G.R. No. 167434 February 19, 2007
42,7 and that as of
SPOUSES RAMON M. NISCE and A. NATIVIDAD PARAS-
NISCE, Petitioners,
vs.
EQUITABLE PCI BANK, INC., Respondent.
DECISION
CALLEJO, SR., J.:
On November 26, 2002, Equitable PCI Bank 1 (Bank) as
creditor-mortgagee filed a petition for extrajudicial
foreclosure before the Office of the Clerk of Court as Ex-
Officio Sheriff of the Regional Trial Court (RTC) of Makati
City. It sought to foreclose the following real estate
mortgage contracts executed by the spouses Ramon and
Natividad Nisce over two parcels of land covered by
Transfer Certificate of Title (TCT) Nos. S-83466 and S-
83467 of the Registry of Deeds of Rizal: one dated
February 26, 1974; two (2) sets of "Additional Real Estate
Mortgage" dated September 27, 1978 and June 3, 1996;
and an "Amendment to Real Estate Mortgage" dated
February 28, 2000. The mortgage contracts were executed
by the spouses Nisce to secure their obligation under
Promissory Note Nos. 1042793 and BD-150369, including
a Suretyship Agreement executed by Natividad. The
obligation of the Nisce spouses totaled P34,087,725.76
broken down as follows:
Spouses Ramon & Natividad Nisce - - - - - P17,422,285.99
Natividad P. Nisce (surety) - - - - - - - - - - US$57,306.59
and - - - - - - - - - - - - P16,665,439.772
On December 2, 2002, the Ex-Officio Sheriff set the sale at
public auction at 10:00 a.m. on January 14, 2003, 3 or on
January 30, 2003 in the event the public auction would
not take place on the earlier setting.
On January 28, 2003, the Nisce spouses filed before the
RTC of Makati City a complaint for "nullity of the
Suretyship Agreement, damages and legal compensation"
with prayer for injunctive relief against the Bank and the
Ex-Officio Sheriff. They alleged the following: in a
letter4 dated December 7, 2000 they had requested the
bank (through their lawyer-son Atty. Rosanno P. Nisce) to
setoff the peso equivalent of their obligation against their
US dollar account with PCI Capital Asia Limited (Hong
Kong), a subsidiary of the Bank, under Certificate Deposit
No. 016125 and Account No. 090-0104 (Passbook No. 83-
3041);6 the Bank accepted their offer and requested for an
estimate of the balance of their account; they complied
with the Banks request and in a letter dated February 11,
2002, informed it that the estimated balance of their
account as of December 1991 (including the 11.875% per
annum interest) was US$51,000.
December 2002, Natividads US dollar deposit with it
amounted to at least P9,000,000.00; they were surprised
when they received a letter from the Bank demanding
payment of their loan account, and later a petition for
extrajudicial foreclosure.
The spouses Nisce also pointed out that the petition for
foreclosure filed by the Bank included the alleged
obligation of Natividad as surety for the loan of Vista Norte
Trading Corporation, a company owned and managed by
their son Dino Giovanni P. Nisce (P16,665,439.77 and
US$57,306.59). They insisted, however, that the suretyship
agreement was null and void for the following reasons:
(a) x x x [I]t was executed without the knowledge and
consent of plaintiff Ramon M. Nisce, who is by law the
administrator of the conjugal partnership;
(b) The suretyship agreement did not redound to the
benefit of the conjugal partnership and therefore did not
bind the same;
(c) Assuming, arguendo, that the suretyship contract was
valid and binding, any obligation arising therefrom is not
covered by plaintiffs real estate mortgages which were
constituted to secure the payment of certain specific
obligations only.8
The spouses Nisce likewise alleged that since they and the
Bank were creditors and debtors with respect to each
other, their obligations should have been offset by legal
compensation to the extent of their account with the Bank.
To support their plea for a writ of preliminary and
prohibitory injunction, the spouses Nisce alleged that the
amount for which their property was being sold at public
auction (P34,087,725.76) was grossly excessive; the US
dollar deposit of Natividad with PCI Capital Asia Ltd. (Hong
Kong), and the obligation covered by the suretyship
agreement had not been deducted. They insisted that their
property rights would be violated if the sale at public
auction would push through. Thus, the spouses Nisce
prayed that they be granted the following reliefs:
(1) that upon the filing of this Complaint and/or after due
notice and summary hearing, the Honorable Court
immediately issue a temporary restraining order (TRO)
restraining defendants, their representatives and/or
deputies, and other persons acting for and on their behalf
from proceeding with the extrajudicial foreclosure sale of
plaintiffs mortgaged properties on 30 January 2003 or on
any other dates subsequent thereto;
(2) that after due notice and hearing and posting of the
appropriate bond, the Honorable Court convert the TRO to
a writ of preliminary prohibitory injunction;
(3) that after trial on the merits, the Honorable Court
render judgment
(a) making the preliminary injunction final and permanent;
(b) ordering defendant Bank to set off the present peso
value of Mrs. Nisces US dollar time deposit, inclusive of
stipulated interest, against plaintiffs loan obligations with
defendant Bank;
(c) declaring the Deed of Suretyship dated 25 May 1998
null and valid and without any binding effect as to plaintiff
spouses, and ordering defendant Bank to exclude the
amounts covered by said suretyship contract from
plaintiffs obligations with defendant Bank;
(d) ordering defendant Bank to pay plaintiffs the following
sums:
(i) at least P3,000,000.00 as moral damages;
(ii) at least P1,500,000.00 as exemplary damages; and
(iii) at least P500,000.00 as attorneys fees and for other
expenses of litigation.
Plaintiffs further pray for costs of suit and such other
reliefs as may be deemed just and equitable.9
On same day, the Bank filed an "Amended Petition" with
the Office of the Executive Judge for extrajudicial
foreclosure of the Real Estate Mortgage to satisfy the
spouses loan account of P30,533,552.24, exclusive of
interests, penalties and other charges; and the amounts
of P16,665,439.77 and US$57,306.59 covered by the
suretyship agreement executed by Natividad Nisce.10
In the meantime, the parties agreed to have the sale at
public auction reset to January 30, 2003.
In its Answer to the complaint, the Bank alleged that the
spouses had no cause of action for legal compensation
since PCI Capital was a different corporation with a
separate and distinct personality; if at all, offsetting may
occur only with respect to the spouses US$500.00 deposit
account in its Paseo de Roxas branch.
In the meantime, the Ex-Officio Sheriff set the sale at
public auction at 10:00 a.m. on March 5 and 27,
2003.11The spouses Nisce then filed a Supplemental
Complaint with plea for a temporary restraining order to
enjoin the sale at public auction.12 Thereafter, the RTC
conducted hearings on the plaintiffs plea for a temporary
restraining order, and the parties adduced testimonial and
documentary evidence on their respective arguments.
The Case for the Spouses Nisce
Natividad frequently traveled abroad and needed a facility
with easy access to foreign exchange. She inquired from
E.P. Nery, the Bank Manager for PCI Bank Paseo de Roxas
Branch, about opening an account. He assured her that
she would be able to access it from anywhere in the world.
She and Nery also agreed that any balance of account
remaining at maturity date would be rolled over until
further instructions, or until she terminated the
facility.13 Convinced, Natividad deposited US$20,500.00 on
July 19, 1984, and was issued Passbook No. 83-
3041.14 Upon her request, the bank transferred the
US$20,000.00 to PCI Capital Asia Ltd. in Hong Kong via
cable order.15
On July 11, 1996, the spouses Nisce secured
a P20,000,000.00 loan from the Bank under Promissory
Note No. BD-150369.16 The maturity date of the loan was
July 11, 2001, payable in monthly installments at
16.731% interest per annum. To secure the payment of the
loan account, they executed an Amendment to the Real
Estate Mortgage over the properties 17 located in Makati
City covered by TCT Nos. S-83466 and S-83467. 18 They
later secured another loan of P13,089,936.90 on March 1,
2000 (to mature on March 1, 2005) payable quarterly at
13.9869% interest per annum; this loan agreement is
evidenced by Promissory Note (PN) No. 1042793 19 and
covered by a Real Estate Mortgage 20 executed on February
28, 2000. They made a partial payment of P13,866,666.50
on the principal of their loan account covered by PN No.
BD-150369, and P5,348,239.82 on the interests.21 These
payments are evidenced by receipts and checks. 22 However,
there were payments totaling P4,600,000.00 received by
the Bank but were not covered by checks or receipts. 23 As
of September 2000, the balance of their loan account
under PN No. BD-150369 was only P4,333,333.46.24 They
also made partial payment on their loan account under PN
No. 1042793 which, as of May 30, 2001, amounted
to P2,218,793.61.25
On July 20, 1984, PCI Capital issued Certificate of Deposit
No. CD-01612;26 proof of receipt of the US$20,000.00
transferred to it by PCI Bank Paseo de Roxas Branch as
requested by Natividad. The deposit account was to earn
interest at the rate of 11.875% per annum, and would
mature on October 22, 1984, thereafter to be payable at
the office of the depositary in Hong Kong upon
presentation of the Certificate of Deposit.
In June 1991, two sons of the Nisce spouses were stranded
in Hong Kong. Natividad called the Bank and requested for
a partial release of her dollar deposit to her sons. However,
she was informed that according to its computer records,
no such dollar account existed. Sometime in November
1991, she submitted her US dollar passbook with a xerox
copy of the Certificate of Deposit for the PCIB to determine
the whereabouts of the account.27 She reiterated her
request to the Bank on January 27, 1992 28 and September
11, 2000.29
In the meantime, in 1994, the Equitable Banking
Corporation and the PCIB were merged under the
corporate name Equitable PCI Bank.
In a letter dated December 7, 2000, Natividad confirmed to
the Bank, through Ms. Shellane R. Casaysayan, her offer
to settle their loan account by offsetting the peso
equivalent of her dollar account with PCI Capital under
Account No. 090-0104.30 Their son, Atty. Rosanno Nisce,
later wrote the Bank, declaring that the estimated balance
of the US dollar account with PCI Capital as of December
1991 was US$51,000.42.31 Atty. Nisce corroborated this in
his testimony, and stated that Ms. Casaysayan had
declared that she would refer the matter to her
superiors.32 A certain Rene Esteven also told him that
another offer to setoff his parents account had been
accepted, and he was assured that its implementation was
being processed.33 On cross examination, Atty. Nisce
declared that there was no response to his request for
setoff,34 and that Esteven assured him that the Bank
would look for the records of his mothers US dollar
savings deposit.35 He was later told that the Bank had
accepted the offer to setoff the account.36
The Case for the Bank
The Bank adduced evidence that, as of January 31, 2003,
the balance of the spouses account under the two
promissory notes, including interest and penalties,
was P30,533,552.24.37 It had agreed to restructure their
loans on March 31, 1998, but they nevertheless failed to
pay despite repeated demands.38 The spouses had also
been furnished with a statement of their account as of
June 2001. Thus, under the terms of the Real Estate
Mortgage and Promissory Notes, it had the right to the
remedy of foreclosure. It insisted that there is no showing
in its records that the spouses had delivered checks
amounting to P4,600,000.00.39
According to the Bank, Natividads US$20,000.00 deposit
with the PCIB Paseo de Roxas branch was transferred to
PCI Capital via cable order, 40 and that it later issued
Certificate of Deposit No. 01612 (Non-transferrable).41 In a
letter dated May 9, 2001, it informed Natividad that it had
acted merely as a conduit in facilitating the transfer of the
funds, and that her deposit was made with PCI Capital
and not with PCIB. PCI Capital had a separate and distinct
personality from the PCIB, and a claim against the former
cannot be made against the latter. It was later advised that
PCI Capital had already ceased operations. 42
The spouses Nisce presented rebuttal documentary
evidence to show that PCI Capital was registered in Hong
Kong as a corporation under Registration No. 84555 on
February 27, 198943 with an authorized capital stock of
50,000,000 (with par value of HKD1.00); the PCIB
subscribed to 29,039,993 issued shares at the par value of
HKD1.00 per share;44 on October 25, 2004, the corporate
name of PCI Capital was changed to PCI Express Padala
(HK) Ltd.;45 and the stockholdings of PCIB remained at
29,039,999 shares.46
On March 24, 2003, the RTC issued an Order 47 granting
the spouses Nisces plea for a writ of preliminary
injunction on a bond of P10,000,000.00. The dispositive
portion of the Order reads:
WHEREFORE, in order not to render the judgment
ineffectual, upon filing by the plaintiffs and the approval
thereof by the court of a bond in the amount of
Php10,000,000.00, which shall answer for any damage
should the court finally decide that plaintiffs are not
entitled thereto, let a writ of preliminary injunction issue
enjoining defendants Equitable-PCI Bank, Atty. Engracio
M. Escasinas, Jr., and any person or entity acting for and
in their behalf from proceeding with the extrajudicial
foreclosure sale of TCT Nos. 437678 and 437679 registered
in the names of the plaintiffs.48
After weighing the parties arguments along with their
documentary evidence, the RTC declared that justice
would be best served if a writ of preliminary injunction
would be issued to preserve the status quo. It had yet to
resolve the issue of setoff since only Natividad dealt with
the Bank regarding her dollar account. It also had to
resolve the issue of whether the Bank had failed to credit
the amount of P4,600,000.00 to the spouses Nisces
account under PN No. BD-150369, and their claim that the
Bank had effectively accelerated the respective maturity
dates of their loan.49 The spouses Nisce posted the
requisite bond which was approved by the
RTC.1awphi1.net
The Bank opted not to file a motion for reconsideration of
the order, and instead assailed the trial courts order
before the CA via petition for certiorari under Rule 65 of
the Rules of Court. The Bank alleged that the RTC had
acted without or in excess of its jurisdiction, or with grave
abuse of its discretion amounting to lack or excess of
jurisdiction when it issued the assailed order; 50 the
spouses Nisce had failed to prove the requisites for the
issuance of a writ of preliminary injunction; respondents
claim that their account with petitioner had been
extinguished by legal compensation has no factual and
legal basis. It further asserted that according to the
evidence, Natividad made the US$20,000.00 deposit with
PCI Capital before it merged with Equitable Bank hence,
the Bank was not the debtor of Natividad relative to the
dollar account. The Bank cited the ruling of this Court in
Escao v. Heirs of Escao and Navarro 51 to support its
arguments. It insisted that the spouses Nisce had failed to
establish "irreparable injury" in case of denial of their plea
for injunctive relief.
The spouses, for their part, pointed out that the Bank
failed to file a motion for reconsideration of the trial courts
order, a condition sine qua non to the filing of a petition for
certiorari under Rule 65 of the Rules of Court. Moreover,
the error committed by the trial court is a mere error of
judgment not correctible by certiorari; hence, the petition
should have been dismissed outright by the CA. They
reiterated their claim that they had made a partial
payment of P4,600,000.00 on their loan account which
petitioner failed to credit in their favor. The Bank had
agreed to debit their US dollar savings deposit in the PCI
Capital as payment of their loan account. They insisted
that they had never deposited their US dollar account with
PCI Capital but with the Bank, and that they had never
defaulted on their loan account. Contrary to the Banks
claim, they would have suffered irreparable injury had the
trial court not enjoined the extrajudicial foreclosure of the
real estate mortgage.
On December 22, 2004, the CA rendered judgment
granting the petition and nullifying the assailed Order of
the RTC.52 The appellate court declared that a petition for
certiorari under Rule 65 of the Rules of Court may be filed
despite the failure to file a motion for reconsideration,
particularly in instances where the issue raised is one of
law; where the error is patent; the assailed order is void, or
the questions raised are the same as those already ruled
upon by the lower court. According to the appellate court,
the issue raised before it was purely one of law: whether
the loan account of the spouses was extinguished by legal
compensation. Thus, a motion for the reconsideration of
the assailed order was not a prerequisite to a petition for
certiorari under Rule 65.
The appellate court further declared that the trial court
committed grave abuse of its discretion in issuing the
assailed order, since no plausible reason was given by the
spouses Nisce to justify the injunction of the extrajudicial
foreclosure of the real estate mortgage. Given their
admission that they had not settled the obligations secured
by the mortgage, the Bank had a clear right to seek the
remedy of foreclosure.
The CA further declared as devoid of factual basis the
spouses Nisces argument that the Bank should have
applied, by way of legal compensation, the peso equivalent
of their time deposit with PCI Capital as partial settlement
of their obligations. It held that for compensation to take
place, the requirements set forth in Articles 1278 and 1279
of the Civil Code of the Philippines must be present; in this
case, the parties are not mutually creditors and debtors of
each other. It pointed out that the time deposit which the
spouses Nisce sought to offset against their obligations to
the Bank is maintained with PCI Capital. Even if PCI
Capital is a subsidiary of the Bank, compensation cannot
validly take place because the Bank and PCI Capital are
two separate and distinct corporations. It pointed out the
settled principle "that a corporation has a personality
separate and distinct from its stockholders and from other
corporations to which it may be connected."
The CA further declared that the alleged P4,600,000.00
payment on PN No. BD-150369 was not pleaded in the
spouses complaint and supplemental complaint before the
court a quo. What they alleged, aside from legal
compensation, was that the mortgage is not liable for the
obligation of Natividad Nisce as surety for the loans
obtained by a trading firm owned and managed by their
son. The CA further pointed out that the Bank precisely
amended the petition for foreclosure sale by deleting the
claim for Natividads obligation as surety. The appellate
court concluded that the injunctive writ was issued by the
RTC without factual and legal basis.53
The spouses Nisce moved to have the decision
reconsidered, but the appellate court denied the motion.
They thus filed the instant petition for review on the
following grounds:
5.1. THE HONORABLE COURT OF APPEALS ERRED IN
TAKING COGNIZANCE OF THE PETITION FOR
CERTIORARI DESPITE THE BANKS FAILURE TO FILE A
MOTION FOR RECONSIDERATION WITH THE TRIAL
COURT.
5.2. THE HONORABLE COURT OF APPEALS COMMITTED
REVERSIBLE ERROR WHEN IT PREMATURELY RULED
ON THE MERITS OF THE MAIN CASE.
5.3. THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT RESPONDENT JUDGE HAD COMMITTED
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK
OR EXCESS OF JURISDICTION IN ISSUING A
TEMPORARY RESTRAINING ORDER AND A WRIT OF
PRELIMINARY INJUNCTION IN FAVOR OF THE SPOUSES
NISCE.54
Petitioners aver that the CA erred in not dismissing
respondent Banks petition for certiorari outright because
of the absence of a condition precedent: the filing of a
motion for reconsideration of the assailed Order of the RTC
before filing the petition for certiorari in the CA. They insist
that respondent banks failure to file a motion for
reconsideration of the assailed Order deprived the RTC of
its option to resolve the issue of whether it erred in issuing
the writ of preliminary injunction in their favor.
Petitioners insist that in resolving whether a petition for a
writ of preliminary injunction should be granted, the trial
court and the appellate court are not to resolve the merits
of the main case. In this case, however, the CA resolved the
bone of contention of the parties in the trial court: whether
the loan account of petitioners with respondent bank had
been extinguished by legal compensation against petitioner
Natividad Nisces US dollar savings account with PCI
Capital in Hong Kong. The CA reversed the assailed order
of the trial court by resolving the main issue in the trial
court on its merits, and declaring that the US dollar
savings deposit of the petitioner Natividad Nisce with the
PCI Capital cannot be used to offset the loan account of
petitioners with respondent bank. In fine, according to
petitioners, the CA preempted the ruling of the RTC on the
main issue even before the parties could be given an
opportunity to complete the presentation of their respective
evidences. Petitioners point out that in the assailed Order,
the RTC declared that to determine whether respondent
had credited petitioners for the amount of P4,600,000.00
under PN No. BD-150369 and whether respondent as
mortgagee-creditor accelerated the maturities of the two (2)
promissory notes executed by petitioner, there was a need
for a full-blown trial and an exhaustive consideration of the
evidence of the parties.
Petitioners further insist that a petition for a writ of
certiorari is designed solely to correct errors of jurisdiction
and not errors of judgment, such as errors in the findings
and conclusions of the trial court. Petitioners maintain
that the trial courts erroneous findings and conclusions
(according to respondent bank) are not the proper subjects
for a petition for certiorari. Contrary to the findings of the
CA, they did not admit in the trial court that they were in
default in the payment of their loan obligations. They had
always maintained that they had no outstanding obligation
to respondent bank precisely because their loan account
had been offset by the US dollar deposit of petitioner
Natividad Nisce, and that they had made check payments
of P4,600,000.00 which respondent bank had not credited
in their favor. Likewise erroneous is the CA ruling that they
would not suffer irreparable damage or injury if their
properties would be sold at public auction following the
extrajudicial foreclosure of the mortgage. Petitioners point
out that their conjugal home stands on the subject
properties and would be lost if sold at public auction.
Besides, petitioners aver, the injury to respondent bank
resulting from the issuance of a writ of preliminary
injunction is amply secured by the P10,000,000.00
injunction bond which they had posted.
For its part, respondent avers that, as held by the CA, the
requirement of the filing of a motion for reconsideration of
the assailed Order admits of exceptions, such as where the
issue presented in the appellate court is the same issue
presented and resolved by the trial court. It insists that
petitioners failed to prove a clear legal right to injunctive
relief; hence, the trial court committed grave abuse of
discretion in issuing a writ of preliminary injunction.
Respondent maintains that the sole issue involved in the
petition for certiorari of respondent in the CA was whether
or not the trial court committed grave abuse of its
discretion in issuing the writ of preliminary injunction.
Necessarily, the CA would have to delve into the
circumstances behind such issuance. In so doing, the CA
had to consider and calibrate the testimonial and
documentary evidence adduced by the parties. However,
the RTC and the CA did not resolve with finality the
threshold factual and legal issue of whether the loan
account of petitioners had been paid in full before it filed
its petition for extrajudicial foreclosure of the real estate
mortgage.
The Ruling of the Court
The Petition in the
Court of Appeals
Not Premature
The general rule is that before filing a petition for certiorari
under Rule 65 of the Rules of Court, the petitioner is
mandated to comply with a condition precedent: the filing
of a motion for reconsideration of the assailed order, and
the subsequent denial of the court a quo. It must be
stressed that a petition for certiorari is an extraordinary
remedy and should be filed only as a last resort. The filing
of a motion for reconsideration is intended to afford the
public respondent an opportunity to correct any actual
error attributed to it by way of re-examination of the legal
and factual issues.55 However, the rule is subject to the
following recognized exceptions:
(a) where the order is a patent nullity, as where the court a
quo has no jurisdiction; (b) where the questions raised in
the certiorari proceeding have been duly raised and passed
upon by the lower court, or are the same as those raised
and passed upon in the lower court; (c) where there is an
urgent necessity for the resolution of the question and any
further delay would prejudice the interests of the
Government or of the petitioner or the subject matter of
the action is perishable; (d) where, under the
circumstances, a motion for reconsideration would be
useless; (e) where petitioner was deprived of due process
and there is extreme urgency for relief; (f) where, in a
criminal case, relief from an order of arrest is urgent and
the granting of such relief by the trial court is improbable;
(g) where the proceedings in the lower court are a nullity
for lack of due process; (h) where the proceedings was ex
parte or in which the petitioner had no opportunity to
object; and (i) where the issue raised is one purely of law or
public interest is involved.56
As will be shown later, the March 24, 2003 Order of the
trial court granting petitioners plea for a writ of
preliminary injunction was issued with grave abuse of
discretion amounting to excess or lack of jurisdiction and
thus a nullity. If the trial court issues a writ of preliminary
injunction despite the absence of proof of a legal right and
the injury sustained by the plaintiff, the writ is a nullity. 57
Petitioners Are Not
Entitled to a Writ of
Preliminary Prohibitory
Injunction
Section 3, Rule 58 of the Rules of Court provides that a
preliminary injunction may be granted when the following
have been established:
(a) That the applicant is entitled to the relief demanded,
and the whole or part of such relief consists in restraining
the commission or continuance of the act or acts
complained of, or in requiring the performance of an act or
acts, either for a limited period or perpetually;
(b) That the commission, continuance or nonperformance
of the act or acts complained of during the litigation would
probably work injustice to the applicant; or
(c) That a party, court, agency or a person is doing,
threatening, or is attempting to do, or is procuring or
suffering to be done, some act or acts probably in violation
of the rights of the applicant respecting the subject of the
action or proceeding, and tendering to render the judgment
ineffectual.
The grant of a preliminary injunction in a case rests on the
sound discretion of the court with the caveat that it should
be made with great caution. The exercise of sound judicial
discretion by the lower court should not be interfered with
except in cases of manifest abuse. Injunction is a
preservative remedy for the protection of the parties
substantive rights and interests. The sole aim of a
preliminary injunction is to preserve the status quo within
the last actual status that preceded the pending
controversy until the merits of the case can be heard fully.
Moreover, a petition for a preliminary injunction is an
equitable remedy, and one who comes to claim for equity
must do so with clean hands. It is to be resorted to by a
litigant to prevent or preserve a right or interest where
there is a pressing necessity to avoid injurious
consequences which cannot be remedied under any
standard of compensation. A petition for a writ of
preliminary injunction rests upon an alleged existence of
an emergency or of a special reason for such a writ before
the case can be regularly tried. By issuing a writ of
preliminary injunction, the court can thereby prevent a
threatened or continued irreparable injury to the plaintiff
before a judgment can be rendered on the claim. 58
The plaintiff praying for a writ of preliminary injunction
must further establish that he or she has a present and
unmistakable right to be protected; that the facts against
which injunction is directed violate such right; 59 and there
is a special and paramount necessity for the writ to
prevent serious damages. In the absence of proof of a legal
right and the injury sustained by the plaintiff, an order for
the issuance of a writ of preliminary injunction will be
nullified. Thus, where the plaintiffs right is doubtful or
disputed, a preliminary injunction is not proper. The
possibility of irreparable damage without proof of an actual
existing right is not a ground for a preliminary
injunction.60
However, to establish the essential requisites for a
preliminary injunction, the evidence to be submitted by
the plaintiff need not be conclusive and complete. 61 The
plaintiffs are only required to show that they have an
ostensible right to the final relief prayed for in their
complaint.62 A writ of preliminary injunction is generally
based solely on initial or incomplete evidence. 63 Such
evidence need only be a sampling intended merely to give
the court an evidence of justification for a preliminary
injunction pending the decision on the merits of the case,
and is not conclusive of the principal action which has yet
to be decided.64
It bears stressing that findings of the trial court granting
or denying a petition for a writ of preliminary injunction
based on the evidence on record are merely provisional
until after the trial on the merits of the case shall have
been concluded.65
The trial court, in granting or dismissing an application for
a writ of preliminary injunction based on the pleadings of
the parties and their respective evidence must state in its
order the findings and conclusions based on the evidence
and the law. This is to enable the appellate court to
determine whether the trial court committed grave abuse
of its discretion amounting to excess or lack of jurisdiction
in resolving, one way or the other, the plea for injunctive
relief. The trial courts exercise of its judicial discretion
whether to grant or deny an application for a writ of
preliminary injunction involves the assessment and
evaluation of the evidence, and its findings of facts are
ordinarily binding and conclusive on the appellate court
and this Court.66
We agree with respondents contention that as creditor-
mortgagee, it has the right under the real estate mortgage
contract and the amendment thereto to foreclose
extrajudicially, the real estate mortgage and sell the
property at public auction, considering that petitioners
had failed to pay their loans, plus interests and other
incremental amounts as provided for in the deeds.
Petitioners contend, however, that if respondent bank
extrajudicially forecloses the real estate mortgage and has
petitioners property sold at public auction for an amount
in excess of the balance of their loan account, petitioners
contractual and substantive rights under the real estate
mortgage would be violated; in such a case, the
extrajudicial foreclosure sale may be enjoined by a writ of
preliminary injunction.
Respondent bank sought the extrajudicial foreclosure of
the real estate mortgage and was to sell the property at
public auction for P30,533,552.24. The amount is based
on Promissory Notes No. 1042793 and BD-150369,
interests, penalty charges, and attorneys fees, as of
January 31, 2003, exclusive of all interests, penalties,
other charges, and foreclosure costs accruing
thereafter.67 Petitioners asserted before the trial court that
respondents sought the extrajudicial foreclosure of the
mortgaged deed for an amount far in excess of what they
owed, because the latter failed to credit P4,600,000.00 paid
in checks but without any receipts having been issued
therefor; and the P9,000,000.00 peso equivalent of the
US$20,000.00 deposit of petitioner Natividad Nisce with
PCIB under Passbook No. 83-3041 and Certificate of
Deposit No. CD-01612 issued by PCI Capital on July 23,
1984. Petitioners maintain that the US$20,000.00 dollar
deposit should be setoff against their account with
respondent against their loan account, on their claim that
respondent is their debtor insofar as said deposit is
concerned.
It was the burden of petitioners, as plaintiffs below, to
adduce preponderant evidence to prove their claim that
respondent bank was the debtor of petitioner Natividad
Nisce relative to her dollar deposit with PCIB, and later
transferred to PCI Capital in Hong Kong, a subsidiary of
respondent Bank. Petitioners, however, failed to discharge
their burden.
Under Article 1278 of the New Civil Code, compensation
shall take place when two persons, in their own right, are
creditors and debtors of each other. In order that
compensation may be proper, petitioners were burdened to
establish the following:
(1) That each one of the obligors be bound principally, and
that he be at the same time a principal creditor of the
other;
(2) That both debts consist in a sum of money, or if the
things due are consumable, they be of the same kind, and
also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or
controversy, commenced by third persons and
communicated in due time to the debtor.68
Compensation takes effect by operation of law when all the
requisites mentioned in Article 1279 of the New Civil Code
are present and extinguishes both debts to the concurrent
amount even though the creditors and debtors are not
aware of the compensation. Legal compensation operates
even against the will of the interested parties and even
without their consent.69 Such compensation takes place
ipso jure; its effects arise on the very day on which all
requisites concur.70
As its minimum, compensation presupposes two persons
who, in their own right and as principals, are mutually
indebted to each other respecting equally demandable and
liquidated obligations over any of which no retention or
controversy commenced and communicated in due time to
the debtor exists. Compensation, be it legal or
conventional, requires confluence in the parties of the
characters of mutual debtors and creditors, although their
rights as such creditors or their obligations as such
debtors need not spring from one and the same contract or
transaction.71
Article 1980 of the New Civil Code provides that fixed,
savings and current deposits of money in banks and
similar institutions shall be governed by the provisions
concerning simple loans. Under Article 1953, of the same
Code, a person who secures a loan of money or any other
fungible thing acquires the ownership thereof, and is
bound to pay the creditor an equal amount of the same
kind and quality. The relationship of the depositors and
the Bank or similar institution is that of creditor-debtor.
Such deposit may be setoff against the obligation of the
depositor with the bank or similar institution.
When petitioner Natividad Nisce deposited her
US$20,500.00 with the PCIB on July 19, 1984, PCIB
became the debtor of petitioner. However, when upon
petitioners request, the amount of US$20,000.00 was
transferred to PCI Capital (which forthwith issued
Certificate of Deposit No. 01612), PCI Capital, in turn,
became the debtor of Natividad Nisce. Indeed, a certificate
of deposit is a written acknowledgment by a bank or
borrower of the receipt of a sum of money or deposit which
the Bank or borrower promises to pay to the depositor, to
the order of the depositor; or to some other person; or to
his order whereby the relation of debtor and creditor
between the bank and the depositor is created. 72 The
issuance of a certificate of deposit in exchange for currency
creates a debtor-creditor relationship.73
Admittedly, PCI Capital is a subsidiary of respondent
Bank. Even then, PCI Capital [PCI Express Padala (HK)
Ltd.] has an independent and separate juridical personality
from that of the respondent Bank, its parent company;
hence, any claim against the subsidiary is not a claim
against the parent company and vice versa.74 The evidence
on record shows that PCIB, which had been merged with
Equitable Bank, owns almost all of the stocks of PCI
Capital. However, the fact that a corporation owns all of
the stocks of another corporation, taken alone, is not
sufficient to justify their being treated as one entity. If used
to perform legitimate functions, a subsidiarys separate
existence shall be respected, and the liability of the parent
corporation, as well as the subsidiary shall be confined to
those arising in their respective business. 75 A corporation
has a separate personality distinct from its stockholders
and from other corporations to which it may be conducted.
This separate and distinct personality of a corporation is a On the P4,600,000.00 paid in checks allegedly remitted by
fiction created by law for convenience and to prevent petitioners to respondent in partial payment of their loan
injustice. account, petitioners failed to adduce in evidence the
checks to show that, indeed, the checks were drawn by
This Court, in Martinez v. Court of Appeals 76 held that,
petitioners and delivered to respondent, and that
being a mere fiction of law, peculiar situations or valid
respondent was able to cash the checks. The only evidence
grounds can exist to warrant, albeit sparingly, the
adduced by petitioners is a piece of paper listing the serial
disregard of its independent being and the piercing of the
numbers of the checks and the amount of each check:
corporate veil. The veil of separate corporate personality
may be lifted when, inter alia, the corporation is merely an PAYMENTS MADE & RECEIVED BY EBC BUT W/O
adjunct, a business conduit or an alter ego of another RECEIPTS
corporation or where the corporation is so organized and
controlled and its affairs are so conducted as to make it 1. Dec. 29, 1997 - EBC-
P2,000,000.00
merely an instrumentality, agency, conduit or adjunct of 0000039462 -
another corporation; or when the corporation is used as a
cloak or cover for fraud or illegality; or to work injustice; or 2. Jan. 22, 1998 - EBC-
1,000,000.00
where necessary to achieve equity or for the protection of 213016118C -
the creditors. In those cases where valid grounds exist for
piercing the veil of corporate entity, the corporation will be 3. Feb. 24, 1998 - UB
considered as a mere association of persons. The liability 800,000.00
-0000074619 -
will directly attach to them.77

The Court likewise declared in the same case that the test 4. Mar. 23, 1998 - EBC-
800,000.00
in determining the application of the instrumentality or 213016121C -
alter ego doctrine is as follows:

1. Control, not mere majority or complete stock control, 79

but complete dominion, not only of finances but of policy
and business practice in respect to the transaction
attacked so that the corporate entity as to this transaction
had at the time no separate mind, will or existence of its
own;
P4,600,000.00
IN LIGHT OF ALL THE FOREGOING, the petition is
DENIED for lack of merit. The Decision of the Court of
Appeals is AFFIRMED. Costs against petitioners.

2. Such control must have been used by the defendant to SO ORDERED.

commit fraud or wrong, to perpetuate the violation of a
statutory or other positive legal duty, or dishonest and
unjust act in contravention of plaintiffs legal rights; and

3. The aforesaid control and breach of duty must

proximately cause the injury or unjust loss complaint of.

The Court emphasized that the absence of any one of these

elements prevents "piercing the corporate veil." In applying
the "instrumentality" or "alter ego" doctrine, the courts are
concerned with reality and not form, with how the
corporation operated and the individual defendants
relationship to that operation.78

Petitioners failed to adduce sufficient evidence to justify

the piercing of the veil of corporate entity and render
respondent Bank liable for the US$20,000.00 deposit of
petitioner Natividad Nisce as debtor.

On hindsight, petitioners could have spared themselves the

expenses and tribulation of a litigation had they just
withdrawn their deposit from the PCI Capital and remitted
the same to respondent. However, petitioner insisted on
their contention of setoff.
G.R. No. 174912 July 24, 2013
BPI EMPLOYEES UNION-DAVAO CITY-FUBU (BPIEU-
DAVAO CITY-FUBU), Petitioner,
vs.
BANK OF THE PHILIPPINE ISLANDS (BPI), and BPI
OFFICERS CLARO M. REYES, CECIL CONANAN and
GEMMA VELEZ, Respondents.
DECISION
MENDOZA, J.:
Before the Court is a petition for review on certiorari under
Rule 45 of the 1997 Rules of Civil Procedure, assailing the
April 5, 2006 Decision1 and August 17, 2006 Resolution2 of
the Court of Appeals (CA) in CA-G.R. SP No. 74595
affirming the December 21, 2001 3 and August 23,
20024 Resolutions of the National Labor Relations
Commission (NLRC) in declaring as valid and legal the
action of respondent Bank of the Philippine Islands-Davao
City (BPI-Davao) in contracting out certain functions to BPI
Operations Management Corporation (BOMC).
The Factual Antecedents
BOMC, which was created pursuant to Central
Bank5 Circular No. 1388, Series of 1993 (CBP Circular No.
1388, 1993), and primarily engaged in providing and/or
handling support services for banks and other financial
institutions, is a subsidiary of the Bank of Philippine
Islands (BPI) operating and functioning as an entirely
separate and distinct entity.
A service agreement between BPI and BOMC was initially
implemented in BPIs Metro Manila branches. In this
agreement, BOMC undertook to provide services such as
check clearing, delivery of bank statements, fund transfers,
card production, operations accounting and control, and
cash servicing, conformably with BSP Circular No. 1388.
Not a single BPI employee was displaced and those
performing the functions, which were transferred to
BOMC, were given other assignments.
The Manila chapter of BPI Employees Union (BPIEU-Metro
ManilaFUBU) then filed a complaint for unfair labor
practice (ULP). The Labor Arbiter (LA) decided the case in
favor of the union. The decision was, however, reversed on
appeal by the NLRC. BPIEU-Metro Manila-FUBU filed a
petition for certiorari before the CA which denied it,
holding that BPI transferred the employees in the affected
departments in the pursuit of its legitimate business. The
employees were neither demoted nor were their salaries,
benefits and other privileges diminished.6
On January 1, 1996, the service agreement was likewise
implemented in Davao City. Later, a merger between BPI
and Far East Bank and Trust Company (FEBTC) took effect
on April 10, 2000 with BPI as the surviving corporation.
Thereafter, BPIs cashiering function and FEBTCs
cashiering, distribution and bookkeeping functions were
handled by BOMC. Consequently, twelve (12) former
FEBTC employees were transferred to BOMC to complete
the latters service complement.
BPI Davaos rank and file collective bargaining agent, BPI
Employees Union-Davao City-FUBU (Union), objected to the
transfer of the functions and the twelve (12) personnel to
BOMC contending that the functions rightfully belonged to
the BPI employees and that the Union was deprived of
membership of former FEBTC personnel who, by virtue of
the merger, would have formed part of the bargaining unit
represented by the Union pursuant to its union shop
provision in the CBA.7
The Union then filed a formal protest on June 14, 2000
addressed to BPI Vice Presidents Claro M. Reyes and Cecil
Conanan reiterating its objection. It requested the BPI
management to submit the BOMC issue to the grievance
procedure under the CBA, but BPI did not consider it as
"grievable." Instead, BPI proposed a Labor Management
Conference (LMC) between the parties.8
During the LMC, BPI invoked management prerogative
stating that the creation of the BOMC was to preserve
more jobs and to designate it as an agency to place
employees where they were most needed. On the other
hand, the Union charged that BOMC undermined the
existence of the union since it reduced or divided the
bargaining unit. While BOMC employees perform BPI
functions, they were beyond the bargaining units coverage.
In contracting out FEBTC functions to BOMC, BPI
effectively deprived the union of the membership of
employees handling said functions as well as curtailed the
right of those employees to join the union.
Thereafter, the Union demanded that the matter be
submitted to the grievance machinery as the resort to the
LMC was unsuccessful. As BPI allegedly ignored the
demand, the Union filed a notice of strike before the
National Conciliation and Mediation Board (NCMB) on the
following grounds:
a) Contracting out services/functions performed by union
members that interfered with, restrained and/or coerced
the employees in the exercise of their right to self-
organization;
b) Violation of duty to bargain; and
c) Union busting.9
BPI then filed a petition for assumption of
jurisdiction/certification with the Secretary of the
Department of Labor and Employment (DOLE), who
subsequently issued an order certifying the labor dispute
to the NLRC for compulsory arbitration. The DOLE
Secretary directed the parties to cease and desist from
committing any act that might exacerbate the situation.
On October 27, 2000, a hearing was conducted. Thereafter,
the parties were required to submit their respective
position papers. On November 29, 2000, the Union filed its
Urgent Omnibus Motion to Cease and Desist with a prayer
that BPI-Davao and/or Mr. Claro M. Reyes and Mr. Cecil
Conanan be held in contempt for the following alleged acts
of BPI:
1. The Bank created a Task Force Committee on November
20, 2000 composed of six (6) former FEBTC employees to
handle the Cashiering, Distributing, Clearing, Tellering
and Accounting functions of the former FEBTC branches
but the "task force" conducts its business at the office of
the BOMC using the latters equipment and facilities.
2. On November 27, 2000, the bank integrated the clearing
operations of the BPI and the FEBTC. The clearing
function of BPI, then solely handled by the BPI Processing
Center prior to the labor dispute, is now encroached upon
by the BOMC because with the merger, differences between
BPI and FEBTC operations were diminished or deleted.
What the bank did was simply to get the total of all
clearing transactions under BPI but the BOMC employees
process the clearing of checks at the Clearing House as to
checks coming from former FEBTC branches. Prior to the
labor dispute, the run-up and distribution of the checks of
BPI were returned to the BPI processing center, now all
checks whether of BPI or of FEBTC were brought to the
BOMC. Since the clearing operations were previously done
by the BPI processing center with BPI employees, said
function should be performed by BPI employees and not by
BOMC.10
On December 21, 2001, the NLRC came out with a
resolution upholding the validity of the service agreement
between BPI and BOMC and dismissing the charge of ULP.
It ruled that the engagement by BPI of BOMC to undertake
some of its activities was clearly a valid exercise of its
management prerogative.11 It further stated that the
spinning off by BPI to BOMC of certain services and
functions did not interfere with, restrain or coerce
employees in the exercise of their right to self-
organization.12 The Union did not present even an iota of
evidence showing that BPI had terminated employees, who
were its members. In fact, BPI exerted utmost diligence,
care and effort to see to it that no union member was
terminated.13 The NLRC also stressed that Department
Order (D.O.) No. 10 series of 1997, strongly relied upon by
the Union, did not apply in this case as BSP Circular No.
1388, series of 1993, was the applicable rule.
After the denial of its motion for reconsideration, the Union
elevated its grievance to the CA via a petition for certiorari
under Rule 65. The CA, however, affirmed the NLRCs
December 21, 2001 Resolution with modification that the
enumeration of functions listed under BSP Circular No.
1388 in the said resolution be deleted. The CA noted at the
outset that the petition must be dismissed as it merely
touched on factual matters which were beyond the ambit of
the remedy availed of.14 Be that as it may, the CA found
that the factual findings of the NLRC were supported by
substantial evidence and, thus, entitled to great respect
and finality. To the CA, the NLRC did not act with grave
abuse of discretion as to merit the reversal of the
resolution.15
Furthermore, the CA ratiocinated that, considering the
ramifications of the corporate merger, it was well within
BPIs prerogatives "to determine what additional tasks
should be performed, who should best perform it and what
should be done to meet the exigencies of business." 16 It
pointed out that the Union did not, by the mere fact of the
merger, become the bargaining agent of the merged
employees17 as the Unions right to represent said
employees did not arise until it was chosen by them. 18
As to the applicability of D.O. No. 10, the CA agreed with
the NLRC that the said order did not apply as BPI, being a
commercial bank, its transactions were subject to the rules
and regulations of the BSP.
Not satisfied, the Union filed a motion for reconsideration
which was, however, denied by the CA.1wphi1
Hence, the present petition with the following
ASSIGNMENT OF ERRORS:
A. THE PETITION BEFORE THE COURT OF APPEALS
INVOLVED QUESTIONS OF LAW AND ITS DECISION DID
NOT ADDRESS THE ISSUE OF WHETHER BPIS ACT OF
OUTSOURCING FUNCTIONS FORMERLY PERFORMED BY
UNION MEMBERS VIOLATES THE CBA.
B. THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT DOLE DEPARTMENT ORDER NO. 10
DOES NOT APPLY IN THIS CASE.
The Union is of the position that the outsourcing of jobs
included in the existing bargaining unit to BOMC is a
breach of the union-shop agreement in the CBA. In
transferring the former employees of FEBTC to BOMC
instead of absorbing them in BPI as the surviving
corporation in the merger, the number of positions covered
by the bargaining unit was decreased, resulting in the
reduction of the Unions membership. For the Union, BPIs
act of arbitrarily outsourcing functions formerly performed
by the Union members and, in fact, transferring a number
of its members beyond the ambit of the Union, is a
violation of the CBA and interfered with the employees
right to self organization. The Union insists that the CBA
covers the agreement with respect, not only to wages and
hours of work, but to all other terms and conditions of
work. The union shop clause, being part of these
conditions, states that the regular employees belonging to
the bargaining unit, including those absorbed by way of
the corporate merger, were required to join the bargaining
union "as a condition for employment." Simply put, the
transfer of former FEBTC employees to BOMC removed
them from the coverage of unionized establishment. While
the Union admitted that BPI has the prerogative to
determine what should be done to meet the exigencies of
business in accordance with the case of Sime Darby
Pilipinas, Inc. v. NLRC,19 it insisted that the exercise of
management prerogative is not absolute, thus, requiring
good faith and adherence to the law and the CBA. Citing
the case of Shell Oil Workers Union v. Shell Company of
the Philippines, Ltd.,20 the Union claims that it is unfair
labor practice for an employer to outsource the positions in
the existing bargaining unit.
Position of BPI-Davao
For its part, BPI defended the validity of its service
agreement with BOMC on three (3) grounds: 1] that it was
pursuant to the prevailing law at that time, CBP Circular
No. 1388; 2] that the creation of BOMC was within
management prerogatives intended to streamline the
operations and provide focus for BPIs core activities; and
3] that the Union recognized, in its CBA, the exclusive
right and prerogative of BPI to conduct the management
and operation of its business.21
BPI argues that the case of Shell Oil Workers Union v.
Shell Company of the Philippines, Ltd.,22 cited by the
Union, is not on all fours with the present case. In said
case, the company dissolved its security guard section and
replaced it with an outside agency, claiming that such act
was a valid exercise of management prerogative. The Court,
however, ruled against the said outsourcing because there
was an express assurance in the CBA that the security
guard section would continue to exist. Having failed to
reserve its right to effect a dissolution, the companys act
of outsourcing and transferring security guards was
invalidated by the Court, ruling that the unfair labor
practice strike called by the Union did have the impression
of validity. In contrast, there is no provision in the CBA
between BPI and the Union expressly stipulating the
continued existence of any position within the bargaining
unit. For BPI, the absence of this peculiar fact is enough
reason to prevent the application of Shell to this case.
BPI likewise invokes settled jurisprudence, 23 where the
Court upheld the acts of management to contract out
certain functions held by employees, and even notably
those held by union members. In these cases, the decision
to outsource certain functions was a justifiable business
judgment which deserved no judicial interference. The only
requisite of this act is good faith on the part of the
employer and the absence of malicious and arbitrary
action in the outsourcing of functions to BOMC.
On the issue of the alleged curtailment of the right of the
employees to self-organization, BPI refutes the Unions
allegation that ULP was committed when the number of
positions in the bargaining was reduced. It cites as correct
the CA ruling that the representation of the Unions
prospective members is contingent on the choice of the
employee, that is, whether or not to join the Union. Hence,
it was premature for the Union to claim that the rights of
its prospective members to self-organize were restrained by
the transfer of the former FEBTC employees to BOMC.
The Courts Ruling
In essence, the primordial issue in this case is whether or
not the act of BPI to outsource the cashiering, distribution
and bookkeeping functions to BOMC is in conformity with
the law and the existing CBA. Particularly in dispute is the
validity of the transfer of twelve (12) former FEBTC
employees to BOMC, instead of being absorbed in BPI after
the corporate merger. The Union claims that a union shop
agreement is stipulated in the existing CBA. It is unfair
labor practice for employer to outsource the positions in
the existing bargaining unit, citing the case of Shell Oil
Workers Union v. Shell Company of the Philippines, Ltd. 24
The Unions reliance on the Shell Case is misplaced. The
rule now is covered by Article 261 of the Labor Code, which
took effect on November 1, 1974.25 Article 261 provides:
ART. 261. Jurisdiction of Voluntary Arbitrators or panel of
Voluntary Arbitrators. x x x Accordingly, violations of a
Collective Bargaining Agreement, except those which are
gross in character, shall no longer be treated as unfair
labor practice and shall be resolved as grievances under
the Collective Bargaining Agreement. For purposes of this
article, gross violations of Collective Bargaining Agreement
shall mean flagrant and/or malicious refusal to comply
with the economic provisions of such agreement.
[Emphases supplied]
Clearly, only gross violations of the economic provisions of
the CBA are treated as ULP. Otherwise, they are mere
grievances.
In the present case, the alleged violation of the union shop
agreement in the CBA, even assuming it was malicious and
flagrant, is not a violation of an economic provision in the
agreement. The provisions relied upon by the Union were
those articles referring to the recognition of the union as
the sole and exclusive bargaining representative of all
rank-and-file employees, as well as the articles on union
security, specifically, the maintenance of membership in
good standing as a condition for continued employment
and the union shop clause.26 It failed to take into
consideration its recognition of the banks exclusive rights
and prerogatives, likewise provided in the CBA, which
included the hiring of employees, promotion, transfers, and
dismissals for just cause and the maintenance of order,
discipline and efficiency in its operations.27
The Union, however, insists that jobs being outsourced to
BOMC were included in the existing bargaining unit, thus,
resulting in a reduction of a number of positions in such
unit. The reduction interfered with the employees right to
self-organization because the power of a union primarily
depends on its strength in number. 28
It is incomprehensible how the "reduction of positions in
the collective bargaining unit" interferes with the
employees right to self-organization because the employees
themselves were neither transferred nor dismissed from
the service. As the NLRC clearly stated:
In the case at hand, the union has not presented even an
iota of evidence that petitioner bank has started to
terminate certain employees, members of the union. In
fact, what appears is that the Bank has exerted utmost
diligence, care and effort to see to it that no union member
has been terminated. In the process of the consolidation or
merger of the two banks which resulted in increased
diversification of functions, some of these non-banking
functions were merely transferred to the BOMC without
affecting the union membership.29
BPI stresses that not a single employee or union member
was or would be dislocated or terminated from their
employment as a result of the Service Agreement. 30 Neither
had it resulted in any diminution of salaries and benefits
nor led to any reduction of union membership.31
As far as the twelve (12) former FEBTC employees are
concerned, the Union failed to substantially prove that
their transfer, made to complete BOMCs service
complement, was motivated by ill will, anti-unionism or
bad faith so as to affect or interfere with the employees
right to self-organization.
It is to be emphasized that contracting out of services is
not illegal perse.1wphi1 It is an exercise of business
judgment or management prerogative. Absent proof that
the management acted in a malicious or arbitrary manner,
the Court will not interfere with the exercise of judgment
by an employer.32 In this case, bad faith cannot be
attributed to BPI because its actions were authorized by
CBP Circular No. 1388, Series of 1993 33 issued by the
Monetary Board of the then Central Bank of the
Philippines (now Bangko Sentral ng Pilipinas). The circular
covered amendments in Book I of the Manual of
Regulations for Banks and Other Financial Intermediaries,
particularly on the matter of bank service contracts. A
finding of ULP necessarily requires the alleging party to
prove it with substantial evidence. Unfortunately, the
Union failed to discharge this burden.
Much has been said about the applicability of D.O. No. 10.
Both the NLRC and the CA agreed with BPI that the said
order does not apply. With BPI, as a commercial bank, its
transactions are subject to the rules and regulations of the
governing agency which is the Bangko Sentral ng
Pilipinas.34 The Union insists that D.O. No. 10 should
prevail.
The Court is of the view, however, that there is no conflict
between D.O. No. 10 and CBP Circular No. 1388. In fact,
they complement each other.
Consistent with the maxim, interpretare et concordare
leges legibus est optimus interpretandi modus, a statute
should be construed not only to be consistent with itself
but also to harmonize with other laws on the same subject
matter, as to form a complete, coherent and intelligible
system of jurisprudence.35 The seemingly conflicting
provisions of a law or of two laws must be harmonized to
render each effective.36 It is only when harmonization is
impossible that resort must be made to choosing which law
to apply.37
In the case at bench, the Union submits that while the
Central Bank regulates banking, the Labor Code and its
implementing rules regulate the employment relationship.
To this, the Court agrees. The fact that banks are of a
specialized industry must, however, be taken into account.
The competence in determining which banking functions
may or may not be outsourced lies with the BSP. This does
not mean that banks can simply outsource banking
functions allowed by the BSP through its circulars, without
giving regard to the guidelines set forth under D.O. No. 10
issued by the DOLE.
While D.O. No. 10, Series of 1997, enumerates the
permissible contracting or subcontracting activities, it is to
be observed that, particularly in Sec. 6(d) invoked by the
Union, the provision is general in character "x x x Works
or services not directly related or not integral to the main
business or operation of the principal x x x." This does
not limit or prohibit the appropriate government agency,
such as the BSP, to issue rules, regulations or circulars to
further and specifically determine the permissible services
to be contracted out. CBP Circular No. 1388 38enumerated
functions which are ancillary to the business of banks,
hence, allowed to be outsourced. Thus, sanctioned by said
circular, BPI outsourced the cashiering (i.e., cash-delivery
and deposit pick-up) and accounting requirements of its
Davao City branches.39 The Union even described the
extent of BPIs actual and intended contracting out to
BOMC as follows:
"As an initiatory move, the functions of the Cashiering Unit
of the Processing Center of BPI, handled by its regular
rank and file employees who are members of the Union,
xxx [were] transferred to BOMC with the Accounting
Department as next in line. The Distributing, Clearing and ii) The contractor does not exercise the right to control over
Bookkeeping functions of the Processing Center of the the performance of the work of the contractual employee. 45
former FEBTC were likewise contracted out to BOMC." 40
WHEREFORE, the petition is DENIED.
Thus, the subject functions appear to be not in any way
SO ORDERED.
directly related to the core activities of banks. They are
functions in a processing center of BPI which does not
handle or manage deposit transactions. Clearly, the
functions outsourced are not inherent banking functions,
and, thus, are well within the permissible services under
the circular.

The Court agrees with BPI that D.O. No. 10 is but a guide
to determine what functions may be contracted out,
subject to the rules and established jurisprudence on
legitimate job contracting and prohibited labor-only
contracting.41 Even if the Court considers D.O. No. 10 only,
BPI would still be within the bounds of D.O. No. 10 when it
contracted out the subject functions. This is because the
subject functions were not related or not integral to the
main business or operation of the principal which is the
lending of funds obtained in the form of deposits. 42From
the very definition of "banks" as provided under the
General Banking Law, it can easily be discerned that
banks perform only two (2) main or basic functions
deposit and loan functions. Thus, cashiering, distribution
and bookkeeping are but ancillary functions whose
outsourcing is sanctioned under CBP Circular No. 1388 as
well as D.O. No. 10. Even BPI itself recognizes that deposit
and loan functions cannot be legally contracted out as they
are directly related or integral to the main business or
operation of banks. The CBP's Manual of Regulations has
even categorically stated and emphasized on the
prohibition against outsourcing inherent banking
functions, which refer to any contract between the bank
and a service provider for the latter to supply, or any act
whereby the latter supplies, the manpower to service the
deposit transactions of the former.43

In one case, the Court held that it is management

prerogative to farm out any of its activities, regardless of
whether such activity is peripheral or core in
nature.44 What is of primordial importance is that the
service agreement does not violate the employee's right to
security of tenure and payment of benefits to which he is
entitled under the law. Furthermore, the outsourcing must
not squarely fall under labor-only contracting where the
contractor or sub-contractor merely recruits, supplies or
places workers to perform a job, work or service for a
principal or if any of the following elements are present:

i) The contractor or subcontractor does not have

substantial capital or investment which relates to the job,
work or service to be performed and the employees
recruited, supplied or placed by such contractor or
subcontractor are performing activities which are directly
related to the main business of the principal; or
G.R. Nos. 173090-91 September 7, 2011 87/97/767 180,000.00 09/29/97

UNION BANK OF THE PHILIPPINES, Petitioner,

87/97/970 110,000.00 12/29/97
vs.
SPOUSES RODOLFO T. TIU AND VICTORIA N.
87/97/747 50,000.00 09/22/97
TIU, Respondents.

DECISION 87/96/944 605,000.00 12/19/97

LEONARDO-DE CASTRO, J.:

87/98/191 470,000.00 03/16/98
This is a Petition for Review on Certiorari seeking to reverse
the Joint Decision1 of the Court of Appeals dated February 87/98/198 505,000.00 03/19/98
21, 2006 in CA-G.R. CV No. 00190 and CA-G.R. SP No.
00253, as well as the Resolution 2 dated June 1, 2006 87/98/090 449,000.00 02/09/98
denying the Motion for Reconsideration.

The factual and procedural antecedents of this case are as US$3,632,000.004

follows:
On June 23, 1998, Union Bank advised the spouses Tiu
On November 21, 1995, petitioner Union Bank of the through a letter5 that, in view of the existing currency
Philippines (Union Bank) and respondent spouses Rodolfo risks, the loans shall be redenominated to their equivalent
T. Tiu and Victoria N. Tiu (the spouses Tiu) entered into a Philippine peso amount on July 15, 1998. On July 3,
Credit Line Agreement (CLA) whereby Union Bank agreed 1998, the spouses Tiu wrote to Union Bank authorizing
to make available to the spouses Tiu credit facilities in the latter to redenominate the loans at the rate of
such amounts as may be approved. 3 From September 22, US$1=P41.406 with interest of 19% for one year.7
1997 to March 26, 1998, the spouses Tiu took out various
On December 21, 1999, Union Bank and the spouses Tiu
loans pursuant to this CLA in the total amount of three
entered into a Restructuring Agreement.8 The
million six hundred thirty-two thousand dollars
Restructuring Agreement contains a clause wherein the
(US$3,632,000.00), as evidenced by promissory notes:
spouses Tiu confirmed their debt and waived any action on
account thereof. To quote said clause:
PN No. Amount in US$ Date Granted
1. Confirmation of Debt The BORROWER hereby
87/98/111 72,000.00 02/16/98 confirms and accepts that as of December 8, 1999, its
outstanding principal indebtedness to the BANK under the
87/98/108 84,000.00 02/13/98 Agreement and the Notes amount to ONE HUNDRED
FIFTY[-]FIVE MILLION THREE HUNDRED SIXTY[-]FOUR
87/98/152 320,000.00 03/02/98 THOUSAND EIGHT HUNDRED PESOS (PHP
155,364,800.00) exclusive of interests, service and penalty
87/98/075 150,000.00 01/30/98 charges (the "Indebtedness") and further confirms the
correctness, legality, collectability and enforceability of the
Indebtedness. The BORROWER unconditionally waives any
87/98/211 32,000.00 03/26/98
action, demand or claim that they may otherwise have to
dispute the amount of the Indebtedness as of the date
87/98/071 110,000.00 01/29/98
specified in this Section, or the collectability and
enforceability thereof. It is the understanding of the parties
87/98/107 135,000.00 02/13//98 that the BORROWERs acknowledgment, affirmation, and
waiver herein are material considerations for the BANKs
87/98/100 75,000.00 02/12/98 agreeing to restructure the Indebtedness which would have
already become due and payable as of the above date
87/98/197 195,000.00 03/19/98 under the terms of the Agreement and the Notes. 9

The restructured amount (P155,364,800.00) is the sum of

87/97/761 60,000.00 09/26/97
the following figures: (1) P150,364,800.00, which is the
value of the US$3,632,000.00 loan as redenominated
87/97/768 30,000.00 09/29/97 under the above-mentioned exchange rate of US$1=P41.40;
and (2) P5,000,000.00, an additional loan given to the
spouses Tiu to update their interest payments.10
Under the same Restructuring Agreement, the parties
declared that the loan obligation to be restructured (after
deducting the dacion price of properties ceded by the Tiu
spouses and adding: [1] the taxes, registration fees and
other expenses advanced by Union Bank in registering the
Deeds of Dation in Payment; and [2] other fees and charges
incurred by the Indebtedness) is one hundred four million
six hundred sixty-eight thousand seven hundred forty-one
pesos (P104,668,741.00) (total restructured amount). 11 The
Deeds of Dation in Payment referred to are the following:
1. Dation of the Labangon properties Deed executed by
Juanita Tiu, the mother of respondent Rodolfo Tiu,
involving ten parcels of land with improvements located in
Labangon, Cebu City and with a total land area of 3,344
square meters, for the amount of P25,130,000.00. The
Deed states that these properties shall be leased to the Tiu
spouses at a monthly rate of P98,000.00 for a period of two
years.12
2. Dation of the Mandaue property Deed executed by the
spouses Tiu involving one parcel of land with
improvements located in A.S. Fortuna St., Mandaue City,
covered by TCT No. T-31604 and with a land area of 2,960
square meters, for the amount of P36,080,000.00. The
Deed states that said property shall be leased to the Tiu
spouses at a monthly rate of P150,000.00 for a period of
two years.13
As likewise provided in the Restructuring Agreement, the
spouses Tiu executed a Real Estate Mortgage in favor of
Union Bank over their "residential property inclusive of lot
and improvements" located at P. Burgos St., Mandaue City,
covered by TCT No. T-11951 with an area of 3,096 square
meters.14
The spouses Tiu undertook to pay the total restructured
amount (P104,668,741.00) via three loan facilities
(payment schemes).
The spouses Tiu claim to have made the following
payments: (1) P15,000,000.00 on August 3, 1999; and (2)
another P13,197,546.79 as of May 8, 2001. Adding the
amounts paid under the Deeds of Dation in Payment, the
spouses Tiu postulate that their payments added up
to P89,407,546.79.15
Asserting that the spouses Tiu failed to comply with the
payment schemes set up in the Restructuring Agreement,
Union Bank initiated extrajudicial foreclosure proceedings
on the residential property of the spouses Tiu, covered by
TCT No. T-11951. The property was to be sold at public
auction on July 18, 2002.
The spouses Tiu, together with Juanita T. Tiu, Rosalinda T.
King, Rufino T. Tiu, Rosalie T. Young and Rosenda T. Tiu,
filed with the Regional Trial Court (RTC) of Mandaue City a
Complaint seeking to have the Extrajudicial Foreclosure
declared null and void. The case was docketed as Civil
Case No. MAN-4363.16 Named as defendants were Union
Bank and Sheriff IV Veronico C. Ouano (Sheriff Oano) of
Branch 55, RTC, Mandaue City. Complainants therein
prayed for the following: (1) that the spouses Tiu be
declared to have fully paid their obligation to Union Bank;
(2) that defendants be permanently enjoined from
proceeding with the auction sale; (3) that Union Bank be
ordered to return to the spouses Tiu their properties as
listed in the Complaint; (4) that Union Bank be ordered to
pay the plaintiffs the sum of P10,000,000.00 as moral
damages, P2,000,000.00 as exemplary
damages, P3,000,000.00 as attorneys fees
and P500,000.00 as expenses of litigation; and (5) a writ of
preliminary injunction or temporary restraining order be
issued enjoining the public auction sale to be held on July
18, 2002.17
The spouses Tiu claim that from the beginning the loans
were in pesos, not in dollars. Their office clerk, Lilia
Gutierrez, testified that the spouses Tiu merely received
the peso equivalent of their US$3,632,000.00 loan at the
rate of US$1=P26.00. The spouses Tiu further claim that
they were merely forced to sign the Restructuring
Agreement and take up an additional loan
of P5,000,000.00, the proceeds of which they never saw
because this amount was immediately applied by Union
Bank to interest payments.18
The spouses Tiu allege that the foreclosure sale of the
mortgaged properties was invalid, as the loans have
already been fully paid. They also allege that they are not
the owners of the improvements constructed on the lot
because the real owners thereof are their co-petitioners,
Juanita T. Tiu, Rosalinda T. King, Rufino T. Tiu, Rosalie T.
Young and Rosenda T. Tiu.19
The spouses Tiu further claim that prior to the signing of
the Restructuring Agreement, they entered into a
Memorandum of Agreement with Union Bank whereby the
former deposited with the latter several certificates of
shares of stock of various companies and four certificates
of title of various parcels of land located in Cebu. The
spouses Tiu claim that these properties have not been
subjected to any lien in favor of Union Bank, yet the latter
continues to hold on to these properties and has not
returned the same to the former.20
On the other hand, Union Bank claims that the
Restructuring Agreement was voluntarily and validly
entered into by both parties. Presenting as evidence the
Warranties embodied in the Real Estate Mortgage, Union
Bank contends that the foreclosure of the mortgage on the
residential property of the spouses Tiu was valid and that
the improvements thereon were absolutely owned by them.
Union Bank denies receiving certificates of shares of stock
of various companies or the four certificates of title of
various parcels of land from the spouses Tiu. However,
Union Bank also alleges that even if said certificates were
in its possession it is authorized under the Restructuring
Agreement to retain any and all properties of the debtor as
security for the loan.21
The RTC issued a Temporary Restraining Order 22 and,
eventually, a Writ of Preliminary Injunction 23 preventing
the sale of the residential property of the spouses Tiu. 24
On December 16, 2004, the RTC rendered its Decision 25 in
Civil Case No. MAN-4363 in favor of Union Bank. The
dispositive portion of the Decision read:
WHEREFORE, premises considered, judgment is hereby
rendered dismissing the Complaint and lifting and setting
aside the Writ of Preliminary Injunction. No
pronouncement as to damages, attorneys fees and costs of
suit.26
In upholding the validity of the Restructuring Agreement,
the RTC held that the spouses Tiu failed to present any
evidence to prove either fraud or intimidation or any other
act vitiating their consent to the same. The exact obligation
of the spouses Tiu to Union Bank
therefore P104,668,741.00, as agreed upon by the parties
in the Restructuring Agreement. As regards the contention
of the spouses Tiu that they have fully paid their
indebtedness, the RTC noted that they could not present
any detailed accounting as to the total amount they have
paid after the execution of the Restructuring Agreement. 27
On January 4, 2005, Union Bank filed a Motion for Partial
Reconsideration,28 protesting the finding in the body of the
December 16, 2004 Decision that the residential house on
Lot No. 639 is not owned by the spouses Tiu and therefore
should be excluded from the real properties covered by the
real estate mortgage. On January 6, 2005, the spouses Tiu
filed their own Motion for Partial Reconsideration and/or
New Trial.29 They alleged that the trial court failed to rule
on their fourth cause of action wherein they mentioned
that they turned over the following titles to Union Bank:
TCT Nos. 30271, 116287 and 116288 and OCT No. 0-
3538. They also prayed for a partial new trial and for a
declaration that they have fully paid their obligation to
Union Bank.30
On January 11, 2005, the spouses Tiu received from
Sheriff Oano a Second Notice of Extra-judicial Foreclosure
Sale of Lot No. 639 to be held on February 3, 2005. To
prevent the same, the Tiu spouses filed with the Court of
Appeals a Petition for Prohibition and Injunction with
Application for TRO/Writ of Preliminary Injunction. 31 The
petition was docketed as CA-G.R. SP No. 00253. The Court
of Appeals issued a Temporary Restraining Order on
January 27, 2005.32
On January 19, 2005, the RTC issued an Order denying
Union Banks Motion for Partial Reconsideration and the
Tiu spouses Motion for Partial Reconsideration and/or
New Trial.33
Both the spouses Tiu and Union Bank appealed the case to
the Court of Appeals.34 The two appeals were given a single
docket number, CA-G.R. CEB-CV No. 00190. Acting on a
motion filed by the spouses Tiu, the Court of Appeals
consolidated CA-G.R. SP No. 00253 with CA-G.R. CEB-CV
No. 00190.35
On April 19, 2005, the Court of Appeals issued a
Resolution finding that there was no need for the issuance
of a Writ of Preliminary Injunction as the judgment of the
lower court has been stayed by the perfection of the appeal
therefrom.36
On May 9, 2005, Sheriff Oano proceeded to conduct the
extrajudicial sale. Union Bank submitted the lone bid
of P18,576,000.00.37 On June 14, 2005, Union Bank filed a
motion with the Court of Appeals praying that Sheriff
Oano be ordered to issue a definite and regular Certificate
of Sale.38 On July 21, 2005, the Court of Appeals issued a
is
Resolution denying the Motion and suspending the auction
sale at whatever stage, pending resolution of the appeal
and conditioned upon the filing of a bond in the amount
of P18,000,000.00 by the Tiu spouses. 39 The Tiu spouses
failed to file said bond.40
On February 21, 2006, the Court of Appeals rendered the
assailed Joint Decision in CA-G.R. CV No. 00190 and CA-
G.R. SP No. 00253. The Court of Appeals dismissed the
Petition for Prohibition, CA-G.R. SP No. 00253, on the
ground that the proper venue for the same is with the
RTC.41
On the other hand, the Court of Appeals ruled in favor of
the spouses Tiu in CA-G.R. CV No. 00190. The Court of
Appeals held that the loan transactions were in pesos,
since there was supposedly no stipulation the loans will be
paid in dollars and since no dollars ever exchanged hands.
Considering that the loans were in pesos from the
beginning, the Court of Appeals reasoned that there is no
need to convert the same. By making it appear that the
loans were originally in dollars, Union Bank overstepped its
rights as creditor, and made unwarranted interpretations
of the original loan agreement. According to the Court of
Appeals, the Restructuring Agreement, which purportedly
attempts to create a novation of the original loan, was not
clearly authorized by the debtors and was not supported
by any cause or consideration. Since the Restructuring
Agreement is void, the original loan of P94,432,000.00
(representing the amount received by the spouses Tiu of
US$3,632,000.00 using the US$1=P26.00 exchange rate)
should subsist. The Court of Appeals likewise invalidated
(1) the P5,000,000.00 charge for interest in the
Restructuring Agreement, for having been unilaterally
imposed by Union Bank; and (2) the lease of the properties
conveyed in dacion en pago, for being against public
policy. 42
In sum, the Court of Appeals found Union Bank liable to
the spouses Tiu in the amount of P927,546.79. For
convenient reference, we quote relevant portion of the
Court of Appeals Decision here:
To summarize the obligation of the Tiu spouses, they owe
Union Bank P94,432,000.00. The Tiu spouses had already
paid Union Bank the amount of P89,407,546.79. On the
other hand, Union Bank must return to the Tiu spouses
the illegally collected rentals in the amount
of P5,952,000.00. Given these findings, the obligation of
the Tiu spouses has already been fully paid. In fact, it is
the Union Bank that must return to the Tiu spouses the
amount of NINE HUNDRED TWENTY[-]SEVEN THOUSAND
FIVE HUNDRED FORTY[-]SIX PESOS AND
SEVENTY[-]NINE CENTAVOS (P927,546.79). 43
With regard to the ownership of the improvements on the
subject mortgaged property, the Court of Appeals ruled
that it belonged to respondent Rodolfo Tius father, Jose
Tiu, since 1981. According to the Court of Appeals, Union
Bank should not have relied on warranties made by
debtors that they are the owners of the property. The
appellate court went on to permanently enjoin Union Bank
from foreclosing the mortgage not only of the property
covered by TCT No. T-11951, but also any other mortgage
over any other property of the spouses Tiu. 44
The Court of Appeals likewise found Union Bank liable to
return the certificates of stocks and titles to real properties
of the spouses Tiu in its possession. The appellate court
held that Union Bank made judicial admissions of such
possession in its Reply to Plaintiffs Request for
Admission.45 In the event that Union Bank can no longer
return these certificates and titles, it was mandated to
shoulder the cost for their replacement.46
Finally, the Court of Appeals took judicial notice that
before or during the financial crisis, banks actively
convinced debtors to make dollar loans in the guise of
benevolence, saddling borrowers with loans that ballooned
twice or thrice their original loans. The Court of Appeals,
noting "the cavalier way with which banks exploited and
manipulated the situation,"47 held Union Bank liable to the
spouses Tiu for P100,000.00 in moral
damages, P100,000.00 in exemplary damages,
and P50,000.00 in attorneys fees.48
The Court of Appeals disposed of the case as follows:
WHEREFORE, in view of the foregoing premises, judgment
is hereby rendered by us permanently enjoining Union
Bank from foreclosing the mortgage of the residential
property of the Tiu spouses which is covered by Transfer
Certificate of Title No. 11951 and from pursuing other
foreclosure of mortgages over any other properties of the
Tiu spouses for the above-litigated debt that has already
been fully paid. If a foreclosure sale has already been made
over such properties, this Court orders the cancellation of
such foreclosure sale and the Certificate of Sale thereof if
any has been issued. This Court orders Union Bank to
return to the Tiu spouses the amount of NINE HUNDRED
TWENTY[-]SEVEN THOUSAND FIVE HUNDRED
FORTY[-]SIX PESOS AND SEVENTY[-]NINE CENTAVOS
(P927,546.79) representing illegally collected rentals. This
Court also orders Union Bank to return to the Tiu spouses
all the certificates of shares of stocks and titles to real
properties of the Tiu spouses that were deposited to it or,
in lieu thereof, to pay the cost for the replacement and
issuance of new certificates and new titles over the said
properties. This Court finally orders Union Bank to pay the
Tiu spouses ONE HUNDRED THOUSAND PESOS
(P100,000.00) in moral damages, ONE HUNDRED
THOUSAND PESOS (P100,000.00) in exemplary damages,
FIFTY THOUSAND PESOS (P50,000.00) in attorneys fees
and cost, both in the lower court and in this Court. 49
On June 1, 2006, the Court of Appeals rendered the
assailed Resolution denying Union Banks Motion for
Reconsideration.
Hence, this Petition for Review on Certiorari, wherein
Union Bank submits the following issues for the
consideration of this Court:
1. WHETHER OR NOT THE COURT OF APPEALS
COMMITTED GRAVE AND REVERSIBLE ERROR WHEN IT
CONCLUDED THAT THERE WERE NO DOLLAR LOANS
OBTAINED BY [THE] TIU SPOUSES FROM UNION BANK
DESPITE [THE] CLEAR ADMISSION OF INDEBTEDNESS
BY THE BORROWER-MORTGAGOR TIU SPOUSES.
2. WHETHER OR NOT THE COURT OF APPEALS
COMMITTED GRAVE AND REVERSIBLE ERROR WHEN IT
NULLIFIED THE RESTRUCTURING AGREEMENT
BETWEEN TIU SPOUSES AND UNION BANK FOR LACK
OF CAUSE OR CONSIDERATION DESPITE THE
ADMISSION OF THE BORROWER-MORTGAGOR TIU
SPOUSES OF THE DUE AND VOLUNTARY EXECUTION
OF SAID RESTRUCTURING AGREEMENT.
3. WHETHER OR NOT THE COURT OF APPEALS
COMMITTED GRAVE AND REVERSIBLE ERROR WHEN IT
PERMANENTLY ENJOINED UNION BANK FROM
FORECLOSING THE MORTGAGE ON THE RESIDENTIAL
PROPERTY OF THE TIU SPOUSES DESPITE THE
ADMISSION OF NON-PAYMENT OF THEIR OUTSTANDING
LOAN TO THE BANK BY THE BORROWER-MORTGAGOR
TIU SPOUSES;
4. WHETHER OR NOT THE COURT OF APPEALS
COMMITTED GRAVE AND REVERSIBLE ERROR WHEN IT
FIXED THE AMOUNT OF THE OBLIGATION OF
RESPONDENT SPOUSES CONTRARY TO THE
PROVISIONS OF THE PROMISSORY NOTES,
RESTRUCTURING AGREEMENT AND [THE] VOLUNTARY
ADMISSIONS BY BORROWER-MORTGAGOR TIU
SPOUSES;
5. WHETHER OR NOT THE COURT OF APPEALS
COMMITTED GRAVE AND REVERSIBLE ERROR WHEN IT
RULED ON THE ALLEGED RENTALS PAID BY
RESPONDENT SPOUSES WITHOUT ANY FACTUAL BASIS;
6. WHETHER OR NOT THE COURT OF APPEALS
COMMITTED GRAVE AND REVERSIBLE ERROR WHEN IT
HELD WITHOUT ANY FACTUAL BASIS THAT THE LOAN
OBLIGATION OF TIU SPOUSES HAS BEEN FULLY PAID;
7. WHETHER OR NOT THE COURT OF APPEALS
COMMITTED GRAVE AND REVERSIBLE ERROR WHEN IT
HELD WITHOUT ANY FACTUAL BASIS THAT THE HOUSE
INCLUDED IN THE REAL ESTATE MORTGAGE DID NOT
BELONG TO THE TIU SPOUSES.
8. WHETHER OR NOT THE COURT OF APPEALS
COMMITTED GRAVE AND REVERSIBLE ERROR IN
ORDERING UNION BANK TO RETURN THE
CERTIFICATES OF SHARES OF STOCK AND TITLES TO
REAL PROPERTIES OF TIU SPOUSES ALLEGEDLY IN THE
POSSESSION OF UNION BANK.
9. WHETHER OR NOT THE COURT OF APPEALS
VIOLATED THE DOCTRINES AND PRINCIPLES ON
APPELLATE JURISDICTION.
10. WHETHER OR NOT THE COURT OF APPEALS
COMMITTED GRAVE AND REVERSIBLE ERROR IN
AWARDING DAMAGES AGAINST UNION BANK.50
Validity of the Restructuring Agreement
As previously discussed, the Court of Appeals declared
that the Restructuring Agreement is void on account of its
being a failed novation of the original loan agreements. The
Court of Appeals explained that since there was no
stipulation that the loans will be paid in dollars, and since
no dollars ever exchanged hands, the original loan
transactions were in pesos.51 Proceeding from this premise,
the Court of Appeals held that the Restructuring
Agreement, which was meant to convert the loans into
pesos, was unwarranted. Thus, the Court of Appeals
reasoned that:
Be that as it may, however, since the loans of the Tiu
spouses from Union Bank were peso loans from the very
beginning, there is no need for conversion thereof. A
Restructuring Agreement should merely confirm the loans,
not add thereto. By making it appear in the Restructuring
Agreement that the loans were originally dollar loans,
Union Bank overstepped its rights as a creditor and made
unwarranted interpretations of the original loan
agreement. This Court is not bound by such
interpretations made by Union Bank. When one party
makes an interpretation of a contract, he makes it at his
own risk, subject to a subsequent challenge by the other
party and a modification by the courts. In this case, that
party making the interpretation is not just any party, but a
well entrenched and highly respected bank. The matter
that was being interpreted was also a financial matter that
is within the profound expertise of the bank. A normal
person who does not possess the same financial
proficiency or acumen as that of a bank will most likely
defer to the latters esteemed opinion, representations and
interpretations. It has been often stated in our
jurisprudence that banks have a fiduciary duty to their
depositors. According to the case of Bank of the Philippine
Islands vs. IAC (G.R. No. 69162, February 21, 1992), "as a
business affected with public interest and because of the
nature of its functions, the bank is under obligation to
treat the accounts of its depositors with meticulous care,
always having in mind the fiduciary nature of their
relationship." Such fiduciary relationship should also
extend to the banks borrowers who, more often than not,
are also depositors of the bank. Banks are in the business
of lending while most borrowers hardly know the basics of
such business. When transacting with a bank, most
borrowers concede to the expertise of the bank and
consider their procedures, pronouncements and
representations as unassailable, whether such be true or
not. Therefore, when there is a doubtful banking
transaction, this Court will tip the scales in favor of the
borrower.
Given the above ruling, the Restructuring Agreement,
therefore, between the Tiu spouses and Union Bank does
not operate to supersede all previous loan documents, as
claimed by Union Bank. But the said Restructuring
Agreement, as it was crafted by Union Bank, does not
merely confirm the original loan of the Tiu spouses but
attempts to create a novation of the said original loan that
is not clearly authorized by the debtors and that is not
supported by any cause or consideration. According to
Article 1292 of the New Civil Code, in order that an
obligation may by extinguished by another which
substitutes the same, it is imperative that it be so declared
in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other.
Such is not the case in this instance. No valid novation of
the original obligation took place. Even granting arguendo
that there was a novation, the sudden change in the
original amount of the loan to the new amount declared in
the Restructuring Agreement is not supported by any
cause or consideration. Under Article 1352 of the Civil
Code, contracts without cause, or with unlawful cause,
produce no effect whatever. A contract whose cause did not
exist at the time of the transaction is void. Accordingly,
Article 1297 of the New Civil Code mandates that, if the
new obligation is void, the original one shall subsist,
unless the parties intended that the former relation should
be extinguished at any event. Since the Restructuring
Agreement is void and since there was no intention to
extinguish the original loan, the original loan shall
subsist.52
Union Bank does not dispute that the spouses Tiu received
the loaned amount of US$3,632,000.00 in Philippine
pesos, not dollars, at the prevailing exchange rate of
US$1=P26.53 However, Union Bank claims that this does
not change the true nature of the loan as a foreign
currency loan,54 and proceeded to illustrate in its
Memorandum that the spouses Tiu obtained favorable
interest rates by opting to borrow in dollars (but receiving
the equivalent peso amount) as opposed to borrowing in
pesos.55
We agree with Union Bank on this point. Although indeed,
the spouses Tiu received peso equivalents of the borrowed
amounts, the loan documents presented as evidence, i.e.,
the promissory notes,56 expressed the amount of the loans
in US dollars and not in any other currency. This clearly
indicates that the spouses Tiu were bound to pay Union
Bank in dollars, the amount stipulated in said loan
documents. Thus, before the Restructuring Agreement, the
spouses Tiu were bound to pay Union Bank the amount of
US$3,632,000.00 plus the interest stipulated in the
promissory notes, without converting the same to pesos.
The spouses Tiu, who are in the construction business and
appear to be dealing primarily in Philippine currency,
should therefore purchase the necessary amount of dollars
to pay Union Bank, who could have justly refused payment
in any currency other than that which was stipulated in
the promissory notes.
We disagree with the finding of the Court of Appeals that
the testimony of Lila Gutierrez, which merely attests to the
fact that the spouses Tiu received the peso equivalent of
their dollar loan, proves the intention of the parties that
such loans should be paid in pesos. If such had been the
intention of the parties, the promissory notes could have
easily indicated the same.
Such stipulation of payment in dollars is not prohibited by
any prevailing law or jurisprudence at the time the loans
were taken. In this regard, Article 1249 of the Civil Code
provides:
Art. 1249. The payment of debts in money shall be made in
the currency stipulated, and if it is not possible to deliver
such currency, then in the currency which is legal tender
in the Philippines.
Although the Civil Code took effect on August 30, 1950,
jurisprudence had upheld57 the continued effectivity of
Republic Act No. 529, which took effect earlier on June 16,
1950. Pursuant to Section 1 58 of Republic Act No. 529, any
agreement to pay an obligation in a currency other than
the Philippine currency is void; the most that could be
demanded is to pay said obligation in Philippine currency
to be measured in the prevailing rate of exchange at the
time the obligation was incurred.59 On June 19, 1964,
Republic Act No. 4100 took effect, modifying Republic Act
No. 529 by providing for several exceptions to the nullity of
agreements to pay in foreign currency. 60
On April 13, 1993, Central Bank Circular No. 1389 61 was
issued, lifting foreign exchange restrictions and liberalizing
trade in foreign currency. In cases of foreign borrowings
and foreign currency loans, however, prior Bangko Sentral
approval was required. On July 5, 1996, Republic Act No.
8183 took effect,62 expressly repealing Republic Act No.
529 in Section 263 thereof. The same statute also explicitly
provided that parties may agree that the obligation or
transaction shall be settled in a currency other than
Philippine currency at the time of payment.64
Although the Credit Line Agreement between the spouses
Tiu and Union Bank was entered into on November 21,
1995,65 when the agreement to pay in foreign currency was
still considered void under Republic Act No. 529, the
actual loans,66 as shown in the promissory notes, were
taken out from September 22, 1997 to March 26, 1998,
during which time Republic Act No. 8183 was already in
effect. In United Coconut Planters Bank v. Beluso,67 we
held that:
[O]pening a credit line does not create a credit transaction
of loan or mutuum, since the former is merely a
preparatory contract to the contract of loan or mutuum.
Under such credit line, the bank is merely obliged, for the
considerations specified therefor, to lend to the other party
amounts not exceeding the limit provided. The credit
transaction thus occurred not when the credit line was
opened, but rather when the credit line was availed of. x x
x.68
Having established that Union Bank and the spouses Tiu
validly entered into dollar loans, the conclusion of the
Court of Appeals that there were no dollar loans to novate
into peso loans must necessarily fail.
Similarly, the Court of Appeals pronouncement that the
novation was not supported by any cause or consideration
is likewise incorrect. This conclusion suggests that when
the parties signed the Restructuring Agreement, Union
Bank got something out of nothing or that the spouses Tiu
received no benefit from the restructuring of their existing
loan and was merely taken advantage of by the bank. It is
important to note at this point that in the determination of
the nullity of a contract based on the lack of consideration,
the debtor has the burden to prove the same. Article 1354
of the Civil Code provides that "[a]though the cause is not
stated in the contract, it is presumed that it exists and is
lawful, unless the debtor proves the contrary."
In the case at bar, the Restructuring Agreement was
signed at the height of the financial crisis when the
Philippine peso was rapidly depreciating. Since the
spouses Tiu were bound to pay their debt in dollars, the
cost of purchasing the required currency was likewise
swiftly increasing. If the parties did not enter into the
Restructuring Agreement in December 1999 and the peso
continued to deteriorate, the ability of the spouses Tiu to
pay and the ability of Union Bank to collect would both
have immensely suffered. As shown by the evidence
presented by Union Bank, the peso indeed continued to
deteriorate, climbing to US$1=P50.01 on December
2000.69 Hence, in order to ensure the stability of the loan
agreement, Union Bank and the spouses Tiu agreed in the
Restructuring Agreement to peg the principal loan
at P150,364,800.00 and the unpaid interest
at P5,000,000.00.
Before this Court, the spouses Tiu belatedly argue that
their consent to the Restructuring Agreement was vitiated
by fraud and mistake, alleging that (1) the Restructuring
Agreement did not take into consideration their substantial
payment in the amount of P40,447,185.60 before its
execution; and (2) the dollar loans had already been
redenominated in 1997 at the rate of US$1=P26.34. 70
We have painstakingly perused over the records of this
case, but failed to find any documentary evidence of the
alleged payment of P40,447,185.60 before the execution of
the Restructuring Agreement. In paragraph 16 of their
Amended Complaint, the spouses Tiu alleged payment
of P40,447,185.60 for interests before the conversion of the
dollar loan.71 This was specifically denied by Union Bank in
paragraph 5 of its Answer with
Counterclaim.72 Respondent Rodolfo Tiu testified that they
made "50 million plus" in cash payment plus "other
monthly interest payments,"73 and identified a computation
of payments dated July 17, 2002 signed by himself. 74Such
computation, however, was never formally offered in
evidence and was in any event, wholly self-serving.
As regards the alleged redenomination of the same dollar
loans in 1997 at the rate of US$1=P26.34, the spouses Tiu
merely relied on the following direct testimony of Herbert
Hojas, one of the witnesses of Union Bank:
Q: Could you please describe what kind of loan was the
loan of the spouses Rodolfo Tiu, the plaintiffs in this case?
A: It was originally an FCDU, meaning a dollar loan.
Q: What happened to this FCDU loan or dollar loan?
A: The dollar loan was re-denominated in view of the very
unstable exchange of the dollar and the peso at that time,
Q: Could you still remember what year this account was
re-denominated from dollar to peso?
A: I think it was on the year 1997.
Q: Could [you] still remember what was then the prevailing
exchange rate between the dollar and the peso at that year
1997?
A: Yes. I have here the list of the dollar exchange rate from
January 1987 (sic). It was P26.34 per dollar.75
Neither party presented any documentary evidence of the
alleged redenomination in 1997. Respondent Rodolfo Tiu
did not even mention it in his testimony. Furthermore,
Hojas was obviously uncertain in his statement that said
redenomination was made in 1997.
As pointed out by the trial court, the Restructuring
Agreement, being notarized, is a public document enjoying
a prima facie presumption of authenticity and due
execution. Clear and convincing evidence must be
presented to overcome such legal presumption. 76 The
spouses Tiu, who attested before the notary public that the
Restructuring Agreement "is their own free and voluntary
act and deed,"77 failed to present sufficient evidence to
prove otherwise. It is difficult to believe that the spouses
Tiu, veteran businessmen who operate a multi-million peso
company, would sign a very important document without
fully understanding its contents and consequences.
This Court therefore rules that the Restructuring
Agreement is valid and, as such, a valid and binding
novation of loans of the spouses Tiu entered into from
September 22, 1997 to March 26, 1998 which had a total
amount of US$3,632,000.00.
Validity of the Foreclosure of Mortgage
The spouses Tiu challenge the validity of the foreclosure of
the mortgage on two grounds, claiming that: (1) the debt
had already been fully paid; and (2) they are not the
owners of the improvements on the mortgaged property.
(1) Allegation of full payment of the mortgage debt
In the preceding discussion, we have ruled that the
Restructuring Agreement is a valid and binding novation of
loans of the spouses Tiu entered into from September 22,
1997 to March 26, 1998 in the total amount of
US$3,632,000.00. Thus, in order that the spouses Tiu can
be held to have fully paid their loan obligation, they should
present evidence showing their payment of the total
restructured amount under the Restructuring Agreement
which was P104,668,741.00. As we have discussed above,
however, while respondent Rodolfo Tiu appeared to have
identified during his testimony a computation dated July
17, 2002 of the alleged payments made to Union
Bank,78 the same was not formally offered in evidence.
Applying Section 34, Rule 13279 of the Rules of Court, such
computation cannot be considered by this Court. We have
held that a formal offer is necessary because judges are
mandated to rest their findings of facts and their judgment
only and strictly upon the evidence offered by the parties
at the trial. It has several functions: (1) to enable the trial
judge to know the purpose or purposes for which the
proponent is presenting the evidence; (2) to allow opposing
parties to examine the evidence and object to its
admissibility; and (3) to facilitate review by the appellate
court, which will not be required to review documents not
previously scrutinized by the trial court. 80 Moreover, even if
such computation were admitted in evidence, the same is
self-serving and cannot be given probative weight. In the
case at bar, the records do not contain even a single receipt
evidencing payment to Union Bank.
The Court of Appeals, however, held that several payments
made by the spouses Tiu had been admitted by Union
Bank. Indeed, Section 11, Rule 8 of the Rules of Court
provides that an allegation not specifically denied is
deemed admitted. In such a case, no further evidence
would be required to prove the antecedent facts. We should
therefore examine which of the payments specified by the
spouses Tiu in their Amended Complaint 81were not
specifically denied by Union Bank.
The allegations of payment are made in paragraphs 16 to
21 of the Amended Complaint:
16. Before conversion of the dollar loan into a peso loan[,]
the spouses Tiu had already paid the defendant bank the
amount of P40,447,185.60 for interests;
17. On August 3, 1999 and August 12, 1999, plaintiffs
made payments in the amount of P15,000,000.00;
18. In order to lessen the obligation of plaintiffs, the
mother of plaintiff Rodolfo T. Tiu, plaintiff Juanita T. Tiu,
executed a deed of dacion in payment in favor of defendant
involving her 10 parcels of land located in Labangon, Cebu
City for the amount of P25,130,000.00. Copy of the deed
was attached to the original complaint as Annex "C";
19. For the same purpose, plaintiffs spouses Tiu also
executed a deed of dacion in payment of their property
located at A.S. Fortuna St., Mandaue City for the amount
of P36,080,000.00. Copy of the deed was attached to the
original complaint as Annex "D";
20. The total amount of the two dacions in payment made
by the plaintiffs was P61,210,000.00;
21. Plaintiffs spouses Tiu also made other payment of the
amount of P13,197,546.79 as of May 8, 2001; 82
In paragraphs 4 and 5 of their Answer with
Counterclaim,83 Union Bank specifically denied the
allegation in paragraph 9 of the Complaint, but admitted
the allegations in paragraphs 17, 18, 19, 20 and 21
thereof. Paragraphs 18, 19 and 20 allege the two deeds of
dacion. However, these instruments were already
incorporated in the computation of the outstanding debt
(i.e., subtracted from the confirmed debt
of P155,364,800.00), as can be gleaned from the following
provisions in the Restructuring Agreement:
a.) The loan obligation to the BANK to be restructured
herein after deducting from the Indebtedness of the
BORROWER the dacion price of the properties subject of
the Deeds of Dacion and adding to the Indebtedness all the
taxes, registration fees and other expenses advanced by the
bank in registering the Deeds of Dacion, and also adding to
the Indebtedness the interest, and other fees and charges
incurred by the Indebtedness, amounts to ONE HUNDRED
FOUR MILLION SIX HUNDRED SIXTY-EIGHT THOUSAND
SEVEN HUNDRED FORTY-ONE PESOS
(PHP104,668,741.00) (the "TOTAL RESTRUCTURED
AMOUNT").84
As regards the allegations of cash payments in paragraphs
17 and 21 of the Amended Complaint, the date of the
alleged payment is critical as to whether they were
included in the Restructuring Agreement. The payment
of P15,000,000.00 alleged in paragraph 17 of the Amended
Complaint was supposedly made on August 3 and 12,
1999. This payment was before the date of execution of the
Restructuring Agreement on December 21, 1999, and is
therefore already factored into the restructured obligation
of the spouses.85 On the other hand, the payment
of P13,197,546.79 alleged in paragraph 21 of the Amended
Complaint was dated May, 8, 2001. Said payment cannot
be deemed included in the computation of the spouses
Tius debt in the Restructuring Agreement, which was
assented to more than a year earlier. This amount
(P13,197,546.79) is even absent 86 in the computation of
Union Bank of the outstanding debt, in contrast with
the P15,000,000.00 payment which is included 87 therein.
Union Bank did not explain this discrepancy and merely
relied on the spouses Tius failure to formally offer
supporting evidence. Since this payment
of P13,197,546.79 on May 8, 2001 was admitted by Union
Bank in their Answer with Counterclaim, there was no
need on the part of the spouses Tiu to present evidence on
the same. Nonetheless, if we subtract this figure from the
total restructured amount (P104,668,741.00) in the
Restructuring Agreement, the result is that the spouses
Tiu still owe Union Bank P91,471,194.21.
(2) Allegation of third party ownership of the improvements
on the mortgaged lot
The Court of Appeals, taking into consideration its earlier
ruling that the loan was already fully paid, permanently
enjoined Union Bank from foreclosing the mortgage on the
property covered by Transfer Certificate of Title No. 11951
(Lot No. 639) and from pursuing other foreclosure of
mortgages over any other properties of the spouses Tiu.
The Court of Appeals ruled:
The prayer, therefore, of the Tiu spouses to enjoin the
foreclosure of the real estate mortgage over their residential
property has merit. The loan has already been fully paid. It
should also be noted that the house constructed on the
residential property of the Tiu spouses is not registered in
the name of the Tiu spouses, but in the name of Jose Tiu
(Records, pp. 127-132), the father of appellant and
petitioner Rodolfo Tiu, since 1981. It had been alleged by
the Tiu spouses that Jose Tiu died on December 18, 1983,
and, that consequently upon his death, Juanita T. Tiu,
Rosalinda T. King, Rufino T. Tiu, Rosalie T. Young and
Rosenda T. Tiu became owners of the house (Records, p.
116). This allegation has not been substantially denied by
Union Bank. All that the Union Bank presented to refute
this allegation are a Transfer Certificate of Title and a
couple of Tax Declarations which do not indicate that a
residential house is titled in the name of the Tiu spouses.
In fact, in one of the Tax Declarations, the market value of
the improvements is worth only P3,630.00. Certainly,
Union Bank should have been aware that this Tax
Declaration did not cover the residential house. Union
Bank should also not rely on warranties made by debtors
that they are the owners of the property. They should
investigate such representations. The courts have made
consistent rulings that a bank, being in the business of
lending, is obligated to verify the true ownership of the
properties mortgaged to them. Consequently, this Court
permanently enjoins Union Bank from foreclosing the
mortgage of the residential property of the Tiu spouses
which is covered by Transfer Certificate of Title No. 11951
and from pursuing other foreclosure of mortgages over any
other properties of the Tiu spouses. If a foreclosure sale
has already been made over such properties, this Court
orders the cancellation of such foreclosure sale and the
Certificate of Sale thereof if any has been issued, and the
return of the title to the Tiu spouses.88
We disagree. Contrary to the ruling of the Court of
Appeals, the burden to prove the spouses Tius allegation
that they do not own the improvements on Lot No. 639,
despite having such improvements included in the
mortgage is on the spouses Tiu themselves. The
fundamental rule is that he who alleges must prove. 89 The
allegations of the spouses Tiu on this matter, which are
found in paragraphs 35 to 39 90 of their Amended
Complaint, were specifically denied in paragraph 9 of
Union Banks Answer with Counterclaim.91
Upon careful examination of the evidence, we find that the
spouses Tiu failed to prove that the improvements on Lot
No. 639 were owned by third persons. In fact, the evidence
presented by the spouses Tiu merely attempt to prove that
the improvements on Lot No. 639 were declared for taxes in
the name of respondent Rodolfo Tius father, Jose Tiu, who
allegedly died on December 18, 1983. There was no effort
to show how their co-plaintiffs in the original complaint,
namely Juanita T. Tiu, Rosalinda T. King, Rufino T. Tiu,
Rosalie T. Young and Rosenda T. Tiu, became co-owners of
the house. The spouses Tiu did not present evidence as to
(1) who the heirs of Jose Tiu are; (2) if Juanita T. Tiu,
Rosalinda T. King, Rufino T. Tiu, Rosalie T. Young and
Rosenda T. Tiu are indeed included as heirs; and (3) why
petitioner Rodolfo Tiu is not included as an heir despite
being the son of Jose Tiu. No birth certificate of the alleged
heirs, will of the deceased, or any other piece of evidence
showing judicial or extrajudicial settlement of the estate of
Jose Tiu was presented.
In light of the foregoing, this Court therefore sets aside the
ruling of the Court of Appeals permanently enjoining
Union Bank from foreclosing the mortgage on Lot No. 639,
including the improvements thereon.
Validity of Alleged Rental Payments on the Properties
Conveyed to the Bank via Dacion en Pago
The Court of Appeals found the lease contracts over the
properties conveyed to Union Bank via dacion en pago to
be void for being against public policy. The appellate court
held that since the General Banking Law of
200092mandates banks to immediately dispose of real
estate properties that are not necessary for its own use in
the conduct of its business, banks should not enter into
two-year contracts of lease over properties paid to them
through dacion.93 The Court of Appeals thus ordered Union
Bank to return the rentals it collected. To determine the
amount of rentals paid by the spouses Tiu to Union Bank,
the Court of Appeals simply multiplied the monthly rental
stipulated in the Restructuring Agreement by the
stipulated period of the lease agreement:
For the Labangon property, the Tiu spouses paid rentals in
the amount of P98,000.00 per month for two years, or a
total amount of P2,352,000.00. For the A.S. Fortuna
property, the Tiu spouses paid rentals in the amount
of P150,000.00 per month for two years, or a total amount
of P3,600,000.00. The total amount in rentals paid by the
Tiu spouses to Union Bank is FIVE MILLION NINE
HUNDRED FIFTY- TWO THOUSAND PESOS
(P5,952,000.00). This Court finds that the return of this
amount to the Tiu spouses is called for since it will better
serve public policy. These properties that were given by the
Tiu spouses to Union Bank as payment should not be used
by the latter to extract more money from the former. This
situation is analogous to having a debtor pay interest for a
debt already paid. Instead of leasing the properties, Union
Bank should have instructed the Tiu spouses to vacate the
said properties so that it could dispose of them. 94
The Court of Appeals committed a serious error in this
regard. As pointed out by petitioner Union Bank, the
spouses Tiu did not present any proof of the alleged rental
payments. Not a single receipt was formally offered in
evidence. The mere stipulation in a contract of the monthly
rent to be paid by the lessee is certainly not evidence that
the same has been paid. Since the spouses Tiu failed to
prove their payment to Union Bank of the amount
of P5,952,000.00, we are constrained to reverse the ruling
of the Court of Appeals ordering its return.
Even assuming arguendo that the spouses Tiu had duly
proven that it had paid rent to Union Bank, we
nevertheless disagree with the finding of the Court of
Appeals that it is against public policy for banks to enter
into two-year contracts of lease of properties ceded to them
through dacion en pago. The provisions of law cited by the
Court of Appeals, namely Sections 51 and 52 of the
General Banking Law of 2000, merely provide:
SECTION 51. Ceiling on Investments in Certain Assets.
Any bank may acquire real estate as shall be necessary for
its own use in the conduct of its business: Provided,
however, That the total investment in such real estate and
improvements thereof, including bank equipment, shall not
exceed fifty percent (50%) of combined capital accounts:
Provided, further, That the equity investment of a bank in
another corporation engaged primarily in real estate shall
be considered as part of the bank's total investment in real
estate, unless otherwise provided by the Monetary Board.
SECTION 52. Acquisition of Real Estate by Way of
Satisfaction of Claims. Notwithstanding the limitations
of the preceding Section, a bank may acquire, hold or
convey real property under the following circumstances:
52.1. Such as shall be mortgaged to it in good faith by way
of security for debts;
52.2. Such as shall be conveyed to it in satisfaction of
debts previously contracted in the course of its dealings; or
52.3. Such as it shall purchase at sales under judgments,
decrees, mortgages, or trust deeds held by it and such as it
shall purchase to secure debts due it.
Any real property acquired or held under the
circumstances enumerated in the above paragraph shall be
disposed of by the bank within a period of five (5) years or
as may be prescribed by the Monetary Board: Provided,
however, That the bank may, after said period, continue to
hold the property for its own use, subject to the limitations
of the preceding Section.
Section 52.2 contemplates a dacion en pago. Thus, Section
52 undeniably gives banks five years to dispose of
properties conveyed to them in satisfaction of debts
previously contracted in the course of its dealings, unless
another period is prescribed by the Monetary Board.
Furthermore, there appears to be no legal impediment for
a bank to lease the real properties it has received in
satisfaction of debts, within the five-year period that such
bank is allowed to hold the acquired realty.
We do not dispute the interpretation of the Court of
Appeals that the purpose of the law is to prevent the
concentration of land holdings in a few hands, and that
banks should not be allowed to hold on to the properties
contemplated in Section 52 beyond the five-year period
unless such bank has exerted its best efforts to dispose of
the property in good faith but failed. However, inquiries as
to whether the banks exerted best efforts to dispose of the
property can only be done if said banks fail to dispose of
the same within the period provided. Such inquiry is
furthermore irrelevant to the issues in the case at bar.
Order to Return Certificates Allegedly in Union Banks
Possession
In the Amended Complaint, the spouses Tiu alleged 95 that
they delivered several certificates and titles to Union Bank
pursuant to a Memorandum of Agreement. These
certificates and titles were not subjected to any lien in favor
of Union Bank, but the latter allegedly continued to hold
on to said properties.
The RTC failed to rule on this issue. The Court of Appeals,
tackling this issue for the first time, ruled in favor of the
Tiu spouses and ordered the return of these certificates
and titles. The appellate court added that if Union Bank
can no longer return these certificates or titles, it should
shoulder the cost for their replacement.96
Union Bank, asserting that the Memorandum of
Agreement did not, in fact, push through, denies having
received the subject certificates and titles. Union Bank
added that even assuming arguendo that it is in
possession of said documents, the Restructuring
Agreement itself allows such possession.97
The evidence on hand lends credibility to the allegation of
Union Bank that the Memorandum of Agreement did not
push through. The copy of the Memorandum of Agreement
attached by the spouses Tiu themselves to their original
complaint did not bear the signature of any representative
from Union Bank and was not notarized.98
We, however, agree with the finding of the Court of Appeals
that despite the failure of the Memorandum of Agreement
to push through, the certificates and titles mentioned
therein do appear to be in the possession of Union Bank.
As held by the Court of Appeals:
Lastly, this Court will order, as it hereby orders, Union
Bank to return to the Tiu spouses all the certificates of
shares of stocks and titles to real properties of the Tiu
spouses in its possession. Union Bank cannot deny
possession of these items since it had made judicial
admissions of such possession in their document entitled
"Reply to Plaintiffs request for Admission" (records, pp.
216-217). While in that document, Union Bank only
admitted to the possession of four real estate titles, this
Court is convinced that all the certificates and titles
mentioned in the unconsummated Memorandum of
Agreement (Records, pp. 211-213) were given by the Tiu
spouses to Union Bank for appraisal. This finding is
further bolstered by the admission of the Union Bank that
it kept the titles for safekeeping after it rejected the
Memorandum of Agreement. Since Union Bank rejected
these certificates and titles of property, it should return the
said items to the Tiu spouses. If Union Bank can no longer
return these certificates and titles or if it has misplaced
them, it shall shoulder the cost for the replacement and
issuance of new certificates and new titles over the said
properties.99
As regards Union Banks argument that it has the right to
retain said documents pursuant to the Restructuring
Agreement, it is referring to paragraph 11(b), which
provides that:
11. Effects of Default When the BORROWER is in default,
such default shall have the following effects, alternative,
concurrent and cumulative with each other:
xxxx
(b) The BANK shall be entitled to all the remedies provided
for and further shall have the right to effect or apply
against the partial or full payment of any and all
obligations of the BORROWER under this Restructuring
Agreement any and all moneys or other properties of the
BORROWER which, for any reason, are or may hereafter
come into the possession of the Bank or the Banks agent.
All such moneys or properties shall be deemed in the
BANKs possession as soon as put in transit to the BANK
by mail or carrier.100
In the first place, notwithstanding the foregoing provision,
there is no clear intention on the part of the spouses Tiu to
deliver the certificates over certain shares of stock and real
properties as security for their debt. From the terms of the
Memorandum of Agreement, these certificates were
surrendered to Union Bank in order that the said
properties described therein be given their corresponding
loan values required for the restructuring of the spouses
Tius outstanding obligations. However, in the event the
parties fail to agree on the valuation of the subject
properties, Union Bank agrees to release the same. 101 As
Union Bank itself vehemently alleges, the Memorandum of
Agreement was not consummated. Moreover, despite the
fact that the Bank was aware, or in possession, of these
certificates,102 at the time of execution of the Restructuring
Agreement, only the mortgage over the real property
covered by TCT No. T-11951 was expressly mentioned as a
security in the Restructuring Agreement. In fact, in its
Reply to Request for Admission, 103 Union Bank admitted
that (1) the titles to the real properties were submitted to it
for appraisal but were subsequently rejected, and (2) no
real estate mortgages were executed over the said
properties. There being no agreement that these properties
shall secure respondents obligation, Union Bank has no
right to retain said certificates.1avvphi1
Assuming arguendo that paragraph 11(b) of the
Restructuring Agreement indeed allows the retention of the
certificates (submitted to the Bank ostensibly for
safekeeping and appraisal) as security for spouses Tius
debt, Union Banks position still cannot be upheld. Insofar
as said provision permits Union Bank to apply properties
of the spouses Tiu in its possession to the full or partial
payment of the latters obligations, the same appears to
impliedly allow Union Bank to appropriate these properties
for such purpose. However, said provision cannot be validly
applied to the subject certificates and titles without
violating the prohibition against pactum commissorium
contained in Article 2088 of the Civil Code, to the effect
that "[t]he creditor cannot appropriate the things given by
way of pledge or mortgage, or dispose of them[;] [a]ny
stipulation to the contrary is null and void." Applicable by
analogy to the present case is our ruling in Nakpil v.
Intermediate Appellate Court,104 wherein property held in
trust was ceded to the trustee upon failure of the
beneficiary to answer for the amounts owed to the former,
to wit:
For, there was to be automatic appropriation of the
property by Valdes in the event of failure of petitioner to
pay the value of the advances. Thus, contrary to
respondent's manifestations, all the elements of a pactum
commissorium were present: there was a creditor-debtor
relationship between the parties; the property was used as
security for the loan; and, there was automatic
appropriation by respondent of Pulong Maulap in case of
default of petitioner.105 (Emphases supplied.)
This Court therefore affirms the order of the Court of
Appeals for Union Bank to return to the spouses Tiu all the
certificates of shares of stock and titles to real properties
that were submitted to it or, in lieu thereof, to pay the cost
for the replacement and issuance of new certificates and
new titles over the said properties.
Validity of the Award of Damages
The Court of Appeals awarded damages in favor of the
spouses Tiu based on its taking judicial notice of the
alleged exploitation by many banks of the Asian financial
crisis, as well as the foreclosure of the mortgage of the
home of the spouses Tiu despite the alleged full payment
by the latter. As regards the alleged manipulation of the
financial crisis, the Court of Appeals held:
As a final note, this Court observes the irregularity in the
circumstances [surrounding] dollar loans granted by banks
right before or during the Asian financial crisis. It is of
common knowledge that many banks, around that time,
actively pursued and convinced debtors to make dollar
loans or to convert their peso loans to dollar loans allegedly
because of the lower interest rate of dollar loans. This is a
highly suspect behavior on the part of the banks because
it is irrational for the banks to voluntarily and actively
proffer a conversion that would give them substantially
less income. In the guise of benevolence, many banks were
able to convince borrowers to make dollar loans or to
convert their peso loans to dollar loans. Soon thereafter,
the Asian financial crisis hit, and many borrowers were
saddled with loans that ballooned to twice or thrice the
amount of their original loans. This court takes judicial
notice of these events or matters which are of public
knowledge. It is inconceivable that the banks were
unaware of the looming Asian financial crisis. Being in the
forefront of the financial world and having access to
financial data that were not available to the average
borrower, the banks were in such a position that they had
a higher vantage point with respect to the financial
landscape over their average clients. The cavalier way with
which banks exploited and manipulated the situation is
almost too palpable that they openly and unabashedly
struck heavy blows on the Philippine economy, industries
and businesses. The banks have a fiduciary duty to their
clients and to the Filipino people to be transparent in their
dealings and to make sure that the latters interest are not
prejudiced by the formers interest. Article 1339 of the New
Civil Code provides that the failure to disclose facts, when
there is a duty to reveal them, as when the parties are
bound by confidential relations, constitutes fraud.
Undoubtedly, the banks and their clients are bound by
confidential relations. The almost perfect timing of the
banks in convincing their clients to shift to dollar loans
just when the Asian financial crisis struck indicates that
the banks not only failed to disclose facts to their clients of
the looming crisis, but also suggests of the insidious
design to take advantage of these undisclosed facts. 106
to sufficiently prove such allegation. Absent enough proof
thereof, the presumption of good faith prevails."107 The
alleged insidious design of many banks to betray their
clients during the Asian financial crisis is certainly not of
public knowledge. The deletion of the award of moral and
exemplary damages in favor of the spouses Tiu is therefore
in order.
WHEREFORE, the Petition is PARTIALLY GRANTED. The
Joint Decision of the Court of Appeals in CA-G.R. CV No.
00190 and CA-G.R. SP No. 00253 dated February 21, 2006
is hereby AFFIRMED insofar as it ordered petitioner Union
Bank of the Philippines to return to the respondent
spouses Rodolfo T. Tiu and Victoria N. Tiu all the
certificates of shares of stock and titles to real properties
that were submitted to it or, in lieu thereof, to pay the cost
for the replacement and issuance of new certificates and
new titles over the said properties. The foregoing Joint
Decision is hereby SET ASIDE: (1) insofar as it
permanently enjoined Union Bank of the Philippines from
foreclosing the mortgage of the residential property of
respondent spouses Rodolfo T. Tiu and Victoria N. Tiu
which is covered by Transfer Certificate of Title No. 11951;
(2) insofar as it ordered Union Bank of the Philippines to
return to the respondent spouses Rodolfo T. Tiu and
Victoria N. Tiu the amount of P927,546.79 representing
illegally collected rentals; and (3) insofar as it ordered
Union Bank of the Philippines to pay the respondent
spouses Rodolfo T. Tiu and Victoria N. Tiu P100,000.00 in
moral damages, P100,000.00 in exemplary
damages, P50,000.00 in attorneys fees and cost, both in
the lower court and in this Court.
No further pronouncement as to costs.
SO ORDERED.

We have already held that the foreclosure of the mortgage

was warranted under the circumstances. As regards the
alleged exploitation by many banks of the Asian financial
crisis, this Court rules that the generalization made by the
appellate court is unfounded and cannot be the subject of
judicial notice. "It is axiomatic that good faith is always
presumed unless convincing evidence to the contrary is
adduced. It is incumbent upon the party alleging bad faith
Philippine Deposit Insurance Corporation vs. Citibank GR
NO.170290 April 11, 2012Mendoza, J.:
FACTS:
Petitioner Philippine Deposit Insurance Corporation (PDIC)
is a government instrumentality created by virtue of
Republic Act (R.A.) No. 3591, as amended by R.A.
No.9302.Respondent Citibank, N.A. (Citibank) is a banking
corporation while respondent Bank of America, S.T. & N.A.
(BA) is a national banking association, both of which are
duly-organized and existing under the laws of the United
States of America and duly licensed to do business in
the Philippines, with offices in Makati City.
In 1977, PDIC conducted an examination of the books of
account of Citibank. It discovered that Citibank, in the
course of its banking business, from September 30, 1974
to June 30, 1977, received from its head office and other
foreign branches a total of P11,923,163,908.00 in dollars,
covered by Certificates of Dollar Time Deposit that were
interest-bearing with corresponding maturity dates. These
funds, which were lodged in the books of Citibank under
the account Their Account -Head Office/Branches-Foreign
Currency, were not reported to PDIC as deposit liabilities
that were subject to assessment for insurance. As such,
in a letter dated March 16, 1978, PDIC assessed Citibank
for deficiency in the sum of P1, 595,081.96.
Similarly, sometime in 1979, PDIC examined the books of
accounts of BA which revealed that from September 30,
1976 to June 30, 1978, BA received from its head office
and its other foreign branches a total of P629,311, 869.10
in dollars, covered by Certificates of Dollar Time Deposit
that were interest-bearing with corresponding maturity
dates and lodged in their books under the account Due to
Head Office/Branches. Because BA also excluded these
from its deposit liabilities, PDIC wrote to BA on October 9,
1979, seeking the remittance of P109, 264.83 representing
deficiency premium assessments for dollar deposits.
Believing that litigation would inevitably arise from this
dispute, Citibank and BA each filed a petition for
declaratory relief before the Court of First Instance (now
the Regional Trial Court) of Rizal on July 19, 1979 and
December 11, 1979, respectively. In their petitions,
Citibank and BA sought a declaratory judgment stating
that the money placements they received from their head
office and other foreign branches were not deposits and did
not give rise to insurable deposit liabilities under Sections
3 and 4 of R.A.No. 3591
(the PDIC Charter) and, as a consequence, the deficiency
assessments made by PDIC were improper and
erroneous. The cases were then consolidated.
On June 29, 1998, the Regional Trial Court, Branch 163,
Pasig City (RTC) promulgated its Decision in favor of
Citibank and BA. Aggrieved, PDIC appealed to the CA
which affirmed the ruling of the RTC in its October 27,
2005 Decision. Hence, this petition.
ISSUE:
Whether or not a branch of a bank has a separate legal
Personality.
HELD: No.
A branch has no separate legal personality. This Court is of
the opinion that thekey to the resolution of this
controversy is the relationship of the Philippine branches
of Citibank and BA to their respective head offices and
their other foreign branches.
The Court begins by examining the manner by which a
foreign corporation can establish its presence in the
Philippines. It may choose to incorporate its own
subsidiary as a domestic corporation, in which case such
subsidiary would have its own separate and independent
legal personality to conduct business in the country. In the
alternative, it may create a branch in the Philippines,
which would not be a legally independent unit, and simply
obtain a license to do business in the Philippines.
In the case of Citibank and BA, it is apparent that they
both did not incorporate a separate domestic corporation to
represent its business interests in the Philippines. Their
Philippine branches are, as the name implies, merely
branches, without a separate legal personality from their
parent company, Citibank and BA. Thus, being one and
the same entity, the funds placed by the respondents in
their respective branches in the Philippines should not be
treated as deposits made by third parties subject to
deposit insurance under the PDIC Charter. The purpose of
the PDIC is to protect the depositing public in the event of
a bank closure. It has already been sufficiently established
by US jurisprudence and Philippine statutes that the head
office shall answer for the liabilities of its branch. Now,
suppose the Philippine branch of Citibank suddenly closes
for some reason. Citibank N.A. would then be required to
answer for the deposit liabilities of Citibank Philippines. If
the Court were to adopt the posture of PDIC that the head
office and the branch are two separate entities and that
the funds placed by the head office and its foreign
branches with the Philippine branch are considered
deposits within the meaning of the PDIC Charter, it would
result to the incongruous situation where Citibank, as the
head office, would be placed in the ridiculous position of
having to reimburse itself, as depositor, for the losses it
may incur occasioned by the closure of
Citibank Philippines. Surely our lawmakers could not have
envisioned such a preposterous circumstance when they
created PDIC.
Finally, the Court agrees with the CA ruling that there is
nothing in the definition of a bank and a banking account of Citibank. It discovered that Citibank, in the
institution in Section 3(b) of the PDIC Charter which
explicitly states that the head office of a foreign bank
and its other branches are separate and distinct from their
Philippine branches.
There is no need to complicate the matter when it can be
solved by simple logic bolstered by law and
jurisprudence. Based on the foregoing, it is clear that the
head office of a bank and its branches are considered as
one under the eyes of the law. While branches are treated
as separate business units for commercial and financial
reporting purposes, in the end, the head office remains
responsible and answerable for the liabilities of its
branches which are under its supervision and control. As
such, it is unreasonable for PDIC to require the
respondents, Citibank and BA, to insure the money
placements made by their home office and other
branches. Deposit insurance is superfluous and entirely
unnecessary when, as in this case, the institution holding
the funds and the one which made the placements are one
and the same legal entity.
G.R. No. 170290 April 11, 2012
PHILIPPINE DEPOSIT INSURANCE
CORPORATION, Petitioner,
vs.
CITIBANK, N.A. and BANK OF AMERICA, S.T. &
N.A., Respondents.
DECISION
MENDOZA, J.:
This is a petition for review under Rule 45 of the 1997
Revised Rules of Civil Procedure, assailing the October 27,
2005 Decision1 of the Court of Appeals (CA) in CA-G.R. CV
No. 61316, entitled "Citibank, N.A. and Bank of America,
S.T. & N.A. v. Philippine Deposit Insurance Corporation."
The Facts
Petitioner Philippine Deposit Insurance
Corporation (PDIC) is a government instrumentality created
by virtue of Republic Act (R.A.) No. 3591, as amended by
R.A. No. 9302.2
Respondent Citibank, N.A. (Citibank) is a banking
corporation while respondent Bank of America, S.T. &
N.A. (BA) is a national banking association, both of which
are duly organized and existing under the laws of the
United States of America and duly licensed to do business
in the Philippines, with offices in Makati City.3
In 1977, PDIC conducted an examination of the books of
course of its banking business, from September 30, 1974
to June 30, 1977, received from its head office and other
foreign branches a total of P11,923,163,908.00 in dollars,
covered by Certificates of Dollar Time Deposit that were
interest-bearing with corresponding maturity dates.4 These
funds, which were lodged in the books of Citibank under
the account "Their Account-Head Office/Branches-Foreign
Currency," were not reported to PDIC as deposit liabilities
that were subject to assessment for insurance. 5 As such, in
a letter dated March 16, 1978, PDIC assessed Citibank for
deficiency in the sum of P1,595,081.96.6
Similarly, sometime in 1979, PDIC examined the books of
accounts of BA which revealed that from September 30,
1976 to June 30, 1978, BA received from its head office
and its other foreign branches a total of P629,311,869.10
in dollars, covered by Certificates of Dollar Time Deposit
that were interest-bearing with corresponding maturity
dates and lodged in their books under the account "Due to
Head Office/Branches."7 Because BA also excluded these
from its deposit liabilities, PDIC wrote to BA on October 9,
1979, seeking the remittance of P109,264.83 representing
deficiency premium assessments for dollar deposits. 8
Believing that litigation would inevitably arise from this
dispute, Citibank and BA each filed a petition for
declaratory relief before the Court of First Instance (now
the Regional Trial Court) of Rizal on July 19, 1979 and
December 11, 1979, respectively. 9 In their petitions,
Citibank and BA sought a declaratory judgment stating
that the money placements they received from their head
office and other foreign branches were not deposits and did
not give rise to insurable deposit liabilities under Sections
3 and 4 of R.A. No. 3591 (the PDIC Charter) and, as a
consequence, the deficiency assessments made by PDIC
were improper and erroneous.10 The cases were then
consolidated.11
On June 29, 1998, the Regional Trial Court, Branch 163,
Pasig City (RTC) promulgated its Decision12 in favor of
Citibank and BA, ruling that the subject money
placements were not deposits and did not give rise to
insurable deposit liabilities, and that the deficiency
assessments issued by PDIC were improper and erroneous.
Therefore, Citibank and BA were not liable to pay the
same. The RTC reasoned out that the money placements
subject of the petitions were not assessable for insurance
purposes under the PDIC Charter because said placements
were deposits made outside of the Philippines and, under
Section 3.05(b) of the PDIC Rules and Regulations, 13 such
deposits are excluded from the computation of deposit
liabilities. Section 3(f) of the PDIC Charter likewise
excludes from the definition of the term "deposit" any
obligation of a bank payable at the office of the bank
located outside the Philippines. The RTC further stated
that there was no depositor-depository relationship
between the respondents and their head office or other
branches. As a result, such deposits were not included as
third-party deposits that must be insured. Rather, they
were considered inter-branch deposits which were excluded
from the assessment base, in accordance with the practice
of the United States Federal Deposit Insurance
Corporation (FDIC) after which PDIC was patterned.
Aggrieved, PDIC appealed to the CA which affirmed the
ruling of the RTC in its October 27, 2005 Decision. In so
ruling, the CA found that the money placements were
received as part of the banks internal dealings by Citibank
and BA as agents of their respective head offices. This
showed that the head office and the Philippine branch
were considered as the same entity. Thus, no bank deposit
could have arisen from the transactions between the
Philippine branch and the head office because there did
not exist two separate contracting parties to act as
depositor and depositary.14 Secondly, the CA called
attention to the purpose for the creation of PDIC which
was to protect the deposits of depositors in the Philippines
and not the deposits of the same bank through its head
office or foreign branches.15 Thirdly, because there was no
law or jurisprudence on the treatment of inter-branch
deposits between the Philippine branch of a foreign bank
and its head office and other branches for purposes of
insurance, the CA was guided by the procedure observed
by the FDIC which considered inter-branch deposits as
non-assessable.16 Finally, the CA cited Section 3(f) of R.A.
No. 3591, which specifically excludes obligations payable at
the office of the bank located outside the Philippines from
the definition of a deposit or an insured deposit. Since the
subject money placements were made in the respective
head offices of Citibank and BA located outside the
Philippines, then such placements could not be subject to
assessment under the PDIC Charter. 17
Hence, this petition.
The Issues
PDIC raises the issue of whether or not the subject dollar
deposits are assessable for insurance purposes under the
PDIC Charter with the following assigned errors:
A.
The appellate court erred in ruling that the subject
dollar deposits are money placements, thus, they are
not subject to the provisions of Republic Act No. 6426
otherwise known as the "Foreign Currency Deposit Act
of the Philippines."
B.
The appellate court erred in ruling that the subject
dollar deposits are not covered by the PDIC
insurance.18
Respondents similarly identify only one issue in this case:
Whether or not the money placements subject matter
of these petitions are assessable for insurance purposes
under the PDIC Act.19
The sole question to be resolved in this case is whether the
funds placed in the Philippine branch by the head office
and foreign branches of Citibank and BA are insurable
deposits under the PDIC Charter and, as such, are subject
to assessment for insurance premiums.
The Courts Ruling
The Court rules in the negative.
A branch has no separate legal personality;
Purpose of the PDIC
PDIC argues that the head offices of Citibank and BA and
their individual foreign branches are separate and
independent entities. It insists that under American
jurisprudence, a banks head office and its branches have
a principal-agent relationship only if they operate in the
same jurisdiction. In the case of foreign branches, however,
no such relationship exists because the head office and
said foreign branches are deemed to be two distinct
entities.20 Under Philippine law, specifically, Section 3(b) of
R.A. No. 3591, which defines the terms "bank" and
"banking institutions," PDIC contends that the law treats a
branch of a foreign bank as a separate and independent
banking unit.21
The respondents, on the other hand, initially point out that
the factual findings of the RTC and the CA, with regard to
the nature of the money placements, the capacity in which
the same were received by the respondents and the
exclusion of inter-branch deposits from assessment, can no
longer be disturbed and should be accorded great weight
by this Court.22 They also argue that the money
placements are not deposits. They postulate that for a
deposit to exist, there must be at least two parties a
depositor and a depository each with a legal personality
distinct from the other. Because the respondents
respective head offices and their branches form only a
single legal entity, there is no creditor-debtor relationship
and the funds placed in the Philippine branch belong to
one and the same bank. A bank cannot have a deposit with
itself.23
This Court is of the opinion that the key to the resolution
of this controversy is the relationship of the Philippine
branches of Citibank and BA to their respective head
offices and their other foreign branches.
The Court begins by examining the manner by which a
foreign corporation can establish its presence in the
Philippines. It may choose to incorporate its own
subsidiary as a domestic corporation, in which case such
subsidiary would have its own separate and independent
legal personality to conduct business in the country. In the
alternative, it may create a branch in the Philippines,
which would not be a legally independent unit, and simply
obtain a license to do business in the Philippines.24
In the case of Citibank and BA, it is apparent that they
both did not incorporate a separate domestic corporation
to represent its business interests in the Philippines. Their
Philippine branches are, as the name implies, merely
branches, without a separate legal personality from their
parent company, Citibank and BA. Thus, being one and
the same entity, the funds placed by the respondents in
their respective branches in the Philippines should not be
treated as deposits made by third parties subject to deposit
insurance under the PDIC Charter.
For lack of judicial precedents on this issue, the Court
seeks guidance from American jurisprudence.1wphi1 In
the leading case of Sokoloff v. The National City Bank of
New York,25 where the Supreme Court of New York held:
Where a bank maintains branches, each branch
becomes a separate business entity with separate
books of account. A depositor in one branch cannot issue
checks or drafts upon another branch or demand payment
from such other branch, and in many other respects the
branches are considered separate corporate entities and as
distinct from one another as any other
bank. Nevertheless, when considered with relation to
the parent bank they are not independent agencies;
they are, what their name imports, merely branches,
and are subject to the supervision and control of the
parent bank, and are instrumentalities whereby the
parent bank carries on its business, and are established
for its own particular purposes, and their business
conduct and policies are controlled by the parent bank and
their property and assets belong to the parent bank,
although nominally held in the names of the particular
branches. Ultimate liability for a debt of a branch would
rest upon the parent bank. [Emphases supplied]
This ruling was later reiterated in the more recent case
of United States v. BCCI Holdings Luxembourg 26 where the
United States Court of Appeals, District of Columbia
Circuit, emphasized that "while individual bank branches
may be treated as independent of one another, each
branch, unless separately incorporated, must be viewed as
a part of the parent bank rather than as an independent
entity."
In addition, Philippine banking laws also support the
conclusion that the head office of a foreign bank and its
branches are considered as one legal entity. Section 75 of
R.A. No. 8791 (The General Banking Law of 2000) and
Section 5 of R.A. No. 7221 (An Act Liberalizing the Entry of
Foreign Banks) both require the head office of a foreign
bank to guarantee the prompt payment of all the liabilities
of its Philippine branch, to wit:
Republic Act No. 8791:
Sec. 75. Head Office Guarantee. In order to provide
effective protection of the interests of the depositors and
other creditors of Philippine branches of a foreign bank,
the head office of such branches shall fully guarantee the
prompt payment of all liabilities of its Philippine branch.
Residents and citizens of the Philippines who are creditors
of a branch in the Philippines of foreign bank shall have
preferential rights to the assets of such branch in
accordance with the existing laws.
Republic Act No. 7721:
Sec. 5. Head Office Guarantee. The head office of foreign
bank branches shall guarantee prompt payment of all
liabilities of its Philippine branches.
Moreover, PDIC must be reminded of the purpose for its
creation, as espoused in Section 1 of R.A. No. 3591 (The
PDIC Charter) which provides:
Section 1. There is hereby created a Philippine Deposit
Insurance Corporation hereinafter referred to as the
"Corporation" which shall insure, as herein provided, the
deposits of all banks which are entitled to the benefits of
insurance under this Act, and which shall have the powers
hereinafter granted.
The Corporation shall, as a basic policy, promote and
safeguard the interests of the depositing public by way of
providing permanent and continuing insurance coverage
on all insured deposits.
R.A. No. 9576, which amended the PDIC Charter,
reaffirmed the rationale for the establishment of the PDIC:
Section 1. Statement of State Policy and Objectives. - It is
hereby declared to be the policy of the State to strengthen
the mandatory deposit insurance coverage system to
generate, preserve, maintain faith and confidence in the
country's banking system, and protect it from illegal
schemes and machinations.
Towards this end, the government must extend all means
and mechanisms necessary for the Philippine Deposit
Insurance Corporation to effectively fulfill its vital task of
promoting and safeguarding the interests of the depositing
public by way of providing permanent and continuing
insurance coverage on all insured deposits, and in helping
develop a sound and stable banking system at all times.
The purpose of the PDIC is to protect the depositing public
in the event of a bank closure. It has already been
sufficiently established by US jurisprudence and
Philippine statutes that the head office shall answer for the
liabilities of its branch. Now, suppose the Philippine
branch of Citibank suddenly closes for some reason.
Citibank N.A. would then be required to answer for the
deposit liabilities of Citibank Philippines. If the Court were
to adopt the posture of PDIC that the head office and the
branch are two separate entities and that the funds placed
by the head office and its foreign branches with the
Philippine branch are considered deposits within the
meaning of the PDIC Charter, it would result to the
incongruous situation where Citibank, as the head office,
would be placed in the ridiculous position of having to
reimburse itself, as depositor, for the losses it may incur
occasioned by the closure of Citibank Philippines. Surely
our law makers could not have envisioned such a
preposterous circumstance when they created PDIC.
Finally, the Court agrees with the CA ruling that there is
nothing in the definition of a "bank" and a "banking
institution" in Section 3(b) of the PDIC Charter 27 which
explicitly states that the head office of a foreign bank and
its other branches are separate and distinct from their
Philippine branches.
There is no need to complicate the matter when it can be
solved by simple logic bolstered by law and jurisprudence.
Based on the foregoing, it is clear that the head office of a
bank and its branches are considered as one under the
eyes of the law. While branches are treated as separate
business units for commercial and financial reporting
purposes, in the end, the head office remains responsible
and answerable for the liabilities of its branches which are
under its supervision and control. As such, it is
unreasonable for PDIC to require the respondents,
Citibank and BA, to insure the money placements made by
their home office and other branches. Deposit insurance is
superfluous and entirely unnecessary when, as in this
case, the institution holding the funds and the one which
made the placements are one and the same legal entity.
Funds not a deposit under the definition
of the PDIC Charter;
Excluded from assessment
PDIC avers that the funds are dollar deposits and not
money placements. Citing R.A. No. 6848, it defines money
placement as a deposit which is received with authority to
invest. Because there is no evidence to indicate that the
respondents were authorized to invest the subject dollar
deposits, it argues that the same cannot be considered
money placements.28 PDIC then goes on to assert that the
funds received by Citibank and BA are deposits, as
contemplated by Section 3(f) of R.A. No. 3591, for the
following reasons: (1) the dollar deposits were received by
Citibank and BA in the course of their banking operations
from their respective head office and foreign branches and
were recorded in their books as "Account-Head
Office/Branches-Time Deposits" pursuant to Central Bank
Circular No. 343 which implements R.A. No. 6426; (2) the
dollar deposits were credited as dollar time accounts and
were covered by Certificates of Dollar Time Deposit which
were interest-bearing and payable upon maturity, and (3)
the respondents maintain 100% foreign currency cover for
their deposit liability arising from the dollar time deposits
as required by Section 4 of R.A. No. 6426. 29
To refute PDICs allegations, the respondents explain the
inter-branch transactions which necessitate the creation of
the accounts or placements subject of this case. When the
Philippine branch needs to procure foreign currencies, it
will coordinate with a branch in another country which
handles foreign currency purchases. Both branches have
existing accounts with their head office and when a money
placement is made in relation to the acquisition of foreign
currency from the international market, the amount is
credited to the account of the Philippine branch with its
head office while the same is debited from the account of
the branch which facilitated the purchase. This is further
documented by the issuance of a certificate of time deposit
with a stated interest rate and maturity date. The interest
rate represents the cost of obtaining the funds while the
maturity date represents the date on which the placement
must be returned. On the maturity date, the amount
previously credited to the account of the Philippine branch
is debited, together with the cost for obtaining the funds,
and credited to the account of the other branch. The
respondents insist that the interest rate and maturity date
are simply the basis for the debit and credit entries made
by the head office in the accounts of its branches to reflect
the inter-branch accommodation.30 As regards the
maintenance of currency cover over the subject money
placements, the respondents point out that they maintain
foreign currency cover in excess of what is required by law
as a matter of prudent banking practice.31
PDIC attempts to define money placement in order to
impugn the respondents claim that the funds received
from their head office and other branches are money
placements and not deposits, as defined under the PDIC
Charter. In the process, it loses sight of the important
issue in this case, which is the determination of whether
the funds in question are subject to assessment for deposit
insurance as required by the PDIC Charter. In its struggle
to find an adequate definition of "money placement," PDIC
desperately cites R.A. No. 6848, The Charter of the Al-
Amanah Islamic Investment Bank of the Philippines.
Reliance on the said law is unfounded because nowhere in
the law is the term "money placement" defined. of the Bank; Provided, that any obligation of a bank
Additionally, R.A. No. 6848 refers to the establishment of which is payable at the office of the bank located
an Islamic bank subject to the rulings of Islamic Sharia to outside of the Philippines shall not be a deposit for any
assist in the development of the Autonomous Region of of the purposes of this Act or included as part of the
Muslim Mindanao (ARMM),32 making it utterly irrelevant to
total deposits or of the insured deposits; Provided
the case at bench. Since Citibank and BA are neither
further, that any insured bank which is incorporated
Islamic banks nor are they located anywhere near the
under the laws of the Philippines may elect to include for
ARMM, then it should be painfully obvious that R.A. No.
insurance its deposit obligation payable only at such
6848 cannot aid us in deciding this case.
branch. [Emphasis supplied]
Furthermore, PDIC heavily relies on the fact that the
The testimony of Mr. Shaffer as to the treatment of such
respondents documented the money placements with
inter-branch deposits by the FDIC, after which PDIC was
certificates of time deposit to simply conclude that the
modelled, is also persuasive. Inter-branch deposits refer to
funds involved are deposits, as contemplated by the PDIC
funds of one branch deposited in another branch and both
Charter, and are consequently subject to assessment for
branches are part of the same parent company and it is
deposit insurance. It is this kind of reasoning that creates
the practice of the FDIC to exclude such inter-branch
non-existent obscurities in the law and obstructs the
deposits from a banks total deposit liabilities subject to
prompt resolution of what is essentially a straightforward
assessment.34
issue, thereby causing this case to drag on for more than
three decades.1wphi1 All things considered, the Court finds that the funds in
question are not deposits within the definition of the PDIC
Noticeably, PDIC does not dispute the veracity of the
Charter and are, thus, excluded from assessment.
internal transactions of the respondents which gave rise to
the issuance of the certificates of time deposit for the WHEREFORE, the petition is DENIED. The October 27,
funds the subject of the present dispute. Neither does it 2005 Decision of the Court of Appeals in CA-G.R. CV No.
question the findings of the RTC and the CA that the 61316 is AFFIRMED.
money placements were made, and were payable, outside
of the Philippines, thus, making them fall under the
exclusions to deposit liabilities. PDIC also fails to impugn
the truth of the testimony of John David Shaffer, then a
Fiscal Agent and Head of the Assessment Section of the
FDIC, that inter-branch deposits were excluded from the
assessment base. Therefore, the determination of facts of
the lower courts shall be accepted at face value by this
Court, following the well-established principle that factual
findings of the trial court, when adopted and confirmed by
the CA, are binding and conclusive on this Court, and will
generally not be reviewed on appeal.33

As explained by the respondents, the transfer of funds,

which resulted from the inter-branch transactions, took
place in the books of account of the respective branches in
their head office located in the United States. Hence,
because it is payable outside of the Philippines, it is not
considered a deposit pursuant to Section 3(f) of the PDIC
Charter:

Sec. 3(f) The term "deposit" means the unpaid balance of

money or its equivalent received by a bank in the usual
course of business and for which it has given or is obliged
to give credit to a commercial, checking, savings, time or
thrift account or which is evidenced by its certificate of
deposit, and trust funds held by such bank whether
retained or deposited in any department of said bank or
deposit in another bank, together with such other
obligations of a bank as the Board of Directors shall find
and shall prescribe by regulations to be deposit liabilities
G.R. No. 191424 August 7, 2013
ALFEO D. VIVAS, ON HIS BEHALF AND ON BEHALF OF
THE SHAREHOLDERS OF EUROCREDIT COMMUNITY
BANK, PETITIONER,
vs.
THE MONETARY BOARD OF THE BANGKO SENTRAL
NG PILIPINAS AND THE PHILIPPINE DEPOSIT
INSURANCE CORPORATION, RESPONDENTS.
DECISION
MENDOZA, J.:
This is a petition for prohibition with prayer for the
issuance of a status quo ante order or writ of preliminary
injunction ordering the respondents to desist from closing
EuroCredit Community Bank, Incorporated (ECBI) and
from pursuing the receivership thereof. The petition
likewise prays that the management and operation of ECBI
be restored to its Board of Directors (BOD) and its officers.
The Facts
The Rural Bank of Faire, Incorporated (RBFI) was a duly
registered rural banking institution with principal office in
Centro Sur, Sto. Nio, Cagayan. Record shows that the
corporate life of RBFI expired on May 31,
2005.1Notwithstanding, petitioner Alfeo D. Vivas (Vivas)
and his principals acquired the controlling interest in RBFI
sometime in January 2006. At the initiative of Vivas and
the new management team, an internal audit was
conducted on RBFI and results thereof highlighted the
dismal operation of the rural bank. In view of those
findings, certain measures calculated to revitalize the bank
were allegedly introduced.2 On December 8, 2006, the
Bangko Sentral ng Pilipinas (BSP) issued the Certificate of
Authority extending the corporate life of RBFI for another
fifty (50) years. The BSP also approved the change of its
corporate name to EuroCredit Community Bank,
Incorporated, as well as the increase in the number of the
members of its BOD, from five (5) to eleven (11). 3
Pursuant to Section 28 of Republic Act (R.A.) No. 7653,
otherwise known as The New Central Bank Act, the
Integrated Supervision Department II (ISD II) of the BSP
conducted a general examination on ECBI with the cut-off
date of December 31, 2007. Shortly after the completion of
the general examination, an exit conference was held on
March 27, 2008 at the BSP during which the BSP officials
and examiners apprised Vivas, the Chairman and
President of ECBI, as well as the other bank officers and
members of its BOD, of the advance findings noted during
the said examination. The ECBI submitted its comments
on BSPs consolidated findings and risk asset classification
through a letter, dated April 8, 2008.4
Sometime in April 2008, the examiners from the
Department of Loans and Credit of the BSP arrived at the
ECBI and cancelled the rediscounting line of the bank.
Vivas appealed the cancellation to BSP.5 Thereafter, the
Monetary Board (MB) issued Resolution No. 1255, dated
September 25, 2008, placing ECBI under Prompt
Corrective Action (PCA) framework because of the following
serious findings and supervisory concerns noted during
the general examination: 1] negative capital of ?14.674
million and capital adequacy ratio of negative 18.42%; 2]
CAMEL (Capital Asset Management Earnings Liquidity)
composite rating of "2" with a Management component
rating of "1"; and 3] serious supervisory concerns
particularly on activities deemed unsafe or
unsound.6 Vivas claimed that the BSP took the above
courses of action due to the joint influence exerted by a
certain hostile shareholder and a former BSP examiner. 7
Through its letter, dated September 30, 2008, the BSP
furnished ECBI with a copy of the Report of Examination
(ROE) as of December 31, 2007. In addition, the BSP
directed the banks BOD and senior management to: 1]
infuse fresh capital of ?22.643 million; 2] book the amount
of ?28.563 million representing unbooked valuation
reserves on classified loans and other risks assets on or
before October 31, 2008; and 3] take appropriate action
necessary to address the violations/exceptions noted in
the examination.8
Vivas moved for a reconsideration of Resolution No. 1255
on the grounds of non-observance of due process and
arbitrariness. The ISD II, on several instances, had invited
the BOD of ECBI to discuss matters pertaining to the
placement of the bank under PCA framework and other
supervisory concerns before making the appropriate
recommendations to the MB. The proposed meeting,
however, did not materialize due to postponements sought
by Vivas.9
In its letter, dated February 20, 2009, the BSP directed
ECBI to explain why it transferred the majority shares of
RBFI without securing the prior approval of the MB in
apparent violation of Subsection X126.2 of the Manual of
Regulation for Banks (MORB).10 Still in another
11
letter, dated March 31, 2009, the ISD II required ECBI to
explain why it did not obtain the prior approval of the BSP
anent the establishment and operation of the banks sub-
offices.
Also, the scheduled March 31, 2009 general examination
of the books, records and general condition of ECBI with
the cut-off date of December 31, 2008, did not push
through. According to Vivas, ECBI asked for the deferment
of the examination pending resolution of its appeal before
the MB. Vivas believed that he was being treated unfairly
because the letter of authority to examine allegedly
contained a clause which pertained to the Anti-Money
Laundering Law and the Bank Secrecy Act.12
The MB, on the other hand, posited that ECBI unjustly
refused to allow the BSP examiners from examining and
inspecting its books and records, in violation of Sections
25 and 34 of R.A. No. 7653. In its letter, 13 dated May 8,
2009, the BSP informed ECBI that it was already due for
another annual examination and that the pendency of its
appeal before the MB would not prevent the BSP from
conducting another one as mandated by Section 28 of R.A.
No. 7653.
In view of ECBIs refusal to comply with the required
examination, the MB issued Resolution No. 726,14 dated
May 14, 2009, imposing monetary penalty/fine on ECBI,
and referred the matter to the Office of the Special
Investigation (OSI) for the filing of appropriate legal action.
The BSP also wrote a letter, 15 dated May 26, 2009, advising
ECBI to comply with MB Resolution No. 771, which
essentially required the bank to follow its directives. On
May 28, 2009, the ISD II reiterated its demand upon the
ECBI BOD to allow the BSP examiners to conduct a
general examination on June 3, 2009.16
In its June 2, 2009 Letter-Reply, 17 ECBI asked for another
deferment of the examination due to the pendency of
certain unresolved issues subject of its appeal before the
MB, and because Vivas was then out of the country. The
ISD II denied ECBIs request and ordered the general
examination to proceed as previously scheduled.18
Thereafter, the MB issued Resolution No. 823, 19 dated June
4, 2009, approving the issuance of a cease and desist order
against ECBI, which enjoined it from pursuing certain acts
and transactions that were considered unsafe or unsound
banking practices, and from doing such other acts or
transactions constituting fraud or might result in the
dissipation of its assets.
On June 10, 2009, the OSI filed with the Department of
Justice (DOJ) a complaint for Estafa Through Falsification
of Commercial Documents against certain officials and
employees of ECBI. Meanwhile, the MB issued Resolution
No. 1164,20 dated August 13, 2009, denying the appeal of
ECBI from Resolution No. 1255 which placed it under PCA
framework. On November 18, 2009, the general
examination of the books and records of ECBI with the
cut-off date of September 30, 2009, was commenced and
ended in December 2009. Later, the BSP officials and
examiners met with the representatives of ECBI, including
Vivas, and discussed their findings. 21 On December 7,
2009, the ISD II reminded ECBI of the non-submission of
its financial audit reports for the years 2007 and 2008
with a warning that failure to submit those reports and the
written explanation for such omission shall result in the
imposition of a monetary penalty.22 In a letter, dated
February 1, 2010, the ISD II informed ECBI of MB
Resolution No. 1548 which denied its request for
reconsideration of Resolution No. 726.
On March 4, 2010, the MB issued Resolution No.
27623 placing ECBI under receivership in accordance with
the recommendation of the ISD II which reads:
On the basis of the examination findings as of 30
September 2009 as reported by the Integrated Supervision
Department (ISD) II, in its memorandum dated 17
February 2010, which findings showed that the Eurocredit
Community Bank, Inc. a Rural Bank (Eurocredit Bank)
(a) is unable to pay its liabilities as they become due in the
ordinary course of business; (b) has insufficient realizable
assets to meet liabilities; (c) cannot continue in business
without involving probable losses to its depositors and
creditors; and (d) has willfully violated a cease and desist
order of the Monetary Board for acts or transactions which
are considered unsafe and unsound banking practices and
other acts or transactions constituting fraud or dissipation
of the assets of the institution, and considering the failure
of the Board of Directors/management of Eurocredit Bank
to restore the banks financial health and viability despite
considerable time given to address the banks financial
problems, and that the bank had been accorded due
process, the Board, in accordance with Section 30 of
Republic Act No. 7653 (The New Central Bank Act),
approved the recommendation of ISD II as follows:
To prohibit the Eurocredit Bank from doing business in the
Philippines and to place its assets and affairs under
receivership; and
To designate the Philippine Deposit Insurance Corporation
as Receiver of the bank.
Assailing MB Resolution No. 276, Vivas filed this petition
for prohibition before this Court, ascribing grave abuse of
discretion to the MB for prohibiting ECBI from continuing
its banking business and for placing it under receivership.
The petitioner presents the following
ARGUMENTS:
(a)
It is grave abuse of discretion amounting to loss of
jurisdiction to apply the general law embodied in Section
30 of the New Central Bank Act as opposed to the specific
law embodied in Sections 11 and 14 of the Rural Banks
Act of 1992.
(b)
Even if it assumed that Section 30 of the New Central
Bank Act is applicable, it is still the gravest abuse of
discretion amounting to lack or excess of jurisdiction to
execute the law with manifest arbitrariness, abuse of
discretion, and bad faith, violation of constitutional rights
and to further execute a mandate well in excess of its
parameters.
(c)
The power delegated in favor of the Bangko Sentral ng
Pilipinas to place rural banks under receiverships is
unconstitutional for being a diminution or invasion of the
powers of the Supreme Court, in violation of Section 2,
Article VIII of the Philippine Constitution. 24
Vivas submits that the respondents committed grave abuse
of discretion when they erroneously applied Section 30 of
R.A. No. 7653, instead of Sections 11 and 14 of the Rural
Bank Act of 1992 or R.A. No. 7353. He argues that despite
the deficiencies, inadequacies and oversights in the
conduct of the affairs of ECBI, it has not committed any
financial fraud and, hence, its placement under
receivership was unwarranted and improper. He posits
that, instead, the BSP should have taken over the
management of ECBI and extended loans to the financially
distrained bank pursuant to Sections 11 and 14 of R.A.
No. 7353 because the BSPs power is limited only to
supervision and management take-over of banks.
He contends that the implementation of the questioned
resolution was tainted with arbitrariness and bad faith,
stressing that ECBI was placed under receivership without
due and prior hearing in violation of his and the banks
right to due process. He adds that respondent PDIC
actually closed ECBI even in the absence of any directive to
this effect. Lastly, Vivas assails the constitutionality of
Section 30 of R.A. No. 7653 claiming that said provision
vested upon the BSP the unbridled power to close and
place under receivership a hapless rural bank instead of
aiding its financial needs. He is of the view that such
power goes way beyond its constitutional limitation and
has transformed the BSP to a sovereign in its own
"kingdom of banks."25
The Courts Ruling
The petition must fail.
Vivas Availed of the Wrong Remedy
To begin with, Vivas availed of the wrong remedy. The MB
issued Resolution No. 276, dated March 4, 2010, in the
exercise of its power under R.A. No. 7653. Under Section
30 thereof, any act of the MB placing a bank under
conservatorship, receivership or liquidation may not be
restrained or set aside except on a petition for certiorari.
Pertinent portions of R.A. 7653 read:
Section 30.
x x x x.
The actions of the Monetary Board taken under this
section or under Section 29 of this Act shall be final and
executory, and may not be restrained or set aside by the
court except on petition for certiorari on the ground that
the action taken was in excess of jurisdiction or with such
grave abuse of discretion as to amount to lack or excess of
jurisdiction. The petition for certiorari may only be filed by
the stockholders of record representing the majority of the
capital stock within ten (10) days from receipt by the board
of directors of the institution of the order directing
receivership, liquidation or conservatorship.
x x x x. [Emphases supplied]
Prohibition is already unavailing
Granting that a petition for prohibition is allowed, it is
already an ineffective remedy under the circumstances
obtaining. Prohibition or a "writ of prohibition" is that
process by which a superior court prevents inferior courts,
tribunals, officers, or persons from usurping or exercising
a jurisdiction with which they have not been vested by law,
and confines them to the exercise of those powers legally
conferred. Its office is to restrain subordinate courts,
tribunals or persons from exercising jurisdiction over
matters not within its cognizance or exceeding its
jurisdiction in matters of which it has cognizance. 26 In our
jurisdiction, the rule on prohibition is enshrined in Section
2, Rule 65 of the Rules on Civil Procedure, to wit:
Sec. 2. Petition for prohibition - When the proceedings of
any tribunal, corporation, board, officer or person, whether
exercising judicial, quasi-judicial or ministerial functions,
are without or in excess of its or his jurisdiction, or with
grave abuse of discretion amounting to lack or excess of
jurisdiction, and there is no appeal or any other plain,
speedy, and adequate remedy in the ordinary course of law,
a person aggrieved thereby may file a verified petition in
the proper court, alleging the facts with certainty and
praying that the judgment be rendered commanding the
respondent to desist from further proceedings in the action
or matter specified therein, or otherwise granting such
incidental reliefs as the law and justice require.
x x x x.
Indeed, prohibition is a preventive remedy seeking that a
judgment be rendered which would direct the defendant to
desist from continuing with the commission of an act
perceived to be illegal.27 As a rule, the proper function of a
writ of prohibition is to prevent the doing of an act which is
about to be done. It is not intended to provide a remedy for
acts already accomplished.28
Though couched in imprecise terms, this petition for
prohibition apparently seeks to prevent the acts of closing
of ECBI and placing it under receivership. Resolution No.
276, however, had already been issued by the MB and the
closure of ECBI and its placement under receivership by
the PDIC were already accomplished. Apparently, the
remedy of prohibition is no longer appropriate. Settled is
the rule that prohibition does not lie to restrain an act that
is already a fait accompli.29
The Petition Should Have Been Filed in the CA
Even if treated as a petition for certiorari, the petition
should have been filed with the CA. Section 4 of Rule 65
reads:
Section 4. When and where petition filed. The petition
shall be filed not later than sixty (60) days from notice of
the judgment, order or resolution. In case a motion for
reconsideration or new trial is timely filed, whether such
motion is required or not, the sixty (60) day period shall be
counted from notice of the denial of said motion.
The petition shall be filed in the Supreme Court or, if it
relates to the acts or omissions of a lower court or of a
corporation, board, officer or person, in the Regional Trial
Court exercising jurisdiction over the territorial area as
defined by the Supreme Court. It may also be filed in the
Court of Appeals whether or not the same is in aid of its
appellate jurisdiction, or in the Sandiganbayan if it is in
aid of its appellate jurisdiction. If it involves the acts or
omissions of a quasi-judicial agency, unless otherwise
provided by law or these Rules, the petition shall be filed in
and cognizable only by the Court of Appeals. [Emphases
supplied]
That the MB is a quasi-judicial agency was already settled
and reiterated in the case of Bank of Commerce v. Planters
Development Bank And Bangko Sentral Ng Pilipinas. 30
Doctrine of Hierarchy of Courts
Even in the absence of such provision, the petition is also
dismissible because it simply ignored the doctrine of
hierarchy of courts. True, the Court, the CA and the RTC
have original concurrent jurisdiction to issue writs of
certiorari, prohibition and mandamus. The concurrence of
jurisdiction, however, does not grant the party seeking any
of the extraordinary writs the absolute freedom to file a
petition in any court of his choice. The petitioner has not
advanced any special or important reason which would
allow a direct resort to this Court. Under the Rules of
Court, a party may directly appeal to this Court only on
pure questions of law.31 In the case at bench, there are
certainly factual issues as Vivas is questioning the findings
of the investigating team.
Strict observance of the policy of judicial hierarchy
demands that where the issuance of the extraordinary
writs is also within the competence of the CA or the RTC,
the special action for the obtainment of such writ must be
presented to either court. As a rule, the Court will not
entertain direct resort to it unless the redress desired
cannot be obtained in the appropriate lower courts; or
where exceptional and compelling circumstances, such as
cases of national interest and with serious implications,
justify the availment of the extraordinary remedy of writ of
certiorari, prohibition, or mandamus calling for the
exercise of its primary jurisdiction.32 The judicial policy
must be observed to prevent an imposition on the precious
time and attention of the Court.
The MB Committed No Grave Abuse of Discretion
In any event, no grave abuse of discretion can be attributed
to the MB for the issuance of the assailed Resolution No.
276.
Vivas insists that the circumstances of the case warrant
the application of Section 11 of R.A. No. 7353, which
provides:
Sec. 11. The power to supervise the operation of any rural
bank by the Monetary Board as herein indicated shall
consist in placing limits to the maximum credit allowed to
any individual borrower; in prescribing the interest rate, in
determining the loan period and loan procedures, in
indicating the manner in which technical assistance shall
be extended to rural banks, in imposing a uniform
accounting system and manner of keeping the accounts
and records of rural banks; in instituting periodic surveys
of loan and lending procedures, audits, test-check of cash
and other transactions of the rural banks; in conducting
training courses for personnel of rural banks; and, in
general, in supervising the business operations of the rural
banks.
The Central Bank shall have the power to enforce the laws,
orders, instructions, rules and regulations promulgated by
the Monetary Board, applicable to rural banks; to require
rural banks, their directors, officers and agents to conduct
and manage the affairs of the rural banks in a lawful and
orderly manner; and, upon proof that the rural bank or its
Board of Directors, or officers are conducting and
managing the affairs of the bank in a manner contrary to
laws, orders, instructions, rules and regulations
promulgated by the Monetary Board or in a manner
substantially prejudicial to the interest of the Government,
depositors or creditors, to take over the management of
such bank when specifically authorized to do so by the
Monetary Board after due hearing process until a new
board of directors and officers are elected and qualified
without prejudice to the prosecution of the persons
responsible for such violations under the provisions of
Sections 32, 33 and 34 of Republic Act No. 265, as
amended.
x x x x.
The thrust of Vivas argument is that ECBI did not commit
any financial fraud and, hence, its placement under
receivership was unwarranted and improper. He asserts
that, instead, the BSP should have taken over the
management of ECBI and extended loans to the financially
distrained bank pursuant to Sections 11 and 14 of R.A.
No. 7353 because the BSPs power is limited only to
supervision and management take-over of banks, and not
receivership.
Vivas argues that implementation of the questioned
resolution was tainted with arbitrariness and bad faith,
stressing that ECBI was placed under receivership without
due and prior hearing, invoking Section 11 of R.A. No.
7353 which states that the BSP may take over the
management of a rural bank after due hearing.33 He adds
that because R.A. No. 7353 is a special law, the same
should prevail over R.A. No. 7653 which is a general law.
The Court has taken this into account, but it appears from
all over the records that ECBI was given every opportunity
to be heard and improve on its financial standing. The
records disclose that BSP officials and examiners met with
the representatives of ECBI, including Vivas, and
discussed their findings.34 There were also reminders that
ECBI submit its financial audit reports for the years 2007
and 2008 with a warning that failure to submit them and a
written explanation of such omission shall result in the
imposition of a monetary penalty.35More importantly, ECBI
was heard on its motion for reconsideration. For failure of
ECBI to comply, the MB came out with Resolution No.
1548 denying its request for reconsideration of Resolution
No. 726. Having been heard on its motion for
reconsideration, ECBI cannot claim that it was deprived of
its right under the Rural Bank Act.
Close Now, Hear Later
At any rate, if circumstances warrant it, the MB may forbid
a bank from doing business and place it under receivership
without prior notice and hearing. Section 30 of R.A. No.
7653 provides, viz:
Sec. 30. Proceedings in Receivership and Liquidation.
Whenever, upon report of the head of the supervising or
examining department, the Monetary Board finds that a
bank or quasi-bank:
(a) is unable to pay its liabilities as they become due in the
ordinary course of business: Provided, That this shall not
include inability to pay caused by extraordinary demands
induced by financial panic in the banking community;
(b) has insufficient realizable assets, as determined by the
Bangko Sentral, to meet its liabilities; or
(c) cannot continue in business without involving probable
losses to its depositors or creditors; or
(d) has wilfully violated a cease and desist order under
Section 37 that has become final, involving acts or
transactions which amount to fraud or a dissipation of the
assets of the institution; in which cases, the Monetary
Board may summarily and without need for prior hearing
forbid the institution from doing business in the
Philippines and designate the Philippine Deposit Insurance
Corporation as receiver of the banking institution.
[Emphases supplied.]
x x x x.
Accordingly, there is no conflict which would call for the
application of the doctrine that a special law should prevail
over a general law. It must be emphasized that R.A .No.
7653 is a later law and under said act, the power of the MB
over banks, including rural banks, was increased and
expanded. The Court, in several cases, upheld the power of
the MB to take over banks without need for prior hearing.
It is not necessary inasmuch as the law entrusts to the MB
the appreciation and determination of whether any or all of
the statutory grounds for the closure and receivership of
the erring bank are present. The MB, under R.A. No. 7653,
has been invested with more power of closure and
placement of a bank under receivership for insolvency or
illiquidity, or because the banks continuance in business
would probably result in the loss to depositors or creditors.
In the case of Bangko Sentral Ng Pilipinas Monetary Board
v. Hon. Antonio-Valenzuela,36 the Court reiterated the
doctrine of "close now, hear later," stating that it was
justified as a measure for the protection of the public
interest. Thus:
The "close now, hear later" doctrine has already been
justified as a measure for the protection of the public
interest. Swift action is called for on the part of the BSP
when it finds that a bank is in dire straits. Unless
adequate and determined efforts are taken by the
government against distressed and mismanaged banks,
public faith in the banking system is certain to deteriorate
to the prejudice of the national economy itself, not to
mention the losses suffered by the bank depositors,
creditors, and stockholders, who all deserve the protection
of the government.37 [Emphasis supplied]
In Rural Bank of Buhi, Inc. v. Court of Appeals, 38 the Court
also wrote that
x x x due process does not necessarily require a prior
hearing; a hearing or an opportunity to be heard may be
subsequent to the closure. One can just imagine the dire
consequences of a prior hearing: bank runs would be the
order of the day, resulting in panic and hysteria. In the
process, fortunes may be wiped out and disillusionment
will run the gamut of the entire banking community.39
The doctrine is founded on practical and legal
considerations to obviate unwarranted dissipation of the
banks assets and as a valid exercise of police power to
protect the depositors, creditors, stockholders, and the
general public.40 Swift, adequate and determined actions that the said provision was an undue delegation of
must be taken against financially distressed and legislative power. The contention deserves scant
mismanaged banks by government agencies lest the public consideration.
faith in the banking system deteriorate to the prejudice of
Preliminarily, Vivas attempt to assail the constitutionality
the national economy.
of Section 30 of R.A. No. 7653 constitutes collateral attack
Accordingly, the MB can immediately implement its on the said provision of law. Nothing is more settled than
resolution prohibiting a banking institution to do business the rule that the constitutionality of a statute cannot be
in the Philippines and, thereafter, appoint the PDIC as collaterally attacked as constitutionality issues must be
receiver. The procedure for the involuntary closure of a pleaded directly and not collaterally.41 A collateral attack
bank is summary and expeditious in nature. Such action on a presumably valid law is not permissible. Unless a law
of the MB shall be final and executory, but may be later or rule is annulled in a direct proceeding, the legal
subjected to a judicial scrutiny via a petition for certiorari presumption of its validity stands.42
to be filed by the stockholders of record of the bank
Be that as it may, there is no violation of the non-
representing a majority of the capital stock. Obviously, this
delegation of legislative power.1wphi1 The rationale for
procedure is designed to protect the interest of all
the constitutional proscription is that "legislative discretion
concerned, that is, the depositors, creditors and
as to the substantive contents of the law cannot be
stockholders, the bank itself and the general public. The
delegated. What can be delegated is the discretion to
protection afforded public interest warrants the exercise of
determine how the law may be enforced, not what the law
a summary closure.
shall be. The ascertainment of the latter subject is a
In the case at bench, the ISD II submitted its prerogative of the legislature. This prerogative cannot be
memorandum, dated February 17, 2010, containing the abdicated or surrendered by the legislature to the
findings noted during the general examination conducted delegate."43
on ECBI with the cut-off date of September 30, 2009. The
"There are two accepted tests to determine whether or not
memorandum underscored the inability of ECBI to pay its
there is a valid delegation of legislative power, viz, the
liabilities as they would fall due in the usual course of its
completeness test and the sufficient standard test. Under
business, its liabilities being in excess of the assets held.
the first test, the law must be complete in all its terms and
Also, it was noted that ECBIs continued banking operation
conditions when it leaves the legislature such that when it
would most probably result in the incurrence of additional
reaches the delegate the only thing he will have to do is
losses to the prejudice of its depositors and creditors. On
enforce it. Under the sufficient standard test, there must
top of these, it was found that ECBI had willfully violated
be adequate guidelines or stations in the law to map out
the cease-and-desist order of the MB issued in its June 24,
the boundaries of the delegate's authority and prevent the
2009 Resolution, and had disregarded the BSP rules and
delegation from running riot. Both tests are intended to
directives. For said reasons, the MB was forced to issue the
prevent a total transference of legislative authority to the
assailed Resolution No. 276 placing ECBI under
delegate, who is not allowed to step into the shoes of the
receivership. In addition, the MB stressed that it accorded
legislature and exercise a power essentially legislative." 44
ECBI ample time and opportunity to address its monetary
problem and to restore and improve its financial health In this case, under the two tests, there was no undue
and viability but it failed to do so. delegation of legislative authority in the issuance of R.A.
No. 7653. To address the growing concerns in the banking
In light of the circumstances obtaining in this case, the
industry, the legislature has sufficiently empowered the
application of the corrective measures enunciated in
MB to effectively monitor and supervise banks and
Section 30 of R.A. No. 7653 was proper and justified.
financial institutions and, if circumstances warrant, to
Management take-over under Section 11 of R.A. No. 7353
forbid them to do business, to take over their management
was no longer feasible considering the financial quagmire
or to place them under receivership. The legislature has
that engulfed ECBI showing serious conditions of
clearly spelled out the reasonable parameters of the power
insolvency and illiquidity. Besides, placing ECBI under
entrusted to the MB and assigned to it only the manner of
receivership would effectively put a stop to the further
enforcing said power. In other words, the MB was given a
draining of its assets.
wide discretion and latitude only as to how the law should
No Undue Delegation of Legislative Power be implemented in order to attain its objective of protecting
the interest of the public, the banking industry and the
Lastly, the petitioner challenges the constitutionality of
economy.
Section 30 of R.A. No. 7653, as the legislature granted the
MB a broad and unrestrained power to close and place a WHEREFORE, the petition for prohibition is DENIED.
financially troubled bank under receivership. He claims
SO ORDERED.
G.R. Nos. 154470-71 September 24, 2012 The transfer of the first set of seven CB bills

BANK OF COMMERCE, Petitioner, i. CB bill nos. 45351-53

vs.
On April 20, 1994, according to the BOC, it "sold back" 11 to
PLANTERS DEVELOPMENT BANK and BANGKO
the PDB three of the seven CB bills. In turn, the PDB
SENTRAL NG PILIPINAS, Respondent. transferred these three CB bills to Bancapital Development
Corporation (Bancap). On April 25, 1994, the BOC bought
x-----------------------x
the three CB bills from Bancap so, ultimately, the BOC
G.R. Nos. 154589-90 reacquired these three CB bills,12 particularly described as
follows:
BANGKO SENTRAL NG PILIPINAS, Petitioner,
vs. Serial No.: 2BB XM 045351
PLANTERS DEVELOPMENT BANK, Respondent. 2BB XM 045352
2BB XM 045353
DECISION

BRION, J.: Quantity: Three (3)

Before the Court are two consolidated petitions for review
on certiorari under Rule 45,1 on pure questions of law, filed
by the petitioners Bank of Commerce (BOC) and the
Bangko Sentral ng Pilipinas (BSP). They assail the January
10, 2002 and July 23, 2002 Orders (assailed orders) of the
Regional Trial Court (RTC) of Makati City, Branch 143, in
Civil Case Nos. 94-3233 and 94-3254. These orders
dismissed (i) the petition filed by the Planters Development
Bank (PDB), (ii) the "counterclaim" filed by the BOC, and
(iii) the counter-complaint/cross-claim for interpleader filed
bythe BSP; and denied the BOCs and the BSPs motions
for reconsideration.
THE ANTECEDENTS
The Central Bank bills
I. First set of CB bills
Denomination: Php 10 million
Total Face Value: Php 30 million
ii. CB bill nos. 45347-50
On April 20, 1994, the BOC sold the remaining four (4) CB
bills to Capital One Equities Corporation 13 which
transferred them to All-Asia Capital and Trust Corporation
(All Asia). On September 30, 1994, All Asia further
transferred the four CB bills back to the RCBC. 14
On November 16, 1994, the RCBC sold back to All Asia one
of these 4 CB bills. When the BSP refused to release the
amount of this CB bill on maturity, the BOC purchased
from All Asia this lone CB bill,15 particularly described as
follows:16

The Rizal Commercial Banking Corporation (RCBC) was Serial No.: 2BB XM 045348
the registered owner of seven Central Bank (CB) bills with
a total face value of P 70 million, issued on January 2, Quantity: One (1)
1994 and would mature on January 2, 1995. 2 As
evidenced by a "Detached Assignment" dated April 8, Denomination: Php 10 million
1994,3 the RCBC sold these CB bills to the BOC. 4 As
evidenced by another "Detached Assignment"5 of even date,
Total Face Value: Php 10 million
the BOC, in turn, sold these CB bills to the PDB. 6The BOC
delivered the Detached Assignments to the PDB.7 As the registered owner of the remaining three CB bills, the
RCBC sold them to IVI Capital and Insular Savings Bank.
On April 15, 1994 (April 15 transaction), the PDB, in turn,
Again, when the BSP refused to release the amount of this
sold to the BOC Treasury Bills worth P 70 million, with
CB bill on maturity, the RCBC paid back its transferees,
maturity date of June 29, 1994, as evidenced by a Trading
reacquired these three CB bills and sold them to the BOC
Order8 and a Confirmation of Sale.9 However, instead of
ultimately, the BOC acquired these three CB bills.
delivering the Treasury Bills, the PDB delivered the seven
CB bills to the BOC, as evidenced by a PDB Security All in all, the BOC acquired the first set of seven CB bills.
Delivery Receipt, bearing a "note: ** substitution in lieu of
06-29-94" referring to the Treasury Bills. 10Nevertheless, II. Second set of CB bills
the PDB retained possession of the Detached Assignments.
On April 19, 1994, the RCBC, as registered owner, (i) sold
It is basically the nature of this April 15 transaction that
two CB bills with a total face value of P 20 million to the
the PDB and the BOC cannot agree on.
PDB and (ii) delivered to the PDB the corresponding
Detached Assignment.17 The two CB bills were particularly
described as follows:
Serial No.: BB XM 045373
BB XM 045374
Issue date: January 3, 1994
Maturity date: January 2, 1995
Denomination: Php 10 million
Total Face value: Php 20 million
On even date, the PDB delivered to Bancap the two CB
bills18 (April 19 transaction). In turn, Bancap sold the CB
bills to Al-Amanah Islamic Investment Bank of the
Philippines, which in turn sold it to the BOC.19
PDBs move against the transfer of
the first and second sets of CB bills
On June 30, 1994, upon learning of the transfers involving
the CB bills, the PDB informed 20 the Officer-in-Charge of
the BSPs Government Securities Department, 21 Lagrimas
Nuqui, of the PDBs claim over these CB bills, based on the
Detached Assignments in its possession. The PDB
requested the BSP22 to record its claim in the BSPs books,
explaining that its non-possession of the CB bills is "on
account of imperfect negotiations thereof and/or
subsequent setoff or transfer."23
Nuqui denied the request, invoking Section 8 of CB
Circular No. 28 (Regulations Governing Open Market
Operations, Stabilization of the Securities Market, Issue,
Servicing and Redemption of the Public Debt)24 which
requires the presentation of the bond before a registered
bond may be transferred on the books of the BSP. 25
In a July 25, 1994 letter, the PDB clarified to Nuqui that it
was not "asking for the transfer of the CB Bills. rather it
intends to put the BSP on formal notice that whoever is in
possession of said bills is not a holder in due course," and,
therefore the BSP should not make payment upon the
presentation of the CB bills on maturity. 26 Nuqui
responded that the BSP was "not in a position at that point
in time to determine who is and who is not the holder in
due course since it is not privy to all acts and time
involving the transfers or negotiation" of the CB bills.
Nuqui added that the BSPs action shall be governed by CB
Circular No. 28, as amended.27
On November 17, 1994, the PDB also asked BSP Deputy
Governor Edgardo Zialcita that (i) a notation in the BSPs
books be made against the transfer, exchange, or payment
of the bonds and the payment of interest thereon; and (ii)
the presenter of the bonds upon maturity be required to
submit proof as a holder in due course (of the first set of
CB bills). The PDB relied on Section 10 (d) 4 of CB Circular
No. 28.28 This provision reads:
(4) Assignments effected by fraud Where the assignment
of a registered bond is secured by fraudulent
representations, the Central Bank can grant no relief if the
assignment has been honored without notice of fraud.
Otherwise, the Central Bank, upon receipt of notice that
the assignment is claimed to have been secured by
fraudulent representations, or payment of the bond the
payment of interest thereon, and when the bond is
presented, will call upon the owner and the person
presenting the bond to substantiate their respective
claims.If it then appears that the person presenting the
bond stands in the position of bonafide holder for value,
the Central Bank, after giving the owner an opportunity to
assert his claim, will pass the bond for transfer, exchange
or payments, as the case may be, without further question.
In a December 29, 1994 letter, Nuqui again denied the
request, reiterating the BSPs previous stand.
In light of these BSP responses and the impending
maturity of the CB bills, the PDB filed 29 with the RTC two
separate petitions for Mandamus, Prohibition and
Injunction with prayer for Preliminary Injunction and
Temporary Restraining Order, docketed as Civil Case No.
94-3233 (covering the first set of CB bills) and Civil Case
94-3254 (covering the second set of CB bills) against
Nuqui, the BSP and the RCBC.30
The PDB essentially claims that in both the April 15
transaction (involving the first set of CB bills) and the April
19 transaction (involving the second set of CB bills), there
was no intent on its part to transfer title of the CB bills, as
shown by its non-issuance of a detached assignment in
favor of the BOC and Bancap, respectively. The PDB
particularly alleges that it merely "warehoused"31 the first
set of CB bills with the BOC, as security collateral.
On December 28, 1994, the RTC temporarily enjoined
Nuqui and the BSP from paying the face value of the CB
bills on maturity.32 On January 10, 1995, the PDB filed an
Amended Petition, additionally impleading the BOC and All
Asia.33 In a January 13, 1995 Order, the cases were
consolidated.34 On January 17, 1995, the RTC granted the
PDBs application for a writ of preliminary prohibitory
injunction.35 In both petitions, the PDB identically prayed:
WHEREFORE, it is respectfully prayed x x x that, after due
notice and hearing, the Writs of Mandamus, Prohibition
and Injunction, be issued; (i) commanding the BSP and
Nuqui, or whoever may take her place -
(a) to record forthwith in the books of BSP the claim of x x
x PDB on the [two sets of] CB Bills in accordance with
Section 10 (d) (4) of revised C.B. Circular No. 28; and
(b) also pursuant thereto, when the bills are presented on
maturity date for payment, to call (i) x x x PDB, (ii) x x x
RCBC x x x, (iii) x x x BOC x x x, and (iv) x x x ALL-ASIA x
x x; or whoever will present the [first and second sets of]
CB Bills for payment, to submit proof as to who stands as
the holder in due course of said bills, and, thereafter, act
accordingly;
and (ii) ordering the BSP and Nuqui to pay jointly and
severally to x x x PDB the following:
(a) the sum of P 100,000.00, as and for exemplary
damages;
(b) the sum of at least P 500,000.00, or such amount as
shall be proved at the trial, as and for attorneys fees;
(c) the legal rate of interest from the filing of this Petition
until full payment of the sums mentioned in this Petition;
and
(d) the costs of suit.36
After the petitions were filed, the BOC acquired/reacquired
all the nine CB bills the first and second sets of CB bills
(collectively, subject CB bills).
Defenses of the BSP and of the BOC37
The BOC filed its Answer, praying for the dismissal of the
petition. It argued that the PDB has no cause of action
against it since the PDB is no longer the owner of the CB
bills. Contrary to the PDBs "warehousing theory," 38 the
BOC asserted that the (i) April 15 transaction and the (ii)
April 19 transaction covering both sets of CB bills - were
valid contracts of sale, followed by a transfer of title (i) to
the BOC (in the April 15 transaction) upon the PDBs
delivery of the 1st set of CB bills in substitution of the
Treasury Bills the PDB originally intended to sell, and (ii)
to Bancap (in the April 19 transaction) upon the PDBs
delivery of the 2nd set of CB bills to Bancap, likewise by
way of substitution.
The BOC adds that Section 10 (d) 4 of CB Circular No. 28
cannot apply to the PDBs case because (i) the PDB is not
in possession of the CB bills and (ii) the BOC acquired
these bills from the PDB, as to the 1st set of CB bills, and
from Bancap, as to the 2nd set of CB bills, in good faith
and for value. The BOC also asserted a compulsory
counterclaim for damages and attorneys fees.
On the other hand, the BSP countered that the PDB
cannot invoke Section 10 (d) 4 of CB Circular No. 28
because this section applies only to an "owner" and a
"person presenting the bond," of which the PDB is neither.
The PDB has not presented to the BSP any assignment of
the subject CB bills, duly recorded in the BSPs books, in
its favor to clothe it with the status of an
"owner."39 According to the BSP
Section 10 d. (4) applies only to a registered bond which is
assigned. And the issuance of CB Bills x x x are required to
be recorded/registered in BSPs books. In this regard,
Section 4 a. (1) of CB Circular 28 provides that registered
bonds "may be transferred only by an assignment thereon
duly executed by the registered owner or his duly
authorized representative x x x and duly recorded on the
books of the Central Bank."
xxxx
The alleged assignment of subject CB Bills in PDBs favor is
not recorded/registered in BSPs books. 40(underscoring
supplied)
Consequently, when Nuqui and the BSP refused the PDBs
request (to record its claim), they were merely performing
their duties in accordance with CB Circular No. 28.
Alternatively, the BSP asked that an interpleader suit be
allowed between and among the claimants to the subject
CB bills on the position that while it is able and willing to
pay the subject CB bills face value, it is duty bound to
ensure that payment is made to the rightful owner. The
BSP prayed that judgment be rendered:
a. Ordering the dismissal of the PDBs petition for lack of
merit;
b. Determining which between/among [PDB] and the other
claimants is/are lawfully entitled to the ownership of the
subject CB bills and the proceeds thereof;
c. x x x;
d. Ordering PDB to pay BSP and Nuqui such
actual/compensatory and exemplary damages as the
RTC may deem warranted; and
e. Ordering PDB to pay Nuqui moral damages and to pay
the costs of the suit.41
Subsequent events
The PDB agreed with the BSPs alternative response for an
interpleader
4. PDB agrees that the various claimants should now
interplead and substantiate their respective claims on the
subject CB bills. However, the total face value of the
subject CB bills should be deposited in escrow with a
private bank to be disposed of only upon order of the
RTC.42
Accordingly, on June 9, 199543 and August 4, 1995,44 the
BOC and the PDB entered into two separate Escrow
Agreements.45 The first agreement covered the first set of
CB bills, while the second agreement covered the second
set of CB bills. The parties agreed to jointly collect from the
BSP the maturity proceeds of these CB bills and to deposit
said amount in escrow, "pending final determination by
Court judgment, or amicable settlement as to who shall be
eventually entitled thereto."46 The BOC and the PDB filed a
Joint Motion,47 submitting these Escrow Agreements for
court approval. The RTC gave its approval to the parties
Joint Motion.48 Accordingly, the BSP released the maturity
proceeds of the CB bills by crediting the Demand Deposit
Account of the PDB and of the BOC with 50% each of the
maturity proceeds of the amount in escrow.49
In view of the BOCs acquisition of all the CB bills, All
Asia50 moved to be dropped as a respondent (with the
PDBs conformity51), which the RTC granted.52 The RCBC
subsequently followed suit.53
In light of the developments, on May 4, 1998, the RTC
required the parties to manifest their intention regarding
the case and to inform the court of any amicable
settlement; "otherwise, th[e] case shall be dismissed for
lack of interest."54 Complying with the RTCs order, the
BOC moved (i) that the case be set for pre-trial and (ii) for
further proceeding to resolve the remaining issues between
the BOC and the PDB, particularly on "who has a better
right over the subject CB bills." 55 The PDB joined the BOC
in its motion.56
On September 28, 2000, the RTC granted the BSPs motion
to interplead and, accordingly, required the BOC to amend
its Answer and for the conflicting claimants to comment
thereon.57 In October 2000, the BOC filed its Amended
Consolidated Answer with Compulsory Counterclaim,
reiterating its earlier arguments asserting ownership over
the subject CB bills.58
In the alternative, the BOC added that even assuming that
there was no effective transfer of the nine CB bills
ultimately to the BOC, the PDB remains obligated to
deliver to the BOC, as buyer in the April 15 transaction
and ultimate successor-in-interest of the buyer (Bancap) in
the April 19 transaction, either the original subjects of the
sales or the value thereof, plus whatever income that may
have been earned during the pendency of the case. 59
That BOC prayed:
1. To declare BOC as the rightful owner of the nine (9) CB
bills and as the party entitled to the proceeds thereof as
well as all income earned pursuant to the two (2) Escrow
Agreements entered into by BOC and PDB.
2. In the alternative, ordering PDB to deliver the original
subject of the sales transactions or the value thereof and
whatever income earned by way of interest at prevailing
rate.
Without any opposition or objection from the PDB, on
February 23, 2001, the RTC admitted 60 the BOCs
Amended Consolidated Answer with Compulsory
Counterclaims.
In May 2001, the PDB filed an Omnibus
Motion,61 questioning the RTCs jurisdiction over the BOCs
"additional counterclaims." The PDB argues that its
petitions pray for the BSP (not the RTC) to determine who
among the conflicting claimants to the CB bills stands in
the position of the bona fide holder for value. The RTC
cannot entertain the BOCs counterclaim, regardless of its
nature, because it is the BSP which has jurisdiction to
determine who is entitled to receive the proceeds of the CB
bills.
The BOC opposed62 the PDBs Omnibus Motion. The PDB
filed its Reply.63
In a January 10, 2002 Order, the RTC dismissed the PDBs
petition, the BOCs counterclaim and the BSPs counter-
complaint/cross-claim for interpleader, holding that under
CB Circular No. 28, it has no jurisdiction (i) over the BOCs
"counterclaims" and (ii) to resolve the issue of ownership of
the CB bills.64 With the denial of their separate motions for
Reconsideration,65 the BOC and the BSP separately filed
the present petitions for review on certiorari.66
THE BOCS and THE BSPS PETITIONS
The BOC argues that the present cases do not fall within
the limited provision of Section 10 (d) 4 of CB Circular No.
28, which contemplates only of three situations: first,
where the fraudulent assignment is not coupled with a
notice to the BSP, it can grant no relief; second, where the
fraudulent assignment is coupled with a notice of fraud to
the BSP, it will make a notation against the assignment
and require the owner and the holder to substantiate their
claims; and third, where the case does not fall on either of
the first two situations, the BSP will have to await action
on the assignment pending settlement of the case, whether
by agreement or by court order.
The PDBs case cannot fall under the first two situations.
With particular regard to the second situation, CB Circular
No. 28 requires that the conflict must be between an
"owner" and a "holder," for the BSP to exercise its limited
jurisdiction to resolve conflicting claims; and the word
"owner" here refers to the registered owner giving notice of
the fraud to the BSP. The PDB, however, is not the
registered owner nor is it in possession (holder) of the CB
bills.67 Consequently, the PDBs case can only falls under
the third situation which leaves the RTC, as a court of
general jurisdiction, with the authority to resolve the issue
of ownership of a registered bond (the CB bills) not falling
in either of the first two situations.
The BOC asserts that the policy consideration supportive
of its interpretation of CB Circular No. 28 is to have a
reliable system to protect the registered owner; should he
file a notice with the BSP about a fraudulent assignment of
certain CB bills, the BSP simply has to look at its books to
determine who is the owner of the CB bills fraudulently
assigned. Since it is only the registered owner who
complied with the BSPs requirement of recording an
assignment in the BSPs books, then "the protective mantle
of administrative proceedings" should necessarily benefit
him only, without extending the same benefit to those who
chose to ignore the Circulars requirement, like the PDB. 68
Assuming arguendo that the PDBs case falls under the
second situation i.e., the BSP has jurisdiction to resolve
the issue of ownership of the CB bills the more recent CB
Circular No. 769-80 (Rules and Regulations Governing
Central Bank Certificates of Indebtedness) already
superseded CB Circular No. 28, and, in particular,
effectively amended Section 10 (d) 4 of CB Circular No. 28.
The pertinent provisions of CB Circular No. 769-80 read:
Assignment Affected by Fraud. Any assignment for
transfer of ownership of registered certificate obtained
through fraudulent representation if honored by the
Central Bank or any of its authorized service agencies
shall not make the Central Bank or agency liable therefore
unless it has previous formal notice of the fraud. The
Central Bank, upon notice under oath that the assignment
was secured through fraudulent means, shall immediately
issue and circularize a "stop order" against the transfer,
exchange, redemption of the Certificate including the
payment of interest coupons. The Central Bank or service
agency concerned shall continue to withhold action on the
certificate until such time that the conflicting claims have
been finally settled either by amicable settlement between
the parties or by order of the Court.
Unlike CB Circular No. 28, CB Circular No. 769-80 limited
the BSPs authority to the mere issuance and
circularization of a "stop order" against the transfer,
exchange and redemption upon sworn notice of a
fraudulent assignment. Under this Circular, the BSP shall
only continue to withhold action until the dispute is ended
by an amicable settlement or by judicial determination.
Given the more passive stance of the BSP the very agency
tasked to enforce the circulars involved - under CB
Circular No. 769-80, the RTCs dismissal of the BOCs
counterclaims is palpably erroneous.
Lastly, since Nuquis office (Government Securities
Department) had already been abolished, 69 it can no longer
adjudicate the dispute under the second situation covered
by CB Circular No. 28. The abolition of Nuquis office is not
only consistent with the BSPs Charter but, more
importantly, with CB Circular No. 769-80, which removed
the BSPs adjudicative authority over fraudulent
assignments.
THE PDBS COMMENT
The PDB claims that jurisdiction is determined by the
allegations in the complaint/petition and not by the
defenses set up in the answer. 70 In filing the petition with
the RTC, the PDB merely seeks to compel the BSP to
determine, pursuant to CB Circular No. 28, the party
legally entitled to the proceeds of the subject CB bills,
which, as the PDB alleged, have been transferred through
fraudulent representations an allegation which properly
recognized the BSPs jurisdiction to resolve conflicting
claims of ownership over the CB bills.
The PDB adds that under the doctrine of primary
jurisdiction, courts should refrain from determining a
controversy involving a question whose resolution demands
the exercise of sound administrative discretion. In the
present case, the BSPs special knowledge and experience
in resolving disputes on securities, whose assignment and
trading are governed by the BSPs rules, should be upheld.
The PDB counters that the BOCs tri-fold interpretation of
Section 10 (d) 4 of CB Circular No. 28 sanctions split
jurisdiction which is not favored;but even this tri-fold
interpretation which, in the second situation, limits the
meaning of the "owner" to the registered owner is flawed.
Section 10 (d) 4 aims to protect not just the registered
owner but anyone who has been deprived of his bond by
fraudulent representation in order to deter fraud in the
secondary trading of government securities.
The PDB asserts that the existence of CB Circular No. 769-
80 or the abolition of Nuquis office does not result in
depriving the BSP of its jurisdiction: first, CB Circular No.
769-80 expressly provides that CB Circular No. 28 shall
have suppletory application to CB Circular No. 769-80;
and second, the BSP can always designate an office to
resolve the PDBs claim over the CB bills.
Lastly, the PDB argues that even assuming that the RTC
has jurisdiction to resolve the issue of ownership of the CB
bills, the RTC has not acquired jurisdiction over the BOCs
so-called "compulsory" counterclaims (which in truth is
merely "permissive") because of the BOCs failure to pay
the appropriate docket fees. These counterclaims should,
therefore, be dismissed and expunged from the record.
THE COURTS RULING
We grant the petitions.
At the outset, we note that the parties have not raised the
validity of either CB Circular No. 28 or CB Circular No.
769-80 as an issue. What the parties largely contest is the
applicable circular in case of an allegedly fraudulently
assigned CB bill. The applicable circular, in turn, is
determinative of the proper remedy available to the PDB
and/or the BOC as claimants to the proceeds of the
subject CB bills.
Indisputably, at the time the PDB supposedly invoked the
jurisdiction of the BSP in 1994 (by requesting for the
annotation of its claim over the subject CB bills in the
BSPs books), CB Circular No. 769-80 has long been in
effect. Therefore, the parties respective interpretations of
the provision of Section 10 (d) 4 of CB Circular No. 28 do
not have any significance unless it is first established that
that Circular governs the resolution of their conflicting
claims of ownership. This conclusion is important, given
the supposed repeal or modification of Section 10 (d) 4 of
CB Circular No. 28 by the following provisions of CB
Circular No. 769-80:
ARTICLE XI
SUPPLEMENTAL RULES
Section 1. Central Bank Circular No. 28 The provisions of
Central Bank Circular No. 28 shall have suppletory
application to matters not specially covered by these Rules.
ARTICLE XII
EFFECTIVITY
Effectivity The rules and regulations herein prescribed
shall take effect upon approval by the Monetary Board,
Central Bank of the Philippines, and all circulars,
memoranda, or office orders inconsistent herewith are
revoked or modified accordingly. (Emphases added)
We agree with the PDB that in view of CB Circular No. 28s
suppletory application, an attempt to harmonize the
apparently conflicting provisions is a prerequisite before
one may possibly conclude that an amendment or a repeal
exists.71 Interestingly, however, even the PDB itself failed to
submit an interpretation based on its own position of
harmonization.
The repealing clause of CB Circular No. 769-80 obviously
did not expressly repeal CB Circular No. 28; in fact, it even
provided for the suppletory application of CB Circular No.
28 on "matters not specially covered by" CB Circular No.
769-80. While no express repeal exists, the intent of CB
Circular No. 769-80 to operate as an implied repeal, 72 or at
least to amend earlier CB circulars, is supported by its text
"revoking" or "modif[ying" "all circulars" which are
inconsistent with its terms.
At the outset, we stress that none of the parties disputes
that the subject CB bills fall within the category of a
certificate or evidence of indebtedness and that these were
issued by the Central Bank, now the BSP. Thus, even
without resorting to statutory construction aids, matters
involving the subject CB bills should necessarily be
governed by CB Circular No. 769-80. Even granting,
however, that reliance on CB Circular No. 769-80 alone is
not enough, we find that CB Circular No. 769-80 impliedly
repeals CB Circular No. 28.
An implied repeal transpires when a substantial conflict
exists between the new and the prior laws. In the absence
of an express repeal, a subsequent law cannot be
construed as repealing a prior law unless an irreconcilable
inconsistency and repugnancy exist in the terms of the
new and the old laws.73 Repeal by implication is not
favored, unless manifestly intended by the legislature, or
unless it is convincingly and unambiguously
demonstrated, that the laws or orders are clearly
repugnant and patently inconsistent with one another so
that they cannot co-exist; the legislature is presumed to
know the existing law and would express a repeal if one is
intended.74
There are two instances of implied repeal. One takes place
when the provisions in the two acts on the same subject
matter are irreconcilably contradictory, in which case, the
later act, to the extent of the conflict, constitutes an
implied repeal of the earlier one. The other occurs when
the later act covers the whole subject of the earlier one and
is clearly intended as a substitute; thus, it will operate to
repeal the earlier law.75
A general reading of the two circulars shows that the
second instance of implied repeal is present in this case.
CB Circular No. 28, entitled "Regulations Governing Open
Market Operations, Stabilization of Securities Market,
Issue, Servicing and Redemption of Public Debt," is a
regulation governing the servicing and redemption of
public debt, including the issue, inscription, registration,
transfer, payment and replacement of bonds and securities
representing the public debt.76 On the other hand, CB
Circular No. 769-80, entitled "Rules and Regulations
Governing Central Bank Certificate of Indebtedness," is the
governing regulation on matters77 (i) involving certificate of
indebtedness78 issued by the Central Bank itself and (ii)
which are similarly covered by CB Circular No. 28.
The CB Monetary Board issued CB Circular No. 28 to
regulate the servicing and redemption of public debt,
pursuant to Section 124 (now Section 119 of Republic Act
R.A. No. 7653) of the old Central Bank law 79 which
provides that "the servicing and redemption of the public
debt shall also be effected through the Bangko Sentral."
However, even as R.A. No. 7653 continued to recognize this
role by the BSP, the law required a phase-out of all fiscal
agency functions by the BSP, including Section 119 of R.A.
No. 7653.
In other words, even if CB Circular No. 28 applies broadly
to both government-issued bonds and securities and
Central Bank-issued evidence of indebtedness, given the
present state of law, CB Circular No. 28 and CB Circular
No. 769-80 now operate on the same subject Central
Bank-issued evidence of indebtedness. Under Section 1,
Article XI of CB Circular No. 769-80, the continued
relevance and application of CB Circular No. 28 would
depend on the need to supplement any deficiency or
silence in CB Circular No. 769-80 on a particular matter.
In the present case, both CB Circular No. 28 and CB
Circular No. 769-80 provide the BSP with a course of
action in case of an allegedly fraudulently assigned
certificate of indebtedness. Under CB Circular No. 28, in
case of fraudulent assignments, the BSP would have to
"call upon the owner and the person presenting the bond
to substantiate their respective claims" and, from there,
determine who has a better right over the registered bond.
On the other hand, under CB Circular No. 769-80, the BSP
shall merely "issue and circularize a stop order against
the transfer, exchange, redemption of the [registered]
certificate" without any adjudicative function (which is the
precise root of the present controversy). As the two
circulars stand, the patent irreconcilability of these two
provisions does not require elaboration. Section 5, Article V
of CB Circular No. 769-80 inescapably repealed Section 10
(d) 4 of CB Circular No. 28.
The issue of BSPs jurisdiction, lay hidden
On that note, the Court could have written finis to the
present controversy by simply sustaining the BSPs hands-
off approach to the PDBs problem under CB Circular No.
769-80. However, the jurisdictional provision of CB
Circular No. 769-80 itself, in relation to CB Circular No.
28, on the matter of fraudulent assignment, has given rise
to a question of jurisdiction - the core question of law
involved in these petitions - which the Court cannot just
treat sub-silencio.
Broadly speaking, jurisdiction is the legal power or
authority to hear and determine a cause. 80 In the exercise
of judicial or quasi-judicial power, it refers to the authority
of a court to hear and decide a case. 81 In the context of
these petitions, we hark back to the basic principles
governing the question of jurisdiction over the subject
matter.
First, jurisdiction over the subject matter is determined
only by the Constitution and by law. 82 As a matter of
substantive law, procedural rules alone can confer no
jurisdiction to courts or administrative agencies.83 In fact,
an administrative agency, acting in its quasi-judicial
capacity, is a tribunal of limited jurisdiction and, as such,
could wield only such powers that are specifically granted
to it by the enabling statutes. In contrast, an RTC is a
court of general jurisdiction, i.e., it has jurisdiction over
cases whose subject matter does not fall within the
exclusive original jurisdiction of any court, tribunal or
body exercising judicial or quasi-judicial functions.84
Second, jurisdiction over the subject matter is determined
not by the pleas set up by the defendant in his
answer85 but by the allegations in the
complaint,86 irrespective of whether the plaintiff is entitled
to favorable judgment on the basis of his assertions. 87 The
reason is that the complaint is supposed to contain a
concise statement of the ultimate facts constituting the
plaintiff's causes of action.88
Third, jurisdiction is determined by the law in force at the
time of the filing of the complaint. 89
Parenthetically, the Court observes that none of the parties
ever raised the issue of whether the BSP can simply
disown its jurisdiction, assuming it has, by the simple
expedient of promulgating a new circular (specially
applicable to a certificate of indebtedness issued by the
BSP itself), inconsistent with an old circular, assertive of
its limited jurisdiction over ownership issues arising from
fraudulent assignments of a certificate of indebtedness.
The PDB, in particular, relied solely and heavily on CB
Circular No. 28.
In light of the above principles pointing to jurisdiction as a
matter of substantive law, the provisions of the law itself
that gave CB Circular 769-80 its life and jurisdiction must
be examined.
The Philippine Central Bank
On January 3, 1949, Congress created the Central Bank of
the Philippines (Central Bank) as a corporate body with
the primary objective of (i) maintaining the internal and
external monetary stability in the Philippines; and (ii)
preserving the international value and the convertibility of
the peso.90 In line with these broad objectives, the Central
Bank was empowered to issue rules and regulations
"necessary for the effective discharge of the responsibilities
and exercise of the powers assigned to the Monetary Board
and to the Central Bank."91Specifically, the Central Bank is
authorized to organize (other) departments for the efficient
conduct of its business and whose powers and duties
"shall be determined by the Monetary Board, within the
authority granted to the Board and the Central
Bank"92 under its original charter.
With the 1973 Constitution, the then Central Bank was
constitutionally made as the countrys central monetary
authority until such time that Congress 93 shall have
established a central bank. The 1987 Constitution
continued to recognize this function of the then Central
Bank until Congress, pursuant to the Constitution, created
a new central monetary authority which later came to be
known as the Bangko Sentral ng Pilipinas.
Under the New Central Bank Act (R.A. No. 7653), 94 the BSP
is given the responsibility of providing policy directions in
the areas of money, banking and credit; it is given, too, the
primary objective of maintaining price stability, conducive
to a balanced and sustainable growth of the economy, and
of promoting and maintaining monetary stability and
convertibility of the peso.95
The Constitution expressly grants the BSP, as the
countrys central monetary authority, the power of
supervision over the operation of banks, while leaving with
Congress the authority to define the BSPs regulatory
powers over the operations of finance companies and other
institutions performing similar functions. Under R.A. No.
7653, the BSPs powers and functions include (i)
supervision over the operation of banks; (ii) regulation of
operations of finance companies and non-bank financial
institutions performing quasi banking functions; (iii) sole
power and authority to issue currency within the
Philippine territory; (iv) engaging in foreign exchange
transactions; (v) making rediscounts, discounts, loans and
advances to banking and other financial institutions to
influence the volume of credit consistent with the objective
of achieving price stability; (vi) engaging in open market
operations; and (vii) acting as banker and financial advisor
of the government.1wphi1
On the BSPs power of supervision over the operation of
banks, Section 4 of R.A. No. 8791 (The General Banking
Law of 2000) elaborates as follows:
CHAPTER II
AUTHORITY OF THE BANGKO SENTRAL
SECTION 4. Supervisory Powers. The operations and
activities of banks shall be subject to supervision of the
Bangko Sentral. "Supervision" shall include the following:
4.1. The issuance of rules of conduct or the establishment
of standards of operation for uniform application to all
institutions or functions covered, taking into consideration
the distinctive character of the operations of institutions
and the substantive similarities of specific functions to
which such rules, modes or standards are to be applied;
4.2. The conduct of examination to determine compliance
with laws and regulations if the circumstances so warrant
as determined by the Monetary Board;
4.3. Overseeing to ascertain that laws and regulations are
complied with;
4.4. Regular investigation which shall not be oftener than
once a year from the last date of examination to determine
whether an institution is conducting its business on a safe
or sound basis: Provided, That the
deficiencies/irregularities found by or discovered by an
audit shall be immediately addressed;
4.5. Inquiring into the solvency and liquidity of the
institution (2-D); or
4.6. Enforcing prompt corrective action. (n)
The Bangko Sentral shall also have supervision over the
operations of and exercise regulatory powers over quasi-
banks, trust entities and other financial institutions which
under special laws are subject to Bangko Sentral
supervision. (2-Ca)
For the purposes of this Act, "quasi-banks" shall refer to
entities engaged in the borrowing of funds through the
issuance, endorsement or assignment with recourse or
acceptance of deposit substitutes as defined in Section 95
of Republic Act No. 7653 (hereafter the "New Central Bank
Act") for purposes of relending or purchasing of receivables
and other obligations. [emphasis ours]
While this provision empowers the BSP to oversee the
operations and activities of banks to "ascertain that laws
and regulations are complied with," the existence of the
BSPs jurisdiction in the present dispute cannot rely on
this provision. The fact remains that the BSP already made
known to the PDB its unfavorable position on the latters
claim of fraudulent assignment due to the latters own
failure to comply96 with existing regulations:
In this connection, Section 10 (b) 2 also requires that a
"Detached assignment will be recognized or accepted only
upon previous notice to the Central Bank x x x." In fact, in
a memo dated September 23, 1991 xxx then CB Governor
Jose L. Cuisia advised all banks (including PDB) xxx as
follows:
In view recurring incidents ostensibly disregarding certain
provisions of CB circular No. 28 (as amended) covering
assignments of registered bonds, all banks and all
concerned are enjoined to observe strictly the pertinent
provisions of said CB Circular as hereunder quoted:
xxxx
Under Section 10.b. (2)
x x x Detached assignment will be recognized or accepted
only upon previous notice to the Central Bank and its use
is authorized only under the following circumstances:
(a) x x x
(b) x x x
(c) assignments of treasury notes and certificates of
indebtedness in registered form which are not provided at
the back thereof with assignment form.
(d) Assignment of securities which have changed ownership
several times.
(e) x x x
Non-compliance herewith will constitute a basis for non-
action or withholding of action on redemption/payment of
interest coupons/transfer transactions or denominational
exchange that may be directly affected thereby. [Boldfacing
supplied]
Again, the books of the BSP do not show that the supposed
assignment of subject CB Bills was ever recorded in the
BSPs books. [Boldfacing supplied]
However, the PDB faults the BSP for not recording the
assignment of the CB bills in the PDBs favor despite the
fact that the PDB already requested the BSP to record its
assignment in the BSPs books as early as June 30,
1994.97
The PDBs claim is not accurate. What the PDB requested
the BSP on that date was not the recording of the
assignment of the CB bills in its favor but the annotation
of its claim over the CB bills at the time when (i) it was no
longer in possession of the CB bills, having been
transferred from one entity to another and (ii) all it has are
the detached assignments, which the PDB has not shown
to be compliant with Section 10 (b) 2 above-quoted.
Obviously, the PDB cannot insist that the BSP take
cognizance of its plaint when the basis of the BSPs refusal
under existing regulation, which the PDB is bound to
observe, is the PDBs own failure to comply therewith.
True, the BSP exercises supervisory powers (and
regulatory powers) over banks (and quasi banks). The issue
presented before the Court, however, does not concern the
BSPs supervisory power over banks as this power is
understood under the General Banking Law. In fact, there
is nothing in the PDBs petition (even including the letters
it sent to the BSP) that would support the BSPs
jurisdiction outside of CB Circular No. 28, under its power
of supervision, over conflicting claims to the proceeds of
the CB bills.
BSP has quasi-judicial powers over a may be conferred by the Constitution or by statute. 102
class of cases which does not include
the adjudication of ownership of the
CB bills in question
In United Coconut Planters Bank v. E. Ganzon, Inc., 98 the
Court considered the BSP as an administrative
agency,99 exercising quasi-judicial functions through its
Monetary Board. It held:
A quasi-judicial agency or body is an organ of government
other than a court and other than a legislature, which
affects the rights of private parties through either
adjudication or rule-making. The very definition of an
administrative agency includes its being vested with quasi-
judicial powers. The ever increasing variety of powers and
functions given to administrative agencies recognizes the
need for the active intervention of administrative agencies
in matters calling for technical knowledge and speed in
countless controversies which cannot possibly be handled
by regular courts. A "quasi-judicial function" is a term
which applies to the action, discretion, etc., of public
administrative officers or bodies, who are required to
investigate facts, or ascertain the existence of facts, hold
hearings, and draw conclusions from them, as a basis for
their official action and to exercise discretion of a judicial
nature.
Undoubtedly, the BSP Monetary Board is a quasi-judicial
agency exercising quasi-judicial powers or functions. As
aptly observed by the Court of Appeals, the BSP Monetary
Board is an independent central monetary authority and a
body corporate with fiscal and administrative autonomy,
mandated to provide policy directions in the areas of
money, banking and credit. It has power to issue
subpoena, to sue for contempt those refusing to obey the
subpoena without justifiable reason, to administer oaths
and compel presentation of books, records and others,
needed in its examination, to impose fines and other
sanctions and to issue cease and desist order. Section 37
of Republic Act No. 7653, in particular, explicitly provides
that the BSP Monetary Board shall exercise its discretion
in determining whether administrative sanctions should be
imposed on banks and quasi-banks, which necessarily
implies that the BSP Monetary Board must conduct some
form of investigation or hearing regarding the same.
[citations omitted]
The BSP is not simply a corporate entity but qualifies as an
administrative agency created, pursuant to constitutional
mandate,100 to carry out a particular governmental
function.101 To be able to perform its role as central
monetary authority, the Constitution granted it fiscal and
administrative autonomy. In general, administrative
agencies exercise powers and/or functions which may be
characterized as administrative, investigatory, regulatory,
quasi-legislative, or quasi-judicial, or a mix of these five, as
While the very nature of an administrative agency and the
raison d'tre for its creation103 and proliferation dictate a
grant of quasi-judicial power to it, the matters over which it
may exercise this power must find sufficient anchorage on
its enabling law, either by express provision or by
necessary implication. Once found, the quasi-judicial
power partakes of the nature of a limited and special
jurisdiction, that is, to hear and determine a class of cases
within its peculiar competence and expertise. In other
words, the provisions of the enabling statute are the
yardsticks by which the Court would measure the
quantum of quasi-judicial powers an administrative agency
may exercise, as defined in the enabling act of such
agency.104
Scattered provisions in R.A. No. 7653 and R.A. No. 8791,
inter alia, exist, conferring jurisdiction on the BSP on
certain matters.105 For instance, under the situations
contemplated under Section 36, par. 2106 (where a bank or
quasi bank persists in carrying on its business in an
unlawful or unsafe manner) and Section 37 107 (where the
bank or its officers willfully violate the banks charter or
by-laws, or the rules and regulations issued by the
Monetary Board) of R.A. No. 7653, the BSP may place an
entity under receivership and/or liquidation or impose
administrative sanctions upon the entity or its officers or
directors.
Among its several functions under R.A. No. 7653, the BSP
is authorized to engage in open market operations and
thereby "issue, place, buy and sell freely negotiable
evidences of indebtedness of the Bangko Sentral" in the
following manner.
SEC. 90. Principles of Open Market Operations. The open
market purchases and sales of securities by the Bangko
Sentral shall be made exclusively in accordance with its
primary objective of achieving price stability.
xxxx
SEC. 92. Issue and Negotiation of Bangko Sentral
Obligations. In order to provide the Bangko Sentral with
effective instruments for open market operations, the
Bangko Sentral may, subject to such rules and regulations
as the Monetary Board may prescribe and in accordance
with the principles stated in Section 90 of this Act, issue,
place, buy and sell freely negotiable evidences of
indebtedness of the Bangko Sentral: Provided, That
issuance of such certificates of indebtedness shall be made
only in cases of extraordinary movement in price levels.
Said evidences of indebtedness may be issued directly
against the international reserve of the Bangko Sentral or
against the securities which it has acquired under the
provisions of Section 91 of this Act, or may be issued
without relation to specific types of assets of the Bangko
Sentral.
The Monetary Board shall determine the interest rates,
maturities and other characteristics of said obligations of
the Bangko Sentral, and may, if it deems it advisable,
denominate the obligations in gold or foreign currencies.
Subject to the principles stated in Section 90 of this Act,
the evidences of indebtedness of the Bangko Sentral to
which this section refers may be acquired by the Bangko
Sentral before their maturity, either through purchases in
the open market or through redemptions at par and by lot
if the Bangko Sentral has reserved the right to make such
redemptions. The evidences of indebtedness acquired or
redeemed by the Bangko Sentral shall not be included
among its assets, and shall be immediately retired and
cancelled.108 (italics supplied; emphases ours)
The primary objective of the BSP is to maintain price
stability.109 The BSP has a number of monetary policy
instruments at its disposal to promote price stability. To
increase or reduce liquidity in the financial system, the
BSP uses open market operations, among others. 110 Open
market operation is a monetary tool where the BSP
publicly buys or sells government securities 111 from (or to)
banks and financial institutions in order to expand or
contract the supply of money. By controlling the money
supply, the BSP is able to exert some influence on the
prices of goods and services and achieve its inflation
objectives.112
Once the issue and/or sale of a security is made, the BSP
would necessarily make a determination, in accordance
with its own rules, of the entity entitled to receive the
proceeds of the security upon its maturity. This
determination by the BSP is an exercise of its
administrative powers113 under the law as an incident to its
power to prescribe rules and regulations governing open
market operations to achieve the "primary objective of
achieving price stability."114 As a matter of necessity, too,
the same rules and regulations facilitate transaction with
the BSP by providing for an orderly manner of, among
others, issuing, transferring, exchanging and paying
securities representing public debt.
Significantly, when competing claims of ownership over the
proceeds of the securities it has issued are brought before
it, the law has not given the BSP the quasi-judicial power
to resolve these competing claims as part of its power to
engage in open market operations. Nothing in the BSPs
charter confers on the BSP the jurisdiction or authority to
determine this kind of claims, arising out of a subsequent
transfer or assignment of evidence of indebtedness a
matter that appropriately falls within the competence of
courts of general jurisdiction. That the statute withholds
this power from the BSP is only consistent with the
fundamental reasons for the creation of a Philippine
central bank, that is, to lay down stable monetary policy
and exercise bank supervisory functions. Thus, the BSPs
assumption of jurisdiction over competing claims cannot
find even a stretched-out justification under its corporate
powers "to do and perform any and all things that may be
necessary or proper to carry out the purposes" of R.A. No.
7653. 115
To reiterate, open market operation is a monetary policy
instrument that the BSP employs, among others, to
regulate the supply of money in the economy to influence
the timing, cost and availability of money and credit, as
well as other financial factors, for the purpose of stabilizing
the price level.116 What the law grants the BSP is a
continuing role to shape and carry out the countrys
monetary policy not the authority to adjudicate
competing claims of ownership over the securities it has
issued since this authority would not fall under the BSPs
purposes under its charter.
While R.A. No. 7653117 empowers the BSP to conduct
administrative hearings and render judgment for or against
an entity under its supervisory and regulatory powers and
even authorizes the BSP Governor to "render decisions, or
rulings x x x on matters regarding application or
enforcement of laws pertaining to institutions supervised
by the BSP and laws pertaining to quasi-banks, as well as
regulations, policies or instructions issued by the
Monetary Board," it is precisely the text of the BSPs own
regulation (whose validity is not here raised as an issue)
that points to the BSPs limited role in case of an allegedly
fraudulent assignment to simply (i) issuing and
circularizing a "stop order" against the transfer, exchange,
redemption of the certificate of indebtedness, including the
payment of interest coupons, and (ii) withholding action on
the certificate.
A similar conclusion can be drawn from the BSPs
administrative adjudicatory power in cases of "willful
failure or refusal to comply with, or violation of, any
banking law or any order, instruction or regulation issued
by the Monetary Board, or any order, instruction or ruling
by the Governor."118 The non-compliance with the pertinent
requirements under CB Circular No. 28, as amended,
deprives a party from any right to demand payment from
the BSP.
In other words, the grant of quasi-judicial authority to the
BSP cannot possibly extend to situations which do not call
for the exercise by the BSP of its supervisory or regulatory
functions over entities within its jurisdiction.119
The fact alone that the parties involved are banking
institutions does not necessarily call for the exercise by the
BSP of its quasi-judicial powers under the law. 120
The doctrine of primary jurisdiction
argues against BSPs purported
authority to adjudicate ownership
issues over the disputed CB bills
Given the preceding discussions, even the PDBs invocation
of the doctrine of primary jurisdiction is misplaced.
In the exercise of its plenary legislative power, Congress
may create administrative agencies endowed with quasi-
legislative and quasi-judicial powers. Necessarily, Congress
likewise defines the limits of an agencys jurisdiction in the
same manner as it defines the jurisdiction of courts.121 As
a result, it may happen that either a court or an
administrative agency has exclusive jurisdiction over a
specific matter or both have concurrent jurisdiction on the
same. It may happen, too, that courts and agencies may
willingly relinquish adjudicatory power that is rightfully
theirs in favor of the other. One of the instances when a
court may properly defer to the adjudicatory authority of
an agency is the applicability of the doctrine of primary
jurisdiction.122
As early as 1954, the Court applied the doctrine of primary
jurisdiction under the following terms:
6. In the fifties, the Court taking cognizance of the move to
vest jurisdiction in administrative commissions and boards
the power to resolve specialized disputes xxx ruled that
Congress in requiring the Industrial Court's intervention in
the resolution of labor-management controversies xxx
meant such jurisdiction to be exclusive, although it did not
so expressly state in the law. The Court held that under
the "sense-making and expeditious doctrine of primary
jurisdiction ... the courts cannot or will not determine a
controversy involving a question which is within the
jurisdiction of an administrative tribunal, where the
question demands the exercise of sound administrative
discretion requiring the special knowledge, experience, and
services of the administrative tribunal to determine
technical and intricate matters of fact, and a uniformity of
ruling is essential to comply with the purposes of the
regulatory statute administered."123 (emphasis ours)
In Industrial Enterprises, Inc. v. Court of Appeals, 124 the
Court ruled that while an action for rescission of a
contract between coal developers appears to be an action
cognizable by regular courts, the trial court remains to be
without jurisdiction to entertain the suit since the contract
sought to be rescinded is "inextricably tied up with the
right to develop coal-bearing lands and the determination
of whether or not the reversion of the coal operating
contract over the subject coal blocks to [the plaintiff] would
be in line with the countrys national program and
objective on coal-development and over-all coal-supply-
demand balance." It then applied the doctrine of primary
jurisdiction
In recent years, it has been the jurisprudential trend to
apply the doctrine of primary jurisdiction in many cases
involving matters that demand the special competence of
administrative agencies. It may occur that the Court has
jurisdiction to take cognizance of a particular case, which
means that the matter involved is also judicial in character.
However, if the case is such that its determination requires
the expertise, specialized skills and knowledge of the
proper administrative bodies because technical matters or
intricate questions of facts are involved, then relief must
first be obtained in an administrative proceeding before a
remedy will be supplied by the courts even though the
matter is within the proper jurisdiction of a court. This is
the doctrine of primary jurisdiction. It applies "where a
claim is originally cognizable in the courts, and comes into
play whenever enforcement of the claim requires the
resolution of issues which, under a regulatory scheme,
have been placed within the special competence of an
administrative body."
Clearly, the doctrine of primary jurisdiction finds
application in this case since the question of what coal
areas should be exploited and developed and which entity
should be granted coal operating contracts over said areas
involves a technical determination by the Bureau of Energy
Development as the administrative agency in possession of
the specialized expertise to act on the matter. The Trial
Court does not have the competence to decide matters
concerning activities relative to the exploration,
exploitation, development and extraction of mineral
resources like coal. These issues preclude an initial judicial
determination. [emphases ours]
The absence of any express or implied statutory power to
adjudicate conflicting claims of ownership or entitlement to
the proceeds of its certificates of indebtedness finds
complement in the similar absence of any technical matter
that would call for the BSPs special expertise or
competence.125 In fact, what the PDBs petitions bear out is
essentially the nature of the transaction it had with the
subsequent transferees of the subject CB bills (BOC and
Bancap) and not any matter more appropriate for special
determination by the BSP or any administrative agency.
In a similar vein, it is well-settled that the interpretation
given to a rule or regulation by those charged with its
execution is entitled to the greatest weight by the courts
construing such rule or regulation.126 While there are
exceptions127 to this rule, the PDB has not convinced us
that a departure is warranted in this case. Given the non-
applicability of the doctrine of primary jurisdiction, the
BSPs own position, in light of Circular No. 769-80,
deserves respect from the Court.
Ordinarily, cases involving the application of doctrine of
primary jurisdiction are initiated by an action invoking the
jurisdiction of a court or administrative agency to resolve
the substantive legal conflict between the parties. In this
sense, the present case is quite unique since the courts
jurisdiction was, originally, invoked to compel an
administrative agency (the BSP) to resolve the legal conflict
of ownership over the CB bills - instead of obtaining a
judicial determination of the same dispute.
The remedy of interpleader
Based on the unique factual premise of the present case,
the RTC acted correctly in initially assuming jurisdiction
over the PDBs petition for mandamus, prohibition and
injunction.128 While the RTC agreed (albeit erroneously)
with the PDBs view (that the BSP has jurisdiction), it,
however, dismissed not only the BOCs/the BSPs
counterclaims but the PDBs petition itself as well, on the
ground that it lacks jurisdiction.
This is plain error.
Not only the parties themselves, but more so the courts,
are bound by the rule on non-waiver of
jurisdiction.129believes that jurisdiction over the BOCs
counterclaims and the BSPs counterclaim/crossclaim for
interpleader calls for the application of the doctrine of
primary jurisdiction, the allowance of the PDBs petition
even becomes imperative because courts may raise the
issue of primary jurisdiction sua sponte.130
Of the three possible options available to the RTC, the
adoption of either of these two would lead the trial court
into serious legal error: first, if it granted the PDBs
petition, its decision would have to be set aside on appeal
because the BSP has no jurisdiction as previously
discussed; and second when it dismissed the PDBs
petitions and the BOCs counterclaims on the ground that
it lacks jurisdiction, the trial court seriously erred because
precisely, the resolution of the conflicting claims over the
CB bills falls within its general jurisdiction.
Without emasculating its jurisdiction, the RTC could have
properly dismissed the PDBs petition but on the ground
that mandamus does not lie against the BSP; but even this
correct alternative is no longer plausible since the BSP, as
a respondent below, already properly brought before the
RTC the remaining conflicting claims over the subject CB
bills by way of a counterclaim/crossclaim for interpleader.
Section 1, Rule 62 of the Rules of Court provides when an
interpleader is proper:
SECTION 1. When interpleader proper. Whenever
conflicting claims upon the same subject matter are or
may be made against a person who claims no interest
whatever in the subject matter, or an interest which in
whole or in part is not disputed by the claimants, he may
bring an action against the conflicting claimants to compel
them to interplead and litigate their several claims among
themselves.
The remedy of an action of interpleader 131 is designed to
protect a person against double vexation in respect of a
single liability.7 It requires, as an indispensable requisite,
that conflicting claims upon the same subject matter are
or may be made against the stakeholder (the possessor of
the subject matter) who claims no interest whatever in the
subject matter or an interest which in whole or in part is
not disputed by the claimants.132
Through this remedy, the stakeholder can join all
competing claimants in a single proceeding to determine
conflicting claims without exposing the stakeholder to the
possibility of having to pay more than once on a single
liability.133
When the court orders that the claimants litigate among
themselves, in reality a new action arises,134 where the
claims of the interpleaders themselves are brought to the
fore, the stakeholder as plaintiff is relegated merely to the
role of initiating the suit. In short, the remedy of
interpleader, when proper, merely provides an avenue for
the conflicting claims on the same subject matter to be
threshed out in an action. Section 2 of Rule 62 provides:
SEC. 2. Order. Upon the filing of the complaint, the court
shall issue an order requiring the conflicting claimants to
interplead with one another. If the interests of justice so
require, the court may direct in such order that the subject
matter be paid or delivered to the court.
This is precisely what the RTC did by granting the BSPs
motion to interplead. The PDB itself "agreed that the
various claimants should now interplead." Thus, the PDB
and the BOC subsequently entered into two separate
escrow agreements, covering the CB bills, and submitted
them to the RTC for approval.
In granting the BSPs motion, the RTC acted on the correct
premise that it has jurisdiction to resolve the parties
conflicting claims over the CB bills - consistent with the
rules and the parties conduct - and accordingly required
the BOC to amend its answer and for the PDB to comment
thereon. Suddenly, however, the PDB made an about-face
and questioned the jurisdiction of the RTC. Swayed by the
PDBs argument, the RTC dismissed even the PDBs
petition - which means that it did not actually compel the
BSP to resolve the BOCs and the PDBs claims.
Without the motion to interplead and the order granting it,
the RTC could only dismiss the PDBs petition since it is
the RTC which has jurisdiction to resolve the parties
conflicting claims not the BSP. Given that the motion to
interplead has been actually filed, the RTC could not have
really granted the relief originally sought in the PDBs
petition since the RTCs order granting the BSPs motion to
interplead - to which the PDB in fact acquiesced into -
effectively resulted in the dismissal of the PDBs petition.
This is not altered by the fact that the PDB additionally
prayed in its petition for damages, attorneys fees and costs
of suit "against the public respondents" because the grant
of the order to interplead effectively sustained the propriety
of the BSPs resort to this procedural device.
Interpleader
1. as a special civil action
What is quite unique in this case is that the BSP did not
initiate the interpleader suit through an original complaint
but through its Answer. This circumstance becomes
understandable if it is considered that insofar as the BSP
is concerned, the PDB does not possess any right to have
its claim recorded in the BSPs books; consequently, the
PDB cannot properly be considered even as a potential
claimant to the proceeds of the CB bills upon maturity.
Thus, the interpleader was only an alternative position,
made only in the BSPs Answer.135
The remedy of interpleader, as a special civil action, is
primarily governed by the specific provisions in Rule 62 of
the Rules of Court and secondarily by the provisions
applicable to ordinary civil actions. 136 Indeed, Rule 62 does
not expressly authorize the filing of a complaint-in-
interpleader as part of, although separate and independent
from, the answer. Similarly, Section 5, Rule 6, in relation to
Section 1, Rule 9 of the Rules of Court137 does not include
a complaint-in-interpleader as a claim,138 a form of
defense,139 or as an objection that a defendant may be
allowed to put up in his answer or in a motion to dismiss.
This does not mean, however, that the BSPs "counter-
complaint/cross-claim for interpleader" runs counter to
general procedures.
Apart from a pleading,140 the rules141 allow a party to seek
an affirmative relief from the court through the procedural
device of a motion. While captioned "Answer with counter
complaint/cross-claim for interpleader," the RTC
understood this as in the nature of a motion, 142 seeking
relief which essentially consists in an order for the
conflicting claimants to litigate with each other so that
"payment is made to the rightful or legitimate owner" 143 of
the subject CB bills.
The rules define a "civil action" as "one by which a party
sues another for the enforcement or protection of a right,
or the prevention or redress of a wrong." Interpleader may
be considered as a stakeholders remedy to prevent a
wrong, that is, from making payment to one not entitled to
it, thereby rendering itself vulnerable to lawsuit/s from
those legally entitled to payment.
Interpleader is a civil action made special by the existence
of particular rules to govern the uniqueness of its
application and operation. Under Section 2, Rule 6 of the
Rules of Court, governing ordinary civil actions, a partys
claim is asserted "in a complaint, counterclaim, cross-
claim, third (fourth, etc.)-party complaint, or complaint-in-
intervention." In an interpleader suit, however, a claim is
not required to be contained in any of these pleadings but
in the answer-(of the conflicting claimants)-in-interpleader.
This claim is different from the counter-claim (or cross-
claim, third party-complaint) which is separately allowed
under Section 5, par. 2 of Rule 62.
2. the payment of docket fees covering BOCs counterclaim
The PDB argues that, even assuming that the RTC has
jurisdiction over the issue of ownership of the CB bills, the
BOCs failure to pay the appropriate docket fees prevents
the RTC from acquiring jurisdiction over the BOCs
"counterclaims."
We disagree with the PDB.
To reiterate and recall, the order granting the "PDBs
motion to interplead," already resulted in the dismissal of
the PDBs petition. The same order required the BOC to
amend its answer and for the conflicting claimants to
comment, presumably to conform to the nature of an
answer-in interpleader. Perhaps, by reason of the BOCs
denomination of its claim as a "compulsory counterclaim"
and the PDBs failure to fully appreciate the RTCs order
granting the "BSPs motion for interpleader" (with the
PDBs conformity), the PDB mistakenly treated the BOCs
claim as a "permissive counterclaim" which necessitates
the payment of docket fees.
As the preceding discussions would show, however, the
BOCs "claim" - i.e., its assertion of ownership over the CB
bills is in reality just that, a "claim" against the total amount of the CB bills it lays claim to (or the value of
stakeholder and not as a "counterclaim," 144 whether the subjects of the sales in the April 15 and April 19
compulsory145 or permissive. It is only the BOCs transactions, in its alternative prayer) an intention to
alternative prayer (for the PDB to deliver to the BOC, as the defraud the government that would warrant the dismissal
buyer in the April 15 transaction and the ultimate of its claim.149
successor-in-interest of the buyer in the April 19
At any rate, regardless of the nature of the BOCs
transaction, either the original subjects of the sales or the
"counterclaims," for purposes of payment of filing fees,
value thereof plus whatever income that may have been
both the BOC and the PDB, properly as defendants-in-
earned pendente lite) and its prayer for damages that are
interpleader, must be assessed the payment of the correct
obviously compulsory counterclaims against the PDB and,
docket fee arising from their respective claims. The seminal
therefore, does not require payment of docket fees. 146
case of Sun Insurance Office, Ltd. v. Judge
The PDB takes a contrary position through its insistence Asuncion150provides us guidance in the payment of docket
that a compulsory counterclaim should be one where the fees, to wit:
presence of third parties, of whom the court cannot
1. x x x Where the filing of the initiatory pleading is not
acquire jurisdiction, is not required. It reasons out that
accompanied by payment of the docket fee, the court may
since the RCBC and All Asia (the intervening holders of the
allow payment of the fee within a reasonable time but in no
CB bills) have already been dropped from the case, then
case beyond the applicable prescriptive or reglementary
the BOCs counterclaim must only be permissive in nature
period.
and the BOC should have paid the correct docket fees.
2. The same rule applies to permissive counterclaims,
We see no reason to belabor this claim. Even if we gloss
third-party claims and similar pleadings, which shall not
over the PDBs own conformity to the dropping of these
be considered filed until and unless the filing fee
entities as parties, the BOC correctly argues that a remedy
prescribed therefor is paid. The court may also allow
is provided under the Rules. Section 12, Rule 6 of the
payment of said fee within a reasonable time but also in no
Rules of Court reads:
case beyond its applicable prescriptive or reglementary
SEC. 12. Bringing new parties. When the presence of period. [underscoring ours]
parties other than those to the original action is required
This must be the rule considering that Section 7, Rule 62
for the granting of complete relief in the determination of a
of which reads:
counterclaim or cross-claim, the court shall order them to
be brought in as defendants, if jurisdiction over them can SEC. 7. Docket and other lawful fees, costs and litigation
be obtained. expenses as liens. The docket and other lawful fees paid
by the party who filed a complaint under this Rule, as well
Even then, the strict characterization of the BOCs
as the costs and litigation expenses, shall constitute a lien
counterclaim is no longer material in disposing of the
or charge upon the subject matter of the action, unless the
PDBs argument based on non-payment of docket fees.
court shall order otherwise.
When an action is filed in court, the complaint must be
only pertain to the docket and lawful fees to be paid by the
accompanied by the payment of the requisite docket and
one who initiated the interpleader suit, and who, under the
filing fees by the party seeking affirmative relief from the
Rules, actually "claims no interest whatever in the subject
court. It is the filing of the complaint or appropriate
matter." By constituting a lien on the subject matter of the
initiatory pleading, accompanied by the payment of the
action, Section 7 in effect only aims to actually compensate
prescribed docket fee, that vests a trial court with
the complainant-in-interpleader, who happens to be the
jurisdiction over the claim or the nature of the
stakeholder unfortunate enough to get caught in a legal
action.147 However, the non-payment of the docket fee at
crossfire between two or more conflicting claimants, for the
the time of filing does not automatically cause the
faultless trouble it found itself into. Since the defendants-
dismissal of the case, so long as the fee is paid within the
in-interpleader are actually the ones who make a claim -
applicable prescriptive or reglementary period, especially
only that it was extraordinarily done through the
when the claimant demonstrates a willingness to abide by
procedural device of interpleader - then to them devolves
the rules prescribing such payment.148
the duty to pay the docket fees prescribed under Rule 141
In the present case, considering the lack of a clear of the Rules of Court, as amended.151
guideline on the payment of docket fee by the claimants in
The importance of paying the correct amount of docket fee
an interpleader suit, compounded by the unusual manner
cannot be overemphasized:
in which the interpleader suit was initiated and the
circumstances surrounding it, we surely cannot deduce The matter of payment of docket fees is not a mere
from the BOCs mere failure to specify in its prayer the triviality. These fees are necessary to defray court expenses
in the handling of cases. Consequently, in order to avoid
tremendous losses to the judiciary, and to the government
as well, the payment of docket fees cannot be made
dependent on the outcome of the case, except when the
claimant is a pauper-litigant.152

WHEREFORE, premises considered the consolidated

PETITIONS are GRANTED. The Planters Development Bank
is hereby REQUIRED to file with the Regional Trial Court
its comment or answer-in-interpleader to Bank of
Commerces Amended Consolidated Answer with
Compulsory Counterclaim, as previously ordered by the
Regional Trial Court. The Regional Trial Court of Makati
City, Branch 143, is hereby ORDERED to assess the docket
fees due from Planters Development Bank and Bank of
Commerce and order their payment, and to resolve with
DELIBERATE DISPATCH the parties conflicting claims of
ownership over the proceeds of the Central Bank bills.

The Clerk of Court of the Regional Trial Court of Makati

City, Branch 143, or his duly authorized representative is
hereby ORDERED to assess and collect the appropriate
amount of docket fees separately due the Bank of
Commerce and Planters Development Bank as conflicting
claimants in Bangko Sentral ng Pilipinas interpleader suit,
in accordance with this decision.

SO ORDERED.
G.R. No. 140687 December 18, 2006
CHINA BANKING CORPORATION, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and JOSE
"JOSEPH" GOTIANUY as substituted by ELIZABETH
GOTIANUY LO, respondents.
DECISION
CHICO-NAZARIO, J.:
A Complaint for recovery of sums of money and annulment
of sales of real properties and shares of stock docketed as
CEB-21445 was filed by Jose "Joseph" Gotianuy against
his son-in-law, George Dee, and his daughter, Mary
Margaret Dee, before the Regional Trial Court (RTC) of
Cebu City, Branch 58.
Jose Gotianuy accused his daughter Mary Margaret Dee of
stealing, among his other properties, US dollar deposits
with Citibank N.A. amounting to not less
than P35,000,000.00 and US$864,000.00. Mary Margaret
Dee received these amounts from Citibank N.A. through
checks which she allegedly deposited at China Banking
Corporation (China Bank). He likewise accused his son-in-
law, George Dee, husband of his daughter, Mary Margaret,
of transferring his real properties and shares of stock in
George Dee's name without any consideration. Jose
Gotianuy, died during the pendency of the case before the
trial court.1 He was substituted by his daughter, Elizabeth
Gotianuy Lo. The latter presented the US Dollar checks
withdrawn by Mary Margaret Dee from his US dollar
placement with Citibank. The details of the said checks
are:
1) CITIBANK CHECK NO. 69003194405412 dated
September 29 1997 in the amount of US$5,937.52 payable
to GOTIANUY: JOSE AND/OR DEE: MARY MARGARET;
2) CITIBANK CHECK NO. 69003194405296 dated
September 29 1997 in the amount of US$7,197.59 payable
to GOTIANUY: JOSE AND/OR DEE: MARY MARGARET;
3) CITIBANK CHECK NO. 69003194405414 dated
September 29 1997 in the amount of US$1,198.94 payable
to GOTIANUY: JOSE AND/OR DEE: MARY MARGARET;
4) CITIBANK CHECK NO. 69003194405413 dated
September 29 1997 in the amount of US$989.04 payable
to GOTIANUY: JOSE AND/OR DEE: MARY MARGARET;
5) CITIBANK CHECK NO. 69003194405297 dated October
01 1997 in the amount of US$766,011.97 payable to
GOTIANUY: JOSE AND/OR DEE: MARY MARGARET; and
6) CITIBANK CHECK NO. 69003194405339 dated October
09 1997 in the amount of US$83,053.10 payable to
GOTIANUY: JOSE AND/OR DEE: MARY MARGARET.2
Upon motion of Elizabeth Gotianuy Lo, the trial
court3 issued a subpoena to Cristota Labios and Isabel
Yap, employees of China Bank, to testify on the case. The
Order of the trial court dated 23 February 1999, states:
Issue a subpoena ad testificandum requiring MS. ISABEL
YAP and CRISTOTA LABIOS of China Banking
Corporation, Cebu Main Branch, corner Magallanes and D.
Jakosalem Sts., Cebu City, to appear in person and to
testify in the hearing of the above entitled case on March 1,
1999 at 8:30 in the morning, with regards to Citibank
Checks (Exhs. "AAA" to "AAA-5") and other matters
material and relevant to the issues of this case.4
China Bank moved for a reconsideration. Resolving the
motion, the trial court issued an Order dated 16 April
1999 and held:
The Court is of the view that as the foreign currency fund
(Exhs. "AAA" to "AAA-5") is deposited with the movant
China Banking Corporation, Cebu Main Branch, Cebu
City, the disclosure only as to the name or in whose name
the said fund is deposited is not violative of the law. Justice
will be better served if the name or names of the depositor
of said fund shall be disclosed because such a disclosure is
material and important to the issues between the parties
in the case at bar.
Premises considered, the motion for reconsideration is
denied partly and granted partly, in the sense that Isabel
Yap and/or Cristuta Labios are directed to appear before
this Court and to testify at the trial of this case on April
20, 1999, May 6 & 7, 1999 at 10:00 o'clock in the morning
and only for the purpose of disclosing in whose name or
names is the foreign currency fund (Exhs. "AAA" to "AAA-
5") deposited with the movant Bank and not to other
matters material and relevant to the issues in the case at
bar.5
From this Order, China Bank filed a Petition
for Certiorari6 with the Court of Appeals. In a
Decision7 dated 29 October 1999, the Court of Appeals
denied the petition of China Bank and affirmed the Order
of the RTC.
In justifying its conclusion, the Court of Appeals
ratiocinated:
From the foregoing, it is pristinely clear the law specifically
encompasses only the money or funds in foreign currency
deposited in a bank. Thus, the coverage of the law extends
only to the foreign currency deposit in the CBC account
where Mary Margaret Dee deposited the Citibank checks in
question and nothing more.
It has to be pointed out that the April 16, 1999 Order of
the court of origin modified its previous February 23, 1999
Order such that the CBC representatives are directed
solely to divulge "in whose name or names is the foreign
currency fund (Exhs. "AAA" to "AAA-5") deposited with the
movant bank." It precluded inquiry on "other materials and
relevant to the issues in the case at bar." We find that the
directive of the court below does not contravene the plain
language of RA 6426 as amended by P.D. No. 1246.
The contention of petitioner that the [prescription] on
absolute confidentiality under the law in question covers
even the name of the depositor and is beyond the
compulsive process of the courts is palpably untenable as
the law protects only the deposits itself but not the name
of the depositor. To uphold the theory of petitioner CBC is
reading into the statute "something that is not within the
manifest intention of the legislature as gathered from the
statute itself, for to depart from the meaning expressed by
the words, is to alter the statute, to legislate and not to
interpret, and judicial legislation should be
avoided. Maledicta expositio quae corrumpit textum It is a
dangerous construction which is against the words.
Expressing the same principle is the maxim: Ubi lex non
distinguit nec nos distinguere debemos, which simply
means that where the law does not distinguish, we should
not make any distinction." (Gonzaga, Statutes and their
Construction, p. 75.)8
From the Decision of the Court of Appeals, China Bank
elevated the case to this Court based on the following
issues:
I
THE HONORABLE COURT OF APPEALS HAS
INTERPRETED THE PROVISION OF SECTION 8 OF R.A.
6426, AS AMENDED, OTHERWISE KNOWN AS THE
FOREIGN CURRENCY DEPOSIT ACT, IN A MANNER
CONTRARY TO THE LEGISLATIVE PURPOSE, THAT IS, TO
PROVIDE ABSOLUTE CONFIDENTIALITY OF WHATEVER
INFORMATION RELATIVE TO THE FOREIGN CURRENCY
DEPOSIT.
II
PRIVATE RESPONDENT IS NOT THE OWNER OF THE
QUESTIONED FOREIGN CURRENCY DEPOSIT. THUS, HE
CANNOT INVOKE THE AID OF THE COURT IN
COMPELLING THE DISCLOSURE OF SOMEONE ELSE'S
FOREIGN CURRENCY DEPOSIT ON THE FLIMSY
PRETEXT THAT THE CHECKS (IN FOREIGN CURRENCY)
HE HAD ISSUED MAY HAVE ENDED UP THEREIN.
III
PETITIONER CAN RIGHTLY INVOKE THE PROVISION OF
SEC. 8, R.A. 6426, IN BEHALF OF THE FOREIGN
CURRENCY DEPOSITOR, OWING TO ITS SOLEMN
OBLIGATION TO ITS CLIENT TO EXERCISE
EXTRAORDINARY DILIGENCE IN THE HANDLING OF THE
ACCOUNT.9
As amended by Presidential Decree No. 1246, the law
reads:
SEC. 8. Secrecy of Foreign Currency Deposits. All foreign
currency deposits authorized under this Act, as amended
by Presidential Decree No. 1035, as well as foreign
currency deposits authorized under Presidential Decree
No. 1034, are hereby declared as and considered of an
absolutely confidential nature and, except upon the
written permission of the depositor, in no instance shall
such foreign currency deposits be examined, inquired or
looked into by any person, government official, bureau or
office whether judicial or administrative or legislative or
any other entity whether public or private: Provided,
however, that said foreign currency deposits shall be
exempt from attachment, garnishment, or any other order
or process of any court, legislative body, government
agency or any administrative body whatsoever. (As
amended by PD No. 1035, and further amended by PD No.
1246, prom. Nov. 21, 1977) (Emphasis supplied.)
Under the above provision, the law provides that all foreign
currency deposits authorized under Republic Act No. 6426,
as amended by Sec. 8, Presidential Decree No. 1246,
Presidential Decree No. 1035, as well as foreign currency
deposits authorized under Presidential Decree No. 1034
are considered absolutely confidential in nature and may
not be inquired into. There is only one exception to the
secrecy of foreign currency deposits, that is, disclosure is
allowed upon the written permission of the depositor.
This much was pronounced in the case of Intengan v. Court
of Appeals,10 where it was held that the only exception to
the secrecy of foreign currency deposits is in the case of a
written permission of the depositor.
It must be remembered that under the whereas clause of
Presidential Decree No. 1246 which amended Sec. 8 of
Republic Act No. 6426, the Foreign Currency Deposit
System including the Offshore Banking System under
Presidential Decree 1034 were intended to draw deposits
from foreign lenders and investors, and we quote:
Whereas, in order to assure the development and speedy
growth of the Foreign Currency Deposit System and the
Offshore Banking System in the Philippines, certain
incentives were provided for under the two Systems such
as confidentiality of deposits subject to certain exceptions
and tax exemptions on the interest income of depositors
who are nonresidents and are not engaged in trade or
business in the Philippines;
Whereas, making absolute the protective cloak of
confidentiality over such foreign currency deposits,
exempting such deposits from tax, and guaranteeing the
vested rights of depositors would better encourage the
inflow of foreign currency deposits into the banking
institutions authorized to accept such deposits in the
Philippines thereby placing such institutions more in a
position to properly channel the same to loans and
investments in the Philippines, thus directly contributing
to the economic development of the country.
As to the deposit in foreign currencies entitled to be
protected under the confidentiality rule, Presidential
Decree No. 1034,11 defines deposits to mean funds in
foreign currencies which are accepted and held by an
offshore banking unit in the regular course of business,
with the obligation to return an equivalent amount to the
owner thereof, with or without interest.12
It is in this light that the court in the case of Salvacion v.
Central Bank of the Philippines,13 allowed the inquiry of the
foreign currency deposit in question mainly due to the
peculiar circumstances of the case such that a strict
interpretation of the letter of the law would result to rank
injustice. Therein, Greg Bartelli y Northcott, an American
tourist, was charged with criminal cases for serious illegal
detention and rape committed against then 12 year-old
Karen Salvacion. A separate civil case for damages with
preliminary attachment was filed against Greg Bartelli. The
trial court issued an Order granting the Salvacions'
application for the issuance of a writ of preliminary
attachment. A notice of garnishment was then served on
China Bank where Bartelli held a dollar account. China
Bank refused, invoking the secrecy of bank deposits. The
Supreme Court ruled: "In fine, the application of the law
depends on the extent of its justice x x x It would be
unthinkable, that the questioned law exempting foreign
currency deposits from attachment, garnishment, or any
other order or process of any court, legislative body,
government agency or any administrative body whatsoever
would be used as a device by an accused x x x for
wrongdoing, and in so doing, acquitting the guilty at the
expense of the innocent.14
With the foregoing, we are now tasked to determine the
single material issue of whether or not petitioner China
Bank is correct in its submission that the Citibank dollar
checks with both Jose Gotianuy and/or Mary Margaret
Dee as payees, deposited with China Bank, may not be
looked into under the law on secrecy of foreign currency
deposits. As a corollary issue, sought to be resolved is
whether Jose Gotianuy may be considered a depositor who
is entitled to seek an inquiry over the said deposits.
The Court of Appeals, in allowing the inquiry, considered
Jose Gotianuy, a co-depositor of Mary Margaret Dee. It
reasoned that since Jose Gotianuy is the named co-payee
of the latter in the subject checks, which checks were
deposited in China Bank, then, Jose Gotianuy is likewise a
depositor thereof. On that basis, no written consent from
Mary Margaret Dee is necessitated.
We agree in the conclusion arrived at by the Court of
Appeals.
The following facts are established: (1) Jose Gotianuy and
Mary Margaret Dee are co-payees of various Citibank
checks;15 (2) Mary Margaret Dee withdrew these checks
from Citibank;16 (3) Mary Margaret Dee admitted in her
Answer to the Request for Admissions by the Adverse Party
sent to her by Jose Gotianuy 17 that she withdrew the funds
from Citibank upon the instruction of her father Jose
Gotianuy and that the funds belonged exclusively to the
latter; (4) these checks were endorsed by Mary Margaret
Dee at the dorsal portion; and (5) Jose Gotianuy discovered
that these checks were deposited with China Bank as
shown by the stamp of China Bank at the dorsal side of
the checks.
Thus, with this, there is no issue as to the source of the
funds. Mary Margaret Dee declared the source to be Jose
Gotianuy. There is likewise no dispute that these funds in
the form of Citibank US dollar Checks are now deposited
with China Bank.
As the owner of the funds unlawfully taken and which are
undisputably now deposited with China Bank, Jose
Gotianuy has the right to inquire into the said deposits.
A depositor, in cases of bank deposits, is one who pays
money into the bank in the usual course of business, to be
placed to his credit and subject to his check or the
beneficiary of the funds held by the bank as trustee.18
On this score, the observations of the Court of Appeals are
worth reiterating:
Furthermore, it is indubitable that the Citibank checks
were drawn against the foreign currency account with
Citibank, NA. The monies subject of said checks originally
came from the late Jose Gotianuy, the owner of the
account. Thus, he also has legal rights and interests in the
CBC account where said monies were deposited. More
importantly, the Citibank checks (Exhibits "AAA" to "AAA-5")
readily demonstrate (sic) that the late Jose Gotianuy is one
of the payees of said checks. Being a co-payee thereof, then
he or his estate can be considered as a co-depositor of said
checks. Ergo, since the late Jose Gotianuy is a co-depositor
of the CBC account, then his request for the assailed
subpoena is tantamount to an express permission of a
depositor for the disclosure of the name of the account
holder. The April 16, 1999 Order perforce must be
sustained.19 (Emphasis supplied.)
One more point. It must be remembered that in the
complaint of Jose Gotianuy, he alleged that his US dollar
deposits with Citibank were illegally taken from him. On
the other hand, China Bank employee Cristuta Labios
testified that Mary Margaret Dee came to China Bank and
deposited the money of Jose Gotianuy in Citibank US
dollar checks to the dollar account of her sister Adrienne
Chu.20 This fortifies our conclusion that an inquiry into the
said deposit at China Bank is justified. At the very least,
Jose Gotianuy as the owner of these funds is entitled to a
hearing on the whereabouts of these funds.

All things considered and in view of the distinctive

circumstances attendant to the present case, we are
constrained to render a limited pro hac vice ruling.21 Clearly
it was not the intent of the legislature when it enacted the
law on secrecy on foreign currency deposits to perpetuate
injustice. This Court is of the view that the allowance of
the inquiry would be in accord with the rudiments of fair
play,22 the upholding of fairness in our judicial system and
would be an avoidance of delay and time-wasteful and
circuitous way of administering justice.23

WHEREFORE, premises considered, the Petition

is DENIED. The Decision of the Court of Appeals dated 29
October 1999 affirming the Order of the RTC, Branch 58,
Cebu City dated 16 April 1999 is AFFIRMED and this case
is ordered REMANDED to the trial court for continuation
of hearing with utmost dispatch consistent with the above
disquisition. No costs.

SO ORDERED.
G.R. No. 189206 June 8, 2011 Makati City; WESTMONT BANK, 411 Quintin Paredes St.,
Binondo, Manila: TONG YANG MERCHANT BANK, 185, 2-
GOVERNMENT SERVICE INSURANCE Ka, Ulchi-ro, Chungk-ku, Seoul, Korea; INDUSTRIAL BANK
SYSTEM, Petitioner, OF KOREA, 50, 2-Ga, Ulchi-ro, Chung-gu, Seoul, Korea;
vs. and FIRST MERCHANT BANKING CORPORATION, 199-40,
THE HONORABLE 15th DIVISION OF THE COURT OF 2-Ga, Euliji-ro, Jung-gu, Seoul, Korea, in the sum, of US $
APPEALS and INDUSTRIAL BANK OF KOREA, TONG ELEVEN MILLION DOLLARS ($11,000,000.00) for the
YANG MERCHANT BANK, HANAREUM BANKING CORP., payment of which sum, well and truly to be made, we bind
LAND BANK OF THE PHILIPPINES, WESTMONT BANK ourselves, our heirs, executors, administrators, successors
and DOMSAT HOLDINGS, INC., Respondents. and assigns, jointly and severally, firmly by these presents.

THE CONDITIONS OF THE OBLIGATION ARE AS

DECISION
FOLLOWS:
PEREZ, J.:
WHEREAS, the above bounden PRINCIPAL, on the 12th
1
The subject of this petition for certiorari is the Decision of day of December, 1996 entered into a contract agreement
the Court of Appeals in CA-G.R. SP No. 82647 allowing the with the aforementioned OBLIGEES to fully and faithfully
quashal by the Regional Trial Court (RTC) of Makati of a
Guarantee the repayment of the principal and interest on
subpoena for the production of bank ledger. This case is
the loan granted the PRINCIPAL to be used for the
incident to Civil Case No. 99-1853, which is the main case
financing of the two (2) year lease of a Russian Satellite
for collection of sum of money with damages filed by
from INTERSPUTNIK, in accordance with the terms and
Industrial Bank of Korea, Tong Yang Merchant Bank, First
conditions of the credit package entered into by the
Merchant Banking Corporation, Land Bank of the
parties.
Philippines, and Westmont Bank (now United Overseas
Bank), collectively known as "the Banks" against Domsat This bond shall remain valid and effective until the loan
Holdings, Inc. (Domsat) and the Government Service including interest has been fully paid and liquidated,
Insurance System (GSIS). Said case stemmed from a Loan
Agreement,2 whereby the Banks agreed to lend United a copy of which contract/agreement is hereto attached and
States (U.S.) $11 Million to Domsat for the purpose of made part hereof;
financing the lease and/or purchase of a Gorizon Satellite
WHEREAS, the aforementioned OBLIGEES require said
from the International Organization of Space
PRINCIPAL to give a good and sufficient bond in the above
Communications (Intersputnik).3
stated sum to secure the full and faithful performance on
The controversy originated from a surety agreement by his part of said contract/agreement.
which Domsat obtained a surety bond from GSIS to secure
NOW, THEREFORE, if the PRINCIPAL shall well and truly
the payment of the loan from the Banks. We quote the
perform and fulfill all the undertakings, covenants, terms,
terms of the Surety Bond in its entirety.4
conditions, and agreements stipulated in said
Republic of the Philippines contract/agreements, then this obligation shall be null and
GOVERNMENT SERVICE INSURANCE SYSTEM void; otherwise, it shall remain in full force and effect.
GENERAL INSURANCE FUND
WITNESS OUR HANDS AND SEALS this 13th day of
GSIS Headquarters, Financial Center
December 1996 at Pasay City, Philippines.
Roxas Boulevard, Pasay City

G(16) GIF Bond 027461 DOMSAT GOVERNMENT SERVICE

HOLDINGS, INC. INSURANCE SYSTEM
SURETYBOND Principal General Insurance Fund

KNOW ALL MEN BY THESE PRESENTS:

By: By:
That we, DOMSAT HOLDINGS, INC., represented by its
President as PRINCIPAL, and the GOVERNMENT SERVICE CAPT. RODRIGO A. AMALIO A. MALLARI
INSURANCE SYSTEM, as Administrator of the GENERAL SILVERIO Senior Vice-President
INSURANCE FUND, a corporation duly organized and President General Insurance Group
existing under and by virtue of the laws of the Philippines,
with principal office in the City of Pasay, Metro Manila, When Domsat failed to pay the loan, GSIS refused to
Philippines as SURETY, are held and firmly bound unto comply with its obligation reasoning that Domsat did not
the OBLIGEES: LAND BANK OF THE PHILIPPINES, 7th use the loan proceeds for the payment of rental for the
Floor, Land Bank Bldg. IV. 313 Sen. Gil J. Puyat Avenue, satellite. GSIS alleged that Domsat, with Westmont Bank
as the conduit, transferred the U.S. $11 Million loan
proceeds from the Industrial Bank of Korea to Citibank
New York account of Westmont Bank and from there to the
Binondo Branch of Westmont Bank.5 The Banks filed a
complaint before the RTC of Makati against Domsat and
GSIS.
In the course of the hearing, GSIS requested for the
issuance of a subpoena duces tecum to the custodian of
records of Westmont Bank to produce the following
documents:
1. Ledger covering the account of DOMSAT Holdings, Inc.
with Westmont Bank (now United Overseas Bank), any and
all documents, records, files, books, deeds, papers, notes
and other data and materials relating to the account or
transactions of DOMSAT Holdings, Inc. with or through
the Westmont Bank (now United Overseas Bank) for the
period January 1997 to December 2002, in his/her direct
or indirect possession, custody or control (whether actual
or constructive), whether in his/her capacity as Custodian
of Records or otherwise;
2. All applications for cashiers/ managers checks and
bank transfers funded by the account of DOMSAT
Holdings, Inc. with or through the Westmont Bank (now
United Overseas Bank) for the period January 1997 to
December 2002, and all other data and materials covering
said applications, in his/her direct or indirect possession,
custody or control (whether actual or constructive),
whether in his/her capacity as Custodian of Records or
otherwise;
3. Ledger covering the account of Philippine Agila Satellite,
Inc. with Westmont Bank (now United Overseas Bank), any
and all documents, records, files, books, deeds, papers,
notes and other data and materials relating to the account
or transactions of Philippine Agila Satellite, Inc. with or
through the Westmont bank (now United Overseas Bank)
for the period January 1997 to December 2002, in his/her
direct or indirect possession, custody or control (whether
actual or constructive), whether in his/her capacity as
Custodian of Records or otherwise;
4. All applications for cashiers/managers checks funded
by the account of Philippine Agila Satellite, Inc. with or
through the Westmont Bank (now United Overseas Bank)
for the period January 1997 to December 2002, and all
other data and materials covering said applications, in
his/her direct or indirect possession, custody or control
(whether actual or constructive), whether in his/her
capacity as Custodian of Records or otherwise.6
The RTC issued a subpoena decus tecum on 21 November
2002.7 A motion to quash was filed by the banks on three
grounds: 1) the subpoena is unreasonable, oppressive and
does not establish the relevance of the documents sought;
2) request for the documents will violate the Law on
Secrecy of Bank Deposits; and 3) GSIS failed to advance
the reasonable cost of production of the
documents.8 Domsat also joined the banks motion to
quash through its Manifestation/Comment. 9 On 9 April
2003, the RTC issued an Order denying the motion to
quash for lack of merit. We quote the pertinent portion of
the Order, thus:
After a careful consideration of the arguments of the
parties, the Court did not find merit in the motion.
The serious objection appears to be that the subpoena is
violative of the Law on Secrecy of Bank Deposit, as
amended. The law declares bank deposits to be "absolutely
confidential" except: x x x (6) In cases where the money
deposited or invested is the subject matter of the litigation.
The case at bench is for the collection of a sum of money
from defendants that obtained a loan from the plaintiff.
The loan was secured by defendant GSIS which was the
surety. It is the contention of defendant GSIS that the
proceeds of the loan was deviated to purposes other than
to what the loan was extended. The quashal of the
subpoena would deny defendant GSIS its right to prove its
defenses.
WHEREFORE, for lack of merit the motion is DENIED. 10
On 26 June 2003, another Order was issued by the RTC
denying the motion for reconsideration filed by the
banks.11 On 1 September 2003 however, the trial court
granted the second motion for reconsideration filed by the
banks. The previous subpoenas issued were consequently
quashed.12 The trial court invoked the ruling in Intengan v.
Court of Appeals,13 where it was ruled that foreign
currency deposits are absolutely confidential and may be
examined only when there is a written permission from the
depositor. The motion for reconsideration filed by GSIS was
denied on 30 December 2003.
Hence, these assailed orders are the subject of the petition
for certiorari before the Court of Appeals. GSIS raised the
following arguments in support of its petition:
I.
Respondent Judge acted with grave abuse of discretion
when it favorably considered respondent banks (second)
Motion for Reconsideration dated July 9, 2003 despite the
fact that it did not contain a notice of hearing and was
therefore a mere scrap of paper.
II.
Respondent judge capriciously and arbitrarily ignored
Section 2 of the Foreign Currency Deposit Act (RA 6426) in
ruling in his Orders dated September 1 and December 30,
2003 that the US$11,000,000.00 deposit in the account of
respondent Domsat in Westmont Bank is covered by the
secrecy of bank deposit.
III.
Since both respondent banks and respondent Domsat have
disclosed during the trial the US$11,000,000.00 deposit, it
is no longer secret and confidential, and petitioner GSIS
right to inquire into what happened to such deposit can
not be suppressed.14
The Court of Appeals addressed these issues in seriatim.
The Court of Appeals resorted to a liberal interpretation of
the rules to avoid miscarriage of justice when it allowed the
filing and acceptance of the second motion for
reconsideration. The appellate court also underscored the
fact that GSIS did not raise the defect of lack of notice in
its opposition to the second motion for reconsideration.
The appellate court held that failure to timely object to the
admission of a defective motion is considered a waiver of
its right to do so.
The Court of Appeals declared that Domsats deposit in
Westmont Bank is covered by Republic Act No. 6426 or the
Bank Secrecy Law. We quote the pertinent portion of the
Decision:
It is our considered opinion that Domsats deposit of
$11,000,000.00 in Westmont Bank is covered by the Bank
Secrecy Law, as such it cannot be examined, inquired or
looked into without the written consent of its owner. The
ruling in Van Twest vs. Court of Appeals was rendered
during the effectivity of CB Circular No. 960, Series of
1983, under Sec. 102 thereof, transfer to foreign currency
deposit account or receipt from another foreign currency
deposit account, whether for payment of legitimate
obligation or otherwise, are not eligible for deposit under
the System.
CB Circular No. 960 has since been superseded by CB
Circular 1318 and later by CB Circular 1389. Section 102
of Circular 960 has not been re-enacted in the later
Circulars. What is applicable now is the decision in
Intengan vs. Court of Appeals where the Supreme Court
has ruled that the under R.A. 6426 there is only a single
exception to the secrecy of foreign currency deposits, that
is, disclosure is allowed only upon the written permission
of the depositor. Petitioner, therefore, had inappropriately
invoked the provisions of Central Bank (CB) Circular Nos.
343 which has already been superseded by more recently
issued CB Circulars. CB Circular 343 requires the
surrender to the banking system of foreign exchange,
including proceeds of foreign borrowings. This
requirement, however, can no longer be found in later
circulars.
In its Reply to respondent banks comment, petitioner
appears to have conceded that what is applicable in this
case is CB Circular 1389. Obviously, under CB 1389,
proceeds of foreign borrowings are no longer required to be
surrendered to the banking system.
Undaunted, petitioner now argues that paragraph 2,
Section 27 of CB Circular 1389 is applicable because
Domsats $11,000,000.00 loan from respondent banks was
intended to be paid to a foreign supplier Intersputnik and,
therefore, should have been paid directly to Intersputnik
and not deposited into Westmont Bank. The fact that it
was deposited to the local bank Westmont Bank, petitioner
claims violates the circular and makes the deposit lose its
confidentiality status under R.A. 6426. However, a reading
of the entire Section 27 of CB Circular 1389 reveals that
the portion quoted by the petitioner refers only to the
procedure/conditions of drawdown for service of debts
using foreign exchange. The above-said provision relied
upon by the petitioner does not in any manner prescribe
the conditions before any foreign currency deposit can be
entitled to the confidentiality provisions of R.A. 6426.15
Anent the third issue, the Court of Appeals ruled that the
testimony of the incumbent president of Westmont Bank is
not the written consent contemplated by Republic Act No.
6426.
The Court of Appeals however upheld the issuance of
subpoena praying for the production of applications for
cashiers or managers checks by Domsat through
Westmont Bank, as well as a copy of an Agreement and/or
Contract and/or Memorandum between Domsat and/or
Philippine Agila Satellite and Intersputnik for the
acquisition and/or lease of a Gorizon Satellite. The
appellate court believed that the production of these
documents does not involve the examination of Domsats
account since it will never be known how much money was
deposited into it or withdrawn therefrom and how much
remains therein.
On 29 February 2008, the Court of Appeals rendered the
assailed Decision, the decretal portion of which reads:
WHEREFORE, the petition is partially GRANTED.
Accordingly, the assailed Order dated December 30, 2003
is hereby modified in that the quashal of the subpoena for
the production of Domsats bank ledger in Westmont Bank
is upheld while respondent court is hereby ordered to issue
subpoena duces tecum ad testificandum directing the
records custodian of Westmont Bank to bring to court the
following documents:
a) applications for cashiers or managers checks by
respondent Domsat through Westmont Bank from January
1997 to December 2002;
b) bank transfers by respondent Domsat through
Westmont Bank from January 1997 to December 2002;
and
c) copy of an agreement and/or contract and/or
memorandum between respondent Domsat and/or
Philippine Agila Satellite and Intersputnik for the
acquisition and/or lease of a Gorizon satellite.
No pronouncement as to costs.16
GSIS filed a motion for reconsideration which the Court of
Appeals denied on 19 June 2009. Thus, the instant
petition ascribing grave abuse of discretion on the part of
the Court of Appeals in ruling that Domsats deposit with
Westmont Bank cannot be examined and in finding that
the banks second motion for reconsideration in Civil Case
No. 99-1853 is procedurally acceptable.17
This Court notes that GSIS filed a petition for certiorari
under Rule 65 of the Rules of Court to assail the Decision
and Resolution of the Court of Appeals. Petitioner availed
of the improper remedy as the appeal from a final
disposition of the Court of Appeals is a petition for review
under Rule 45 and not a special civil action under Rule
65.18 Certiorari under Rule 65 lies only when there is no
appeal, nor plain, speedy and adequate remedy in the
ordinary course of law. That action is not a substitute for a
lost appeal in general; it is not allowed when a party to a
case fails to appeal a judgment to the proper
forum.19 Where an appeal is available, certiorari will not
prosper even if the ground therefor is grave abuse of
discretion. Accordingly, when a party adopts an improper
remedy, his petition may be dismissed outright. 20lauuphil
Yet, even if this procedural infirmity is discarded for the
broader interest of justice, the petition sorely lacks merit.
GSIS insists that Domsats deposit with Westmont Bank
can be examined and inquired into. It anchored its
argument on Republic Act No. 1405 or the "Law on Secrecy
of Bank Deposits," which allows the disclosure of bank
deposits in cases where the money deposited is the subject
matter of the litigation. GSIS asserts that the subject
matter of the litigation is the U.S. $11 Million obtained by
Domsat from the Banks to supposedly finance the lease of
a Russian satellite from Intersputnik. Whether or not it
should be held liable as a surety for the principal amount
of U.S. $11 Million, GSIS contends, is contingent upon
whether Domsat indeed utilized the amount to lease a
Russian satellite as agreed in the Surety Bond Agreement.
Hence, GSIS argues that the whereabouts of the U.S. $11
Million is the subject matter of the case and the disclosure
of bank deposits relating to the U.S. $11 Million should be
allowed.
GSIS also contends that the concerted refusal of Domsat
and the banks to divulge the whereabouts of the U.S. $11
Million will greatly prejudice and burden the GSIS pension
fund considering that a substantial portion of this fund is
earmarked every year to cover the surety bond issued.
Lastly, GSIS defends the acceptance by the trial court of
the second motion for reconsideration filed by the banks
on the grounds that it is pro forma and did not conform to
the notice requirements of Section 4, Rule 15 of the Rules
of Civil Procedure.21
Domsat denies the allegations of GSIS and reiterates that it
did not give a categorical or affirmative written consent or
permission to GSIS to examine its bank statements with
Westmont Bank.
The Banks maintain that Republic Act No. 1405 is not the
applicable law in the instant case because the Domsat
deposit is a foreign currency deposit, thus covered by
Republic Act No. 6426. Under said law, only the consent of
the depositor shall serve as the exception for the disclosure
of his/her deposit.
The Banks counter the arguments of GSIS as a mere
rehash of its previous arguments before the Court of
Appeals. They justify the issuance of the subpoena as an
interlocutory matter which may be reconsidered anytime
and that the pro forma rule has no application to
interlocutory orders.
It appears that only GSIS appealed the ruling of the Court
of Appeals pertaining to the quashal of the subpoena for
the production of Domsats bank ledger with Westmont
Bank. Since neither Domsat nor the Banks interposed an
appeal from the other portions of the decision, particularly
for the production of applications for cashiers or
managers checks by Domsat through Westmont Bank, as
well as a copy of an agreement and/or contract and/or
memorandum between Domsat and/or Philippine Agila
Satellite and Intersputnik for the acquisition and/or lease
of a Gorizon satellite, the latter became final and
executory.
GSIS invokes Republic Act No. 1405 to justify the issuance
of the subpoena while the banks cite Republic Act No.
6426 to oppose it. The core issue is which of the two laws
should apply in the instant case.
Republic Act No. 1405 was enacted in 1955. Section 2
thereof was first amended by Presidential Decree No. 1792
in 1981 and further amended by Republic Act No. 7653 in
1993. It now reads:
Section 2. All deposits of whatever nature with banks or
banking institutions in the Philippines including
investments in bonds issued by the Government of the
Philippines, its political subdivisions and its
instrumentalities, are hereby considered as of an
absolutely confidential nature and may not be examined,
inquired or looked into by any person, government official,
bureau or office, except upon written permission of the
depositor, or in cases of impeachment, or upon order of a
competent court in cases of bribery or dereliction of duty of
public officials, or in cases where the money deposited or
invested is the subject matter of the litigation.
Section 8 of Republic Act No. 6426, which was enacted in
1974, and amended by Presidential Decree No. 1035 and
later by Presidential Decree No. 1246, provides:
Section 8. Secrecy of Foreign Currency Deposits. All
foreign currency deposits authorized under this Act, as
amended by Presidential Decree No. 1035, as well as
foreign currency deposits authorized under Presidential
Decree No. 1034, are hereby declared as and considered of
an absolutely confidential nature and, except upon the
written permission of the depositor, in no instance shall
foreign currency deposits be examined, inquired or looked
into by any person, government official, bureau or office
whether judicial or administrative or legislative or any
other entity whether public or private; Provided, however,
That said foreign currency deposits shall be exempt from
attachment, garnishment, or any other order or process of
any court, legislative body, government agency or any
administrative body whatsoever. (As amended by PD No.
1035, and further amended by PD No. 1246, prom. Nov.
21, 1977.)
On the one hand, Republic Act No. 1405 provides for four
(4) exceptions when records of deposits may be disclosed.
These are under any of the following instances: a) upon
written permission of the depositor, (b) in cases of
impeachment, (c) upon order of a competent court in the
case of bribery or dereliction of duty of public officials or,
(d) when the money deposited or invested is the subject
matter of the litigation, and e) in cases of violation of the
Anti-Money Laundering Act (AMLA), the Anti-Money
Laundering Council (AMLC) may inquire into a bank
account upon order of any competent court. 22 On the other
hand, the lone exception to the non-disclosure of foreign
currency deposits, under Republic Act No. 6426, is
disclosure upon the written permission of the depositor.
These two laws both support the confidentiality of bank
deposits. There is no conflict between them. Republic Act
No. 1405 was enacted for the purpose of giving
encouragement to the people to deposit their money in
banking institutions and to discourage private hoarding so
that the same may be properly utilized by banks in
authorized loans to assist in the economic development of
the country.23 It covers all bank deposits in the Philippines
and no distinction was made between domestic and foreign
deposits. Thus, Republic Act No. 1405 is considered a law
of general application. On the other hand, Republic Act No.
6426 was intended to encourage deposits from foreign
lenders and investors.24 It is a special law designed
especially for foreign currency deposits in the Philippines.
A general law does not nullify a specific or special law.
Generalia specialibus non derogant.25 Therefore, it is
beyond cavil that Republic Act No. 6426 applies in this
case.
Intengan v. Court of Appeals affirmed the above-cited
principle and categorically declared that for foreign
currency deposits, such as U.S. dollar deposits, the
applicable law is Republic Act No. 6426.
In said case, Citibank filed an action against its officers for
persuading their clients to transfer their dollar deposits to
competitor banks. Bank records, including dollar deposits
of petitioners, purporting to establish the deception
practiced by the officers, were annexed to the complaint.
Petitioners now complained that Citibank violated Republic
Act No. 1405. This Court ruled that since the accounts in
question are U.S. dollar deposits, the applicable law
therefore is not Republic Act No. 1405 but Republic Act No.
6426.
The above pronouncement was reiterated in China Banking
Corporation v. Court of Appeals,26 where respondent
accused his daughter of stealing his dollar deposits with
Citibank. The latter allegedly received the checks from
Citibank and deposited them to her account in China
Bank. The subject checks were presented in evidence. A
subpoena was issued to employees of China Bank to testify
on these checks. China Bank argued that the Citibank
dollar checks with both respondent and/or her daughter
as payees, deposited with China Bank, may not be looked
into under the law on secrecy of foreign currency deposits.
This Court highlighted the exception to the non-disclosure
of foreign currency deposits, i.e., in the case of a written
permission of the depositor, and ruled that respondent, as
owner of the funds unlawfully taken and which are
undisputably now deposited with China Bank, he has the
right to inquire into the said deposits.
Applying Section 8 of Republic Act No. 6426, absent the
written permission from Domsat, Westmont Bank cannot
be legally compelled to disclose the bank deposits of
Domsat, otherwise, it might expose itself to criminal
liability under the same act.27
The basis for the application of subpoena is to prove that
the loan intended for Domsat by the Banks and
guaranteed by GSIS, was diverted to a purpose other than
that stated in the surety bond. The Banks, however, argue
that GSIS is in fact liable to them for the proper
applications of the loan proceeds and not vice-versa. We
are however not prepared to rule on the merits of this case
lest we pre-empt the findings of the lower courts on the
matter.
The third issue raised by GSIS was properly addressed by
the appellate court. The appellate court maintained that
the judge may, in the exercise of his sound discretion,
grant the second motion for reconsideration despite its
being pro forma. The appellate court correctly relied on
precedents where this Court set aside technicality in favor
of substantive justice. Furthermore, the appellate court
accurately pointed out that petitioner did not assail the
defect of lack of notice in its opposition to the second
motion of reconsideration, thus it can be considered a
waiver of the defect.
WHEREFORE, the petition for certiorari is DISMISSED.
The Decision dated 29 February 2008 and 19 June 2009
Resolution of the Court of Appeals are hereby AFFIRMED.
SO ORDERED.