58] Kaufman, The Former Government Attorney and Canons of Professional Ethics, 70 Harv. L.
Rev. 657 (1957).
[59] Supra, note 38.
[60] United States v. O'Malley, 786 F.2d 786, 789 (7th Cir. 1985); United States v. James, 708
F.2d 40, 44 (2d Cir. 1983).
[61] Supra, note 53 at 44.
[62] Ibid.
[63] Ibid., see footnote 207 of article.
[64] Ibid.
[65] Id. at 45.
[66] Id. at 42.
[67] Id. at 42-43.
[68] Id. at 43.