Republic of the Philippines sufficient release and discharge of the

SUPREME COURT BANK for such payment or withdrawal. 5

Manila The trial courts 6 upheld the validity of this agreement and
SECOND DIVISION granted "the motion to sell some of the estate of Dolores L.
G.R. No. 82027 March 29, 1990 Vitug, the proceeds of which shall be used to pay the
ROMARICO G. VITUG, petitioner, personal funds of Romarico Vitug in the total sum of
vs. P667,731.66 ... ." 7
THE HONORABLE COURT OF APPEALS and ROWENA On the other hand, the Court of Appeals, in the petition for
FAUSTINO-CORONA, respondents. certiorari filed by the herein private respondent, held that the
Rufino B. Javier Law Office for petitioner. above-quoted survivorship agreement constitutes a
Quisumbing, Torres & Evangelista for private respondent. conveyance mortis causa which "did not comply with the
formalities of a valid will as prescribed by Article 805 of the
SARMIENTO, J.: Civil Code," 8 and secondly, assuming that it is a mere
This case is a chapter in an earlier suit decided by this donation inter vivos, it is a prohibited donation under the
Court 1 involving the probate of the two wills of the late provisions of Article 133 of the Civil Code. 9
Dolores Luchangco Vitug, who died in New York, U. S.A., on The dispositive portion of the decision of the Court of
November 10, 1980, naming private respondent Rowena Appeals states:
Faustino-Corona executrix. In our said decision, we upheld WHEREFORE, the order of respondent
the appointment of Nenita Alonte as co-special administrator Judge dated November 26, 1985
of Mrs. Vitug's estate with her (Mrs. Vitug's) widower, (Annex II, petition) is hereby set aside
petitioner Romarico G. Vitug, pending probate. insofar as it granted private
On January 13, 1985, Romarico G. Vitug filed a motion respondent's motion to sell certain
asking for authority from the probate court to sell certain properties of the estate of Dolores L.
shares of stock and real properties belonging to the estate to Vitug for reimbursement of his alleged
cover allegedly his advances to the estate in the sum of advances to the estate, but the same
P667,731.66, plus interests, which he claimed were personal order is sustained in all other respects.
funds. As found by the Court of Appeals, 2 the alleged In addition, respondent Judge is
advances consisted of P58,147.40 spent for the payment of directed to include provisionally the
estate tax, P518,834.27 as deficiency estate tax, and deposits in Savings Account No. 35342-
P90,749.99 as "increment thereto." 3 According to Mr. Vitug, 038 with the Bank of America, Makati, in
he withdrew the sums of P518,834.27 and P90,749.99 from the inventory of actual properties
savings account No. 35342-038 of the Bank of America, possessed by the spouses at the time of
Makati, Metro Manila. the decedent's death. With costs against
On April 12, 1985, Rowena Corona opposed the motion to private respondent. 10
sell on the ground that the same funds withdrawn from In his petition, Vitug, the surviving spouse, assails the
savings account No. 35342-038 were conjugal partnership appellate court's ruling on the strength of our decisions
properties and part of the estate, and hence, there was in Rivera v. People's Bank and Trust Co. 11 and Macam v.
allegedly no ground for reimbursement. She also sought his Gatmaitan 12 in which we sustained the validity of
ouster for failure to include the sums in question for "survivorship agreements" and considering them as aleatory
inventory and for "concealment of funds belonging to the contracts. 13
estate." 4 The petition is meritorious.
Vitug insists that the said funds are his exclusive property The conveyance in question is not, first of all, one of mortis
having acquired the same through a survivorship agreement causa, which should be embodied in a will. A will has been
executed with his late wife and the bank on June 19, 1970. defined as "a personal, solemn, revocable and free act by
The agreement provides: which a capacitated person disposes of his property and
We hereby agree with each other and rights and declares or complies with duties to take effect
with the BANK OF AMERICAN after his death." 14 In other words, the bequest or device
NATIONAL TRUST AND SAVINGS must pertain to the testator. 15 In this case, the monies
ASSOCIATION (hereinafter referred to subject of savings account No. 35342-038 were in the nature
as the BANK), that all money now or of conjugal funds In the case relied on, Rivera v. People's
hereafter deposited by us or any or Bank and Trust Co., 16 we rejected claims that a survivorship
either of us with the BANK in our joint agreement purports to deliver one party's separate
savings current account shall be the properties in favor of the other, but simply, their joint
property of all or both of us and shall be holdings:
payable to and collectible or xxx xxx xxx
withdrawable by either or any of us ... Such conclusion is evidently
during our lifetime, and after the death predicated on the assumption that
of either or any of us shall belong to and Stephenson was the exclusive owner of
be the sole property of the survivor or the funds-deposited in the bank, which
survivors, and shall be payable to and assumption was in turn based on the
collectible or withdrawable by such facts (1) that the account was originally
survivor or survivors. opened in the name of Stephenson
We further agree with each other and alone and (2) that Ana Rivera "served
the BANK that the receipt or check of only as housemaid of the deceased."
either, any or all of us during our But it not infrequently happens that a
lifetime, or the receipt or check of the person deposits money in the bank in
survivor or survivors, for any payment or the name of another; and in the instant
withdrawal made for our above- case it also appears that Ana Rivera
mentioned account shall be valid and served her master for about nineteen
years without actually receiving her
 salary from him. The fact that the Court of Appeals, 21 by "mere stipulation" 22 and that it is
subsequently Stephenson transferred no "cloak" 23 to circumvent the law on conjugal property
the account to the name of himself relations. Certainly, the spouses are not prohibited by law to
and/or Ana Rivera and executed with invest conjugal property, say, by way of a joint and several
the latter the survivorship agreement in bank account, more commonly denominated in banking
question although there was no relation parlance as an "and/or" account. In the case at bar, when
of kinship between them but only that of the spouses Vitug opened savings account No. 35342-038,
master and servant, nullifies the they merely put what rightfully belonged to them in a money-
assumption that Stephenson was the making venture. They did not dispose of it in favor of the
exclusive owner of the bank account. In other, which would have arguably been sanctionable as a
the absence, then, of clear proof to the prohibited donation. And since the funds were conjugal, it
contrary, we must give full faith and can not be said that one spouse could have pressured the
credit to the certificate of deposit which other in placing his or her deposits in the money pool.
recites in effect that the funds in The validity of the contract seems debatable by reason of its
question belonged to Edgar Stephenson "survivor-take-all" feature, but in reality, that contract
and Ana Rivera; that they were joint imposed a mere obligation with a term, the term being death.
(and several) owners thereof; and that Such agreements are permitted by the Civil Code. 24
either of them could withdraw any part Under Article 2010 of the Code:
or the whole of said account during the ART. 2010. By an aleatory contract, one
lifetime of both, and the balance, if any, of the parties or both reciprocally bind
upon the death of either, belonged to themselves to give or to do something in
the survivor. 17 consideration of what the other shall
xxx xxx xxx give or do upon the happening of an
In Macam v. Gatmaitan, 18 it was held: event which is uncertain, or which is to
xxx xxx xxx occur at an indeterminate time.
This Court is of the opinion that Exhibit Under the aforequoted provision, the fulfillment of an
C is an aleatory contract whereby, aleatory contract depends on either the happening of an
according to article 1790 of the Civil event which is (1) "uncertain," (2) "which is to occur at an
Code, one of the parties or both indeterminate time." A survivorship agreement, the sale of a
reciprocally bind themselves to give or sweepstake ticket, a transaction stipulating on the value of
do something as an equivalent for that currency, and insurance have been held to fall under the first
which the other party is to give or do in category, while a contract for life annuity or pension under
case of the occurrence of an event Article 2021, et sequentia, has been categorized under the
which is uncertain or will happen at an second. 25 In either case, the element of risk is present. In
indeterminate time. As already stated, the case at bar, the risk was the death of one party and
Leonarda was the owner of the house survivorship of the other.
and Juana of the Buick automobile and However, as we have warned:
most of the furniture. By virtue of Exhibit xxx xxx xxx
C, Juana would become the owner of But although the survivorship agreement
the house in case Leonarda died first, is per se not contrary to law its operation
and Leonarda would become the owner or effect may be violative of the law. For
of the automobile and the furniture if instance, if it be shown in a given case
Juana were to die first. In this manner that such agreement is a mere cloak to
Leonarda and Juana reciprocally hide an inofficious donation, to transfer
assigned their respective property to property in fraud of creditors, or to
one another conditioned upon who defeat the legitime of a forced heir, it
might die first, the time of death may be assailed and annulled upon
determining the event upon which the such grounds. No such vice has been
acquisition of such right by the one or imputed and established against the
the other depended. This contract, as agreement involved in this case. 26
any other contract, is binding upon the xxx xxx xxx
parties thereto. Inasmuch as Leonarda There is no demonstration here that the survivorship
had died before Juana, the latter agreement had been executed for such unlawful purposes,
thereupon acquired the ownership of the or, as held by the respondent court, in order to frustrate our
house, in the same manner as Leonarda laws on wills, donations, and conjugal partnership.
would have acquired the ownership of The conclusion is accordingly unavoidable that Mrs. Vitug
the automobile and of the furniture if having predeceased her husband, the latter has acquired
Juana had died first. 19 upon her death a vested right over the amounts under
xxx xxx xxx savings account No. 35342-038 of the Bank of America.
There is no showing that the funds exclusively belonged to Insofar as the respondent court ordered their inclusion in the
one party, and hence it must be presumed to be conjugal, inventory of assets left by Mrs. Vitug, we hold that the court
having been acquired during the existence of the marita. was in error. Being the separate property of petitioner, it
relations. 20 forms no more part of the estate of the deceased.
Neither is the survivorship agreement a donation inter WHEREFORE, the decision of the respondent appellate
vivos, for obvious reasons, because it was to take effect court, dated June 29, 1987, and its resolution, dated
after the death of one party. Secondly, it is not a donation February 9, 1988, are SET ASIDE.
between the spouses because it involved no conveyance of No costs.
a spouse's own properties to the other. SO ORDERED.
It is also our opinion that the agreement involves no Melencio-Herrera (Chairperson), Paras, Padilla and
modification petition of the conjugal partnership, as held by Regalado JJ., concur.
 fees, and litigation expenses. When the decision of the trial
G.R. No. 94723 – August 21, 1997 Karen F. Salvacion vs court became final after the lapse of the 15-day publication,
Central Bank, China Banking Corporation, and Greg Bartelli petitioners tried to execute on Bartelli’s dollar account with
bebejoy14 Case Digests October 5, 2017 3 Minutes China Banking Corp. The Bank invoked Section 113 of the
G.R. No. 94723 – August 21, 1997 Central Bank Circular No. 960.

Karen F. Salvacion vs Central Bank, China Banking

Corporation, and Greg Bartelli
A petition for declaratory relief was subsequently filed at the
Supreme Court.

Civil Law – The New Civil Code

Article 9. No judge or court shall decline to render judgment Issues:

by reason of the silence, obscurity or insufficiency of the
laws. (6)

Article 10. In case of doubt in the interpretation or application Whether or not, the Supreme Court may entertain the instant
of laws, it is presumed that the lawmaking body intended petition despite the fact that the declaratory relief rests with
right and justice to prevail. (n) the lower court.

Facts: Whether or not Sec 113 of the Central Bank Circular No. 960
and Section 8 of the Republic Act No. 6426 as amended by
Presidential Decree No. 1246, otherwise known as the
Foreign Currency Deposit Act be made applicable to a
On February 4, 1989, Greg Bartelli y Northcott, an American foreign transient?
tourist coaxed and lured Karen Salvacion, then 12 years old,
to go with him to his apartment. He persuaded her by giving
her a stuffed toy and telling her that he has a niece her age
and he wanted Karen to teach her Pilipino. Ruling:

While inside the apartment, Greg Bartelli succeeded in On the first issue, the Court found that the petition is
raping Karen several times for three days until she found a partly meritorious. In this decision over the jurisdiction on
way to get help and was subsequently rescued by the police. the filing of declaratory relief in the Supreme Court, it stated
During the arrest, the police recovered from Bartelli the that:
following: dollar checks, COCOBANK bankbook for peso
account, China Banking Corp. bankbook for his dollar
account and other personal effects.
“This Court has no original and exclusive jurisdiction over a
petition for declaratory relief. However, exceptions to this
rule have been recognized. Thus, where the petition has far-
On February 16, 1989, a case was filed against Bartelli for reaching implications and raises questions that should be
serious illegal detention and four counts of rape. On resolved, it may be treated as one for mandamus.”
February 24, 1989, on his way to the bail hearing, Greg
Bartelli managed to escape police custody.

On the second issue, the Court ruled in favor of Karen

Salvacion, against Greg Bartelli, a foreign transient who
On February 28, 1989, the court granted the fiscal’s Ex- perpetrated a crime against a citizen. In this case, the Court
Parte motion for the issuance of the warrant of arrest and applied Article 10 of the New Civil Code and declared that:
hold departure order. Thus, pending his arrest, the criminal
case against Bartelli was achieved. On the same date, a
Writ of Preliminary Attachment was issued for Civil Case No.
89-3214. “xxx…the provisions of Section 113 of CB Circular No. 960
and PD No. 1246, insofar as it amends Section 8 of R.A. No.
6426 are hereby held to be INAPPLICABLE to this case
because of its peculiar circumstances. Respondents are
By the virtue of the Writ of Preliminary Attachment, a Notice hereby REQUIRED to COMPLY with the writ of execution
of Garnishment was issued to China Banking Corporation. issued in Civil Case No. 89-3214, “Karen Salvacion, et al. vs.
The said bank invoked Republic Act No. 1405. 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.”
On April 10, 1989, the trial court ruled in favor of Karen
Salvacion and ordered Greg Bartelli to pay Karen and her EN BANC
parents damages, 25% of the total damages as attorney’s
JOSEPH VICTOR G. EJERCITO, G.R. Nos. a. Bank of Commerce MC #
P 157294-95 0256254 in the amount
et Present: of P2,000,000.00;
iti b. Urban bank Corp. MC #
o PANGANIBA 34181 dated November 8,
n N, C.J., 1999 in the amount of
er PUNO, P10,875,749.43;
, QUISUMBING, c. Urban Bank MC # 34182
YNARES- dated November 8, 1999 in
SANTIAGO, the amount
SANDOVAL- of P42,716,554.22;
GUTIERREZ, d. Urban Bank Corp. MC #
- versus - CARPIO, 37661 dated November 23,
AUSTRIA- 1999 in the amount
MARTINEZ, of P54,161,496.52;
CORONA,
CARPIO 5. Trust Agreement dated January 1999:
SANDIGANBAYAN (SPECIAL MORALES, Trustee: Joseph Victor C. Ejercito
DIVISION) AND PEOPLE OF CALLEJO, Nominee: URBAN BANK-TRUST
THE PHILIPPINES, SR., DEPARTMENT
R AZCUNA, Special Private Account No. (SPAN)
e TINGA, 858; and
s CHICO- 6. Ledger of the SPAN # 858.
p NAZARIO,
o GARCIA, and II. For Savings Account No. 0116-17345-9
n VELASCO, SPAN No. 858
d JR., JJ.
e Promulgated: 1. Signature Cards; and
nt 2. Statement of Account/Ledger
s. November 30,
2006 III. Urban Bank Managers Check and their
x------------------------------------------- corresponding Urban Bank Managers Check
-------x Application Forms, as follows:

DECISION 1. MC # 039975 dated January 18,

2000 in the amount of P70,000,000.00;
CARPIO MORALES, J.: 2. MC # 039976 dated January 18,
2000 in the amount of P2,000,000.00;
The present petition for certiorari under Rule 65 3. MC # 039977 dated January 18,
assails the Sandiganbayan Resolutions dated February 7 2000 in the amount of P2,000,000.00;
and 12, 2003 denying petitioner Joseph Victor G. Ejercitos 4. MC # 039978 dated January 18,
Motions to Quash Subpoenas Duces Tecum/Ad 2000 in the amount of P1,000,000.00;
Testificandum, and Resolution dated March 11,
2003 denying his Motion for Reconsideration of the first two The Special Prosecution Panel also filed
resolutions. on January 20, 2003, a Request for Issuance of Subpoena
Duces Tecum/Ad Testificandum directed to the authorized
The three resolutions were issued in Criminal representative of Equitable-PCI Bank to produce statements
Case No. 26558, People of the Philippines v. Joseph Ejercito of account pertaining to certain accounts in the name of Jose
Estrada, et al., for plunder, defined and penalized in R.A. Velarde and to testify thereon.
7080, AN ACT DEFINING AND PENALIZING THE CRIME
OF PLUNDER. The Sandiganbayan granted both requests by
Resolution of January 21, 2003 and subpoenas were
In above-stated case of People v. Estrada, et al., accordingly issued.
the Special Prosecution Panel[1] filed on January 20, 2003
before the Sandiganbayan a Request for Issuance of The Special Prosecution Panel filed still another
Subpoena Duces Tecum for the issuance of a subpoena Request for Issuance of Subpoena Duces Tecum/Ad
directing the President of Export and Industry Bank (EIB, Testificandum dated January 23, 2003 for the President of
formerly Urban Bank) or his/her authorized representative to EIB or his/her authorized representative to produce the
produce the following documents during the hearings same documents subject of the Subpoena Duces Tecum
scheduled on January 22 and 27, 2003: dated January 21, 2003 and to testify thereon on the
hearings scheduled on January 27 and 29, 2003 and
I. For Trust Account No. 858; subsequent dates until completion of the testimony. The
1. Account Opening Documents; request was likewise granted by the Sandiganbayan. A
2. Trading Order No. 020385 Subpoena Duces Tecum/Ad Testificandum was accordingly
dated January 29, 1999; issued on January 24, 2003.
3. Confirmation Advice TA 858;
4. Original/Microfilm copies, including the Petitioner, claiming to have learned from the
dorsal side, of the following: 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 Sandoval, advised petitioner that his remedy was to file a
letter of even date expressing his concerns as follows, motion to quash, for which he was given up to 12:00 noon
quoted verbatim: the following day, January 28, 2003.

Your Honors: Petitioner, unassisted by counsel, thus filed

on January 28, 2003 a Motion to Quash Subpoena Duces
It is with much respect that I write this Tecum/Ad Testificandum praying that the subpoenas
court relative to the concern of previously issued to the President of the EIB dated January
subpoenaing the undersigneds bank 21 and January 24, 2003 be quashed.[3]
account which I have learned through
the media. In his Motion to Quash, petitioner claimed that his
bank accounts are covered by R.A. No. 1405 (The Secrecy
I am sure the prosecution is aware of of Bank Deposits Law) and do not fall under any of the
our banking secrecy laws everyone exceptions stated therein. He further claimed that the
supposed to observe. But, instead of specific identification of documents in the questioned
prosecuting those who may have subpoenas, including details on dates and amounts, could
breached such laws, it seems it is even only have been made possible by an earlier illegal disclosure
going to use supposed evidence which I thereof by the EIB and the Philippine Deposit Insurance
have reason to believe could only have Corporation (PDIC) in its capacity as receiver of the then
been illegally obtained. Urban Bank.

The prosecution was not content with a The disclosure being illegal, petitioner concluded,
general request. It even lists and the prosecution in the case may not be allowed to make use
identifies specific documents meaning of the information.
someone else in the bank illegally
released confidential information. Before the Motion to Quash was resolved by the
Sandiganbayan, the prosecution filed another Request for
If this can be done to me, it can happen the Issuance of Subpoena Duces Tecum/Ad Testificandum
to anyone. Not that anything can still dated January 31, 2003, again to direct the President of the
shock our family. Nor that I have EIB to produce, on the hearings scheduled on February 3
anything to hide. Your Honors. and 5, 2003, the same documents subject of the January 21
and 24, 2003 subpoenas with the exception of the Bank of
But, I am not a lawyer and need time to Commerce MC #0256254 in the amount of P2,000,000 as
consult one on a situation that affects Bank of Commerce MC #0256256 in the amount
every bank depositor in the country and of P200,000,000 was instead requested. Moreover, the
should interest the bank itself, the request covered the following additional documents:
Bangko Sentral ng Pilipinas, and maybe
the Ombudsman himself, who may want IV. For Savings Account No. 1701-00646-1:
to investigate, not exploit, the serious 1. Account Opening Forms;
breach that can only harm the economy, 2. Specimen Signature Card/s; and
a consequence that may have been 3. Statements of Account.
overlooked. There appears to have
been deplorable connivance.
The prosecution also filed a Request for the
xxxx Issuance of Subpoena Duces Tecum/Ad Testificandum
bearing the same date, January 31, 2003, directed to Aurora
I hope and pray, Your Honors, that I will C. Baldoz, Vice President-CR-II of the PDIC for her to
be given time to retain the services of a produce the following documents on the scheduled hearings
lawyer to help me protect my rights and on February 3 and 5, 2003:
those of every banking depositor. But
the one I have in mind is out of the 1. Letter of authority dated November
country right now. 23, 1999 re: SPAN [Special
Private Account Number] 858;
May I, therefore, ask your Honors, that
in the meantime, the issuance of the 2. Letter of authority dated January 29,
subpoena be held in abeyance for at 2000 re: SPAN 858;
least ten (10) days to enable me to take
appropriate legal steps in connection 3. Letter of authority dated April 24,
with the prosecutions request for the 2000 re: SPAN 858;
issuance of subpoena concerning my
accounts. (Emphasis supplied) 4. Urban Bank check no. 052092
dated April 24, 2000 for the
amount of P36, 572, 315.43;
From the present petition, it is gathered that the
accounts referred to by petitioner in his above-quoted letter 5. Urban Bank check no. 052093 dated
are Trust Account No. 858 and Savings Account No. 0116- April 24, 2000 for the amount of
17345-9.[2] P107,191,780.85; and

In open court, the Special Division of the

Sandiganbayan, through Associate Justice Edilberto
 6. Signature Card Savings Account
No. 0116-17345- SECTION 1. It is hereby declared to be
9. (Underscoring supplied) the policy of the Government to give
encouragement to the people to deposit
their money in banking institutions
The subpoenas prayed for in both requests were and to discourage private hoarding so
issued by the Sandiganbayan on January 31, 2003. that the same may be properly utilized
by banks in authorized loans to assist in
On February 7, 2003, petitioner, this time assisted the economic development of the
by counsel, filed an Urgent Motion to Quash Subpoenae country. (Underscoring supplied)
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 If the money deposited under an account may be
to Quash[4] he had earlier filed. used by banks for authorized loans to third persons, then
such account, regardless of whether it creates a creditor-
On the same day, February 7, 2003, the debtor relationship between the depositor and the bank, falls
Sandiganbayan issued a Resolution denying petitioners under the category of accounts which the law precisely
Motion to Quash Subpoenae Duces Tecum/Ad seeks to protect for the purpose of boosting the economic
Testificandum dated January 28, 2003. development of the country.

Subsequently or on February 12, 2003, the Trust Account No. 858 is, without doubt, one such
Sandiganbayan issued a Resolution denying petitioners account. The Trust Agreement between petitioner and Urban
Urgent Motion to Quash Subpoena Duces Tecum/Ad Bank provides that the trust account covers deposit,
Testificandum dated February 7, 2003. placement or investment of funds by Urban Bank for and in
behalf of petitioner.[6] The money deposited under Trust
Petitioners Motion for Reconsideration Account No. 858, was, therefore, intended not merely to
dated February 24, 2003 seeking a reconsideration of the remain with the bank but to be invested by it elsewhere. To
Resolutions of February 7 and 12, 2003 having been denied hold that this type of account is not protected by R.A. 1405
by Resolution of March 11, 2003, petitioner filed the present would encourage private hoarding of funds that could
petition. otherwise be invested by banks in other ventures, contrary to
the policy behind the law.
Raised as issues are:
Section 2 of the same law in fact even more
1. Whether petitioners Trust Account No. clearly shows that the term deposits was intended to be
858 is covered by the term deposit as used understood broadly:
in R.A. 1405;
SECTION 2. All
2. Whether petitioners Trust Account No. deposits of whatever nature with
858 and Savings Account No. 0116-17345- banks or banking institutions in the
9 are excepted from the protection of R.A. Philippines including investments in
1405; and bonds issued by the Government of the
Philippines, its political subdivisions and
3. Whether the extremely-detailed its instrumentalities, are hereby
information contained in the Special considered as of an absolutely
Prosecution Panels requests for subpoena confidential nature and may not be
was obtained through a prior illegal examined, inquired or looked into by any
disclosure of petitioners bank accounts, in person, government official, bureau or
violation of the fruit of the poisonous tree office, except upon written permission of
doctrine. the depositor, or in cases of
impeachment, or upon order of a
competent court in cases of bribery or
Respondent People posits that Trust Account No. dereliction of duty of public officials, or in
858[5] may be inquired into, not merely because it falls under cases where the money deposited or
the exceptions to the coverage of R.A. 1405, but because it invested is the subject matter of the
is not even contemplated therein. For, to respondent People, litigation. (Emphasis and underscoring
the law applies only to deposits which strictly means the supplied)
money delivered to the bank by which a creditor-debtor
relationship is created between the depositor and the bank.
The phrase of whatever nature proscribes any
The contention that trust accounts are not covered restrictive interpretation of deposits. Moreover, it is clear
by the term deposits, as used in R.A. 1405, by the mere fact from the immediately quoted provision that, generally, the
that they do not entail a creditor-debtor relationship between law applies not only to money which is deposited but also to
the trustor and the bank, does not lie. An examination of the those which are invested. This further shows that the law
law shows that the term deposits used therein is to be was not intended to apply only to deposits in the strict sense
understood broadly and not limited only to accounts which of the word. Otherwise, there would have been no need to
give rise to a creditor-debtor relationship between the add the phrase or invested.
depositor and the bank.
Clearly, therefore, R.A. 1405 is broad enough to
The policy behind the law is laid down in Section cover Trust Account No. 858.
1:
 The protection afforded by the law is, however, not pronounced since bribery is essentially included among
absolute, there being recognized exceptions thereto, as these criminal acts. Thus Section 1(d) states:
above-quoted Section 2 provides. In the present case, two
exceptions apply, to wit: (1) the examination of bank d) Ill-gotten wealth means any
accounts is upon order of a competent court in cases of asset, property, business enterprise or
bribery or dereliction of duty of public officials, and (2) the material possession of any person
money deposited or invested is the subject matter of the within the purview of Section Two (2)
litigation. hereof, acquired by him directly or
indirectly through dummies, nominees,
Petitioner contends that since plunder is neither agents, subordinates and or business
bribery nor dereliction of duty, his accounts are not excepted associates by any combination or series
from the protection of R.A. 1405. Philippine National Bank v. of the following means or similar
Gancayco[7] holds otherwise: schemes.

Cases of unexplained wealth are 1) Through misappropriation,

similar to cases of bribery or dereliction conversion, misuse, or
of duty and no reason is seen why these malversation of public funds or
two classes of cases cannot be raids on the public treasury;
excepted from the rule making bank
deposits confidential. The policy as to 2) By receiving, directly or indirectly,
one cannot be different from the policy any commission, gift, share,
as to the other. This policy expresses percentage, kickbacks or any
the notion that a public office is a other form of pecuniary
public trust and any person who enters benefit from any person
upon its discharge does so with the full and/or entity in connection
knowledge that his life, so far as with any government contract
relevant to his duty, is open to public or project or by reason of the
scrutiny. office or position of the public
officer concerned;

Undoubtedly, cases for plunder involve 3) By the illegal or fraudulent

unexplained wealth. Section 2 of R.A. No. 7080 states so. conveyance or disposition of
assets belonging to the National
SECTION 2. Definition of the Crime of Government or any of its
Plunder; Penalties. Any public subdivisions, agencies or
officer who, by himself or in connivance instrumentalities or government-
with members of his family, relatives by owned or -controlled
affinity or consanguinity, business corporations and their
associates, subordinates or other subsidiaries;
persons, amasses, accumulates or
acquires ill-gotten wealth through a 4) By obtaining, receiving or accepting
combination or series of overt or directly or indirectly any shares
criminal acts as described in Section of stock, equity or any other form
1(d) hereof, in the aggregate amount or of interest or participation
total value of at least Seventy-five including promise of future
million pesos (P75,000,000.00), shall employment in any business
be guilty of the crime of plunder and enterprise or undertaking;
shall be punished by life imprisonment
with perpetual absolute disqualification 5) By establishing agricultural, industrial
from holding any public office. Any or commercial monopolies or
person who participated with said public other combinations and/or
officer in the commission of plunder implementation of decrees and
shall likewise be punished. In the orders intended to benefit
imposition of penalties, the degree of particular persons or special
participation and the attendance of interests; or
mitigating and extenuating
circumstances shall be considered by 6) By taking undue advantage of official
the court. The court shall declare any position, authority, relationship,
and all ill-gotten wealth and their connection or influence to
interests and other incomes and assets unjustly enrich himself or
including the properties and shares of themselves at the expense and
stock derived from the deposit or to the damage and prejudice of
investment thereof forfeited in favor of the Filipino people and the
the State. (Emphasis and underscoring Republic of the Philippines.
supplied) (Emphasis supplied)

An examination of the overt or criminal acts as Indeed, all the above-enumerated overt acts are
described in Section 1(d) of R.A. No. 7080 would make the similar to bribery such that, in each case, it may be said that
similarity between plunder and bribery even more
no reason is seen why these two classes of cases cannot be amount of US$1,000,000.00 instead of
excepted from the rule making bank deposits confidential.[8] only US$1,000.00, the Court
sanctioned the examination of the
The crime of bribery and the overt acts constitutive bank accounts where part of the
of plunder are crimes committed by public officers, and in money was subsequently caused to
either case the noble idea that a public office is a public trust be deposited:
and any person who enters upon its discharge does so with
the full knowledge that his life, so far as relevant to his duty, x x x
is open to public scrutiny applies with equal force. Section 2 of
[Republic Act No.
Plunder being thus analogous to bribery, the 1405] allows the
exception to R.A. 1405 applicable in cases of bribery must disclosure of bank
also apply to cases of plunder. deposits in cases
where the money
Respecting petitioners claim that the money in his deposited is the
bank accounts is not the subject matter of the litigation, the subject matter of
meaning of the phrase subject matter of the litigation as the
used in R.A. 1405 is explained in Union Bank of the litigation. Inasmuch
Philippines v. Court of Appeals,[9] thus: as Civil Case No.
26899 is aimed at
Petitioner contends that the recovering the
Court of Appeals confuses the cause of amount converted
action with the subject of the by the Javiers for
action. In Yusingco v. Ong Hing Lian, their own benefit,
petitioner points out, this Court necessarily, an
distinguished the two concepts. inquiry into the
whereabouts of
x x x The the illegally
cause of action is acquired amount
the legal wrong extends to
threatened or whatever is
committed, while concealed by
the object of the being held or
action is to prevent recorded in the
or redress the name of persons
wrong by obtaining other than the one
some legal relief; responsible for
but the subject of the illegal
the action is neither acquisition.
of these since it is
not the wrong or the Clearly, Mellon Bank involved
relief a case where the money deposited was
demanded, the the subject matter of the litigation since
subject of the action the money deposited was the very thing
is the matter or in dispute. x x x (Emphasis and
thing with respect to underscoring supplied)
which the
controversy has The plunder case now pending with the
arisen, concerning Sandiganbayan necessarily involves an inquiry into the
which the wrong whereabouts of the amount purportedly acquired illegally by
has been done, and former President Joseph Estrada.
this ordinarily is the
property or the In light then of this Courts pronouncement
contract and its in Union Bank, the subject matter of the litigation cannot be
subject matter, or limited to bank accounts under the name of President
the thing in dispute. Estrada alone, but must include those accounts to which the
money purportedly acquired illegally or a portion thereof was
The argument is well- alleged to have been transferred. Trust Account No. 858 and
taken. We note with approval the Savings Account No. 0116-17345-9 in the name of petitioner
difference between the subject of the fall under this description and must thus be part of the
action from the cause of action. We also subject matter of the litigation.
find petitioners definition of the phrase
subject matter of the action is consistent In a further attempt to show that the subpoenas
with the term subject matter of the issued by the Sandiganbayan are invalid and may not be
litigation, as the latter is used in the enforced, petitioner contends, as earlier stated, that the
Bank Deposits Secrecy Act. information found therein, given their extremely detailed
character, could only have been obtained by the Special
In Mellon Bank, N.A. v. Prosecution Panel through an illegal disclosure by the bank
Magsino, where the petitioner bank officials concerned. Petitioner thus claims that, following the
inadvertently caused the transfer of the
fruit of the poisonous tree doctrine, the subpoenas must be x x x When Congress
quashed. specifically designates a remedy for one
of its acts, courts generally presume that
Petitioner further contends that even if, as claimed it engaged in the necessary balancing of
by respondent People, the extremely-detailed information interests in determining what the
was obtained by the Ombudsman from the bank officials appropriate penalty should
concerned during a previous investigation of the charges be. See Michaelian, 803 F.2d at
against President Estrada, such inquiry into his bank 1049 (citing cases); Frazin, 780 F.2d
accounts would itself be illegal. at 1466. Absent a specific reference to
an exclusionary rule, it is not appropriate
Petitioner relies on Marquez v. Desierto[10] where for the courts to read such a provision
the Court held: into the act.

We rule that before an in camera

inspection may be allowed there must Even assuming arguendo, however, that the
be a pending case before a court of exclusionary rule applies in principle to cases involving R.A.
competent jurisdiction. Further, the 1405, the Court finds no reason to apply the same in this
account must be clearly identified, the particular case.
inspection limited to the subject matter
of the pending case before the court of Clearly, the fruit of the poisonous tree
competent jurisdiction. The bank doctrine[13] presupposes a violation of law. If there was no
personnel and the account holder must violation of R.A. 1405 in the instant case, then there would
be notified to be present during the be no poisonous tree to begin with, and, thus, no reason to
inspection, and such inspection may apply the doctrine.
cover only the account identified in the
pending case. (Underscoring supplied) How the Ombudsman conducted his inquiry into
the bank accounts of petitioner is recounted by respondent
People of the Philippines, viz:
As no plunder case against then President
Estrada had yet been filed before a court of competent x x x [A]s early as February 8, 2001, long before
jurisdiction at the time the Ombudsman conducted an the issuance of the Marquez ruling, the
investigation, petitioner concludes that the information about Office of the Ombudsman, acting under
his bank accounts were acquired illegally, hence, it may not the powers granted to it by the
be lawfully used to facilitate a subsequent inquiry into the Constitution and R.A. No. 6770, and
same bank accounts. acting on information obtained from
various sources, including impeachment
Petitioners attempt to make the exclusionary rule (of then Pres. Joseph Estrada) related
applicable to the instant case fails. R.A. 1405, it bears reports, articles and investigative
noting, nowhere provides that an unlawful examination of journals, issued a Subpoena Duces
bank accounts shall render the evidence obtained therefrom Tecumaddressed to Urban
inadmissible in evidence. Section 5 of R.A. 1405 only states Bank. (Attachment 1-b) It should be
that [a]ny violation of this law will subject the offender upon noted that the description of the
conviction, to an imprisonment of not more than five years or documents sought to be produced at
a fine of not more than twenty thousand pesos or both, in the that time included that of numbered
discretion of the court. accounts 727, 737, 747, 757, 777 and
858 and included such names as Jose
The case of U.S. v. Frazin,[11] involving the Right to Velarde, Joseph E. Estrada, Laarni
Financial Privacy Act of 1978 (RFPA) of the United States, is Enriquez, Guia Gomez, Joy Melendrez,
instructive. Peachy Osorio, Rowena Lopez, Kevin
Because the statute, when or Kelvin Garcia. The subpoena did not
properly construed, excludes a single out account 858.
suppression remedy, it would not be
appropriate for us to provide one in the xxxx
exercise of our supervisory powers over
the administration of justice. Where Thus, on February 13, 2001, PDIC, as receiver of
Congress has both established a right Urban Bank, issued a certification as to
and provided exclusive remedies for its the availability of bank documents
violation, we would encroach upon the relating to A/C 858 and T/A 858 and the
prerogatives of Congress were we to non-availability of bank records as to the
authorize a remedy not provided for by other accounts named in
statute. United States v. Chanen, 549 the subpoena. (Attachments 2, 2-1 and
F.2d 1306, 1313 (9th Cir.), cert. 2-b)
denied, 434 U.S. 825, 98 S.Ct. 72, 54
L.Ed.2d 83 (1977). Based on the certification issued by PDIC, the
Office of the Ombudsman on February
16, 2001 again issued a Subpoena
The same principle was reiterated in U.S. v. Duces Tecum directed to Ms. Corazon
Thompson:[12] dela Paz, as Interim Receiver, directing
the production of documents pertinent to
 account A/C 858 and T/C For the Ombudsman issued the subpoenas
858. (Attachment 3) bearing on the bank accounts of petitioner about four
months before Marquez was promulgated on June 27, 2001.
In compliance with the
said subpoena dated February 16, While judicial interpretations of statutes, such as
2001, Ms. Dela Paz, as interim receiver, that made in Marquez with respect to R.A. No. 6770 or the
furnished the Office of the Ombudsman Ombudsman Act of 1989, are deemed part of the statute as
certified copies of documents under of the date it was originally passed, the rule is not absolute.
cover latter dated February 21, 2001:
Columbia Pictures, Inc. v. Court of Appeals[16] teaches:
1. Transaction registers
dated 7-02-99, 8-16-99, It is consequently clear that a judicial
9-17-99, 10-18-99, 11- interpretation becomes a part of the law
22-99, 1-07-00, 04-03-00 as of the date that law was originally
and 04-24-00; passed, subject only to the
2. Report of Unregularized qualification that when a doctrine of
TAFs & TDs for UR this Court is overruled and a different
COIN A & B Placements view is adopted, and more so when
of Various Branches as there is a reversal thereof, the new
of February 29, 2000 and doctrine should be
as of December 16, applied prospectively and should not
1999; and apply to parties who relied on the old
3. Trading Orders Nos. A doctrine and acted in good faith.
No. 78102 and A No. (Emphasis and underscoring supplied)
078125.

Trading Order A No. 07125 is When this Court construed the Ombudsman Act of 1989, in
filed in two copies a white light of the Secrecy of Bank Deposits Law in Marquez, that
copy which showed set up before an in camera inspection may be allowed there must
information; and a yellow copy be a pending case before a court of competent jurisdiction, it
which showed reversal was, in fact, reversing an earlier doctrine found in Banco
information. Both copies have Filipino Savings and Mortgage Bank v. Purisima[17].
been reproduced and are
enclosed with this letter. Banco Filipino involved subpoenas duces
tecum issued by the Office of the Ombudsman, then known
We are continuing our search as the Tanodbayan,[18] in the course of its preliminary
for other records and investigation of a charge of violation of the Anti-Graft and
documents pertinent to your Corrupt Practices Act.
request and we will forward to
you on Friday, 23 February While the main issue in Banco Filipino was
2001, such additional records whether R.A. 1405 precluded the Tanodbayans issuance
and documents as we might of subpoena duces tecum of bank records in the name of
find until then. (Attachment 4) persons other than the one who was charged, this
Court, citing P.D. 1630,[19] Section 10, the relevant part of
The Office of the Ombudsman then which states:
requested for the mangers checks,
detailed in the Subpoena Duces (d) He may issue a subpoena
Tecum dated March 7, to compel any person to appear, give
2001. (Attachment 5) sworn testimony, or produce
documentary or other evidence the
PDIC again complied with the Tanodbayan deems relevant to a matter
said Subpoena Duces under his inquiry,
Tecum dated March 7, 2001 and
provided copies of the managers checks
thus requested under cover letter
dated March 16, 2001.(Attachment held that The power of the Tanodbayan to issue
6)[14] (Emphasis in the original) 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]
The Sandiganbayan credited the foregoing
account of respondent People.[15] The Court finds no reason As the subpoenas subject of Banco Filipino were
to disturb this finding of fact by the Sandiganbayan. issued during a preliminary investigation, in effect this Court
upheld the power of the Tandobayan under P.D. 1630 to
The Marquez ruling notwithstanding, the above-described issue subpoenas duces tecum for bank documents prior to
examination by the Ombudsman of petitioners bank the filing of a case before a court of competent jurisdiction.
accounts, conducted before a case was filed with a court of
competent jurisdiction, was lawful. 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 that the same are linked with the bank accounts of former
15 of R.A. 6770 empowers the Office of the Ombudsman to President Joseph Estrada who was then under investigation
for plunder.
(8) Administer oaths, issue subpoena Only with such prior independent information could it have
and subpoena duces tecum, and take been possible for the Ombudsman to issue the February 8,
testimony in any investigation or inquiry, 2001 subpoena duces tecum addressed to the President
including the power to examine and and/or Chief Executive Officer of Urban Bank, which
have access to bank accounts and described the documents subject thereof as follows:
records;
(a) bank records and all
A comparison of this provision with its counterpart in Sec. documents relative thereto pertaining
10(d) of P.D. 1630 clearly shows that it is only more explicit to all bank accounts (Savings, Current,
in stating that the power of the Ombudsman includes the Time Deposit, Trust, Foreign Currency
power to examine and have access to bank accounts and Deposits, etc) under the account
records which power was recognized with respect to the names of Jose Velarde, Joseph E.
Tanodbayan through Banco Filipino. Estrada, Laarni Enriquez, Guia Gomez,
Joy Melendrez, Peach Osorio, Rowena
The Marquez ruling that there must be a pending case in Lopez, Kevin or Kelvin Garcia, 727, 737,
order for the Ombudsman to validly inspect bank records in 747, 757, 777 and 858. (Emphasis and
camera thus reversed a prevailing doctrine.[21] Hence, it may underscoring supplied)
not be retroactively applied.

The Ombudsmans inquiry into the subject bank accounts The information on the existence of Bank Accounts bearing
prior to the filing of any case before a court of competent number 858 was, according to respondent People of
jurisdiction was therefore valid at the time it was conducted. the Philippines, obtained from various sources including the
proceedings during the impeachment of President Estrada,
Likewise, the Marquez ruling that the account holder must be related reports, articles and investigative journals.[23] In the
notified to be present during the inspection may not be absence of proof to the contrary, this explanation proffered
applied retroactively to the inquiry of the Ombudsman by respondent must be upheld. To presume that the
subject of this case. This ruling is not a judicial interpretation information was obtained in violation of R.A. 1405 would
either of R.A. 6770 or R.A. 1405, but a judge-made law infringe the presumption of regularity in the performance of
which, as People v. Luvendino[22] instructs, can only be given official functions.
prospective application:
Thus, with the filing of the plunder case against former
x x x The doctrine that an President Estrada before the Sandiganbayan, the
uncounselled waiver of the right to Ombudsman, using the above independent information, may
counsel is not to be given legal effect now proceed to conduct the same investigation it earlier
was initially a judge-made one and conducted, through which it can eventually obtain the same
was first announced on 26 April information previously disclosed to it by the PDIC, for it is an
1983 in Morales v. Enrile and inescapable fact that the bank records of petitioner are no
reiterated on 20 March 1985 in People longer protected by R.A. 1405 for the reasons already
v. Galit. x x x explained above.

While the Morales-Galit doctrine Since conducting such an inquiry would, however,
eventually became part of Section 12(1) only result in the disclosure of the same documents to the
of the 1987 Constitution, that doctrine Ombudsman, this Court, in avoidance of what would be a
affords no comfort to appellant time-wasteful and circuitous way of administering
Luvendino for the requirements and justice,[24] upholds the challenged subpoenas.
restrictions outlined
in Morales and Galit have no Respecting petitioners claim that the
retroactive effect and do not reach Sandiganbayan violated his right to due process as he was
waivers made prior to 26 April neither notified of the requests for the issuance of the
1983 the date of promulgation subpoenas nor of the grant thereof, suffice it to state that the
of Morales. (Emphasis supplied) 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
In fine, the subpoenas issued by the Ombudsman motions to quash before the Sandiganbayan.
in this case were legal, hence, invocation of the fruit of the
poisonous tree doctrine is misplaced. IN SUM, the Court finds that the Sandiganbayan did not
commit grave abuse of discretion in issuing the challenged
AT ALL EVENTS, even if the challenged subpoenas for documents pertaining to petitioners Trust
subpoenas are quashed, the Ombudsman is not barred from Account No. 858 and Savings Account No. 0116-17345-9 for
requiring the production of the same documents based the following reasons:
solely on information obtained by it from
sources independent of its previous inquiry. 1. These accounts are no longer protected by the
Secrecy of Bank Deposits Law, there being two exceptions
In particular, the Ombudsman, even before its inquiry, had to the said law applicable in this case, namely: (1) the
already possessed information giving him grounds to believe examination of bank accounts is upon order of a competent
that (1) there are bank accounts bearing the number 858, (2) court in cases of bribery or dereliction of duty of public
that such accounts are in the custody of Urban Bank, and (3) 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 2
is analogous to bribery or dereliction of duty, while exception 0
(2) applies because the money deposited in petitioners bank 0
accounts is said to form part of the subject matter of the 5
same plunder case. x-------------------------------------------
------x
2. The fruit of the poisonous tree principle, which
states that once the primary source (the tree) is shown to DECISION
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 CALLEJO, SR., J.:
provide for the application of this rule. Moreover, there is no
basis for applying the same in this case since the primary
source for the detailed information regarding petitioners bank Atty. Felipe P. Arcilla, Jr. was employed by the Development
accounts the investigation previously conducted by the Bank of the Philippines (DBP) in October 1981. About five or
Ombudsman was lawful. six months thereafter, he was assigned to the legal
department, and thereafter, decided to avail of a loan under
3. At all events, even if the subpoenas issued by the Individual Housing Project (IHP) of the bank.[1] On
the Sandiganbayan were quashed, the Ombudsman may September 12, 1983, DBP and Arcilla executed a Deed of
conduct on its own the same inquiry into the subject bank Conditional Sale[2] over a parcel of land, as well as the house
accounts that it earlier conducted last February-March 2001, to be constructed thereon, for the price of P160,000.00.
there being a plunder case already pending against former Arcilla borrowed the said amount from DBP for the purchase
President Estrada. To quash the challenged subpoenas of the lot and the construction of a residential building
would, therefore, be pointless since the Ombudsman may thereon. He obliged himself to pay the loan in 25 years, with
obtain the same documents by another route. Upholding the a monthly amortization of P1,417.91, with 9% interest per
subpoenas avoids an unnecessary delay in the annum, to be deducted from his monthly salary.[3]
administration of justice.
DBP obliged itself to transfer the title of the
WHEREFORE, the petition is DISMISSED. The property upon the payment of the loan, including any
Sandiganbayan Resolutions dated February 7 and 12, 2003 increments thereof. It was also agreed therein that if Arcilla
and March 11, 2003 are upheld. availed of optional retirement, he could elect to continue
paying the loan, provided that the loan/amount would be
The Sandiganbayan is hereby directed, consistent converted into a regular real estate loan account with the
with this Courts ruling in Marquez v. Desierto, to notify prevailing interest assigned on real estate loans, payable
petitioner as to the date the subject bank documents shall be within the remaining term of the loan account.[4]
presented in court by the persons subpoenaed.
Arcilla was notified of the periodic release of his
SO ORDERED. loan.[5] During the period of July 1984 to December 31, 1986,
the monthly amortizations for the said account were
CONCHITA CARPIO MORALES deducted from his monthly salary, for which he was issued
Associate Justice receipts.[6]

The monthly amortization was increased to P1,468.92 in

DEVELOPMENT BANK OF G.R. No. 161397 November 1984, and to P1,691.51 beginning January 1985.
THE PHILIPPINES, However, Arcilla opted to resign from the bank in December
Petitioner, 1986. Conformably with the Deed of Conditional Sale, the
- versus - bank informed him, on June 11, 1987, that the balance of his
FELIPE P. ARCILLA, JR., loan account with the bank had been converted to a regular
Respondent. housing loan, thus:
x - - - - - - - - -- - - - - - - - - - - - - - -x
FELIPE P. ARCILLA, JR., G.R. No. 161426
Petitioner, Amount converted Interest Rate Remaining Term
Present: toPH Loan
- versus - PUNO, J., Chairman, P 155,218.79 - 1 9% 22 yrs. &
A 6 mos
USTRIA-MARTINEZ, CALLEJO, SR., 6,802.45 - 2 9% 21 yrs. &
TINGA, and 10 mos.
DEVELOPMENT BANK OF CHICO-NAZARIO, JJ.
24,342.91 - 3 9% 22 yrs.
THE PHILIPPINES,
Plus: MRI at PC. 41/thousand P1,614.20
Respondent.
76.41
Promulgated:
P186,364.15 Total P1,690.61[7] ========
J
u
n
On July 24, 1987, Arcilla signed three Promissory Notes [8] for
e
the total amount of P186,364.15. He was also obliged to pay
service charge and interests, as follows:
3
0
,
 a.1 On the amount advanced or balance cost
thereof that remains unpaid for 30 Penalty charge 8% p.a. if unpaid
days* or less: after 30 days from date of advance

i. Interest on advances at 7% p.a. over However, Arcilla also agreed to the reservation by
DBPs borrowing cost: the DBP of its right to increase (with notice to him) the rate of
ii. No 2% service charge interest on the loan, as well as all other fees and charges on
iii. No 8% penalty charge loans and advances pursuant to such policy as it may adopt
from time to time during the period of the loan; Provided, that
a.2 On the amount advanced the rate of interest on the loan shall be reduced by law or by
or balance thereof that remains unpaid the Monetary Board; Provided, further, that the adjustment in
for more than 30 days: the rate of interest shall take effect on or after the effectivity
of the increase or decrease in the maximum rate of
i. Interest on the advance at interest.[10]
7% p.a. ]
over DBPs borrowing cost; ]
ii. One time 2% service
charge ]-- To be computed from Upon his request, DBP agreed to grant Arcilla an
iii. Interest on the service additional cash advance of P32,000.00. Thereafter, on May
charge ] the start of the 30-day 23, 1984, a Supplement to the Conditional Sale Agreement
iv. 8% penalty charge on the was executed in which DBP and Arcilla agreed on the
balances ] period following terms of the loan:
of the advances and service
charge.[9] Amount Interest Rate Per
Annum Terms Amortization
Arcilla also agreed to pay to DBP the following:
P32,000.00 Nine (9%) per cent MRI 24
years P271.57
for P32,000.00 at P0.40/
1,000.00 12.80
P32,000.00 same to be consolidated with the
*Insurance Premiums - 30-day period to (Est. P 284.37
be computed from date of original advance in accordance Amort.) =======
advances with Condition No. 8 hereof.[11]
Other Advances - 30-day period to be
computed from date of The additional advance was, thus, consolidated to the
notificatio outstanding balance of Arcillas original advance, payable
n within the remaining term thereof at 9% per annum.
However, he failed to pay his loan account, advances,
b. Taxes penalty charges and interests which, as of October 31, 1990,
b.1 One time service charge 2% of the amounted to P241,940.93.[12] DBP rescinded the Deed of
amount advanced Conditional Sale by notarial act on November 27,
b.2 Interest and penalty charge Interest 1990.[13] Nevertheless, it wrote Arcilla, on January 3, 1992,
7% p.a. over borrowing giving him until October 24, 1992, within which to repurchase
cost the property upon full payment of the current appraisal or
Penalty charge 8% p.a. if unpaid updated total, whichever is lesser; in case of failure to do so,
after 30 days from date of advance the property would be advertised for bidding.[14] DBP
reiterated the said offer on October 7, 1992.[15] Arcilla failed
i. Interest of the advance at ] to respond. Consequently, the property was advertised for
7% p.a. over DBPs ] sale at public bidding on February 14, 1994.[16]
borrowing costs; ]-- To be
computed from start Arcilla filed a complaint against DBP with the
ii One time 2% service charge ] Regional Trial Court (RTC) of Antipolo, Rizal, on February
of 30-day period 21, 1994. He alleged that DBP failed to furnish him with the
iii Interest on the service charge] disclosure statement required by Republic Act (R.A.) No.
iv. 8% penalty charge on the ] 3765 and Central Bank (CB) Circular No. 158 prior to the
balances of the advance and ] execution of the deed of conditional sale and the conversion
service charge. ] of his loan account with the bank into a regular housing loan
account. Despite this, DBP immediately deducted the
*Insurance Premiums - 30-day period to account from his salary as early as 1984. Moreover, the
be computed from date of bank applied its own formula and imposed its usurious
advances interests, penalties and charges on his loan account and
. advances. He further alleged, thus:
Other Advances - 30-day period to be computed
from date of 13. That when plaintiff could no
notification. longer cope-up with defendants illegal
b. Taxes and usurious impositions, the DBP
b.1 One time service charge 2% of the amount advanced unilaterally increased further the rate of
b.2 Interest and penalty charge Interest 7% p.a. over interest, without notice to the latter, and
borrowing
 heaped-up usurious interests, penalties On May 29, 2003, the CA rendered judgment setting aside
and charges; and reversing the decision of the RTC. In ordering the
dismissal of the complaint, the appellate court ruled that
14. That to further bend the back of the DBP substantially complied with R.A. No. 3765 and CB
plaintiff, defendant rescinded the subject Circular No. 158. Arcilla filed a motion for reconsideration of
deed of conditional sale on 4 December the decision. For its part, DBP filed a motion for partial
1990 without giving due notice to reconsideration of the decision, praying that Arcilla be
plaintiff; ordered to vacate the property. However, the appellate court
15. That much later, on 10 denied both motions.
October 1993, plaintiff received a letter
from defendant dated 19 September The parties filed separate petitions for review
1993, informing plaintiff that the subject on certiorari with this Court. The first petition,
deed of conditional sale was already entitled Development Bank of the Philippines v. Court of
rescinded on 4 December 1990 (xerox Appeals, was docketed as G.R. No. 161397; the second
copy of the same is hereto attached and petition, entitled Felipe Arcilla, Jr. v. Court of Appeals, was
made an integral part hereof as Annex docketed as G.R. No. 161426. The Court resolved to
C;[17] consolidate the two cases.

The issues raised in the two petitions are the following: a)

In its answer to the complaint, the DBP alleged that it whether or not petitioner DBP complied with the disclosure
substantially complied with R.A. No. 3765 and CB Circular requirement of R.A. No. 3765 and CB Circular No. 158,
No. 158 because the details required in said statements Series of 1978, in the execution of the deed of conditional
were particularly disclosed in the promissory notes, deed of sale, the supplemental deed of conditional sale, as well as
conditional sale and the required notices sent to Arcilla. In the promissory notes; and b) whether or not respondent
any event, its failure to comply strictly with R.A. No. 3765 did Felipe Arcilla, Jr. is mandated to vacate the property and pay
not affect the validity and enforceability of the subject rentals for his occupation thereof after the notarial rescission
contracts or transactions. DBP interposed a counterclaim for of the deed of conditional sale was rescinded by notarial act,
the possession of the property. as well as the supplement executed by DBP.

On April 27, 2001, the trial court rendered On the first issue, Arcilla avers that under R.A. No.
judgment in favor of Arcilla and nullified the notarial 3765 and CB Circular No. 158, the DBP, as the creditor
rescission of the deeds executed by the parties. The fallo of bank, was mandated to furnish him with the requisite
the decision reads: information in such form prescribed by the Central Bank
WHEREFORE, premises before the commutation of the loan transaction. He avers
considered, judgment is hereby that the disclosure of the details of the loan contained in the
rendered in favor of the plaintiff and deed of conditional sale and the supplement thereto, the
against the defendant. Defendant is promissory notes and release sheet, do
hereby directed to furnish the disclosure not constitute substantial compliance with the law and the
statement to the plaintiff within five (5) CB Circular. He avers that the required disclosure did not
days upon receipt hereof in the manner include the following:
and form provided by R.A. No. 3765 and
submit to this Court for approval the [T]he percentage of Finance Charges to
total obligation of the plaintiff as of this Total Amount Financed (Computed in
date, within ten (10) days from receipt of accordance with Sec. 2(i) of CB Circular
this order. The Notarial Rescission (Exh. 158; the Additional Charges in case
16) dated November 27, 1990 is hereby certain stipulations in the contract are
declared null and void. Costs against not met by the debtor; Total Non-
the defendant. Finance Charges; Total Finance
SO ORDERED.[18] Charges, Effective Interest Rate, etc. [20]

DBP appealed the decision to the Court of Arcilla further posits that the failure of DBP to comply with its
Appeals (CA) wherein it made the following assignment of obligation under R.A. No. 3765 and CB Circular No. 158
errors: forecloses its right to rescind the transaction between them,
and to demand compliance of his obligation arising from said
4.1. The trial court erred in ruling that transaction. Moreover, the bank had no right to deduct the
the provision of the details of the loan monthly amortizations from his salary without first complying
without the issuance of a Disclosure with the mandate of R.A. No. 3765.
Statement is not compliance with the
Truth in Lending Act; DBP, on the other hand, avers that all the
information required by R.A. No. 3765 was already
4.2. The trial court erred in declaring the contained in the loan transaction documents. It posits that
Notarial Rescission null and void; and even if it failed to comply strictly with the disclosure
requirement of R.A. No. 3765, nevertheless, under Section
4.3. The trial court erred in denying 6(b) of the law, the validity and enforceability of any action or
DBPs counterclaims for recovery of transaction is not affected. It asserts that Arcilla was
possession, back rentals and litigation estopped from invoking R.A. No. 3765 because he failed to
expenses.[19] demand compliance with R.A. No. 3765 from the bank
before the consummation of the loan transaction, until the
time his complaint was filed with the trial court.
In its petition in G.R. No. 161397, DBP asserts that the RTC If the borrower is not duly informed of the data
erred in not rendering judgment on its counterclaim for the required by the law prior to the consummation of the
possession of the subject property, and the liability of Arcilla availment or drawdown, the lender will have no right to
for rentals while in the possession of the property after the collect such charge or increases thereof, even if stipulated in
notarial rescission of the deeds of conditional sale. For his the promissory note.[22] However, such failure shall not affect
part, Arcilla (in G.R. No. 161426) insists that the respondent the validity or enforceability of any contract or transaction.[23]
failed to comply with its obligation under R.A. No. 3765;
hence, the notarial rescission of the deed of conditional sale In the present case, DBP failed to disclose the
and the supplement thereof was null and void. Until DBP requisite information in the disclosure statement form
complies with its obligation, he is not obliged to comply with authorized by the Central Bank, but did so in the loan
his. transaction documents between it and Arcilla. There is no
evidence on record that DBP sought to collect or collected
The petition of Arcilla has no merit. any interest, penalty or other charges, from Arcilla other than
those disclosed in the said deeds/documents.
Section 1 of R.A. No. 3765 provides that prior to the
consummation of a loan transaction, the bank, as creditor, is The Court is convinced that Arcillas claim of not
obliged to furnish a client with a clear statement, in writing, having been furnished the data/information required by R.A.
setting forth, to the extent applicable and in accordance with No. 3765 and CB Circular No. 158 was but an afterthought.
the rules and regulations prescribed by the Monetary Board Despite the notarial rescission of the conditional sale in
of the Central Bank of the Philippines, the following 1990, and DBPs subsequent repeated offers to repurchase
information: the property, the latter maintained his silence. Arcilla filed his
(1) the cash price or delivered complaint only on February 21, 1994, or four years after the
price of the property or service to be said notarial rescission. The Court finds and so holds that
acquired; the following findings and ratiocinations of the CA are
correct:
(2) the amounts, if any, to be credited as
down payment and/or trade-in; After a careful perusal of the records,
We find that the appellee had been
(3) the difference between the amounts sufficiently informed of the terms and
set forth under clauses (1) and (2); the requisite charges necessarily
included in the subject loan. It must be
(4) the charges, individually itemized, stressed that the Truth in Lending Act
which are paid or to be paid by such (R.A. No. 3765), was enacted primarily
person in connection with the to protect its citizens from a lack of
transaction but which are not incident to awareness of the true cost of credit to
the extension of credit; the user

(5) the total amount to be financed;

by using a full disclosure of such cost
(6) the finance charges expressed in with a view of preventing the uninformed
terms of pesos and centavos; and use of credit to the detriment of the
(7) the percentage that the finance national economy (Emata vs.
charge bears to the total amount to be Intermediate Appellate Court, 174,
financed expressed as a simple annual SCRA 464 [1989]; Sec. 2, R.A. No.
rate on the outstanding unpaid balance 3765). Contrary to appellees claim that
of the obligation. he was not sufficiently informed of the
details of the loan, the records disclose
that the required informations were
Under Circular No. 158 of the Central Bank, the readily available in the three (3)
information required by R.A. No. 3765 shall be included in promissory notes he executed.
the contract covering the credit transaction or any other Precisely, the said promissory notes
document to be acknowledged and signed by the debtor, were executed to apprise appellee of
thus: the remaining balance on his loan when
the same was converted into a regular
The contract covering the housing loan. And on its face, the
credit transaction, or any other promissory notes signed by no less than
document to be acknowledged and the appellee readily shows all the data
signed by the debtor, shall indicate the required by the Truth in Lending Act
above seven items of information. In (R.A. No. 3765).
addition, the contract or document shall
specify additional charges, if any, which Apropos, We agree with the appellant
will be collected in case certain that appellee, a lawyer, would not be so
stipulations in the contract are not met gullible or negligent as to sign
by the debtor. documents without knowing fully well
the legal implications and consequences
Furthermore, the contract or document shall of his actions, and that appellee was a
specify additional charges, if any, which will be collected in former employee of appellant. As such
case certain stipulations in the contract are not met by the employee, he is as well presumed
debtor.[21] knowledgeable with matters relating to
 appellants business and fully cognizant A
of the terms of the loan he applied for, s
including the charges that had to be s
paid. o
c
It might have been different if i
the borrower was, say, an ordinary a
employee eager to buy his first house t
and is easily lured into accepting e
onerous terms so long as the same is
payable on installments. In such cases, J
the Court would be disposed to be u
stricter in the application of the Truth in s
Lending Act, insisting that the borrower t
be fully informed of what he is entering i
into. But in the case at bar, considering c
appellees education and training, We e
must hold, in the light of the evidence at
hand, that he was duly informed of the WE CONCUR:
necessary charges and fully understood
their implications and effects.
Consequently, the trial courts annulment
of the rescission anchored on this SECOND DIVISION
ground was unjustified.[24]

Anent the prayer of DBP to order Arcilla to vacate

the property and pay rentals therefor from 1990, a review of [G.R. No. 135706. October 1, 2004]
the records has shown that it failed to adduce evidence on
the reasonable amount of rentals for Arcillas occupancy of
the property. Hence, the Court orders a remand of the case
to the court of origin, for the parties to adduce their
respective evidence on the banks counterclaim. SPS. CESAR A. LARROBIS, JR. and VIRGINIA S.
LARROBIS, petitioners, vs. PHILIPPINE
IN LIGHT OF ALL THE FOREGOING, the petition VETERANS BANK, respondent.
in G.R. No. 161426 is DENIED for lack of merit. The petition
in G.R. No. 161397 is DECISION
PARTIALLY GRANTED. The case is
hereby REMANDED to the Regional Trial Court of Antipolo, AUSTRIA-MARTINEZ, J.:
Rizal, Branch 73, for it to resolve the counterclaim of the
Development Bank of the Philippines for possession of the
Before us is a petition for review of the decision of the
property, and for the reasonable rentals for Felipe P. Arcilla,
Regional Trial Court (RTC), Cebu City, Branch 24, dated
Jr.s occupancy thereof after the notarial rescission of the
April 17, 1998,[1] and the order denying petitioners motion for
Deed of Conditional Sale in 1990.
reconsideration dated August 25, 1998, raising pure
questions of law.[2]
Costs against petitioner Felipe P. Arcilla, Jr.
The following facts are uncontroverted:
On March 3, 1980, petitioner spouses contracted a
SO ORDERED.
monetary loan with respondent Philippine Veterans Bank in
R
the amount of P135,000.00, evidenced by a promissory
O
note, due and demandable on February 27, 1981, and
M
secured by a Real Estate Mortgage executed on their lot
E
together with the improvements thereon.
O
On March 23, 1985, the respondent bank went
bankrupt and was placed under receivership/liquidation by
J
the Central Bank from April 25, 1985 until August 1992.[3]
.
On August 23, 1985, the bank, through Francisco Go,
sent the spouses a demand letter for accounts receivable in
C
the total amount of P6,345.00 as of August 15, 1984,[4] which
A
pertains to the insurance premiums advanced by respondent
L
bank over the mortgaged property of petitioners.[5]
L
On August 23, 1995, more than fourteen years from
E
the time the loan became due and demandable, respondent
J
bank filed a petition for extrajudicial foreclosure of mortgage
O
of petitioners property.[6] On October 18, 1995, the property
,
was sold in a public auction by Sheriff Arthur Cabigon with
Philippine Veterans Bank as the lone bidder.
S
On April 26, 1996, petitioners filed a complaint with the
R
RTC, Cebu City, to declare the extra-judicial foreclosure and
.
the subsequent sale thereof to respondent bank null and the questioned extrajudicial foreclosure was well within the
void.[7] ten (10) year prescriptive period. It is noteworthy to mention
In the pre-trial conference, the parties agreed to limit at this point in time, that defendant bank through authorized
the issue to whether or not the period within which the bank Deputy Francisco Go made the first extrajudicial demand to
was placed under receivership and liquidation was a the plaintiffs on August 1985. Then on March 24, 1995
fortuitous event which suspended the running of the ten-year defendant bank through its officer-in-charge Llanto made the
prescriptive period in bringing actions.[8] second extrajudicial demand. And we all know that a written
On April 17, 1998, the RTC rendered its decision, extrajudicial demand wipes out the period that has already
the fallo of which reads: elapsed and starts anew the prescriptive period. (Ledesma
vs. C.A., 224 SCRA 175.)[10]
WHEREFORE, premises considered judgment is hereby
rendered dismissing the complaint for lack of merit. Likewise Petitioners filed a motion for reconsideration which the
the compulsory counterclaim of defendant is dismissed for RTC denied on August 25, 1998.[11] Thus, the present
being unmeritorious.[9] petition for review where petitioners claim that the RTC
erred:
It reasoned that: I

defendant bank was placed under receivership by the IN RULING THAT THE PERIOD WITHIN WHICH
Central Bank from April 1985 until 1992. The defendant bank RESPONDENT BANK WAS PUT UNDER RECEIVERSHIP
was given authority by the Central Bank to operate as a AND LIQUIDATION WAS A FORTUITOUS EVENT THAT
private commercial bank and became fully operational only INTERRUPTED THE RUNNING OF THE PRESCRIPTIVE
on August 3, 1992. From April 1985 until July 1992, PERIOD.
defendant bank was restrained from doing its business.
Doing business as construed by Justice Laurel in 222 SCRA
131 refers to: II

.a continuity of commercial dealings and arrangements and IN RULING THAT THE WRITTEN EXTRA-JUDICIAL
contemplates to that extent, the performance of acts or DEMAND MADE BY RESPONDENT ON PETITIONERS
words or the exercise of some of the functions normally WIPED OUT THE PERIOD THAT HAD ALREADY
incident to and in progressive prosecution of the purpose ELAPSED.
and object of its organization.
The defendant banks right to foreclose the mortgaged III
property prescribes in ten (10) years but such period was
interrupted when it was placed under receivership. Article
1154 of the New Civil Code to this effect provides: IN DENYING PETITIONERS MOTION FOR
The period during which the obligee was prevented by a RECONSIDERATION OF ITS HEREIN ASSAILED
fortuitous event from enforcing his right is not reckoned DECISION.[12]
against him.
In the case of Provident Savings Bank vs. Court of Appeals, Petitioners argue that: since the extra-judicial
222 SCRA 131, the Supreme Court said. foreclosure of the real estate mortgage was effected by the
Having arrived at the conclusion that a foreclosure is part of bank on October 18, 1995, which was fourteen years from
a banks activity which could not have been pursued by the the date the obligation became due on February 27, 1981,
receiver then because of the circumstances discussed in the said foreclosure and the subsequent sale at public auction
Central Bank case, we are thus convinced that the should be set aside and declared null and void ab initio since
prescriptive period was legally interrupted by fuerza mayor in they are already barred by prescription; the court a quo erred
1972 on account of the prohibition imposed by the Monetary in sustaining the respondents theory that its having been
Board against petitioner from transacting business, until the placed under receivership by the Central Bank between April
directive of the Board was nullified in 1981. Indeed, the 1985 and August 1992 was a fortuitous event that
period during which the obligee was prevented by a caso interrupted the running of the prescriptive period; [13] the
fortuito from enforcing his right is not reckoned against him. court a quos reliance on the case of Provident Savings Bank
(Art. 1154, NCC) When prescription is interrupted, all the vs. Court of Appeals[14] is misplaced since they have different
benefits acquired so far from the possession cease and sets of facts; in the present case, a liquidator was duly
when prescription starts anew, it will be entirely a new one. appointed for respondent bank and there was no judgment
This concept should not be equated with suspension where or court order that would legally or physically hinder or
the past period is included in the computation being added to prohibit it from foreclosing petitioners property; despite the
the period after the prescription is presumed (4 Tolentino, absence of such legal or physical hindrance, respondent
Commentaries and Jurisprudence on the Civil Code of the banks receiver or liquidator failed to foreclose petitioners
Philippines 1991 ed. pp. 18-19), consequently, when the property and therefore such inaction should bind respondent
closure of the petitioner was set aside in 1981, the period of bank;[15] foreclosure of mortgages is part of the
ten years within which to foreclose under Art. 1142 of the receivers/liquidators duty of administering the banks assets
N.C.C. began to run and, therefore, the action filed on for the benefit of its depositors and creditors, thus, the ten-
August 21, 1986 to compel petitioner to release the year prescriptive period which started on February 27, 1981,
mortgage carried with it the mistaken notion that petitioners was not interrupted by the time during which the respondent
own suit for foreclosure has prescribed. bank was placed under receivership; and the Monetary
Boards prohibition from doing business should not be
Even assuming that the liquidation of defendant bank did not construed as barring any and all business dealings and
affect its right to foreclose the plaintiffs mortgaged property, transactions by the bank, otherwise, the specific mandate to
foreclose mortgages under Sec. 29 of R.A. No. 265 as
amended by Executive Order No. 65 would be rendered which interrupted the running of the prescriptive period in
nugatory.[16] Said provision reads: bringing actions; and (2) Whether or not the demand letter
sent by respondent banks representative on August 23,
1985 is sufficient to interrupt the running of the prescriptive
Section 29. Proceedings upon Insolvency Whenever, upon
period.
examination by the head of the appropriate supervising or
Anent the first issue, we answer in the negative.
examining department or his examiners or agents into the
One characteristic of a fortuitous event, in a legal
condition of any bank or non-bank financial intermediary
sense and consequently in relations to contract, is that its
performing quasi-banking functions, it shall be disclosed that
occurrence must be such as to render it impossible for a
the condition of the same is one of insolvency, or that its
party to fulfill his obligation in a normal manner.[22]
continuance in business would involve probable loss to its
Respondents claims that because of a fortuitous
depositors or creditors, it shall be the duty of the department
event, it was not able to exercise its right to foreclose the
head concerned forthwith, in writing, to inform the Monetary
mortgage on petitioners property; and that since it was
Board of the facts. The Board may, upon finding the
banned from pursuing its business and was placed under
statements of the department head to be true, forbid the
receivership from April 25, 1985 until August 1992, it could
institution to do business in the Philippines and designate
not foreclose the mortgage on petitioners property within
the official of the Central Bank or a person of recognized
such period since foreclosure is embraced in the phrase
competence in banking or finance, as receiver to
doing business, are without merit.
immediately take charge its assets and liabilities, as
While it is true that foreclosure falls within the broad
expeditiously as possible, collect and gather all the assets
definition of doing business, that is:
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 a continuity of commercial dealings and arrangements and
institution, exercising all the powers necessary for these contemplates to that extent, the performance of acts or
purposes including, but not limited to, bringing and words or the exercise of some of the functions normally
foreclosing mortgages in the name of the bank. incident to and in progressive prosecution of the purpose
and object of its organization.[23]
Petitioners further contend that: the demand letter,
dated March 24, 1995, was sent after the ten-year it should not be considered included, however, in the acts
prescriptive period, thus it cannot be deemed to have prohibited whenever banks are prohibited from doing
revived a period that has already elapsed; it is also not one business during receivership and liquidation proceedings.
of the instances enumerated by Art. 1115 of the Civil Code This we made clear in Banco Filipino Savings &
when prescription is interrupted;[17] and the August 23, 1985 Mortgage Bank vs. Monetary Board, Central Bank of the
letter by Francisco Go demanding P6,345.00, refers to the Philippines[24] where we explained that:
insurance premium on the house of petitioners, advanced by
respondent bank, thus such demand letter referred to
Section 29 of the Republic Act No. 265, as amended known
another obligation and could not have the effect of
as the Central Bank Act, provides that when a bank is
interrupting the running of the prescriptive period in favor of
forbidden to do business in the Philippines and placed under
herein petitioners insofar as foreclosure of the mortgage is
receivership, the person designated as receiver shall
concerned.[18]
immediately take charge of the banks assets and liabilities,
Petitioners then prayed that respondent bank be
as expeditiously as possible, collect and gather all the assets
ordered to pay them P100,000.00 as moral
and administer the same for the benefit of its creditors, and
damages, P50,000.00 as exemplary damages
represent the bank personally or through counsel as he may
and P100,000.00 as attorneys fees.[19]
retain in all actions or proceedings for or against the
Respondent for its part asserts that: the period within
institution,exercising all the powers necessary for these
which it was placed under receivership and liquidation was a
purposes including, but not limited to, bringing and
fortuitous event that interrupted the running of the
foreclosing mortgages in the name of the bank.[25]
prescriptive period for the foreclosure of petitioners
mortgaged property; within such period, it was specifically
restrained and immobilized from doing business which This is consistent with the purpose of receivership
includes foreclosure proceedings; the extra-judicial demand proceedings, i.e., to receive collectibles and preserve the
it made on March 24, 1995 wiped out the period that has assets of the bank in substitution of its former management,
already lapsed and started anew the prescriptive period; and prevent the dissipation of its assets to the detriment of
respondent through its authorized deputy Francisco Go the creditors of the bank.[26]
made the first extra-judicial demand on the petitioners on When a bank is declared insolvent and placed under
August 23, 1985; while it is true that the first demand letter of receivership, the Central Bank, through the Monetary Board,
August 1985 pertained to the insurance premium advanced determines whether to proceed with the liquidation or
by it over the mortgaged property of petitioners, the same reorganization of the financially distressed bank. A receiver,
however formed part of the latters total loan obligation with who concurrently represents the bank, then takes control
respondent under the mortgage instrument and therefore and possession of its assets for the benefit of the banks
constitutes a valid extra-judicial demand made within the creditors. A liquidator meanwhile assumes the role of the
prescriptive period.[20] receiver upon the determination by the Monetary Board that
In their Reply, petitioners reiterate their earlier the bank can no longer resume business. His task is to
arguments and add that it was respondent that insured the dispose of all the assets of the bank and effect partial
mortgaged property thus it should not pass the obligation to payments of the banks obligations in accordance with legal
petitioners through the letter dated August 1985.[21] priority. In both receivership and liquidation proceedings, the
To resolve this petition, two questions need to be bank retains its juridical personality notwithstanding the
answered: (1) Whether or not the period within which the closure of its business and may even be sued as its
respondent bank was placed under receivership and corporate existence is assumed by the receiver or liquidator.
liquidation proceedings may be considered a fortuitous event
The receiver or liquidator meanwhile acts not only for the There is also no truth to respondents claim that it could
benefit of the bank, but for its creditors as well.[27] not continue doing business from the period of April 1985 to
In Provident Savings Bank vs. Court of Appeals,[28] we August 1992, the time it was under receivership. As correctly
further stated that: pointed out by petitioner, respondent was even able to send
petitioners a demand letter, through Francisco Go, on
August 23, 1985 for accounts receivable in the total amount
When a bank is prohibited from continuing to do business by
of P6,345.00 as of August 15, 1984 for the insurance
the Central Bank and a receiver is appointed for such bank,
premiums advanced by respondent bank over the
that bank would not be able to do new business, i.e., to
mortgaged property of petitioners. How it could send a
grant new loans or to accept new deposits. However, the
demand letter on unpaid insurance premiums and not
receiver of the bank is in fact obliged to collect debts
foreclose the mortgage during the time it was prohibited from
owing to the bank, which debts form part of the assets
doing business was not adequately explained by
of the bank. The receiver must assemble the assets and
respondent.
pay the obligation of the bank under receivership, and
Settled is the principle that a bank is bound by the
take steps to prevent dissipation of such assets.
acts, or failure to act of its receiver.[34] As we held
Accordingly, the receiver of the bank is obliged to
in Philippine Veterans Bank vs. NLRC,[35] a labor case which
collect pre-existing debts due to the bank, and in
also involved respondent bank,
connection therewith, to foreclose mortgages securing
such debts.[29] (Emphasis supplied.)
all the acts of the receiver and liquidator pertain to petitioner,
both having assumed petitioners corporate existence.
It is true that we also held in said case that the period
Petitioner cannot disclaim liability by arguing that the non-
during which the bank was placed under receivership was
payment of MOLINAs just wages was committed by the
deemed fuerza mayor which validly interrupted the
liquidators during the liquidation period.[36]
prescriptive period.[30] This is being invoked by the
respondent and was used as basis by the trial court in its
decision. Contrary to the position of the respondent and However, the bank may go after the receiver who is
court a quo however, such ruling does not find application in liable to it for any culpable or negligent failure to collect the
the case at bar. assets of such bank and to safeguard its assets. [37]
A close scrutiny of the Provident case, shows that the Having reached the conclusion that the period within
Court arrived at said conclusion, which is an exception to the which respondent bank was placed under receivership and
general rule, due to the peculiar circumstances of Provident liquidation proceedings does not constitute a fortuitous event
Savings Bank at the time. In said case, we stated that: which interrupted the prescriptive period in bringing actions,
we now turn to the second issue on whether or not the extra-
judicial demand made by respondent bank, through
Having arrived at the conclusion that a foreclosure is part of
Francisco Go, on August 23, 1985 for the amount
a banks business activity which could not have been
of P6,345.00, which pertained to the insurance premiums
pursued by the receiver then because of the
advanced by the bank over the mortgaged property,
circumstances discussed in the Central Bank case, we
constitutes a valid extra-judicial demand which interrupted
are thus convinced that the prescriptive period was legally
the running of the prescriptive period. Again, we answer this
interrupted by fuerza mayor in 1972 on account of the
question in the negative.
prohibition imposed by the Monetary Board against petitioner
Prescription of actions is interrupted when they are
from transacting business, until the directive of the Board
filed before the court, when there is a written extra-judicial
was nullified in 1981.[31] (Emphasis supplied.)
demand by the creditors, and when there is any written
acknowledgment of the debt by the debtor.[38]
Further examination of the Central Bank case reveals Respondents claim that while its first demand letter
that the circumstances of Provident Savings Bank at the time dated August 23, 1985 pertained to the insurance premium it
were peculiar because after the Monetary Board issued MB advanced over the mortgaged property of petitioners, the
Resolution No. 1766 on September 15, 1972, prohibiting it same formed part of the latters total loan obligation with
from doing business in the Philippines, the banks majority respondent under the mortgage instrument, and therefore,
stockholders immediately went to the Court of First Instance constitutes a valid extra-judicial demand which interrupted
of Manila, which prompted the trial court to issue its the running of the prescriptive period, is not plausible.
judgment dated February 20, 1974, declaring null and void The real estate mortgage signed by the petitioners
the resolution and ordering the Central Bank to desist from expressly states that:
liquidating Provident. The decision was appealed to and
affirmed by this Court in 1981. Thus, the Superintendent of
This mortgage is constituted by the Mortgagor to secure the
Banks, which was instructed to take charge of the assets of
payment of the loan and/or credit accommodation granted to
the bank in the name of the Monetary Board, had no power
the spouses Cesar A. Larrobis, Jr. and Virginia S. Larrobis in
to act as a receiver of the bank and carry out the obligations
the amount of ONE HUNDRED THIRTY FIVE THOUSAND
specified in Sec. 29 of the Central Bank Act.[32]
(P135,000.00) PESOS ONLY Philippine Currency in favor of
In this case, it is not disputed that Philippine Veterans
the herein Mortgagee.[39]
Bank was placed under receivership by the Monetary Board
of the Central Bank by virtue of Resolution No. 364 on April
25, 1985, pursuant to Section 29 of the Central Bank Act on The promissory note, executed by the petitioners, also
insolvency of banks. [33] states that:
Unlike Provident Savings Bank, there was no legal
prohibition imposed upon herein respondent to deter its
FOR VALUE RECEIVED, I/WE, JOINTLY AND
receiver and liquidator from performing their obligations
SEVERALLY, PROMISE TO PAY THE PHILIPPINE
under the law. Thus, the ruling laid down in
VETERANS BANK, OR ORDER, AT ITS OFFICE AT CEBU
the Provident case cannot apply in the case at bar.
CITY THE SUM OF ONE HUNDRED THIRTY FIVE
THOUSAND PESOS (P135,000.00), PHILIPPINE REGALADO, J.:
CURRENCY WITH INTEREST AT THE RATE OF The instant petition seeks the review, on pure questions of
FOURTEEN PER CENT (14%) PER ANNUM FROM THIS law, of the decision rendered by the Court of First Instance
DATE UNTIL FULLY PAID.[40] of Manila (now Regional Trial Court), Branch XL, on
December 3, 1976 in Civil Case No. 84800,1 ordering herein
petitioner to pay private respondents the following amounts:
Considering that the mortgage contract and the
(a) P90,000.00 with accrued interest in
promissory note refer only to the loan of petitioners in the
accordance with Exhibits A and B until fully paid;
amount of P135,000.00, we have no reason to hold that the
(b) P30,000,00 as exemplary damages; and
insurance premiums, in the amount of P6,345.00, which was
(c) P10,000.00 as and for attorney's fees.
the subject of the August 1985 demand letter, should be
The payment by the defendant Fidelity Savings and
considered as pertaining to the entire obligation of
Mortgage Bank of the aforementioned sums of money shall
petitioners.
be subject to the Bank Liquidation Rules and Regulations
In Quirino Gonzales Logging Concessionaire vs. Court
embodied in the Order of the Court of First Instance of
of Appeals,[41] we held that the notices of foreclosure sent by
Manila, Branch XIII, dated October 3, 1972, Civil Case No.
the mortgagee to the mortgagor cannot be considered
86005, entitled, "IN RE: Liquidation of the Fidelity Savings
tantamount to written extrajudicial demands, which may
Bank versus Central Bank of the Philippines, Liquidator."
validly interrupt the running of the prescriptive period, where
With costs against the defendant Fidelity Savings and
it does not appear from the records that the notes are
Mortgage Bank.
covered by the mortgage contract.[42]
SO ORDERED.
In this case, it is clear that the advanced payment of
Private respondents instituted this present action for a sum
the insurance premiums is not part of the mortgage contract
of money with damages against Fidelity Savings and
and the promissory note signed by petitioners. They pertain
Mortgage Bank, Central Bank of the Philippines, Eusebio
only to the amount of P135,000.00 which is the principal loan
Lopez, Jr., Arsenio M. Lopez, Sr., Arsenio S. Lopez, Jr.,
of petitioners plus interest. The arguments of respondent
Bibiana E. Lacuna, Jose C. Morales, Leon P. Cusi, Pilar Y.
bank on this point must therefore fail.
Pobre-Cusi and Ernani A. Pacana. On motion of herein
As to petitioners claim for damages, however, we find
private respondents, as plaintiffs, the amended complaint
no sufficient basis to award the same. For moral damages to
was dismissed without prejudice against defendants Jose C.
be awarded, the claimant must satisfactorily prove the
Morales, Leon P. Cusi, Pilar Y. Pobre-Cusi and Ernani A.
existence of the factual basis of the damage and its causal
Pacana. 2 In its aforesaid decision of December 3, 1976, the
relation to defendants acts.[43] Exemplary damages
court a quo dismissed the complaint as against defendants
meanwhile, which are imposed as a deterrent against or as a
Central Bank of the Philippines, Eusebio Lopez, Jr., Arsenio
negative incentive to curb socially deleterious actions, may
S. Lopez, Jr., Arsenio M. Lopez, Sr. and Bibiana S. Lacuna.
be awarded only after the claimant has proven that he is
Back on August 10, 1973, the plaintiffs (herein private
entitled to moral, temperate or compensatory
respondents) and the defendants Fidelity Savings and
damages.[44] Finally, as to attorneys fees, it is demanded that
Mortgage Bank (petitioner herein), Central Bank of the
there be factual, legal and equitable justification for its
Philippines and Bibiana E. Lacuna had filed in said case in
award.[45] Since the bases for these claims were not
the lower court a partial stipulation of facts, as follows:
adequately proven by the petitioners, we find no reason to
COME NOW herein plaintiffs, SPOUSES
grant the same.
TIMOTEO M. SANTIAGO and OLIMPIA R.
WHEREFORE, the decision of the Regional Trial
SANTIAGO, herein defendants FIDELITY
Court, Cebu City, Branch 24, dated April 17, 1998, and the
SAVINGS AND MORTGAGE BANK and the
order denying petitioners motion for reconsideration dated
CENTRAL BANK OF THE PHILIPPINES, and
August 25, 1998 are hereby REVERSED and SET ASIDE.
herein defendant BIBIANA E. LACUNA, through
The extra-judicial foreclosure of the real estate mortgage on
their respective undersigned counsel, and before
October 18, 1995, is hereby declared null and void and
this Honorable Court most respectfully submit the
respondent is ordered to return to petitioners their owners
following Partial Stipulation of Facts:
duplicate certificate of title.
1. That herein plaintiffs are husband and wife, both
Costs against respondent.
of legal age, and presently residing at No. 480 C.
SO ORDERED. de la Paz Street, Sta. Elena, Marikina, Rizal;
2. That herein defendant Fidelity Savings and
Puno, (Chairman), Callejo, Sr., and Tinga, JJ., concur. Mortgage Bank is a corporation duly organized
Chico-Nazario, J., on leave. and existing under and by virtue of the laws of the
Philippines; that defendant Central Bank of the
Philippines is a corporation duly organized and
Republic of the Philippines existing under and by virtue of the laws of the
SUPREME COURT Philippines;
Manila 3. That herein defendant Bibiana E. Lacuna is of
SECOND DIVISION legal age and a resident of No. 42 East Lawin
G.R. No. L-46208 April 5, 1990 Street, Philamlife Homes, Quezon City, said
FIDELITY SAVINGS AND MORTGAGE BANK, petitioner, defendant was an assistant Vice-President of the
vs. defendant fidelity Savings and Mortgage Bank,
HON. PEDRO D. CENZON, in his capacity as Presiding 4. That sometime on May 16, 1968, here in
Judge of the Court of First Instance of Manila (Branch plaintiffs deposited with the defendant Fidelity
XL) and SPOUSES TIMOTEO AND OLIMPIA Savings Bank the amount of FIFTY THOUSAND
SANTIAGO, respondents. PESOS (P50,000.00) under Savings Account No.
Agapito S. Fajardo and Marino E. Eslao for petitioner. 16-0536; that likewise, sometime on July 6, 1968,
Leovillo C. Agustin Law Offices for private respondents. herein plaintiff,- deposited with the defendant
Fidelity Savings and Mortgage Bank the amount of
FIFTY THOUSAND PESOS (P50,000.00) under
 Certificate of Time Deposit No. 0210; that the reason of insolvency without violating the provisions of the
aggregate amount of deposits of the plaintiffs with Civil Code on preference of credits; and
the defendant Fidelity Savings and Mortgage Bank 2. Whether or not an insolvent bank like the Fidelity Savings
is ONE HUNDRED THOUSAND PESOS and Mortgage Bank may be adjudged to pay moral and
(P100,000.00); exemplary damages, attorney's fees and costs when the
5. That on February 18, 1969, the Monetary insolvency is caused b the anomalous real estate
Board, after finding the report of the transactions without violating the provisions of the Civil Code
Superintendent of Banks, that the condition of the on preference of credits.
defendant Fidelity Savings and Mortgage Bank is There is merit in the petition.
one of insolvency, to be true, issued Resolution It is settled jurisprudence that a banking institution which has
No. 350 deciding, among others, as follows: been declared insolvent and subsequently ordered closed by
1) To forbid the Fidelity Savings Bank to the Central Bank of the Philippines cannot be held liable to
do business in the Philippines; pay interest on bank deposits which accrued during the
2) To instruct the Acting Superintendent period when the bank is actually closed and non-operational.
of Banks to take charge, in the name of In The Overseas Bank of Manila vs. Court of Appeals and
the Monetary Board, of the Bank's Tony D. Tapia, 4 we held that:
assets It is a matter of common knowledge, which We
6. That pursuant to the above-cited instructions of take judicial notice of, that what enables a bank to
the Monetary Board, the Superintendent of Banks pay stipulated interest on money deposited with it
took charge in the name of the Monetary Board, of is that thru the other aspects of its operation it is
the assets of defendant Fidelity Savings Bank on able to generate funds to cover the payment of
February 19, 1969; and that since that date up to such interest. Unless a bank can lend money,
this date, the Superintendent of Banks (now engage in international transactions, acquire
designated as Director, Department of foreclosed mortgaged properties or their proceeds
Commercial and Savings Banks) has been taking and generally engage in other banking and
charge of the assets of defendant Fidelity Savings financing activities from which it can derive
and Mortgage Bank; income, it is inconceivable how it can carry on as a
7. That sometime on October 10, 1969 the depository obligated to pay stipulated interest.
Philippine Deposit Insurance Corporation paid the Conventional wisdom dictates this inexorable fair
plaintiffs the amount of TEN THOUSAND PESOS and just conclusion. And it can be said that all who
(P10,000.00) on the aggregate deposits of deposit money in banks are aware of such a
P100,000.00 pursuant to Republic Act No. 5517, simple economic proposition. Consequently, it
thereby leaving a deposit balance of P90,000.00; should be deemed read into every contract of
8. That on December 9, 1969, the Monetary Board deposit with a bank that the obligation to pay
issued its Resolution No. 2124 directing the interest on the deposit ceases the moment the
liquidation of the affairs of defendant Fidelity operation of the bank is completely suspended by
Savings Bank; the duly constituted authority, the Central Bank.
9. That on January 25, 1972, the Solicitor General This was reiterated in the subsequent case of The Overseas
of the Philippines filed a "Petition for Assistance Bank of Manila vs. The Hon. Court of Appeals and Julian R.
and Supervision in Liquidation" of the affairs of the Cordero. 5 and in the recent cases of Integrated Realty
defendant Fidelity Savings and Mortgage Bank Corporation, et al. vs. Philippine National Bank, et al. and
with the Court of First Instance of Manila, assigned the Overseas Bank of Manila vs. Court of appeals, et al. 6
to Branch XIII and docketed as Civil Case No. From the aforecited authorities, it is manifest that petitioner
86005; cannot be held liable for interest on bank deposits which
10. That on October 3, 1972, the Liquidation Court accrued from the time it was prohibited by the Central Bank
promulgated the Bank Rules and Regulations to to continue with its banking operations, that is, when
govern the liquidation of the affairs of defendant Resolution No. 350 to that effect was issued on February 18,
Fidelity Savings and Mortgage Bank, prescribing 1969.
the rules on the conversion of the Bank's assets The order, therefore, of the Central Bank as
into money, processing of claims against it and the receiver/liquidator of petitioner bank allowing the claims of
manner and time of distributing the proceeds from depositors and creditors to earn interest up to the date of its
the assets of the Bank; closure on February 18, 1969, 7 in line with the doctrine laid
11. That the liquidation proceedings has not been down in the jurisprudence above cited.
terminated and is still pending up to the present; Although petitioner's formulation of the second issue that it
12. That herein plaintiffs, through their counsel, poses is slightly inaccurate and defective, we likewise find
sent demand letters to herein defendants, the awards of moral and exemplary damages and attorney's
demanding the immediate payment of the fees to be erroneous.
aforementioned savings and time deposits. The trial court found, and it is not disputed, that there was no
WHEREFORE, it is respectfully prayed that the fraud or bad faith on the part of petitioner bank and the other
foregoing Partial Stipulation of Facts be approved defendants in accepting the deposits of private respondents.
by this Honorable Court, without prejudice to the Petitioner bank could not even be faulted in not immediately
presentation of additional documentary or returning the amount claimed by private respondents
testimonial evidence by herein parties. considering that the demand to pay was made and Civil
Manila, Philippines, August 10, 1973. 3 Case No. 84800 was filed in the trial court several months
Assigning error in the judgment of the lower court quoted ab after the Central Bank had ordered petitioner's closure. By
antecedents, petitioner raises two questions of law, to wit: that time, petitioner bank was no longer in a position to
1. Whether or not an insolvent bank like the Fidelity Savings comply with its obligations to its creditors, including herein
and Mortgage Bank may be adjudged to pay interest on private respondents. Even the trial court had to admit that
unpaid deposits even after its closure by the Central Bank by petitioner bank failed to pay private respondents because it
was already insolvent. 8 Further, this case is not one of the
specified or analogous cases wherein moral damages may
be recovered. 9 Petitioner PNB is a universal banking corporation duly
There is no valid basis for the award of exemplary damages authorized by Bangko Sentral ng Pilipinas (BSP) to engage
which is supposed to serve as a warning to other banks from in banking business.
dissipating their assets in anomalous transactions. It was not
proven by private respondents, and neither was there a Sometime in 1986, Spouses Reynaldo Cormsta and Erlinda
categorical finding made by the trial court, that petitioner Gamboa Cornista (Spouses Cornista) obtained a loan from
bank actually engaged in anomalous real estate Traders Royal Bank (Traders Bank).5 To secure the said
transactions. The same were raised only during the obligation, the Spouses Cornista mortgaged to the bank a
testimony of the bank examiner of the Central Bank, 10 but parcel of land with an area of 451 square meters designated
no documentary evidence was ever presented in support as Lot 555-A-2 and registered under Transfer Certificate of
thereof. Hence, it was error for the lower court to impose Title (TCT) No. 131498 in their names by the Register of
exemplary damages upon petitioner bank since, in contracts, Deeds of Pangasinan.
such sanction requires that the offending party acted in a
wanton, fraudulent, reckless, oppressive or malevolent For failure of the Spouses Cornista to make good of their
manner. 11 Neither does this case present the situation loan obligation after it has become due, Traders Bank
where attorney's fees may be awarded. 12 foreclosed the mortgage constituted on the security of the
In the absence of fraud, bad faith, malice or wanton attitude, loan. After the notice and publication requirements were
petitioner bank may, therefore, not be held responsible for complied with, the subject property was sold at the public
damages which may be reasonably attributed to the non- auction on 23 December 1987. During the public sale,
performance of the obligation. 13 Consequently, we reiterate respondent Juan F. Vila (Vila) was declared as the highest
that under the premises and pursuant to the aforementioned bidder after he offered to buy the subject property for
provisions of law, it is apparent that private respondents are P50,000.00. The Certificate of Sale dated 13 January 1988
not justifiably entitled to the payment of moral and exemplary was duly recorded in TCT No. 131498 under Entry No.
damages and attorney's fees. 623599.6chanrobleslaw
While we tend to agree with petitioner bank that private
respondents' claims should he been filed in the liquidation To exercise his right of ownership, Vila immediately took
proceedings in Civil Case No. 86005, entitled "In Re: possession of the subject property and paid the real estate
Liquidation of the Fidelity Savings and Mortgage Bank," taxes corresponding thereon.
pending before Branch XIII of the then Court of First
Instance of Manila, we do not believe that the decision On 11 February 1989, a Certificate of Final Sale was issued
rendered in the instant case would be violative of the legal to Vila after the one-year redemption period had passed
provisions on preference and concurrence of credits. As the without the Spouses Cornista exercising their statutory right
trial court puts it: to redeem the subject property. He was, however, prevented
. . . But this order of payment should not be from consolidating the ownership of the property under his
understood as raising these deposits to the name because the owner's copy of the certificate of title was
category of preferred credits of the defendant not turned over to him by the Sheriff.
Fidelity Savings and Mortgage Bank but shall be
paid in accordance with the Bank Liquidation Despite the lapse of the redemption period and the fact of
Rules and Regulations embodied in the Order of issuance of a Certificate of Final Sale to Vila, the Spouses
the. Court of First Instance of Manila, Branch XIII Cormsta were nonetheless allowed to buy back the subject
dated October 3, 1972 (Exh. 3). . . . 14 property by tendering the amount of P50,000.00. A
WHEREFORE, the judgment appealed from is hereby Certificate of Redemption7 dated 14 March 1989 was issued
MODIFIED. Petitioner Fidelity Savings and Mortgage Bank is for this purpose and was duly annotated in the title
hereby declared liable to pay private respondents Timoteo under Entry No. 708261.
and Olimpia Santiago the sum of P90,000.00, with accrued
interest in accordance with the terms of Savings Account Claiming that the Spouses Cornista already lost their right to
Deposit No. 16-0536 (Exhibit A) and Certificate of Time redeem the subject property, Vila filed an action for
Deposit No. 0210 (Exhibit B) until February 18, 1969. The nullification of redemption, transfer of title and damages
awards for moral and exemplary damages, and attorney's against the Spouses Cornista and Alfredo Vega in his
fees are hereby DELETED. No costs. capacity as the Register of Deeds of Pangasinan. The case
SO ORDERED. was docketed as Civil Case No. V-0242 on 10 January 1992
Melencio-Herrera, Paras, Padilla and Sarmiento, JJ., concur. and was raffled to Branch 50. A Notice of Lis Pendens was
THIRD DIVISION issued for this purpose and was duly recorded in the
G.R. No. 213241, August 01, 2016 certificate of title of the property on 19 October 1992
PHILIPPINE NATIONAL BANK, Petitioner, v. JUAN F. under Entry No. 759302.8chanrobleslaw
VILA, Respondent.
DECISION On 3 February 1995, the RTC rendered a Decision9 in Civil
PEREZ, J.: Case No. V-0242 in favor of Vila thereby ordering the
For resolution of the Court is the instant Petition for Review Register of Deeds to cancel the registration of the certificate
on Certiorari1 filed by petitioner Philippine National Bank of redemption and the annotation thereof on TCT No.
(PNB), seeking to reverse and set aside the Decision2 dated 131498. The said decision was affirmed by the CA on 19
18 December 2013 and Resolution3 dated 13 June 2014 of October 1997 in CA-G.R. CV No. 49463.10 The decision of
the Court of Appeals (CA) in CA-G.R. CV No. 97612. The the appellate court became final and executory on 19
assailed decision and resolution affirmed the 22 June 2011 November 1997.
Decision4 of the Regional Trial- Court (RTC) of Villasis,
Pangasinan, Branch 50 which found that petitioner PNB is In order to enforce the favorable decision, Vila filed before
not a mortgagee in good faith. the RTC a Motion for the Issuance of Writ of Execution
The Facts which was granted by the court. Accordingly, a Writ of
Execution11 was issued by the RTC on 14 December 1997.
 status of a mortgaged property. The dispositive portion of the
By unfortunate turn of events, the Sheriff could not decision reads:ChanRoblesVirtualawlibrary
successfully enforce the decision because the certificate of "WHEREFORE, judgment is hereby rendered:
title covering the subject property was no longer registered 1. Declaring the Real Estate Mortgage dated
under the names of the Spouses Cornista. Hence, the September 28, 1992, executed by the Spouses
judgment was returned unsatisfied as shown in Sheriffs Reynaldo Cornista and Erlinda Gamboa in favor of
Return12 dated 13 July 1999. the Philippine National Bank, Tayug, Pangasinan
Branch, over the parcel of land covered by TCT
Upon investigation it was found out that during No. 131498 null and void;
the interregnum the Spouses Cornista were able to secure a 2. Declaring the Deed of Sale dated September 27,
loan from the PNB in the amount of P532,000.00 using the 1996, in favor of the PNB null and void;
same property subject of litigation as security. The Real 3. Ordering the nullification and cancellation of
Estate Mortgage (REM) was recorded on 28 September Transfer Certificate of Title No. 216771 in the
1992 under Entry No. 75817113 or month before the Notice name of PNB;
of Lis Pendens was annotated. 4. Ordering the Register of Deeds of Pangasinan to
issue a new certificate of title covering the property
Eventually, the Spouses Cornista defaulted in the payment subject matter of this case in the name-of Juan F.
of their loan obligation with the PNB prompting the latter to Vila; and cralawlawlibrary
foreclose the property offered as security. The bank 5. Ordering [the] defendant PNB to pay the plaintiff
emerged as the highest bidder during the public sale as P50,000.00 moral damages, P50,000.00
shown at the Certificate of Sale issued by the Sheriff. As with exemplary damages and P100,000.00 attorney's
the prior mortgage, the Spouses Cornista once again failed fees and litigation expenses.
to exercise their right of redemption within the required Costs against defendant Philippine National Bank.
period allowing PNB to consolidate its ownership over the
subject property. Accordingly, TCT No. 13149814 in the name SO ORDERED."18chanroblesvirtuallawlibrary
of the Spouses Cornista was cancelled and a new one under In a Resolution19 dated 13 June 2014, the RTC refused to
TCT No. 21677115under the name of the PNB was issued. reconsider its earlier decision and thereby denied the Motion
for Reconsideration interposed by PNB.
The foregoing turn of events left Vila with no other choice but
to commence another round of litigation against the Spouses On appeal, the CA Decision20 dated 18 December 2013
Cornista and PNB before the RTC of Viliasis, Pangasinan, affirmed the RTC ruling. In failing to exercise greater care
Branch 50. In his Complaint docketed as Civil Case No. V- and diligence in approving the loan of the Spouses Cornista
0567, Vila sought for the nullification of TCT No. 216771 without first ascertaining if there were any defects in their
issued under the name of PNB and for the payment of title, the appellate court held that PNB could not be afforded
damages. the status of a mortgagee in good faith. It went further by
declaring that [a] bank whose business is impressed with
To refute the allegations of Vila, PNB pounded that it was a public interest is expected to exercise more care and
mortgagee in good faith pointing the fact that at the time the prudence in its dealings than a private individual, even in
subject property was mortgaged to it, the same was still free cases involving registered lands. A bank cannot assume
from any liens and encumbrances and the Notice of Lis that, simply because the title offered as security is on its face
Pendens was registered only a month after the REM was free of any encumbrances of lien, it is relieved of the
annotated on the title. PNB meant to say that at the time of responsibility of taking further steps to verify the title and
the transaction, the Spouses Cornista were still the absolute inspect the properties to be mortgaged.21 The CA thus
owners of the property possessing all the rights to mortgage disposed:ChanRoblesVirtualawlibrary
the same to third persons. PNB also harped on the fact that "WHEREFORE, the instant appeal is DENIED. The assailed
a close examination of title was conducted and nowhere was Decision dated June 22, 2011 and the Resolution dated
it shown that there was any cloud in the title of the Spouses August 11, 2011 of the Regional Trial Court of Villasis,
Cornista, the latter having redeemed the property after they Pangasinan, Branch 50, in Civil Case No, V-0567 are
have lost it in a foreclosure sale.16chanrobleslaw hereby AFFIRMED."22chanroblesvirtuallawlibrary
On 13 June 2014, the CA issued a Resolution23 denying the
After the Pre-Trial Conference, trial on the merits ensued. Motion for Reconsideration of the PNB prompting the bank
The court a quo then proceeded to receive documentary and to seek recourse before the Court via instant Petition for
testimonial evidence from the opposing parties. Thereafter, Review on Certiorari. For Our resolution are the following
the parties submitted their respective memorandum and the issues:ChanRoblesVirtualawlibrary
case was submitted for decision. The Issues

On 22 June 2011, the RTC rendered a Decision17 in favor of I.

Vila and ruled that PNB is not a mortgagee in good faith. As
a financial institution, the trial court held that PNB is WHETHER OR NOT PNB IS A MORTGAGEE IN GOOD
expected to observe a higher degree of diligence. In hastily FAITH;
granting the loan, the trial court declared that PNB failed in II
this regard. Had the bank exercised due diligence, it could
have easily discovered that the Spouses Cornista were not WHETHER OR NOT PNB IS LIABLE FOR
the possessors of the subject property which could lead it to DAMAGES.24chanroblesvirtuallawlibrary
the fact that at the time the subject property was mortgaged The Court's Ruling
to it, a litigation involving the same was already commenced
before the court. It was further ratiocinated by the RTC that We resolve to deny the petition.
"[a] mortgagee cannot close his eyes to facts which should
put a reasonable man upon his guard" in ascertaining the In general, the issue of whether a mortgagee is in good faith
cannot be entertained in a Rule 45 petition. This is because
the ascertainment of good faith or the lack thereof, and the ocular inspection of the property offered for mortgage and to
determination of negligence are factual matters which lay determine the real owner(s) thereof The apparent purpose of
outside the scope of a petition for review on certiorari. Good an ocular inspection is to protect the "true owner" of the
faith, or the lack of it, is a question of intention. In property as well as innocent third parties with a right, interest
ascertaining intention, courts are necessarily controlled by or claim thereon from a usurper who may have acquired a
the evidence as to the conduct and outward facts by which fraudulent certificate of title thereto.28chanrobleslaw
alone the inward motive may, with safety, be
determined.25cralawred A recognized, exception to the rule is In this case, it was adjudged by the courts of competent
when there are conflicting findings of fact by the CA and the jurisdiction in a final and executory decision that the
RTC.26 In the case at bar, RTC and the CA agreed on their Spouses Cornista's reacquisition of the property after the
findings. lapse of the redemption period is fraudulent and the property
used by the mortgagors as collateral rightfully belongs to
The RTC, which possessed the first hand opportunity to Vila, an innocent third party with a right, could have been
observe the demeanor of the witnesses and admit the protected if PNB only observed the degree diligence
documentary evidence, found that PNB accepted outright expected from it.
the collateral offered by the Spouses Cornista without
making farther inquiry as to the real status of the subject In Land Bank of the Philippines v. Belle Corporation,29 the
property. Had the bank been prudent and diligent enough in Court exhorted banks to exercise the highest degree of
ascertaining the condition of the property, it could have diligence in its dealing with properties offered as securities
discovered that the same was in the possession of Vila who, for the loan obligation:ChanRoblesVirtualawlibrary
at that time, possessed a colorable title thereon being a When the purchaser or the mortgagee is a bank, the rule on
holder of a Final Certificate of Sale. The RTC further innocent purchasers or mortgagees for value is applied more
exposed the frailty of PNB's claim by pointing to the fact that strictly. Being in the business of extending loans secured by
it was Vila who was paying the realty tax on the property, a real estate mortgage, banks are presumed to be familiar with
crucial information that the bank could have easily the rules on land registration. Since the banking business-is
discovered had it exercised due diligence. impressed with public interest, they are expected to be more
cautious, to exercise a higher degree of diligence, care and
Resonating the findings of the RTC, the CA also declared prudence, than private individuals in their dealings, even
that PNB fell short in exercising the degree of diligence those involving registered lands. Banks may not simply rely
expected from bank and financial Institutions. We hereby on the face of the certificate of title. Hence, they cannot
quote with approval the disquisition of the appellate assume that, xxx the title offered as security is on its face
court:ChanRoblesVirtualawlibrary free of any encumbrances or lien, they are relieved of the
Thus, before approving a loan application, it is a standard responsibility of taking further steps to verify the title and
operating practice for these institutions to conduct an ocular inspect the properties to be mortgaged. As expected, the
inspection of the property offered for mortgage and to verify ascertainment of the status or condition of a property offered
the genuineness of the title to determine the real owner to it as security for a loan must be a standard and
thereof. The apparent purpose of an ocular inspection is to indispensable part of the bank's operations. xxx. (Citations
protect the "true owner" of the property as well as innocent omitted)
third parties with a right, interest or claim thereon from a We never fail to stress the remarkable significance of a
usurper who may have acquired a fraudulent certificate of banking institution to commercial transactions, in particular,
title thereto. Here, [the] PNB has failed to exercise the and to the country's economy in general.30 The banking
requisite due diligence in ascertaining the status and system is an indispensable institution in the modern world
condition of the property being offered to it as security for the and plays a vital role in the economic life of every civilized
loan before it approved the same. nation.31 Whether as mere passive entities for the
xxx.27chanroblesvirtuallawlibrary safekeeping and saving of money or as active instruments of
Clearly, the PNB failed to observe the exacting standards business and commerce, banks have become an ubiquitous
required of banking institutions which are behooved by presence among the people, who have come to regard them
statutes and jurisprudence to exercise greater care and with respect and even gratitude and, most of all,
prudence before entering into a mortgage contract. confidence.32 Consequently, the highest degree of diligence
is expected, and high standards of integrity and performance
No credible proof on the records could substantiate the claim are even required, of it.33chanrobleslaw
of PNB that a physical inspection of the property was
conducted. We agree with, bbth the RTC and CA that if in PNB clearly failed to observe the required degree of caution
fact it were true that ocular inspection was conducted, a in readily approving the loan and accepting the collateral
suspicion could have been raised as to the real status of offered by the Spouses Cornista without first ascertaining the
property. By failing to uncover a crucial fact that the real ownership of the property. It should not have simply
mortgagors were not the possessors of the subject property. relied on the face of title but went furthef to physically
We could not lend credence to claim of the bank that an ascertain the actual condition of the property. That the
ocular inspection of the property was conducted. What propprty offered as security was in the possession of the
further tramples upon PNB's claim is the fact that, as shown person other than the lone applying for the loan and the
on the records, it was Vila who was religiously paying the taxes were declared not in their names could have raised a
real property tax due on the property from 1989 to 1996, suspicion. A person who deliberately ignores a significant
another significant fact that could have raised a red flag as to fact that could create suspicion in an otherwise reasonable
the real ownership of the property. The failure of the person is not an innocent purchaser for
mortgagee to take precautionary steps would mean value.34chanrobleslaw
negligence on his part and would thereby preclude it from
invoking that it is a mortgagee in good faith. Having laid down that the PNB is not in good faith, We are
led to affirm the award of moral damages, exemplary
Before approving a loan application, it is standard operating damages, attorney's fees and costs of litigation in favor of
procedure for banks and financial institutions to conduct an Vila. Moral damages are not awardecl to penalize the
defendant but to compensate the plaintiff for the injuries he of Appeals (CA) in CA-G.R. SP No. 67657. The challenged Decision
may have suffered.35 Willful injury to property may be a legal disposed as follows:
ground for awarding moral damages if the court should find WHEREFORE, premises
that, under the circumstances, such damages are justly considered, the instant petition for certiorari is
due.36 In the instant case, we find that the award of moral hereby DENIED.[7]
damages is proper.37 As for the award of exemplary
damages, we deem that the same is proper for the PNB was Factual Antecedents
remiss in its obligation to inquire the real status of the
subject property, causing damage to Vila.38 Finally, we rule Sometime in 2000, the Office of Special Investigation (OSI) of
that the award of attorney's fees and litigation expenses is the Bangko Sentral ng Pilipinas (BSP), through its
valid since Vila was compelled to litigate and thus incur officers,[8] transmitted a letter[9] dated March 27, 2000 to Jovencito
expenses in order to protect its rights over the subject Zuo, Chief State Prosecutor of the Department of Justice (DOJ). The
property.39chanrobleslaw letter attached as annexes five affidavits,[10] which would allegedly
serve as bases for filing criminal charges for Estafa thru Falsification
WHEREFORE, premises considered, the petition of Commercial Documents, in relation to Presidential Decree (PD)
is DENIED. The assailed Decision and Resolution of the No. 1689,[11] and for Violation of Section 83 of RA 337, as amended
Court of Appeals are hereby AFFIRMED. Accordingly, the by PD 1795,[12] against, inter alia, petitioner herein Hilario P.
decision of the RTC dated 22 June 2011 STANDS as the Soriano. These five affidavits, along with other documents, stated
final resolution of this case. that spouses Enrico and Amalia Carlos appeared to have an
outstanding loan of P8 million with the Rural Bank of San Miguel
SO ORDERED.chanRoblesvirtualLawlibrary (Bulacan), Inc. (RBSM), but had never applied for nor received such
loan; that it was petitioner, who was then president of RBSM, who
Velasco, Jr., Peralta, Reyes, and Jardeleza, JJ., concur. had ordered, facilitated, and received the proceeds of the loan; and
that the P8 million loan had never been authorized by RBSM's
Republic of the Philippines Board of Directors and no report thereof had ever been submitted to
Supreme Court the Department of Rural Banks, Supervision and Examination
Manila Sector of the BSP. The letter of the OSI, which was not subscribed
under oath, ended with a request that a preliminary investigation be
conducted and the corresponding criminal charges be filed against
SECOND DIVISION petitioner at his last known address.

Acting on the letter-request and its annexes, State Prosecutor Albert

HILARIO P. SORIANO, G.R. No. 162336 R. Fonacier proceeded with the preliminary investigation. He issued
Petitioner, a subpoena with the witnesses affidavits and supporting documents
attached, and required petitioner to file his counter-affidavit. In due
- versus - Present: course, the investigating officer issued a Resolution finding probable
cause and correspondingly filed two separate informations against
PEOPLE OF CARPIO, J., Chairperson, petitioner before the Regional Trial Court (RTC) of Malolos,
THE PHILIPPINES, Bulacan.[13]
BANGKO SENTRAL NG CORONA,*
PILIPINAS (BSP), BRION, The first Information,[14] dated November 14, 2000 and docketed as
PHILIPPINE Criminal Case No. 237-M-2001, was for estafa through falsification
DEPOSIT INSURANCE DEL CASTILLO, and of commercial documents, under Article 315, paragraph 1(b), of the
CORPORATION (PDIC), PEREZ, JJ. Revised Penal Code (RPC), in relation to Article 172 of the RPC and
PUBLIC PD 1689. It basically alleged that petitioner and his co-accused, in
PROSECUTOR ANTONIO abuse of the confidence reposed in them as RBSM officers, caused
C. the falsification of a number of loan documents, making it appear
BUAN, and STATE that one Enrico Carlos filled up the same, and thereby succeeded in
PROSECUTOR ALBERTO Promulgated: securing a loan and converting the loan proceeds for their personal
R. gain and benefit.[15] The information reads:
FONACIER,
Respondents. [1] February 1, 2010 That in or about the month of
x--------------------------------------------------- April, 1997, and thereafter, in San Miguel,
----------------x Bulacan, and within the jurisdiction of this
Honorable Court, the said accused HILARIO
P. SORIANO and ROSALINDA ILAGAN,
DECISION as principals by direct participation, with
unfaithfulness or abuse of confidence and
DEL CASTILLO, J.: taking advantage of their position as
President of the Rural Bank of San Miguel
(Bulacan), Inc. and Branch Manager of the
A bank officer violates the DOSRI[2] law when he acquires bank Rural Bank of San Miguel San Miguel Branch
funds for his personal benefit, even if such acquisition was facilitated [sic], a duly organized banking institution
by a fraudulent loan application. Directors, officers, stockholders, and under Philippine Laws, conspiring,
their related interests cannot be allowed to interpose the fraudulent confederating and mutually helping one
nature of the loan as a defense to escape culpability for their another, did then and there, willfully and
circumvention of Section 83 of Republic Act (RA) No. 337.[3] feloniously falsify loan documents consisting
Before us is a Petition for Review on Certiorari[4] under of undated loan application/information sheet,
Rule 45 of the Rules of Court, assailing the September 26, credit proposal dated April 14, 1997, credit
2003 Decision[5] and the February 5, 2004 Resolution[6] of the Court proposal dated April 22, 1997, credit
 investigation report dated April 15, 1997,
promissory note dated April 23, 1997, CONTRARY TO LAW.[19]
disclosure statement on loan/credit
transaction dated April 23, 1997, and other Both cases were raffled to Branch 79 of the RTC of
related documents, by making it appear that Malolos, Bulacan.[20]
one Enrico Carlos filled up the
application/information sheet and filed the On June 8, 2001, petitioner moved to quash[21] these informations on
aforementioned loan documents when in two grounds: that the court had no jurisdiction over the offense
truth and in fact Enrico Carlos did not charged, and that the facts charged do not constitute an offense.
participate in the execution of said loan
documents and that by virtue of said On the first ground, petitioner argued that the letter transmitted by
falsification and with deceit and intent to the BSP to the DOJ constituted the complaint and hence was
cause damage, the accused succeeded in defective for failure to comply with the mandatory requirements of
securing a loan in the amount of eight million Section 3(a), Rule 112 of the Rules of Court, such as the statement
pesos (PhP8,000,000.00) from the Rural of address of petitioner and oath and subscription.[22] Moreover,
Bank of San Miguel San Ildefonso branch in petitioner argued that the officers of OSI, who were the signatories to
the name of Enrico Carlos which amount of the letter-complaint, were not authorized by the BSP Governor,
PhP8 million representing the loan proceeds much less by the Monetary Board, to file the complaint. According to
the accused thereafter converted the same petitioner, this alleged fatal oversight violated Section 18, pars. (c)
amount to their own personal gain and and (d) of the New Central Bank Act (RA 7653).
benefit, to the damage and prejudice of the
Rural Bank of San Miguel San Ildefonso On the second ground, petitioner contended that the commission of
branch, its creditors, the Bangko Sentral ng estafa under paragraph 1(b) of Article 315 of the RPC is inherently
Pilipinas, and the Philippine Deposit incompatible with the violation of DOSRI law (as set out in Section
Insurance Corporation. 83[23] of RA 337, as amended by PD 1795),[24] hence a person
cannot be charged for both offenses. He argued that a violation of
CONTRARY TO LAW.[16] DOSRI law requires the offender to obtain a loan from his bank,
The other Information[17] dated November 10, 2000 and docketed as without complying with procedural, reportorial, or ceiling
Criminal Case No. 238-M-2001, was for violation of Section 83 of requirements. On the other hand, estafa under par. 1(b), Article 315
RA 337, as amended by PD 1795. The said provision refers to the of the RPC requires the offender to misappropriate or convert
prohibition against the so-called DOSRI loans. The information something that he holds in trust, or on commission, or for
alleged that, in his capacity as President of RBSM, petitioner administration, or under any other obligation involving the duty to
indirectly secured an P8 million loan with RBSM, for his personal return the same.[25]
use and benefit, without the written consent and approval of the
bank's Board of Directors, without entering the said transaction in the Essentially, the petitioner theorized that the
bank's records, and without transmitting a copy of the transaction to characterization of possession is different in the two offenses. If
the supervising department of the bank. His ruse was facilitated by petitioner acquired the loan as DOSRI, he owned the loaned money
placing the loan in the name of an unsuspecting RBSM depositor, and therefore, cannot misappropriate or convert it as contemplated
one Enrico Carlos.[18] The information reads: in the offense of estafa. Conversely, if petitioner committed estafa,
then he merely held the money in trust for someone else and
therefore, did not acquire a loan in violation of DOSRI rules.
That in or about the month of
April, 1997, and thereafter, and within the Ruling of the Regional Trial Court
jurisdiction of this Honorable Court, the said
accused, in his capacity as President of the In an Order[26] dated August 8, 2001, the trial court denied petitioner's
Rural Bank of San Miguel (Bulacan), Inc., did Motion to Quash for lack of merit. The lower court agreed with the
then and there, willfully and feloniously prosecution that the assailed OSI letter was not the complaint-
indirectly borrow or secure a loan with the affidavit itself; thus, it need not comply with the requirements under
Rural Bank of San Miguel San Ildefonso the Rules of Court. The trial court held that the affidavits, which were
branch, a domestic rural banking institution attached to the OSI letter, comprised the complaint-affidavit in the
created, organized and existing under case. Since these affidavits were duly subscribed and sworn to
Philippine laws, amounting to eight million before a notary public, there was adequate compliance with the
pesos (PhP8,000,000.00), knowing fully well Rules. The trial court further held that the two offenses were
that the same has been done by him without separate and distinct violations, hence the prosecution of one did not
the written consent and approval of the pose a bar to the other.[27]
majority of the board of directors of the said
bank, and which consent and approval the Petitioners Motion for Reconsideration was likewise
said accused deliberately failed to obtain and denied in an Order dated September 5, 2001.[28]
enter the same upon the records of said
banking institution and to transmit a copy Aggrieved, petitioner filed a Petition for Certiorari[29] with the CA,
thereof to the supervising department of the reiterating his arguments before the trial court.
said bank, as required by the General
Banking Act, by using the name of one Ruling of the Court of Appeals
depositor Enrico Carlos of San Miguel,
Bulacan, the latter having no knowledge of The CA denied the petition on both issues presented by petitioner.
the said loan, and one in possession of the
said amount of eight million pesos On the first issue, the CA determined that the BSP letter, which
(PhP8,000,000.00), accused converted the petitioner characterized to be a fatally infirm complaint, was not
same to his own personal use and benefit, in actually a complaint, but a transmittal or cover letter only. This
flagrant violation of the said law. transmittal letter merely contained a summary of the affidavits which
were attached to it. It did not contain any averment of personal Court and Section 18, paragraphs (c) and
knowledge of the events and transactions that constitute the (d) of
elements of the offenses charged. Being a mere transmittal letter, it Republic Act No. 7653
need not comply with the requirements of Section 3(a) of Rule 112
of the Rules of Court.[30]
P
The CA further determined that the five affidavits attached to the e
transmittal letter should be considered as the complaint-affidavits t
that charged petitioner with violation of Section 83 of RA 337 and for i
Estafa thru Falsification of Commercial Documents. These t
complaint-affidavits complied with the mandatory requirements set i
out in the Rules of Court they were subscribed and sworn to before o
a notary public and subsequently certified by State Prosecutor n
Fonacier, who personally examined the affiants and was convinced e
that the affiants fully understood their sworn statements.[31] r

Anent the second ground, the CA found no merit in petitioner's m

argument that the violation of the DOSRI law and the commission of o
estafa thru falsification of commercial documents are inherently v
inconsistent with each other. It explained that the test in considering e
a motion to quash on the ground that the facts charged do not d
constitute an offense, is whether the facts alleged, when
hypothetically admitted, constitute the elements of the offense t
charged. The appellate court held that this test was sufficiently met o
because the allegations in the assailed informations, when
hypothetically admitted, clearly constitute the elements of Estafa thru w
Falsification of Commercial Documents and Violation of DOSRI i
law.[32] t
h
Petitioners Motion for Reconsideration[33] was likewise denied for d
lack of merit. r
a
Hence, this petition. w

Issues t
Restated, petitioner raises the following issues[34] for our h
consideration: e

I f
Whether the complaint complied with the i
mandatory requirements provided under r
Section 3(a), Rule 112 of the Rules of Court s
and Section 18, paragraphs (c) and (d) of RA t
7653.
i
II s
Whether a loan transaction within the ambit of s
the DOSRI law (violation of Section 83 of RA u
337, as amended) could also be the subject e
of Estafa under Article 315 (1) (b) of the
Revised Penal Code. f
r
III o
Is a petition for certiorari under Rule 65 the m
proper remedy against an Order denying a
Motion to Quash? t
h
IV e
Whether petitioner is entitled to a writ of
injunction. i
n
s
Our Ruling t
The petition lacks merit. a
n
First Issue: t

Whether the complaint complied with the p

mandatory requirements provided under e
Section 3(a), Rule 112 of the Rules of t
i t
t h
i a
o t
n
t
h
On March 5, 2007, the Court noted[35] petitioner's Manifestation and e
Motion for Partial Withdrawal of the Petition[36] dated February 7,
2007. In the said motion, petitioner informed the Court of the a
promulgation of a Decision entitled Soriano v. Hon. f
Casanova,[37] which also involved petitioner and similar BSP letters f
to the DOJ. According to petitioner, the said Decision allegedly ruled i
squarely on the nature of the BSP letters and the validity of the d
sworn affidavits attached thereto. For this reason, petitioner moved a
for the partial withdrawal of the instant petition insofar as it involved v
the issue of whether or not a court can legally acquire jurisdiction i
over a complaint which failed to comply with the mandatory t
requirements provided under Section 3(a), Rule 112 of the Rules of s
Court and Section 18, paragraphs (c) and (d) of RA 7653.[38]
a
Given that the case had already been submitted for resolution of the t
Court when petitioner filed his latest motion, and that all respondents t
had presented their positions and arguments on the first issue, the a
Court deems it proper to rule on the same. c
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t
h We held in Soriano v. Hon. Casanova, after a close
scrutiny of the letters transmitted by the BSP to the DOJ, that these
t were not intended to be the complaint, as envisioned under the
h Rules. They did not contain averments of personal knowledge of the
e events and transactions constitutive of any offense. The letters
merely transmitted for preliminary investigation the affidavits of
m people who had personal knowledge of the acts of petitioner. We
a ruled that these affidavits, not the letters transmitting them, initiated
n the preliminary investigation. Since these affidavits were subscribed
d under oath by the witnesses who executed them before a notary
a public, then there was substantial compliance with Section 3(a),
t Rule 112 of the Rules of Court.
o
r Anent the contention that there was no authority from the BSP
y Governor or the Monetary Board to file a criminal case against
Soriano, we held that the requirements of Section 18, paragraphs (c)
r and (d) of RA 7653 did not apply because the BSP did not institute
e the complaint but merely transmitted the affidavits of the
q complainants to the DOJ.
u
i We further held that since the offenses for which Soriano was
r charged were public crimes, authority holds that it can be initiated by
e any competent person with personal knowledge of the acts
m committed by the offender. Thus, the witnesses who executed the
e affidavits clearly fell within the purview of any competent person who
n may institute the complaint for a public crime.
t The ruling in Soriano v. Hon. Casanova has been
s adopted and elaborated upon in the recent case of Santos-Concio v.
Department of Justice.[41] Instead of a transmittal letter from the BSP,
u the Court in Santos-Concio was faced with an NBI-NCR Report,
n likewise with affidavits of witnesses as attachments. Ruling on the
d validity of the witnesses sworn affidavits as bases for a preliminary
e investigation, we held:
r
The Court is not unaware of the
t practice of incorporating all allegations in one
h document denominated as complaint-
e affidavit. It does not pronounce strict
adherence to only one approach, however,
R for there are cases where the extent of ones
u personal knowledge may not cover the entire
l gamut of details material to the alleged
e offense. The private offended party or
s relative of the deceased may not even have
witnessed the fatality, in which case the
o peace officer or law enforcer has to rely
f chiefly on affidavits of witnesses. The Rules
do not in fact preclude the attachment of a
C referral or transmittal letter similar to that of
o the NBI-NCR. Thus, in Soriano v.
u Casanova, the Court held:
r
t A close
. scrutiny of the letters
transmitted by the
BSP and PDIC to the
To be sure, the BSP letters involved in Soriano v. Hon. DOJ shows that
Casanova[39] are not the same as the BSP letter involved in the these were not intend
instant case. However, the BSP letters in Soriano v. Hon. ed to be the complaint
Casanova and the BSP letter subject of this case are similar in the envisioned under the
sense that they are all signed by the OSI officers of the BSP, they Rules. It may be
were not sworn to by the said officers, they all contained summaries clearly inferred from
of their attached affidavits, and they all requested the conduct of a the tenor of the letters
preliminary investigation and the filing of corresponding criminal that the officers merely
charges against petitioner Soriano. Thus, the principle of stare intended to transmit
decisis dictates that the ruling in Soriano v. Hon. Casanova be the affidavits of the
applied in the instant case once a question of law has been bank employees to
examined and decided, it should be deemed settled and closed to the DOJ. Nowhere in
further argument.[40] the transmittal letters is
there any averment on personal knowledge of
the part of the BSP the acts committed by
and PDIC officers of the petitioner fall within
personal knowledge of the purview of any
the events and competent person
transactions who may institute the
constitutive of the complaint for a public
criminal violations crime. x x x (Emphasis
alleged to have been and italics supplied)
made by the
accused. In fact, the A preliminary investigation can thus
letters clearly stated validly proceed on the basis of an affidavit of
that what the OSI of any competent person, without the referral
the BSP and the LIS document, like the NBI-NCR Report, having
of the PDIC did was to been sworn to by the law enforcer as the
respectfully transmit to nominal complainant. To require otherwise is
the DOJ for a needless exercise. The cited case
preliminary of Oporto, Jr. v. Judge Monserate does not
investigation the appear to dent this proposition. After all, what
affidavits and personal is required is to reduce the evidence into
knowledge of the acts affidavits, for while reports and even raw
of the information may justify the initiation of an
petitioner. These investigation, the preliminary investigation
affidavits were stage can be held only after sufficient
subscribed under oath evidence has been gathered and evaluated
by the witnesses who which may warrant the eventual prosecution
executed them before of the case in court.[42]
a notary public. Since
the affidavits, not th Following the foregoing rulings in Soriano v. Hon.
e letters transmitting Casanova and Santos-Concio v. Department of Justice, we hold
them, were intended that the BSP letter, taken together with the affidavits attached
to initiate the thereto, comply with the requirements provided under Section 3(a),
preliminary Rule 112 of the Rules of Court and Section 18, paragraphs (c) and
investigation, we hold (d) of RA 7653.
that Section 3(a), Rule Second Issue:
112 of the Rules of
Court was Whether a loan transaction within the
substantially complied ambit of the DOSRI law (violation of
with. Section 83 of RA 337, as amended) could
be the subject of Estafa under Article 315
Citing the (1) (b) of the
ruling of this Court Revised Penal Code
in Ebarle v. Sucaldito,
the Court of Appeals The second issue was raised by petitioner in the context
correctly held of his Motion to Quash Information on the ground that the facts
that a complaint for charged do not constitute an offense.[43] It is settled that in
purposes of considering a motion to quash on such ground, the test is whether
preliminary the facts alleged, if hypothetically admitted, would establish the
investigation by the essential elements of the offense charged as defined by law.The trial
fiscal need not be filed court may not consider a situation contrary to that set forth in the
by the offended criminal complaint or information. Facts that constitute the defense of
party. The rule has the petitioner[s] against the charge under the information must be
been that, unless the proved by [him] during trial. Such facts or circumstances do not
offense subject constitute proper grounds for a motion to quash the information on
thereof is one that the ground that the material averments do not constitute the
cannot be offense. [44]
prosecuted de We have examined the two informations against petitioner and we
oficio, the same may find that they contain allegations which, if hypothetically admitted,
be filed, for preliminary would establish the essential elements of the crime of DOSRI
investigation violation and estafa thru falsification of commercial documents.
purposes, by any
competent In Criminal Case No. 238-M-2001 for violation of DOSRI rules, the
person. The crime of information alleged that petitioner Soriano was the president of
estafa is a public crime RBSM; that he was able to indirectly obtain a loan from RBSM by
which can be initiated putting the loan in the name of depositor Enrico Carlos; and that he
by any competent did this without complying with the requisite board approval,
person. The reportorial, and ceiling requirements.
witnesses who
executed the affidavits In Criminal Case No. 237-M-2001 for estafa thru falsification of
based on their commercial documents, the information alleged that petitioner, by
taking advantage of his position as president of RBSM, falsified majority of the directors of the bank, excluding
various loan documents to make it appear that an Enrico Carlos the director concerned. Any such approval
secured a loan of P8 million from RBSM; that petitioner succeeded shall be entered upon the records of the
in obtaining the loan proceeds; that he later converted the loan corporation and a copy of such entry shall be
proceeds to his own personal gain and benefit; and that his action transmitted forthwith to the Superintendent of
caused damage and prejudice to RBSM, its creditors, the BSP, and Banks. The office of any director or officer of
the PDIC. a bank who violates the provisions of this
section shall immediately become vacant and
Significantly, this is not the first occasion that we adjudge the the director or officer shall be punished by
sufficiency of similarly worded informations. In Soriano v. imprisonment of not less than one year nor
People,[45] involving the same petitioner in this case (but different more than ten years and by a fine of not less
transactions), we also reviewed the sufficiency of informations for than one thousand nor more than ten
DOSRI violation and estafa thru falsification of commercial thousand pesos. x x x
documents, which were almost identical, mutatis mutandis, with the
subject informations herein. We held in Soriano v. People that there
is no basis for the quashal of the informations as they contain The prohibition in Section 83 is broad enough to cover various
material allegations charging Soriano with violation of DOSRI rules modes of borrowing.[48] It covers loans by a bank director or officer
and estafa thru falsification of commercial documents. (like herein petitioner) which are made either: (1) directly, (2)
indirectly, (3) for himself, (4) or as the representative or agent of
Petitioner raises the theory that he could not possibly be others. It applies even if the director or officer is a mere guarantor,
held liable for estafa in concurrence with the charge for DOSRI indorser or surety for someone else's loan or is in any manner an
violation. According to him, the DOSRI charge presupposes that he obligor for money borrowed from the bank or loaned by it. The
acquired a loan, which would make the loan proceeds covered transactions are prohibited unless the approval, reportorial
his own money and which he could neither possibly misappropriate and ceiling requirements under Section 83 are complied with. The
nor convert to the prejudice of another, as required by the statutory prohibition is intended to protect the public, especially the
definition of estafa.[46] On the other hand, if petitioner did not acquire depositors,[49] from the overborrowing of bank funds by bank officers,
any loan, there can be no DOSRI violation to speak of. Thus, directors, stockholders and related interests, as such overborrowing
petitioner posits that the two offenses cannot co-exist. This theory may lead to bank failures.[50] It has been said that banking institutions
does not persuade us. are not created for the benefit of the directors [or officers]. While
directors have great powers as directors, they have no special
Petitioners theory is based on the false premises that the privileges as individuals. They cannot use the assets of the bank for
loan was extended to him by the bank in his own name, and that he their own benefit except as permitted by law. Stringent restrictions
became the owner of the loan proceeds. Both premises are wrong. are placed about them so that when acting both for the bank and for
one of themselves at the same time, they must keep within certain
The bank money (amounting to P8 million) which came prescribed lines regarded by the legislature as essential to safety in
to the possession of petitioner was money held in trust or the banking business.[51]
administration by him for the bank, in his
A direct borrowing is obviously one that is made in the
fiduciary capacity as the President of said bank.[47] It is not accurate name of the DOSRI himself or where the DOSRI is a named party,
to say that petitioner became the owner of the P8 million because it while an indirect borrowing includes one that is made by a third
was the proceeds of a loan. That would have been correct if the party, but the DOSRI has a stake in the transaction.[52] The latter type
bank knowingly extended the loan to petitioner himself. But that is indirect borrowing applies here. The information in Criminal Case
not the case here. According to the information for estafa, the loan 238-M-2001 alleges that petitioner in his capacity as President of
was supposed to be for another person, a certain Enrico Carlos; Rural Bank of San Miguel San Ildefonso branch x x x
petitioner, through falsification, made it appear that said Enrico indirectly borrow[ed] or secure[d] a loan with [RBSM] x x x knowing
Carlos applied for the loan when in fact he (Enrico Carlos) did fully well that the same has been done by him without the written
not. Through such fraudulent device, petitioner obtained the loan consent and approval of the majority of the board of directors x x x,
proceeds and converted the same. Under these circumstances, it and which consent and approval the said accused deliberately failed
cannot be said that petitioner became the legal owner of the P8 to obtain and enter the same upon the records of said banking
million. Thus, petitioner remained the banks fiduciary with respect to institution and to transmit a copy thereof to the supervising
that money, which makes it capable of misappropriation or department of the said bank x x x by using the name of one
conversion in his hands. depositor Enrico Carlos x x x, the latter having no knowledge of the
said loan, and once in possession of the said amount of eight million
The next question is whether there can also be, at the pesos (P8 million), [petitioner] converted the same to his own
same time, a charge for DOSRI violation in such a situation wherein personal use and benefit.[53]
the accused bank officer did not secure a loan in his own name, but
was alleged to have used the name of another person in order to The foregoing information describes the manner of
indirectly secure a loan from the bank. We answer this in the securing the loan as indirect; names petitioner as the benefactor of
affirmative. Section 83 of RA 337 reads: the indirect loan; and states that the requirements of the law were
not complied with. It contains all the required elements[54] for a
Section 83. No director or officer violation of Section 83, even if petitioner did not secure the loan in his
of any banking institution shall, either own name.
directly or indirectly, for himself or as the
representative or agent of others, borrow any The broad interpretation of the prohibition in Section 83 is
of the deposits of funds of such bank, nor justified by the fact that it even expressly covers loans to third parties
shall he become a guarantor, indorser, or where the third parties are aware of the transaction (such as
surety for loans from such bank to others, or principals represented by the DOSRI), and where the DOSRIs
in any manner be an obligor for moneys interest does not appear to be beneficial but even burdensome
borrowed from the bank or loaned by it, (such as in cases when the DOSRI acts as a mere guarantor or
except with the written approval of the surety). If the law finds it necessary to protect the bank and the
banking system in such situations, it will surely be illogical for it to granted only when the court is fully satisfied
exclude a case like this where the DOSRI acted for his own benefit, that the law permits it and the emergency
using the name of an unsuspecting person. A contrary interpretation demands it.
will effectively allow a DOSRI to use dummies to circumvent the
requirements of the law.
In sum, the informations filed against petitioner do not Given this Court's findings in the earlier issues of the instant case,
negate each other. we find no compelling reason to grant the injunctive relief sought by
petitioner.

Third Issue: WHEREFORE, the petition is DENIED. The assailed September

26, 2003 Decision as well as the February 5, 2004 Resolution of the
Is a Rule 65 petition for certiorari the proper remedy against Court of Appeals in CA-G.R. SP No. 67657 are AFFIRMED. Costs
an Order denying a Motion to Quash? against petitioner.

SO ORDERED.
This issue may be speedily resolved by adopting our ruling
in Soriano v. People,[55] where we held: MARIANO C. DEL CASTILLO
Associate
In fine, the Court has consistently Justice
held that a special civil action for certiorari is
not the proper remedy to assail the denial of a
motion to quash an information. The proper WE CONCUR:
procedure in such a case is for the accused
to enter a plea, go to trial without prejudice on ANTONIO T. CARPIO
his part to present the special defenses he Associate Justice
had invoked in his motion to quash and if Republic of the Philippines
after trial on the merits, an adverse decision is Supreme Court
rendered, to appeal therefrom in the manner Baguio City
authorized by law. Thus, petitioners should
not have forthwith filed a special civil action FIRST DIVISION
for certiorari with the CA and instead, they
should have gone to trial and reiterated the PHILIPPINE NATIONAL BANK, G.R. No. 170865
special defenses contained in their motion to
quash. There are no special or exceptional Petitioner,
circumstances in the present case that would
justify immediate resort to a filing of a petition
for certiorari. Clearly, the CA did not commit - versus -
any reversible error, much less, grave abuse
of discretion in dismissing the petition.[56]

Fourth Issue: SPOUSES CHEAH CHEE

CHONG
Whether petitioner is entitled to a writ of and OFELIA CAMACHO
injunction CHEAH,
The requisites to justify an injunctive relief are: (1) the right of the Respondents.
complainant is clear and unmistakable; (2) the invasion of the right
x--------------------------------x
sought to be protected is material and substantial; and (3) there is an
urgent and paramount necessity for the writ to prevent serious
SPOUSES CHEAH CHEE G.R. No. 170892
damage. A clear legal right means one clearly founded in or granted
CHONG
by law or is enforceable as a matter of law. Absent any clear and
and OFELIA CAMACHO
unquestioned legal right, the issuance of an injunctive writ would
CHEAH,
constitute grave abuse of discretion.[57] Caution and prudence must,
Petitioners, Present:
at all times, attend the issuance of an injunctive writ because it
effectively disposes of the main case without trial and/or due
process.[58] In Olalia v. Hizon,[59] the Court held as follows:
CORONA, C.J., Chairperson,
It has been consistently held that
there is no power the exercise of which is LEONARDO-DE CASTRO,
more delicate, which requires greater caution,
- versus - BERSAMIN,
deliberation and sound discretion, or more
dangerous in a doubtful case, than the DEL CASTILLO, and
issuance of an injunction. It is the strong arm
of equity that should never be extended VILLARAMA, JR., JJ.
unless to cases of great injury, where courts
of law cannot afford an adequate or
commensurate remedy in damages.
PHILIPPINE NATIONAL Promulgated:
Every court should remember that
BANK,
an injunction is a limitation upon the freedom
Respondent. April 25, 2012
of action of the [complainant] and should not
be granted lightly or precipitately. It should be
x--------------------------------------------------- having been authorized by Ofelia.[12] Filipina received all the
----------------x proceeds.

DECISION In the meantime, the Cable Division of PNB Head Office

in Escolta, Manila received on November 16, 1992 a
DEL CASTILLO, J.: SWIFT[13] message from Philadelphia National Bank dated
November 13, 1992 with Transaction Reference Number (TRN)
Law favoreth diligence, and therefore, hateth 46506218, informing PNB of the return of the subject check for
folly and negligence.Wingates Maxim. insufficient funds.[14] However, the PNB Head Office could not
ascertain to which branch/office it should forward the same for
In doing a friend a favor to help the latters friend collect proper action. Eventually, PNB Head Office sent Philadelphia
the proceeds of a foreign check, a woman deposited the check in National Bank a SWIFT message informing the latter that SWIFT
her and her husbands dollar account. The local bank accepted the message with TRN 46506218 has been relayed to PNBs various
check for collection and immediately credited the proceeds thereof divisions/departments but was returned to PNB Head Office as it
to said spouses account even before the lapse of the clearing seemed misrouted. PNB Head Office thus requested for
period. And just when the money had been withdrawn and Philadelphia National Banks advice on said SWIFT messages
distributed among different beneficiaries, it was discovered that all proper disposition.[15] After a few days, PNB Head Office ascertained
along, to the horror of the woman whose intention to accommodate that the SWIFT message was intended for PNB Buendia Branch.
a friends friend backfired, she and her
bank had dealt with a rubber check. PNB Buendia Branch learned about the bounced check
when it received on November 20, 1992 a debit advice,[16] followed
These consolidated[1] Petitions for Review by a letter[17] on November 24, 1992, from Philadelphia National
on Certiorari filed by the Philippine National Bank (PNB)[2] and by the Bank to which the November 13, 1992 SWIFT message was
spouses Cheah Chee Chong and Ofelia Camacho Cheah (spouses attached. Informed about the bounced check and upon demand by
Cheah)[3] both assail the August 22, 2005 Decision[4] and December PNB Buendia Branch to return the money withdrawn, Ofelia
21, 2005 Resolution[5]of the Court of Appeals (CA) in CA-G.R. CV immediately contacted Filipina to get the money back. But the latter
No. 63948 which declared both parties equally negligent and, told her that all the money had already been given to several people
hence, should equally suffer the resulting loss. For its part, PNB who asked for the checks encashment. In their effort to recover the
questions why it was declared blameworthy together with its money, spouses Cheah then sought the help of the National Bureau
depositors, spouses Cheah, for the amount wrongfully paid the of Investigation. Said agencys Anti-Fraud and Action Division was
latter, while the spouses Cheah plead that they be declared entirely later able to apprehend some of the beneficiaries of the proceeds of
faultless. the check and recover from them $20,000.00. Criminal charges
were then filed against these suspect beneficiaries.[18]
Factual Antecedents
Meanwhile, the spouses Cheah have been constantly
On November 4, 1992, Ofelia Cheah (Ofelia) and her meeting with the bank officials to discuss matters regarding the
friend Adelina Guarin (Adelina) were having a conversation in the incident and the recovery of the value of the check while the cases
latters office when Adelinas friend, Filipina Tuazon (Filipina), against the alleged perpetrators remain pending. Chee Chong in the
approached her to ask if she could have Filipinas check cleared and end signed a PNB drafted[19] letter[20] which states that the spouses
encashed for a service fee of 2.5%. The check is Bank of America Cheah are offering their condominium units as collaterals for the
Check No. 190[6] under the account of Alejandria Pineda and amount withdrawn. Under this setup, the amount withdrawn would
Eduardo Rosales and drawn by Atty. Eduardo Rosales against be treated as a loan account with deferred interest while the
Bank of America Alhambra Branch in California, USA, with a face spouses try to recover the money from those who defrauded
amount of $300,000.00, payable to cash. Because Adelina does them. Apparently, Chee Chong signed the letter after the Vice
not have a dollar account in which to deposit the check, she asked President and Manager of PNB Buendia Branch, Erwin Asperilla
Ofelia if she could accommodate Filipinas request since she has a (Asperilla), asked the spouses Cheah to help him and the other
joint dollar savings account with her Malaysian husband Cheah bank officers as they were in danger of losing their jobs because of
Chee Chong (Chee Chong) under Account No. 265-705612-2 with the incident. Asperilla likewise assured the spouses Cheah that the
PNB Buendia Branch. letter was a mere formality and that the mortgage will be disregarded
Ofelia agreed. once PNB receives its claim for indemnity from Philadelphia National
Bank.
That same day, Ofelia and Adelina went to PNB Buendia
Branch. They met with Perfecto Mendiola of the Loans Department Although some of the officers of PNB were amenable to
who referred them to PNB Division Chief Alberto Garin the proposal,[21] the same did not materialize. Subsequently, PNB
(Garin). Garin discussed with them the process of clearing the sent a demand letter to spouses Cheah for the return of the amount
subject check and they were told that it normally takes 15 of the check,[22] froze their peso and dollar deposits in the amounts
days.[7] Assured that the deposit and subsequent clearance of the of P275,166.80 and $893.46,[23] and filed a complaint[24] against them
check is a normal transaction, Ofelia deposited Filipinas for Sum of Money with Branch 50 of the Regional Trial Court (RTC)
check. PNB then sent it for clearing through its correspondent bank, of Manila, docketed as Civil Case No. 94-71022. In said complaint,
Philadelphia National Bank. Five days later, PNB received a credit PNB demanded payment of around P8,202,220.44, plus
advice[8] from Philadelphia National Bank that the proceeds of the interests[25] and attorneys fees, from the spouses Cheah.
subject check had been temporarily credited to PNBs account as
of November 6, 1992. On November 16, 1992, Garin called up As their main defense, the spouses Cheah claimed that
Ofelia to inform her that the check had already been cleared.[9] The the proximate cause of PNBs injury was its own negligence of
following day, PNB Buendia Branch, after deducting the bank paying a US dollar denominated check
charges, credited $299,248.37 to the account of the spouses without waiting for the 15-day clearing period, in violation of its bank
Cheah.[10] Acting on Adelinas instruction to withdraw the credited practice as mandated by its own bank circular, i.e., PNB General
amount, Ofelia that day personally withdrew $180,000.00.[11] Adelina Circular No. 52-101/88.[26] Because of this, spouses Cheah averred
was able to withdraw the remaining amount the next day after that PNB is barred from claiming what it had lost. They further
averred that it is unjust for them to pay back the amount disbursed
as they never really benefited therefrom. As counterclaim, they As both parties were equally
prayed for the return of their frozen deposits, the recoupment negligent, it is but right and just that both
of P400,000.00 representing the amount they had so far spent in parties should equally suffer and shoulder the
recovering the value of the check, and payment of moral and loss. The scam would not have been
exemplary damages, as well as attorneys fees. possible without the negligence of both
parties. As earlier stated, the complaint of
Ruling of the Regional Trial Court PNB cannot be dismissed because the
Cheah spouses were negligent and Ms.
The RTC ruled in PNBs favor. The dispositive portion of Cheah took an active part in the deposit of
its Decision[27] dated May 20, 1999 reads: the check and the withdrawal of the subject
amounts.On the other hand, the Cheah
WHEREFORE, premises considered, spouses cannot entirely bear the loss
judgment is hereby rendered in favor of the because PNB allowed her to withdraw
plaintiff Philippine National Bank [and] against without waiting for the clearance of the check.
defendants Mr. Cheah Chee Chong and Ms. The remedy of the parties is to go after those
Ofelia Camacho Cheah, ordering the latter to who perpetrated, and benefited from, the
pay jointly and severally the herein plaintiffs scam.
bank the amount: WHEREFORE, the May 20, 1999
Decision of the Regional Trial Court, Branch
1. of US$298,950.25 or its 5, Manila, in Civil Case No. 94-71022, is
peso equivalent based on Central Bank hereby REVERSED and SET ASIDE and
Exchange Rate prevailing at the time the another one entered DECLARING both
proceeds of the BA Check No. 190 were parties equally negligent and should suffer
withdrawn or the prevailing Central Bank and shoulder the loss.
Rate at the time the amount is to be
reimbursed by the defendants to plaintiff or Accordingly, PNB is hereby ordered to credit
whatever is lower. This is without prejudice to the peso and dollar accounts of the Cheah
however, to the rights of the defendants spouses the amount due to them.
(accommodating parties) to go against the
group of Adelina Guarin, Atty. Eduardo SO ORDERED.[31]
Rosales, Filipina Tuazon, etc., (Beneficiaries-
accommodated parties) who are privy to the
defendants. In so ruling, the CA ratiocinated that PNB Buendia Branchs non-
receipt of the SWIFT message from Philadelphia National Bank
No pronouncement as to costs. within the 15-day clearing period is not an acceptable
excuse.Applying the last clear chance doctrine, the CA held that
No other award of damages for non[e] has PNB had the last clear opportunity to avoid the impending loss of the
been proven. money and yet, it glaringly exhibited its negligence in allowing the
withdrawal of funds without exhausting the 15-day clearing period
SO ORDERED.[28] which has always been a standard banking practice as testified to by
PNBs own officers, and as provided in its own General Circular No.
52/101/88. To the CA, PNB cannot claim from spouses Cheah even
The RTC held that spouses Cheah were guilty of contributory if the latter are accommodation parties under the law as the banks
negligence. own negligence is the proximate cause of the damage it
Because Ofelia trusted a friends friend whom she did not know and sustained. Nevertheless, it also found Ofelia guilty of contributory
considering the amount of the check made payable to cash, the negligence. Thus, both parties should be made equally responsible
RTC opined that Ofelia showed lack of vigilance in her dealings. She for the resulting loss.
should have exercised due care by investigating the negotiability of
the check and the identity of the drawer. While the court found that Both parties filed their respective Motions for
the proximate cause of the wrongful payment of the check was Reconsideration[32] but same were denied in a Resolution[33] dated
PNBs negligence in not observing the 15-day guarantee period rule, December 21, 2005.
it ruled that spouses Cheah still cannot escape liability to reimburse
PNB the value of the check as an accommodation party pursuant to Hence, these Petitions for Review on Certiorari.
Section 29 of the Negotiable Instruments Law.[29] It likewise applied
the principle of solutio indebiti under the Civil Code. With regard to Our Ruling
the award of other forms of damages, the RTC held that each party
must suffer the consequences of their own acts and thus left both The petitions for review lack merit. Hence, we affirm the ruling of the
parties as they are. CA.
P
Unwilling to accept the judgment, the spouses Cheah N
appealed to the CA. B
s
Ruling of the Court of Appeals
a
While the CA recognized the spouses Cheah as victims c
of a scam who nevertheless have to suffer the consequences of t
Ofelias lack of care and prudence in immediately trusting a stranger,
the appellate court did not hold PNB scot-free. It ruled in its August o
22, 2005 Decision,[30] viz: f
r l
e e
l a
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a i
s n
i g
n
g p
e
t r
h i
e o
d
p
r w
o a
c s
e
e t
d h
s e

o p
f r
o
t x
h i
e m
a
c t
h e
e
c c
k a
u
p s
r e
i
o o
r f

t t
o h
e
t
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s
l s
a .
p
s
e Proximate cause is that cause, which, in natural and
continuous sequence, unbroken by any efficient intervening cause,
o produces the injury and without which the result would not have
f occurred. x x x To determine the proximate cause of a controversy,
the question that needs to be asked is: If the event did not happen,
t would the injury have resulted? If the answer is no, then the event is
h the proximate cause.[34]
e
Here, while PNB highlights Ofelias fault in
1 accommodating a strangers check and depositing it to the bank, it
5 remains mum in its release of the proceeds thereof without
- exhausting the 15-day clearing period, an act which contravened
d established banking rules and practice.
a
y It is worthy of notice that the 15-day clearing period
alluded to is construed as 15 banking days. As declared by
c Josephine Estella, the Administrative Service Officer who was the
banks Remittance Examiner, what was unusual in the processing of which requires the exercise of prudence. No recovery is due if the
the check was that the lapse of 15 banking days was not mistake done is one of gross negligence.
observed.[35] Even PNBs agreement with Philadelphia National
Bank[36] regarding the rules on the collection of the proceeds of US T
dollar checks refers to business/ banking days. Ofelia deposited the h
subject check on November 4, 1992. Hence, the 15thbanking day e
from the date of said deposit should fall on November 25,
1992. However, what happened was that PNB Buendia Branch, s
upon calling up Ofelia that the check had been cleared, allowed the p
proceeds thereof to be withdrawn on November 17 and 18, 1992, a o
week before the lapse of the standard 15-day clearing period. u
s
This Court already held that the payment of the amounts e
of checks without previously clearing them with the drawee bank s
especially so where the drawee bank is a foreign bank and the
amounts involved were large is contrary to normal or ordinary C
banking practice.[37] Also, in Associated Bank v. Tan,[38] wherein the h
bank allowed the withdrawal of the value of a check prior to its e
clearing, we said that [b]efore the check shall have been cleared for a
deposit, the collecting bank can only assume at its own risk x x x that h
the check would be cleared and paid out. The delay in the receipt by
PNB Buendia Branch of the November 13, 1992 SWIFT message a
notifying it of the dishonor of the subject check is of no moment, r
because had PNB Buendia Branch waited for the expiration of the e
clearing period and had never released during that time the
proceeds of the check, it would have already been duly notified of its g
dishonor. Clearly, PNBs disregard of its preventive and protective u
measure against the possibility of being victimized by bad checks i
had brought upon itself the injury of losing a significant amount of l
money. t
y
It bears stressing that the diligence required of banks is
more than that of a Roman pater familias or a good father of a o
family. The highest degree of diligence is expected.[39] PNB f
miserably failed to do its duty of exercising extraordinary diligence
and reasonable business prudence. The disregard of its own c
banking policy amounts to gross negligence, which the law defines o
as negligence characterized by the want of even slight care, acting n
or omitting to act in a situation where there is duty to act, not t
inadvertently but wilfully and intentionally with a conscious r
indifference to consequences in so far as other persons may be i
affected.[40] With regard to collection or encashment of checks, b
suffice it to say that the law imposes on the collecting bank the duty u
to scrutinize diligently the checks deposited with it for the purpose of t
determining their genuineness and regularity. The collecting bank, o
being primarily engaged in banking, holds itself out to the public as r
the expert on this field, and the law thus holds it to a high standard of y
conduct.[41] A bank is expected to be an expert in banking
procedures and it has the necessary means to ascertain whether a n
check, local or foreign, is sufficiently funded. e
g
Incidentally, PNB obliges the spouses Cheah to return the l
withdrawn money under the principle of solutio indebiti, which is laid i
down in Article 2154 of the Civil Code:[42] g
e
Art. 2154. If something is received n
when there is no right to demand it, and it c
was unduly delivered through mistake, the e
obligation to return it arises.
a
n
[T]he indispensable requisites of the juridical relation d
known as solutio indebiti, are, (a) that he who paid was not under
obligation to do so; and (b) that the payment was made by reason of a
an essential mistake of fact.[43] r
e
In the case at bench, PNB cannot recover the proceeds
of the check under the principle it invokes. In the first place, the gross b
negligence of PNB, as earlier discussed, can never be equated with o
a mere mistake of fact, which must be something excusable and u
n with PNB, the spouses Cheah are therefore the persons who should
d return to PNB the money released to them.

t All told, the Court concurs with the findings of the CA that
o PNB and the spouses Cheah are equally negligent and should
therefore equally suffer the loss. The two must both bear the
s consequences of their mistakes.
h
a WHEREFORE, premises considered, the Petitions for
r Review on Certiorari in G.R. No. 170865 and in G.R. No. 170892
e are both DENIED. The assailed August 22, 2005 Decision
and December 21, 2005 Resolution of the Court of Appeals in CA-
t G.R. CV No. 63948 are hereby AFFIRMED in toto.
h
e SO ORDERED.

l
o MARIANO
s C. DEL CASTILLO
s Associate Justice

w
i
t
h

t
h
e

b
a
n
k

Contributory negligence is conduct on the part of the injur

ed party,
contributing as a legal cause to the harm he has suffered, which falls
below the standard to which he is required to conform for his own
protection.[44]

The CA found Ofelias credulousness blameworthy. We

agree. Indeed, Ofelia failed to observe caution in giving her full trust
in accommodating a complete stranger and this led her and her
husband to be swindled. Considering that Filipina was not personally
known to her and the amount of the foreign check to be encashed
was $300,000.00, a higher degree of care is expected of Ofelia
which she, however, failed to exercise under the circumstances.
Another circumstance which should have goaded Ofelia to be more
circumspect in her dealings was when a bank officer called her up to
inform that the Bank of America check has already been cleared
way earlier than the 15-day clearing period. The fact that the check
was cleared after only eight banking days from the time it was
deposited or contrary to what Garin told her that clearing takes 15
days should have already put Ofelia on guard. She should have first
verified the regularity of such hasty clearance considering that if
something goes wrong with the transaction, it is she and her
husband who would be put at risk and not the accommodated
party. However, Ofelia chose to ignore the same and instead
actively participated in immediately withdrawing the proceeds of the
check. Thus, we are one with the CA in ruling that Ofelias prior
consultation with PNB officers is not enough to totally absolve her of
any liability. In the first place, she should have shunned any
participation in that palpably shady transaction.

In any case, the complaint against the spouses Cheah

could not be dismissed. As PNBs client, Ofelia was the one who
dealt with PNB and negotiated the check such that its value was
credited in her and her husbands account. Being the ones in privity