G.R. No. 154499            March 14, 2003

ALBERTO V. REYES, WILFREDO B. DOMO-ONG, and HERMINIO C. PRINCIPIO, petitioners, vs.RURAL BANK OF SAN MIGUEL (BULACAN), INC., represented by HILARIO P. SORIANO, President and Principal Stockholder, respondent.

Mendoza, J.:

Petitioners are officials of the Bangko Sentral ng Pilipinas (BSP). At the time material to this case, Alberto V. Reyes was Deputy Governor and Head of the Supervision and Examination Sector (SES), Wilfredo B. Domo-ong was Director of the Department of Rural Banks (DRB), while Herminio Principio was an Examiner of the DRB. They filed this petition for review on certiorari of the decision1 of the Court of Appeals which found them administratively liable for unprofessionalism under the Code of Conduct and Ethical Standards on Public Officials and Employees and imposed upon each of them a fine equivalent to six months of their salaries.

The case arose from a letter,2 dated May 19, 1999, which respondent Rural Bank of San Miguel (Bulacan), Inc. (RBSMI) sent to then BSP Governor Gabriel Singson. In its letter, RBSMI charged petitioners with violations of Republic Act No. 3019 (Anti-Graft and Corrupt Practices Act) and Republic Act No. 6713 (Code of Conduct and Ethical Standards for Public Officials and Employees). The Monetary Board of the BSP created a committee to investigate the matter.

The ensuing investigation revealed that RBSMI had had a history of major violations/exceptions dating back to 1995. The Report of Examination3 on RBSMI as of July 31, 1995, submitted by BSP Examiner Danilo J. Castillo, cited 10 major exceptions/violations and deficiencies of RBSMI, for which reason the latter was directed to immediately desist from conducting business in an unsound and unsafe manner. On March 15, 1996, RBSMI undertook to take corrective measures and/or comply with the instructions/recommendations of the BSP.4

In 1996, RBSMI was again examined. The examination team was led by petitioner Principio who, in a "Report of Examination5 on RBSMI as of September 15, 1996," noted 20 serious exceptions/violations and deficiencies of RBSMI. On January 9, 1997, upon her request, Rose Ilagan, an RBSMI director, was given a copy of the list of exceptions/deficiencies found by petitioner Principio. Ms. Ilagan, however, in a sworn affidavit,6 dated August 10, 1999, claimed that the copy she was given was unreadable, "making it impossible for RBSMI to immediately react to said list of exceptions."

The exit conference on the September 1996 General Examination on RBSMI was originally scheduled on January 13, 1997, but on that date, RBSMI’s Legal Counsel and Corporate Secretary requested a rescheduling of the conference "to allow RBSMI to review the findings/ exceptions and thereafter, prepare their comments/observations on the same."7 In a letter, dated January 14, 1997, petitioner Domo-ong granted the request and the conference was reset to January 21, 1997.

It is claimed that the board of RBSMI discussed the exceptions noted in the list given to them on January 21, 1997, but as the copy sent to them was unreadable, "it was unable to understand many exceptions." As the members of the board were furnished clear copies

only during the exit conference, RBSMI asked for 30 days within which to submit its answer to the exceptions.

Meanwhile, an advance copy of the report of petitioner Principio was submitted to the Monetary Board (MB) after review of said report by petitioner Domo-ong. The report, which was dated January 23, 1997, was signed by petitioner Reyes and submitted to the MB on January 27, 1997. Acting on this memorandum, the MB issued Resolution No. 968 requiring RBSMI to explain in writing within 15 days the findings of the examiner. It also directed the DRB to verify, monitor, and report to the Deputy Governor, petitioner Reyes, the findings/exceptions noted until the same had been corrected.

On February 26, 1997, RBSMI submitted its comments on the exceptions/deficiencies/findings noted by petitioners in a paper entitled "Concurrence, Corrections and Comments on the Exceptions, Deficiencies and Recommendations of BSP in its ‘General Examination of RBSMI’s Books of Accounts as of September 15, 1996 as contained in the Report of Examiner Herminio C. Principio, dated December 23, 1996, initially discussed on January 21, 1997.’"9

Pursuant to the MB’s directive in Resolution No. 96, another examination team conducted a special examination on RBSMI from March 4, 1997 to March 26, 1997, with February 28, 1997 as the cut-off date of examination. The special examination team, headed by petitioner Principio and assisted by Ms. Carmelita Reyes, was introduced to RBSMI through a letter of petitioner Domo-ong dated February 14, 1997.

RBSMI president Hilario Soriano claims that he was pressured on March 4, 1997 into issuing a memorandum to the bank employees authorizing petitioner Principio and Ms. Reyes to review the bank’s accounting and internal control system. He likewise claims that sometime in March 1997, petitioner Reyes urged him (Soriano) to consider selling the bank. Soriano says that on or about May 28, 1997, Soriano, through a telephone introduction made by petitioner Reyes the day before, met with Exequiel Villacorta, President and Chief Executive Officer of TA Bank. In his sworn affidavit,10 Villacorta confirmed that he and Soriano indeed met to discuss a possible corporate combination of RBSMI and TA Bank. The talks between TA Bank and RBSMI never got past the exploratory stage. Their discussions were cut short as Soriano wanted a "sell-out," while Villacorta was interested in a "buy-in."

Soriano continues: Around the last week of May, petitioner Reyes asked him (Soriano) whether he wanted another buyer. When told that he did, petitioner Reyes introduced Soriano by telephone to Benjamin P. Castillo of the Export and Industry Bank (EIB). Hence, he and Castillo met on June 26, 1997, but their talks ended then and there because, as per his affidavit11 dated July 12, 1999, Castillo alleged that Soriano insisted on an RBSMI sell-out while he wanted a mere EIB buy-in and take-over of the management.

Meanwhile, on June 13, 1997, the MB approved Resolution No. 7.2412 noting the Report on the examination of RBSMI submitted by petitioner Domo-ong. The MB confirmed the steps taken or to be taken by the DRB. It also ordered RBSMI to correct the major exceptions noted within 30 days from receipt of the advice and to remit to the BSP the amount of P2,538,483.00 as fines and penalties for incurring deficiencies in reserves against deposit liabilities.

In accordance with the MB resolution, petitioner Domo-ong wrote the bank on June 25, 1997, informing it of the prescriptions of the resolution. On July 21, 1997, Soriano submitted RBSMI’s answers to the BSP exceptions/findings mentioned. Soriano said in the letter that

"the actions taken or to be taken by the bank (RBSMI) were deliberated and ratified by the Board of Directors in its regular meeting held on July 9, 1997." With regard to the fines and penalties amounting to P2,538,483.00, RBSMI requested the director of the DRB to debit its demand deposit with the amount.13

On September 22, 1997, nearly six months after MB Resolution No. 96 had been issued, RBSMI wrote petitioner Domo-ong seeking clarification of two specific issues:

1. May the scope/coverage of monitoring be expanded as to include verifications of bank transactions, before and beyond the cut-off date of the general examinations as of September 15, 1996? If so, to what extent?

2. Was there no pre-empting of the Monetary Board directive which was approved under Resolution No. 96 dated January 29, 1997?14

In a letter, dated November 13, 1997, petitioner Domo-ong explained that "DRB’s monitoring of the extent of corrective measures must necessarily cover bank transactions after the examination cut-off date to be assured that the same exceptions have not been repeated." As to the second issue, he explained that "there was no pre-empting of the MB directive as it was approved on January 29, 1997, way ahead of the initial monitoring which was undertaken from March 4 to 26, 1997 with a cut-off date of February 26, 1997." In conclusion, petitioner Domo-ong said that "considering that ‘monitoring’ in this regard simply means overseeing, observing or keeping track of the corrective measures being made by the bank on the serious findings/exceptions noted, we do not see any reason for your apprehensions on the matter. As soon as said findings/exceptions have been fully corrected, then the DRB can immediately recommend the lifting of said monitoring."15

Meanwhile, petitioner Principio allegedly requested RBSMI on October 6, 1997 to authorize him and a new BSP examiner, Ms. Zeny Cabais, to visit the bank from time to time to review accounting and control systems. This was before a letter of introduction, dated October 10, 1997, was issued by DRB introducing the new examination team of petitioner Principio and Ms. Cabais. The letter of instruction stated that both examiners were authorized, pursuant to MB Resolution No. 96, to verify and monitor the corrective measures taken by RBSMI on the findings/exceptions noted in the general examination of September 15, 1996.

When petitioner Principio presented the letter to Ms. Ilagan on October 22, 1997, the latter allegedly asked for a specification of the scope of his examination. However, Ms. Ilagan claimed in her sworn affidavit that on October 22, 1997 Soriano asked petitioner Principio to make a formal request for the records which he wanted to examine in order to avoid confusion. Nevertheless, Soriano subsequently allowed petitioner Principio to conduct the examination without the formal request.

Soriano claims that sometime in November 1997, he accidentally met petitioner Reyes who allegedly told him to sell out or RBSMI would suffer a bank run and it would be placed under conservatorship. Early that month, the Monetary Board issued Resolution No. 1473,16 dated November 5, 1997, ordering the continuous verification/monitoring of RBSMI until the major exceptions were substantially corrected. It likewise warned the officers of the bank that unless they ceased from conducting business in such an unsafe and unsound manner, drastic actions might be taken against the bank, including the take-over of management without prejudice to the prosecution of parties responsible pursuant to § 36 of R.A. No. 7653.

The action of the MB was followed on March 20, 1998 by the MB’s notation of DRB’s report on the corrective measures taken by complainant on the serious findings/exceptions in the September 15, 1996 General Examination. However, as there were some major and/or serious exceptions/findings which remained uncorrected, the MB again ordered its DRB to continue the verification/monitoring of RBSMI until the exceptions/findings were fully corrected.

In another development, the Manila Electric Company (MERALCO) issued a memorandum,17 dated April 6, 1998, to all of its collection officers enjoining them not to accept RBSMI checks from customers and other payees of bills, service deposit, and other payments until further advice from the Treasury. MERALCO thought that RBSMI had declared a "bank holiday." The next day (April 7, 1998), MERALCO issued another memorandum18 to its collection officers, informing them that RBSMI’s alleged bank holiday was not true and instructing them to accept RBSMI checks from customers and other payees. This was after the BSP had denied the news of pending RBSMI bank holiday. On the same date, MERALCO issued a letter of apology to RBSMI Chairman Atty. Sedfrey A. Ordoñez.

Thereafter, more than one year after authorizing the BSP to debit its demand deposit up to the extent of the fines and penalties imposed by BSP, RBSMI, through its counsel Atty. Rene Saguisag, in a letter,19 dated November 4, 1998, appealed to the MB to reverse the imposition of the P2.5 million penalty on the ground that "no Board Resolution [had been] adopted to authorize the debit in the Demand Deposit maintained by the bank with the Bangko Sentral ng Pilipinas."

RBSMI reiterated its request for the reversal of the imposition of penalty in another letter.20 Atty. Saguisag said that "as for the letter of Mr. Hilario requesting the Bangko Sentral ng Pilipinas to debit the account of our client, I would like to state that, at that time, he was under a state of extreme pressure to sell the bank at an unreasonably low price, hence, the reason for the said measure of desperation." The aforesaid letters of Atty. Saguisag were answered by the BSP in its letter21 dated November 18, 1998, explaining to Atty. Saguisag the bases for BSP’s imposition of the penalty on RBSMI.

On January 21, 1999, the MB, through Resolution No. 71, authorized the conditional reversal of sixty percent (60%) of the penalty debited against RBSMI pending resolution of the dispute on the findings on reserve deficiency. The conditional reversal was communicated to RBSMI by petitioner Reyes through a letter, dated February 8, 1999. In a letter, dated March 29, 1999, RBSMI agreed to "the interim reversal of the penalty, such that said P2.5 million will be credited to RBSMI, without prejudice to the outcome of the legal study regarding the propriety of the imposition of the penalty." Later, on April 7, 1999, the MB approved the interim reversal of the entire amount of the penalty "pending the outcome of the study on the legal and factual basis for the imposition of the penalty." Accordingly, the BSP credited RBSMI’s demand deposit account to the extent of the remaining forty percent (40%) of the penalty.

On February 3, 1999, Atty. Sedfrey A. Ordoñez, RBSMI Chairman, and Soriano wrote the MB regarding the release of the remaining proceeds of the emergency loans granted to RBSMI. Later on, RBSMI would claim that this letter was somehow leaked to the press. The Manila Times issue of March 10, 1999 carried a news article by Jun T. Ebias entitled "2 rural banks seek emergency loans, investors,"22 which quoted certain portions of the February 3, 1999 letter of RBSMI to the MB. In addition, RBSMI alleged that supposedly forged directives from Soriano addressed to all directors of the rural bank were faxed to the

municipal mayors of Bulacan. The undated fax message announced a special board meeting of the directors of RBSMI on February 20, 1999 to discuss internal and external audit findings, unpaid savings deposit withdrawals and matured time deposits, and the possible closure of the bank due to insolvency.

In a letter, dated March 10, 1999, Soriano asked for an inquiry into the alleged leak of sensitive information which can "logically be traced [to] Bangko Sentral ng Pilipinas sources." After investigating the matter, BSP, through petitioner Reyes and BSP Deputy Governor and General Counsel Armando L. Suratos, informed RBSMI in a letter, dated March 23, 1999, that the BSP was unable to determine the source of information of the Manila Times.

On the basis of the foregoing, RBSMI, through counsel, filed its letter-complaint of May 19, 1999, which was referred by the MB to an Ad Hoc Committee it had created. After the parties had submitted their respective pleadings, documents and memoranda, the Ad Hoc Committee issued a resolution,23 dated February 16, 2000, the pertinent part of which reads:

CONCLUSION AND RECOMMENDATION:

After a thorough review of the records, we find that complainant has not substantiated its allegations of respondents’ unprofessionalism. It has failed to present sufficient factual and legal bases to administratively charge respondents with the violation of any provision of R.A. No. 3019 and/or R.A. No. 6713. The acts complained of were done by respondents in the performance of their official duties.

IN VIEW WHEREOF, this Committee respectfully recommends that upon the approval of these findings, the monetary Board of the Bangko Sentral ng Pilipinas dismiss the complaint for lack of merit."

The MB adopted the recommendation of the Ad Hoc Committee, prompting RBSMI to appeal to the Court of Appeals the dismissal of the complaint as well as the denial of its motion for reconsideration and supplemental motion to vacate or reconsider. On December 14, 2001, the Court of Appeals reversed. The dispositive portion of its decision states:

WHEREFORE, the instant petition is hereby GRANTED. Accordingly, Resolution No. 257 dated February 18, 2000 and letter dated July 31, 2000 of the respondent Monetary Board are hereby REVERSED and SET ASIDE and a new one entered finding respondents BSP Deputy Governor Alberto V. Reyes, Director Wilfredo B. Domo-ong of the BSP Department of Rural Bank, and bank examiner Herminio C. Principio, administratively liable for unprofessionalism and are each meted the penalty of fine equivalent to six (6) months salary. 24

SO ORDERED.

Petitioners filed a motion for reconsideration. However, the motion was denied on July 29, 2002. Hence, this petition for review.

Petitioners submit the following issues:

I. Contrary to the baseless and illogical conclusion of the Court of Appeals, there exists no substantial and convincing evidence to support the charge that Petitioners

Reyes and Domo-ong are guilty of unprofessionalism by reason of their alleged "careless handling of confidential matters involving the internal problems of RBSMI."

II. Contrary to the conclusion of the Court of Appeals, Petitioner Reyes did not commit any act of unprofessionalism by reason of his alleged "illegal and unethical act of brokering the sale of RBSMI."

III. The conclusion of the Court of Appeals that petitioner Principio is liable for the charge of undue pressure against RBSMI, as a consequence of the undue haste by which petitioner Principio submitted his advance report to the MB, exposes the lack of knowledge of the Court of Appeals on how BSP officials work and perform their functions and duties and/or lack of full understanding of the facts of the case.

IV. The justification advanced by the Court of Appeals in declaring petitioners guilty of undue pressure, unprofessionalism, and arrogance relative to the latter’s act of recommending penalty charges for RBSMI’s reserve deficiency, is absolutely without any factual and legal basis.

V. The findings of fact of the Ad Hoc Committee as approved by the Monetary Board of the BSP in its Resolution No. 257 was not accorded due consideration by the Court of Appeals despite the fact that said findings of fact are supported by substantial evidence.

VI. The questioned decision violates the constitutional provision that a decision should state the facts and law on which it is based.

The present petition warrants the modification of the Court of Appeals’ decision.

First. Petitioners, particularly petitioner Reyes, are faulted with the careless handling of confidential and vital information regarding the financial status of RBSMI. The Court of Appeals ruled:

The respondent BSP officials cannot deny that the newspaper article in the Manila Times which was brought to the attention of respondent Alberto V. Reyes unequivocably states that the source of the information concerning the alleged financial needs of RBSMI came from BSP and from an officer of the Monetary Board. If Reyes himself was not the source of such a confidential information, he should have, at the very least and considering his exalted position as no less than the BSP Deputy Governor, exerted efforts to discover the leak and make accountable the concerned BSP officials or employees. . . . Unfortunately, however, Reyes appeared to have done nothing to unmask and hold responsible the talkative official or employee of the BSP. His unlawful act of omission on such a delicate and confidential matter is no less censurable as an act of omission.

This is error. It is indeed unfortunate that information regarding the financial needs of RBSMI came to the knowledge of the media. We realize that a bank’s lifeline depends largely on the trust and confidence accorded to it by its depositors and the public in general. However, too many possibilities exist on how word got to the press.

It is to be noted that before the Manila Times article came out in 1999, RBSMI had already undergone several examinations and was subject to continuous monitoring for major

exceptions and violations found during the 1996 General Examination. Word could have gotten around that the bank was being examined and that interested persons or entities could have inquired into the purpose of the examinations and monitoring. RBSMI’s own employees could have made remarks to friends and family members - maybe harmless - without totally realizing the effect of such statements. Indeed, MERALCO said that the basis of its memorandum was the information concerning RBSMI obtained from the Philippine Clearing House, an entity distinct and separate from the BSP. In fact, it was the BSP which dispelled the rumors which incited the second memorandum of recantation. The undated fax message alleged to be a forged memorandum has not been sufficiently proven as having been produced by any of the petitioners.

The article might have attributed the source to be an official or employee of the BSP if only to appear more credible. In any case, an inquiry was conducted by an investigating committee especially formed upon RBSMI’s request. But the committee was unable to determine the source of the leak. We have to presume that the said committee had performed its tasks with regularity and good faith, and thus it is entitled to due respect for its findings.

The issue of the training materials is a different matter. RBSMI claims that during one of the BSP training seminars, the bank was used as a case study albeit not specifically mentioned in the training materials. The Court of Appeals found that "the derision against RBSMI in the seminar materials is truly an additional pound of salt to RBSMI’s already wounded reputation."25 Petitioners allege that the seminar was for bank examiners who were bound not to reveal any confidential information they learned in the performance of their duties. They further claim that there is no evidence showing that petitioners Reyes and Domo-ong were the ones who distributed and used the materials or that they harbored any ill will against the bank to employ such means.

We agree with the appellate court. The facilitators of the seminar who prepared the materials obviously applied little or no creativity at all as shown by the words used therein, i.e., "Mrs. Ona I. Ros" which clearly is Soriano’s name in reverse, and "Rural Bank of Barangay Ginebra" referring to the bank’s name - Rural Bank of San Miguel. While there was indeed no evidence showing that either petitioner Reyes or petitioner Domo-ong distributed or used the materials, the very fact that the seminar was conducted under their auspices is enough to make them liable to a certain extent. Petitioner Reyes, as Head of the BSP Supervision and Examination Sector, and petitioner Domo-ong, as Director of the BSP Department of Rural Banks, should have exercised their power of control and supervision so that the incident could have been prevented or at the very least remedied.

Second. On the charge that petitioner Reyes was brokering the sale of RBSMI, the Court of Appeals ruled:

Nor can respondent Reyes escape administrative liability for the charge of having displayed undue interest in brokering the sale of petitioner RBSM. In a number of occasions, such an interest readily surfaced. . . . If anything else, Reyes’ actuations smack of unprofessionaliam as he had concerned himself with transactions that had nothing to do with his official function as BSP Deputy Governor.

. . .

Nor is it correct to say that respondent Alberto V. Reyes did no brokering simply because he was not paid for his efforts. As rightly argued by petitioner, there is no law which defines brokering in terms of payment thereof. To our mind, it suffices that

respondent Reyes introduced and brought the parties together to try to hammer out a sale of RBSMI. After all, a broker’s duty is mainly to bring the prospective buyers and sellers together.

We agree with the foregoing ruling of the Court of Appeals. In introducing Soriano to the presidents of TA Bank and EIB Bank, petitioner Reyes was clearly not acting in his official capacity. It is enough that he brought the parties together to discuss the possibility of a sale in order for him to be found guilty of brokering. Petitioner Reyes did not have to be paid for what he did in order to be considered to have committed a breach of the requirement of propriety expected of a BSP official. The circulars26 presented by petitioner Reyes indicate that it is indeed BSP’s policy to promote mergers and consolidations by providing incentives for banks who would undergo such corporate combinations. But nowhere in these circulars is it stated that BSP officials should take an active role in bringing parties together for the possibility of a buy-in or sell-out.

Section 4 (A)(b) of R.A. No. 6713 states:

Norms of Conduct of Public Officials and Employees. - (A) Every public official and employee shall observe the following as standards of personal conduct in the discharge and execution of official duties:

. . . .

(b) Professionalism - Public officials and employees shall perform and discharge their duties with the highest degree of excellence, professionalism, intelligence and skill. They shall enter public service with utmost devotion and dedication to duty. They shall endeavor to discourage wrong perceptions of their roles as dispensers or peddlers of undue patronage.

We do not think Soriano was subjected to undue pressure since he was also interested in selling the bank.27However, petitioner Reyes’ active participation in looking for possible buyers for RBSMI was clearly a violation of the standards of professionalism.

Third. For his part, petitioner Principio is charged with "undue haste" in submitting his report to the Monetary Board. His recommendation for the imposition of a penalty of P2.5 million on RBSMI is also complained of as a way of pressuring the bank. RBSMI points out that there was an irregularity in the fact that petitioner Principio headed the three consecutive examinations conducted on the bank.

We find no undue haste in the submission of petitioner Principio’s report. The 1996 examination on RBSMI was concluded on December 13, 1996. The list of exceptions prepared by petitioner Principio was dated December 23, 1996, and a copy thereof was sent to RBSMI on January 9, 1997. This was 18 days before petitioner Principio finally submitted the report to the Monetary Board. Having had sufficient time to prepare its reply, RBSMI cannot pretend ignorance of the findings of the examiner. It should have anticipated the actions it needed to take considering the urgency of the matter.

Moreover, it is clear from the records that RBSMI was given not only one but two opportunities to answer the findings in the report before the report was submitted to the MB. It should be noted that the exit conference for the 1996 General Examination was originally scheduled on January 13, 1997. However, upon the request of RBSMI’s corporate counsel, the examination was postponed to January 21, 1997. RBSMI was furnished a copy of the

findings on January 9, 1997. Although RBSMI claimed that the copy it received was unreadable, it made this accusation only after the complaint had been filed with the Monetary Board.

The members of the Board of Directors only discussed their reply on the very day of the rescheduled exit conference. Surely, RBSMI only had itself to blame. It was given a sporting chance to react to the findings before it was confirmed by the MB, but it did not make use of the opportunity. Again, it was given another chance after the exit conference when the MB, upon review of the report of petitioner Principio, issued Resolution No. 96 requiring RBSMI to answer the findings within 15 days from receipt of the advice.

On the other hand, the imposition of the P2.5 million fine was made on the basis of the finding of legal reserve deficiencies. Soriano wrote to the BSP authorizing the latter to debit its demand deposit in the amount of the penalty a few days after MB Resolution No. 96 was issued. It took RBSMI more than one year before it contested the imposition of the penalty. That the BSP subsequently reversed, albeit conditionally, the debiting of the amount of penalty is not an admission that it erred in imposing the same. It was only an accommodation on the part of the BSP to ease the financial difficulties of RBSMI. More importantly, it was a conditional reversal pending the resolution of the dispute on the finding of legal reserve deficiency.

RBSMI likewise complains that petitioner Principio took part in three consecutive examinations in violation of BSP’s own Manual of Examiners which states:

G. ROTATION OF ASSIGNMENTS FOR EXAMINERS:

A Bank Examiner shall not be in charge of more than two consecutive examinations of any financial institutions. No exception to this rule shall be permitted.

But, as petitioners explain, RBSMI was subjected only to one examination ¾ the 1996 General Examination ¾ in which major exceptions and violations were found. The ensuing examinations were "special examinations" meant to monitor the progress of the bank in correcting the exceptions found. With the finding of serious violations by the bank, the MB, through its Resolution No. 96, thought it best to put RBSMI under continuous monitoring until the exceptions had been corrected. It is logical for petitioner Principio to be part of the monitoring team considering that he was the initial examiner and was familiar with the matters to be made in order.

By and large, therefore, we find that while there may have been some irregularities and badges of unprofessionalism which can be held against petitioners, these are not so grave as to merit the imposition of the penalty of fine equal to six months salary imposed by the appellate court. The modification of the Court of Appeals decision is proper.

WHEREFORE, the decision of the Court of Appeals dated December 14, 2001 is AFFIRMED with MODIFICATIONS. Petitioner Alberto V. Reyes is ordered to pay a fine equivalent to two (2) months salary, while petitioner Wilfredo B Domo-ong is fined in an amount equivalent to one (1) month salary. Petitioner Herminio C. Principio is found not administratively liable.

SO ORDERED.

Bellosillo, (Chairman), Quisumbing, Austria-Martinez, and Callejo, Sr., JJ., concur.

Footnotes

G.R. No. 135706             October 1, 2004

SPS. CESAR A. LARROBIS, JR. and VIRGINIA S. LARROBIS, petitioners, vs.PHILIPPINE VETERANS BANK, respondent.

D E C I S I O N

AUSTRIA-MARTINEZ, J.:

Before us is a petition for review of the decision of the Regional Trial Court (RTC), Cebu City, Branch 24, dated April 17, 1998,1 and the order denying petitioner’s motion for reconsideration dated August 25, 1998, raising pure questions of law.2

The following facts are uncontroverted:

On March 3, 1980, petitioner spouses contracted a monetary loan with respondent Philippine Veterans Bank in the amount of P135,000.00, evidenced by a promissory note, due and demandable on February 27, 1981, and secured by a Real Estate Mortgage executed on their lot together with the improvements thereon.

On March 23, 1985, the respondent bank went bankrupt and was placed under receivership/liquidation by the Central Bank from April 25, 1985 until August 1992.3

On August 23, 1985, the bank, through Francisco Go, sent the spouses a demand letter for "accounts receivable in the total amount of P6,345.00 as of August 15, 1984,"4 which pertains to the insurance premiums advanced by respondent bank over the mortgaged property of petitioners.5

On August 23, 1995, more than fourteen years from the time the loan became due and demandable, respondent bank filed a petition for extrajudicial foreclosure of mortgage of petitioners’ property.6 On October 18, 1995, the property was sold in a public auction by Sheriff Arthur Cabigon with Philippine Veterans Bank as the lone bidder.

On April 26, 1996, petitioners filed a complaint with the RTC, Cebu City, to declare the extra-judicial foreclosure and the subsequent sale thereof to respondent bank null and void.7

In the pre-trial conference, the parties agreed to limit the issue to whether or not the period within which the bank was placed under receivership and liquidation was a fortuitous event which suspended the running of the ten-year prescriptive period in bringing actions.8

On April 17, 1998, the RTC rendered its decision, the fallo of which reads:

WHEREFORE, premises considered judgment is hereby rendered dismissing the complaint for lack of merit. Likewise the compulsory counterclaim of defendant is dismissed for being unmeritorious.9

It reasoned that:

…defendant bank was placed under receivership by the Central Bank from April 1985 until 1992. The defendant bank was given authority by the Central Bank to operate as a private commercial bank and became fully operational only on August 3, 1992. From April 1985 until July 1992, defendant bank was restrained from doing its business. Doing business as construed by Justice Laurel in 222 SCRA 131 refers to:

"….a continuity of commercial dealings and arrangements and contemplates to that extent, the performance of acts or words or the exercise of some of the functions normally incident to and in progressive prosecution of the purpose and object of its organization."

The defendant bank’s right to foreclose the mortgaged property prescribes in ten (10) years but such period was interrupted when it was placed under receivership. Article 1154 of the New Civil Code to this effect provides:

"The period during which the obligee was prevented by a fortuitous event from enforcing his right is not reckoned against him."

In the case of Provident Savings Bank vs. Court of Appeals, 222 SCRA 131, the Supreme Court said.

"Having arrived at the conclusion that a foreclosure is part of a bank’s activity which could not have been pursued by the receiver then because of the circumstances discussed in the Central Bank case, we are thus convinced that the prescriptive period was legally interrupted by fuerza mayor in 1972 on account of the prohibition imposed by the Monetary Board against petitioner from transacting business, until the directive of the Board was nullified in 1981. Indeed, the period during which the obligee was prevented by a caso fortuito from enforcing his right is not reckoned against him. (Art. 1154, NCC) When prescription is interrupted, all the benefits acquired so far from the possession cease and when prescription starts anew, it will be entirely a new one. This concept should not be equated with suspension where the past period is included in the computation being added to the period after the prescription is presumed (4 Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines 1991 ed. pp. 18-19), consequently, when the closure of the petitioner was set aside in 1981, the period of ten years within which to foreclose under Art. 1142 of the N.C.C. began to run and, therefore, the action filed on August 21, 1986 to compel petitioner to release the mortgage carried with it the mistaken notion that petitioner’s own suit for foreclosure has prescribed."

Even assuming that the liquidation of defendant bank did not affect its right to foreclose the plaintiffs’ mortgaged property, the questioned extrajudicial foreclosure was well within the ten (10) year prescriptive period. It is noteworthy to mention at this point in time, that defendant bank through authorized Deputy Francisco Go made the first extrajudicial demand to the plaintiffs on August 1985. Then on March 24, 1995 defendant bank through its officer-in-charge Llanto made the second extrajudicial demand. And we all know that a written extrajudicial demand wipes out the period that has already elapsed and starts anew the prescriptive period. (Ledesma vs. C.A., 224 SCRA 175.)10

Petitioners filed a motion for reconsideration which the RTC denied on August 25, 1998.11 Thus, the present petition for review where petitioners claim that the RTC erred:

I

…IN RULING THAT THE PERIOD WITHIN WHICH RESPONDENT BANK WAS PUT UNDER RECEIVERSHIP AND LIQUIDATION WAS A FORTUITOUS EVENT THAT INTERRUPTED THE RUNNING OF THE PRESCRIPTIVE PERIOD.

II

…IN RULING THAT THE WRITTEN EXTRA-JUDICIAL DEMAND MADE BY RESPONDENT ON PETITIONERS WIPED OUT THE PERIOD THAT HAD ALREADY ELAPSED.

III

…IN DENYING PETITIONERS’ MOTION FOR RECONSIDERATION OF ITS HEREIN ASSAILED DECISION.12

Petitioners argue that: since the extra-judicial foreclosure of the real estate mortgage was effected by the bank on October 18, 1995, which was fourteen years from the date the obligation became due on February 27, 1981, said foreclosure and the subsequent sale at public auction should be set aside and declared null and void ab initio since they are already barred by prescription; the court a quo erred in sustaining the respondent’s theory that its having been placed under receivership by the Central Bank between April 1985 and August 1992 was a fortuitous event that interrupted the running of the prescriptive period;13 the court a quo’s reliance on the case of ProvidentSavings Bank vs. Court of Appeals14 is misplaced since they have different sets of facts; in the present case, a liquidator was duly appointed for respondent bank and there was no judgment or court order that would legally or physically hinder or prohibit it from foreclosing petitioners’ property; despite the absence of such legal or physical hindrance, respondent bank’s receiver or liquidator failed to foreclose petitioners’ property and therefore such inaction should bind respondent bank;15 foreclosure of mortgages is part of the receiver’s/liquidator’s duty of administering the bank’s assets for the benefit of its depositors and creditors, thus, the ten-year prescriptive period which started on February 27, 1981, was not interrupted by the time during which the respondent bank was placed under receivership; and the Monetary Board’s prohibition from doing business should not be construed as barring any and all business dealings and transactions by the bank, otherwise, the specific mandate to foreclose mortgages under Sec. 29 of R.A. No. 265 as amended by Executive Order No. 65 would be rendered nugatory.16Said provision reads:

Section 29. Proceedings upon Insolvency – Whenever, upon examination by the head of the appropriate supervising or examining department or his examiners or agents into the condition of any bank or non-bank financial intermediary performing quasi-banking functions, it shall be disclosed that the condition of the same is one of insolvency, or that its continuance in business would involve probable loss to its depositors or creditors, it shall be the duty of the department head concerned forthwith, in writing, to inform the Monetary Board of the facts. The Board may, upon finding the statements of the department head to be true, forbid the institution to do business in the Philippines and designate the official of the Central Bank or a person of recognized competence in banking or finance, as receiver to immediately take charge its assets and liabilities, as expeditiously as possible, collect and gather all

the assets and administer the same for the benefit of its creditors, and represent the bank personally or through counsel as he may retain in all actions or proceedings for or against the institution, exercising all the powers necessary for these purposes including, but not limited to, bringing and foreclosing mortgages in the name of the bank.

Petitioners further contend that: the demand letter, dated March 24, 1995, was sent after the ten-year prescriptive period, thus it cannot be deemed to have revived a period that has already elapsed; it is also not one of the instances enumerated by Art. 1115 of the Civil Code when prescription is interrupted;17 and the August 23, 1985 letter by Francisco Go demanding P6,345.00, refers to the insurance premium on the house of petitioners, advanced by respondent bank, thus such demand letter referred to another obligation and could not have the effect of interrupting the running of the prescriptive period in favor of herein petitioners insofar as foreclosure of the mortgage is concerned.18

Petitioners then prayed that respondent bank be ordered to pay them P100,000.00 as moral damages,P50,000.00 as exemplary damages and P100,000.00 as attorney’s fees.19

Respondent for its part asserts that: the period within which it was placed under receivership and liquidation was a fortuitous event that interrupted the running of the prescriptive period for the foreclosure of petitioners’ mortgaged property; within such period, it was specifically restrained and immobilized from doing business which includes foreclosure proceedings; the extra-judicial demand it made on March 24, 1995 wiped out the period that has already lapsed and started anew the prescriptive period; respondent through its authorized deputy Francisco Go made the first extra-judicial demand on the petitioners on August 23, 1985; while it is true that the first demand letter of August 1985 pertained to the insurance premium advanced by it over the mortgaged property of petitioners, the same however formed part of the latter’s total loan obligation with respondent under the mortgage instrument and therefore constitutes a valid extra-judicial demand made within the prescriptive period.20

In their Reply, petitioners reiterate their earlier arguments and add that it was respondent that insured the mortgaged property thus it should not pass the obligation to petitioners through the letter dated August 1985.21

To resolve this petition, two questions need to be answered: (1) Whether or not the period within which the respondent bank was placed under receivership and liquidation proceedings may be considered a fortuitous event which interrupted the running of the prescriptive period in bringing actions; and (2) Whether or not the demand letter sent by respondent bank’s representative on August 23, 1985 is sufficient to interrupt the running of the prescriptive period.

Anent the first issue, we answer in the negative.

One characteristic of a fortuitous event, in a legal sense and consequently in relations to contract, is that its occurrence must be such as to render it impossible for a party to fulfill his obligation in a normal manner.22

Respondent’s claims that because of a fortuitous event, it was not able to exercise its right to foreclose the mortgage on petitioners’ property; and that since it was banned from pursuing its business and was placed under receivership from April 25, 1985 until August 1992, it could not foreclose the mortgage on petitioners’ property within such period since foreclosure is embraced in the phrase "doing business," are without merit.

While it is true that foreclosure falls within the broad definition of "doing business," that is:

…a continuity of commercial dealings and arrangements and contemplates to that extent, the performance of acts or words or the exercise of some of the functions normally incident to and in progressive prosecution of the purpose and object of its organization.23

it should not be considered included, however, in the acts prohibited whenever banks are "prohibited from doing business" during receivership and liquidation proceedings.

This we made clear in Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of the Philippines24 where we explained that:

Section 29 of the Republic Act No. 265, as amended known as the Central Bank Act, provides that when a bank is forbidden to do business in the Philippines and placed under receivership, the person designated as receiver shall immediately take charge of the bank’s assets and liabilities, as expeditiously as possible, collect and gather all the assets and administer the same for the benefit of its creditors, and represent the bank personally or through counsel as he may retain in all actions or proceedings for or against the institution, exercising all the powers necessary for these purposes including, but not limited to, bringing and foreclosing mortgages in the name of the bank.25

This is consistent with the purpose of receivership proceedings, i.e., to receive collectibles and preserve the assets of the bank in substitution of its former management, and prevent the dissipation of its assets to the detriment of the creditors of the bank.26

When a bank is declared insolvent and placed under receivership, the Central Bank, through the Monetary Board, determines whether to proceed with the liquidation or reorganization of the financially distressed bank. A receiver, who concurrently represents the bank, then takes control and possession of its assets for the benefit of the bank’s creditors. A liquidator meanwhile assumes the role of the receiver upon the determination by the Monetary Board that the bank can no longer resume business. His task is to dispose of all the assets of the bank and effect partial payments of the bank’s obligations in accordance with legal priority. In both receivership and liquidation proceedings, the bank retains its juridical personality notwithstanding the closure of its business and may even be sued as its corporate existence is assumed by the receiver or liquidator. The receiver or liquidator meanwhile acts not only for the benefit of the bank, but for its creditors as well.27

In Provident Savings Bank vs. Court of Appeals,28 we further stated that:

When a bank is prohibited from continuing to do business by the Central Bank and a receiver is appointed for such bank, that bank would not be able to do new business, i.e., to grant new loans or to accept newdeposits. However, the receiver of the bank is in fact obliged to collect debts owing to the bank, which debts form part of the assets of the bank. The receiver must assemble the assets and pay the obligation of the bank under receivership, and take steps to prevent dissipation of such assets. Accordingly, the receiver of the bank is obliged to collect pre-existing debts due to the bank, and in connection therewith, to foreclose mortgages securing such debts.29 (Emphasis supplied.)

It is true that we also held in said case that the period during which the bank was placed under receivership was deemed fuerza mayor which validly interrupted the prescriptive period.30 This is being invoked by the respondent and was used as basis by the trial court in its decision. Contrary to the position of the respondent and court a quohowever, such ruling does not find application in the case at bar.

A close scrutiny of the Provident case, shows that the Court arrived at said conclusion, which is an exception to the general rule, due to the peculiar circumstances of Provident Savings Bank at the time. In said case, we stated that:

Having arrived at the conclusion that a foreclosure is part of a bank’s business activity which could not have been pursued by the receiver then because of the circumstances discussed in the Central Bank case, we are thus convinced that the prescriptive period was legally interrupted by fuerza mayor in 1972 on account of the prohibition imposed by the Monetary Board against petitioner from transacting business, until the directive of the Board was nullified in 1981.31 (Emphasis supplied.)

Further examination of the Central Bank case reveals that the circumstances of Provident Savings Bank at the time were peculiar because after the Monetary Board issued MB Resolution No. 1766 on September 15, 1972, prohibiting it from doing business in the Philippines, the bank’s majority stockholders immediately went to the Court of First Instance of Manila, which prompted the trial court to issue its judgment dated February 20, 1974, declaring null and void the resolution and ordering the Central Bank to desist from liquidating Provident. The decision was appealed to and affirmed by this Court in 1981. Thus, the Superintendent of Banks, which was instructed to take charge of the assets of the bank in the name of the Monetary Board, had no power to act as a receiver of the bank and carry out the obligations specified in Sec. 29 of the Central Bank Act.32

In this case, it is not disputed that Philippine Veterans Bank was placed under receivership by the Monetary Board of the Central Bank by virtue of Resolution No. 364 on April 25, 1985, pursuant to Section 29 of the Central Bank Act on insolvency of banks.33

Unlike Provident Savings Bank, there was no legal prohibition imposed upon herein respondent to deter its receiver and liquidator from performing their obligations under the law. Thus, the ruling laid down in the Providentcase cannot apply in the case at bar.

There is also no truth to respondent’s claim that it could not continue doing business from the period of April 1985 to August 1992, the time it was under receivership. As correctly pointed out by petitioner, respondent was even able to send petitioners a demand letter, through Francisco Go, on August 23, 1985 for "accounts receivable in the total amount of P6,345.00 as of August 15, 1984" for the insurance premiums advanced by respondent bank over the mortgaged property of petitioners. How it could send a demand letter on unpaid insurance premiums and not foreclose the mortgage during the time it was "prohibited from doing business" was not adequately explained by respondent.

Settled is the principle that a bank is bound by the acts, or failure to act of its receiver.34 As we held in Philippine Veterans Bank vs. NLRC,35 a labor case which also involved respondent bank,

… all the acts of the receiver and liquidator pertain to petitioner, both having assumed petitioner’s corporate existence. Petitioner cannot disclaim liability by

arguing that the non-payment of MOLINA’s just wages was committed by the liquidators during the liquidation period.36

However, the bank may go after the receiver who is liable to it for any culpable or negligent failure to collect the assets of such bank and to safeguard its assets.37

Having reached the conclusion that the period within which respondent bank was placed under receivership and liquidation proceedings does not constitute a fortuitous event which interrupted the prescriptive period in bringing actions, we now turn to the second issue on whether or not the extra-judicial demand made by respondent bank, through Francisco Go, on August 23, 1985 for the amount of P6,345.00, which pertained to the insurance premiums advanced by the bank over the mortgaged property, constitutes a valid extra-judicial demand which interrupted the running of the prescriptive period. Again, we answer this question in the negative.

Prescription of actions is interrupted when they are filed before the court, when there is a written extra-judicial demand by the creditors, and when there is any written acknowledgment of the debt by the debtor.38

Respondent’s claim that while its first demand letter dated August 23, 1985 pertained to the insurance premium it advanced over the mortgaged property of petitioners, the same formed part of the latter’s total loan obligation with respondent under the mortgage instrument, and therefore, constitutes a valid extra-judicial demand which interrupted the running of the prescriptive period, is not plausible.

The real estate mortgage signed by the petitioners expressly states that:

This mortgage is constituted by the Mortgagor to secure the payment of the loan and/or credit accommodation granted to the spouses Cesar A. Larrobis, Jr. and Virginia S. Larrobis in the amount of ONE HUNDRED THIRTY FIVE THOUSAND (P135,000.00) PESOS ONLY Philippine Currency in favor of the herein Mortgagee.39

The promissory note, executed by the petitioners, also states that:

…FOR VALUE RECEIVED, I/WE, JOINTLY AND SEVERALLY, PROMISE TO PAY THE PHILIPPINE VETERANS BANK, OR ORDER, AT ITS OFFICE AT CEBU CITY THE SUM OF ONE HUNDRED THIRTY FIVE THOUSAND PESOS (P135,000.00), PHILIPPINE CURRENCY WITH INTEREST AT THE RATE OF FOURTEEN PER CENT (14%) PER ANNUM FROM THIS DATE UNTIL FULLY PAID.40

Considering that the mortgage contract and the promissory note refer only to the loan of petitioners in the amount of P135,000.00, we have no reason to hold that the insurance premiums, in the amount of P6,345.00, which was the subject of the August 1985 demand letter, should be considered as pertaining to the entire obligation of petitioners.

In Quirino Gonzales Logging Concessionaire vs. Court of Appeals,41 we held that the notices of foreclosure sent by the mortgagee to the mortgagor cannot be considered tantamount to written extrajudicial demands, which may validly interrupt the running of the prescriptive period, where it does not appear from the records that the notes are covered by the mortgage contract.42

In this case, it is clear that the advanced payment of the insurance premiums is not part of the mortgage contract and the promissory note signed by petitioners. They pertain only to the amount of P135,000.00 which is the principal loan of petitioners plus interest. The arguments of respondent bank on this point must therefore fail.

As to petitioners’ claim for damages, however, we find no sufficient basis to award the same. For moral damages to be awarded, the claimant must satisfactorily prove the existence of the factual basis of the damage and its causal relation to defendant’s acts.43 Exemplary damages meanwhile, which are imposed as a deterrent against or as a negative incentive to curb socially deleterious actions, may be awarded only after the claimant has proven that he is entitled to moral, temperate or compensatory damages.44 Finally, as to attorney’s fees, it is demanded that there be factual, legal and equitable justification for its award.45 Since the bases for these claims were not adequately proven by the petitioners, we find no reason to grant the same.

WHEREFORE, the decision of the Regional Trial Court, Cebu City, Branch 24, dated April 17, 1998, and the order denying petitioners’ motion for reconsideration dated August 25, 1998 are hereby REVERSED and SET ASIDE. The extra-judicial foreclosure of the real estate mortgage on October 18, 1995, is hereby declared null and void and respondent is ordered to return to petitioners their owner’s duplicate certificate of title.

Costs against respondent.

SO ORDERED.

Puno, Callejo, Sr., Tinga, and Chico-Nazario*, JJ., concur.

Footnotes

G.R. No. 148163             December 6, 2004

BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioner, vs.JUANITA B. YBAÑEZ, CHARLES B. YBAÑEZ, JOSEPH B. YBAÑEZ and JEROME B. YBAÑEZ, respondents.

D E C I S I O N

QUISUMBING, J.:

In this petition for review, Banco Filipino Savings and Mortgage Bank seeks the reversal of the Decision1 dated April 17, 2001 of the Court of Appeals in CA-G.R. CV No. 57927 affirming the Decision2 dated July 16, 1997 of the Regional Trial Court, Branch 13 of Cebu City in Civil Case No. CEB-16548.

The facts of this case are as follows:

On March 7, 1978, respondents obtained a loan secured by a Deed of Real Estate Mortgage over Transfer Certificate of Title (TCT) No. 69836 from petitioner bank. The loan was used for the construction of a commercial building in Cebu City. On October 25, 1978, respondents obtained an additional loan from the petitioner thus increasing their obligation to one million pesos. A corresponding Amendment of Real Estate Mortgage was thereafter executed.

On December 24, 1982, the loan was again re-structured, increasing the loan obligation to P1,225,000 and the Real Estate Mortgage was again amended. Respondents executed a Promissory Note for the sum of P1,225,000 payable in fifteen years, with a stipulated interest of 21% per annum, and stipulating monthly payments ofP22,426. The first payment was payable on January 24, 1983, and the succeeding payments were due every 24thof each month thereafter.3 The note also stipulated that in case of default in the payment of any of the monthly amortization and interest, respondents shall pay a penalty equivalent to 3% of the amount due each month.4

Respondents’ total payment from 1983 to 1988 amounted5 to P1,455,385.07, broken down as follows:

1983 247,631.54

1984 81,797.24

1985 173,875.77

1986 284,364.82

1987 380,000.00

1988 287,715.706

From 1989 onwards, respondents did not pay a single centavo. They aver that Banco Filipino had ceased operations and/or was not allowed to continue business, having been placed under liquidation by the Central Bank.

On January 15, 1990, respondents’ lawyer wrote Special Acting Liquidator, Renan Santos, and requested that plaintiff return the mortgaged property of the respondents since it had sufficiently profited from the loan and that the interest and penalty charges were excessive. Petitioner bank denied the request.7

Banco Filipino was closed on January 1, 1985 and re-opened for business on July 1, 1994. From its closure to its re-opening, petitioner bank did not transact any business with its customers.8

On August 24, 1994, respondents were served a Notice of Extra Judicial Sale of their property covered by TCT No. 69836 to satisfy their indebtedness allegedly of P6,174,337.46 which includes the principal, interest, surcharges and 10% attorney’s fees. The public auction was scheduled on September 22, 1994 at 2:00 in the afternoon.

On September 19, 1994, respondents filed a suit for Injunction, Accounting and Damages, alleging that there was no legal and factual basis for the foreclosure proceedings since the loan had already been fully paid. A restraining order was issued the following day by the lower court enjoining petitioner to cease and desist from selling the property at a public auction.9

On July 16, 1997, the lower court rendered a Decision, disposing as follows:

WHEREFORE, judgment is hereby rendered directing defendant Banco Filipino Savings and Mortgage Bank to render a correct accounting of the obligations of plaintiffs with it after eliminating interest from January 1, 1985 to July 1, 1994 when it was closed, and reducing interest from 21% to 17% per annum, at the time it was in operation, and totally eliminating [the] surcharge of 1% per month, within a period of fifteen (15) days from the time the judgment shall have become final and executory.

Plaintiffs are directed to pay the bank within a period of thirty (30) days from the time they will receive defendant bank’s true and correct accounting, otherwise the order of injunction will be lifted/dissolved.

Defendants are enjoined from foreclosing the real estate mortgage on the property of plaintiffs, unless the latter fail to pay in accordance with the [preceding] paragraph.

Without special pronouncement as to costs.

SO ORDERED.10

Not satisfied with the decision, both parties appealed the case to the Court of Appeals. Petitioner filed its Notice of Appeal on August 19, 1997, while respondents filed theirs on August 22, 1997. On April 17, 2001, the Court of Appeals rendered a Decision affirming the decision of the trial court stating:

WHEREFORE, for lack of merit, both appeals are DISMISSED and the Decision appealed from is AFFIRMED.

SO ORDERED.11

Petitioner now alleges the following errors:

I. THE COURT OF APPEALS ERRED IN CONCURRING WITH THE TRIAL COURT’S DECISION ORDERING THE DEFENDANT BANK (HEREIN PETITIONER) TO RENDER A CORRECT ACCOUNTING OF PLAINTIFFS’ LOAN BECAUSE THE STATEMENT OF ACCOUNT (EXH. 5 and 6 – Defendant) SUBMITTED BY DEFENDANT BANK DOES NOT REFLECT THE TRUE AND CORRECT AMOUNT AS IT IMPOSES A 21% PER ANNUM INTEREST WHICH THE COURT OF APPEALS CONSIDERED AS EXCESSIVE AND THAT IT HAS NO

PROBATIVE VALUE AS ITS SIGNATORIES WERE NOT PRESENTED AS WITNESSES.

II. THE COURT OF APPEALS ERRED IN ORDERING THE DELETION OF THE 3% PER MONTH SURCHARGE SIMPLY BECAUSE THE PLAINTIFF-BORROWER HAD MADE SUBSTANTIAL PAYMENTS FROM 1983 TO 1988.

III. THE COURT OF APPEALS COMMITTED AN ERROR IN RULING THAT THE PLAINTIFFS-BORROWERS (HEREIN RESPONDENTS) CANNOT BE CONSIDERED TO HAVE DEFAULTED IN THEIR PAYMENT SINCE DEFENDANT BANK CEASED OPERATION FROM 1985 TO 1991.12

To resolve the controversy we shall address the following pertinent questions: (1) What is the effect of the temporary closure of Banco Filipino from January 1, 1985 to July 1, 1994 on the loan? (2) Is the rate of interest set at 21% per annum legal? and (3) Is the 3% monthly surcharge valid?

In Banco Filipino Savings and Mortgage Bank v. Monetary Board,13 the validity of the closure and receivership of Banco Filipino was put in issue. But the pendency of the case did not diminish the authority of the designated liquidator to administer and continue the bank’s transactions. The Court allowed the bank’s liquidator to continue receiving collectibles and receivables or paying off creditor’s claims and other transactions pertaining to normal operations of a bank. Among these transactions were the prosecution of suits against debtors for collection and for foreclosure of mortgages. The bank was allowed to collect interests on its loans while under liquidation, provided that the interests were legal.

Petitioner contends that the 21% annual interest was freely and voluntarily agreed upon by the parties, and that it was neither excessive nor violative of the Usury Law.14

On the other hand, respondents state that the rate of 21% was usurious because the loan was incurred on December 24, 1982, before the de facto repeal of the Usury Law on January 1, 1983.15 Respondents add that the normal rate by which petitioner charges its borrowers at that time was only 17%, or 4% lower than the rate it gave to respondents.

It is an elementary rule of contracts that the contracting parties are free to stipulate the terms of their contract for as long as the terms are not contrary to law, morals, good customs, public policy, public order, and national interests.16 Laws in force at the time the contract was made generally govern its interpretation and application. The loan agreement between petitioner and respondents specifies the obligation of the debtor to pay interest. In principle said stipulation is binding between the parties.17

We note that at the time the parties entered into the said loan agreement, the pertinent law, Act No. 2655, already provided that the rate of interest for the forbearance of money when secured by a mortgage upon real estate should not be more than 12% per annum or the maximum rate prescribed by the Monetary Board and in force at the time the loan was granted. On December 1, 1979, the Monetary Board of the Central Bank of the Philippines18had issued CBP Circular No. 705-79.19 On loan transactions with maturities of more than 730 days, it fixed the effective rate of interest at 21% per annum for both secured and unsecured loans. Since the loan in question has fixed 15 years for its maturity, it fell within the coverage of said CBP Circular. Thus, we agree that the 21% interest is not violative of the Usury Law as it stood at the time of the loan transaction.

As to the monthly surcharge, petitioner relies on CBP Circular No. 905-82.20 The ceiling on interest rates prescribed by the Usury Law, according to petitioner, were expressly removed. Petitioner argues that the said circular had retroactive effect since it is merely procedural in nature. Hence according to petitioner, the imposition of 3% monthly surcharge by the bank against the borrower is legal.

On this matter, we disagree with petitioner. CBP Circular No. 905-82, which was effective January 1, 1983, did not repeal nor in any way amend the Usury Law. The Circular simply suspended the effectivity of the Usury Law. A Central Bank Circular cannot repeal a law. Only a law can repeal another law. Thus, the retroactive application of a CBP Circular cannot, and should not, be presumed.21 The loan was entered into on December 24, 1982, but CBP Circular No. 905-82 was given force and effect only on January 1, 1983. Thus, CBP Circular No. 905-82 could not be made applicable to the loan agreement in this case, and petitioner could not rely on this Circular for its imposition of 3% monthly surcharge.

Petitioner also argues that the 3% monthly surcharge partakes of the nature of a penalty clause.22 A penal clause is an accessory undertaking to assume greater liability in case of breach and is attached to an obligation in order to secure its performance.23 The penalty shall substitute the indemnity for damages and the payment of interests in case of non-compliance.24 But if such stipulation is found contrary to law for being usurious, it can be nullified by the courts without affecting the principal obligation.25

In the loan agreement between the parties in this case, the total interest and other charges exceed the prescribed 21% ceiling. Hence, the imposition of the 3% monthly surcharge, as the penal clause to the obligation, violated the limit imposed by the Usury Law. Said surcharge of 3% monthly must be declared null and void.

To recapitulate: the respondents’ principal obligation to pay the monthly amortization of P22,426, validly subsists. Only the 3% monthly surcharge is void. The monthly amortization of P22,426, for 15 years, would amount toP4,036,680. To date, respondents already paid the amount of P1,455,385.07. Thus, only the outstanding balance of P2,581,294.93 remains due.

Respondents were given by the RTC 30 days from receipt of decision, within which to pay their outstanding obligation. We now reiterate that period of 30 days, from receipt of this Decision, for respondents to pay the amount of P2,581,294.93 to the bank as full payment of the outstanding balance on their loan obligation. Otherwise, the order of injunction restraining petitioner from foreclosing the property shall be lifted.

WHEREFORE, the Decision of the Regional Trial Court, which was sustained by the Court of Appeals, is hereby MODIFIED as follows: (1) the interest rate at 21% per annum is hereby declared VALID; (2) the 3% monthly surcharge is NULLIFIED for being violative of the Usury Law at the time; and (3) respondents are ORDERED to pay petitioner the amount of P2,581,294.93 within 30 days from receipt of this Decision. No pronouncement as to costs.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concur.

Footnotes

G.R. No. 100701       March 28, 2001

PRODUCERS BANK OF THE PHILIPPINES, petitioner, vs.NATIONAL LABOR RELATIONS COMMISSION and PRODUCERS BANK EMPLOYEES ASSOCIATION,1respondents.

GONZAGA-REYES, J.:

Before us is a special civil action for certiorari with prayer for preliminary injunction and/or restraining order seeking the nullification of (1) the decision of public respondent in NLRC-NCR Case No. 02-00753-88, entitled "Producers Bank Employees Association v. Producers Bank of the Philippines," promulgated on 30 April 1991, reversing the Labor Arbiter's dismissal of private respondent's complaint and (2) public respondent's resolution dated 18 June 1991 denying petitioner's motion for partial reconsideration. 1âwphi1.nêt

The present petition originated from a complaint filed by private respondent on 11 February 1988 with the Arbitration Branch, National Capital Region, National Labor Relations Commission (NLRC), charging petitioner with diminution of benefits, non-compliance with Wage Order No. 6 and non-payment of holiday pay. In addition, private respondent prayed for damages.2

On 31 March 1989, Labor Arbiter Nieves V. de Castro found private respondent's claims to be unmeritorious and dismissed its complaint.3 In a complete reversal, however, the NLRC4 granted all of private respondent's claims, except for damages.5 The dispositive portion of the NLRC's decision provides –

WHEREFORE, premises considered, the appealed Decision is, as it is hereby, SET ASIDE and another one issued ordering respondent- appellee to pay complainant-appellant:

1. The unpaid bonus (mid-year and Christmas bonus) and 13th month pay;

2. Wage differentials under Wage Order No. 6 for November 1, 1984 and the corresponding adjustment thereof; and

3. Holiday pay under Article 94 of the Labor Code, but not to exceed three (3) years.

The rest of the claims are dismissed for lack of merit.

SO ORDERED.

Petition filed a Motion for Partial Reconsideration, which was denied by the NLRC in a Resolution issued on 18 June 1991. Hence, recourse to this Court.

Petitioner contends that the NLRC gravely abused its discretion in ruling as it did for the succeeding reasons stated in its Petition -

1. On the alleged diminution of benefits, the NLRC gravely abused its discretion when (1) it contravened the Supreme Court decision in Traders Royal Bank v. NLRC, et al., G.R. No. 88168, promulgated on August 30, 1990, (2) its ruling is not justified by law and Art. 100 of the Labor Code, (3) its ruling is contrary to the CBA, and (4) the so-called "company practice invoked by it has no legal and moral bases" (p. 2, Motion for Partial Reconsideration, Annex "H");

2. On the alleged non-compliance with Wage Order No. 6, the NLRC again gravely abused its discretion when it patently and palpably erred in holding that it is "more inclined to adopt the stance of appellant (private respondent UNION) in this issue since it is more in keeping with the law and its implementing provisions and the intendment of the parties as revealed in their CBA" without giving any reason or justification for such conclusions as the stance of appellant (private respondent UNION) does not traverse the clear and correct finding and conclusion of the Labor Arbiter.

Furthermore, the petitioner, under conservatorship and distressed, is exempted under Wage Order No. 6.

Finally, the "wage differentials under Wage Order No. 6 for November 1, 1984 and the corresponding adjustment thereof" (par. 2, dispositive portion, NLRC Decision), has prescribed (p. 12, Motion for Partial Reconsideration, Annex "H").

3. On the alleged non-payment of legal holiday pay, the NLRC again gravely abused its discretion when it patently and palpably erred in approving and adopting "the position of appellant (private respondent UNION)" without giving any reason or justification therefor which position does not squarely traverse or refute the Labor Arbiter's correct finding and ruling (p. 18, Motion for Partial Reconsideration, Annex "H").6

On 29 July 1991, the Court granted petitioner's prayer for a temporary restraining order enjoining respondents from executing the 30 April 1991 Decision and 18 June 1991 Resolution of the NLRC.7

Coming now to the merits of the petition, the Court shall discuss the issues ad seriatim.

Bonuses

As to the bonuses, private respondent declared in its position papers filed with the NLRC that –

1. Producers Bank of the Philippines, a banking institution, has been providing several benefits to its employees since 1971 when it started its operation. Among the benefits it had been regularly giving is a mid-year bonus equivalent to an employee's one-month basic pay and a Christmas bonus equivalent to an employee's one whole month salary (basic pay plus allowance);

2. When P.D. 851, the law granting a 13th month pay, took effect, the basic pay previously being given as part of the Christmas bonus was applied as compliance to it (P.D. 851), the allowances remained as Christmas bonus;

3. From 1981 up to 1983, the bank continued giving one month basic pay as mid-year bonus, one month basic pay as 13th month pay but the Christmas bonus was no longer based on the allowance but on the basic pay of the employees which is higher;

4. In the early part of 1984, the bank was placed under conservatorship but it still provided the traditional mid-year bonus;

5. By virtue of an alleged Monetary Board Resolution No. 1566, bank only gave a one-half (1/2) month basic pay as compliance of the 13th month pay and none for the Christmas bonus. In a tabular form, here are the bank's violations:

YEAR MID- YEAR BONUS CHRISTMAS BONUS 13TH MO. PAY

previous years one mo. basic one mo. Basic one mo. Basic

1984 [one mo. basic] -none- one-half mo. Basic

1985 one-half mo. basic -none- one-half mo. Basic

1986 one-half mo. basic one-half mo. Basic one mo. Basic

1987 one-half mo. basic one-half mo. Basic one mo. basic

Private respondent argues that the mid-year and Christmas bonuses, by reason of their having been given for thirteen consecutive years, have ripened into a vested right and, as such, can no longer be unilaterally withdrawn by petitioner without violating Article 100 of Presidential Decree No. 4429 which prohibits the diminution or elimination of benefits already being enjoyed by the employees. Although private respondent concedes that the grant of a bonus is discretionary on the part of the employer, it argues that, by reason of its long and regular concession, it may become part of the employee's regular compensation.10

On the other hand, petitioner asserts that it cannot be compelled to pay the alleged bonus differentials due to its depressed financial condition, as evidenced by the fact that in 1984 it was placed under conservatorship by the Monetary Board. According to petitioner, it sustained losses in the millions of pesos from 1984 to 1988, an assertion which was affirmed by the labor arbiter. Moreover, petitioner points out that the collective bargaining agreement of the parties does not provide for the payment of any mid-year or Christmas bonus. On the contrary, section 4 of the collective bargaining agreement states that –

Acts of Grace. Any other benefits or privileges which are not expressly provided in this Agreement, even if now accorded or hereafter accorded to the employees, shall be deemed purely acts of grace dependent upon the sole judgment and discretion of the BANK to grant, modify or withdraw .11

A bonus is an amount granted and paid to an employee for his industry and loyalty which contributed to the success of the employer's business and made possible the realization of profits. It is an act of generosity granted by an enlightened employer to spur the employee to greater efforts for the success of the business and realization of bigger profits.12 The granting of a bonus is a management prerogative, something given in addition to what is ordinarily received by or strictly due the recipient.13 Thus, a bonus is not a demandable and enforceable obligation,14 except when it is made part of the wage, salary or compensation of the employee.15

However, an employer cannot be forced to distribute bonuses which it can no longer afford to pay. To hold otherwise would be to penalize the employer for his past generosity. Thus, in Traders Royal Bank v. NLRC,16 we held that -

It is clear x x x that the petitioner may not be obliged to pay bonuses to its employees. The matter of giving them bonuses over and above their lawful salaries and allowances is entirely dependent on the profits, if any, realized by the Bank from its operations during the past year.

From 1979-1985, the bonuses were less because the income of the Bank had decreased. In 1986, the income of the Bank was only 20.2 million pesos, but the Bank still gave out the usual two (2) months basic mid-year and two months gross year-end bonuses. The petitioner pointed out, however, that the Bank weakened considerably after 1986 on account of political developments in the country. Suspected to be a Marcos-owned or controlled bank, it was placed under sequestration by the present administration and is now managed by the Presidential Commission on Good Government (PCGG).

In light of these submissions of the petitioner, the contention of the Union that the granting of bonuses to the employees had ripened into a company practice that may not be adjusted to the prevailing financial condition of the Bank has no legal and moral bases. Its fiscal condition having declined, the Bank may not be forced to distribute bonuses which it can no longer afford to pay and, in effect, be penalized for its past generosity to its employees. -

Private respondent's contention, that the decrease in the mid-year and year-end bonuses constituted a diminution of the employees' salaries, is not correct, for bonuses are not part of labor standards in the same class as salaries, cost of living allowances, holiday pay, and leave benefits, which are provided by the Labor Code.

This doctrine was reiterated in the more recent case of Manila Banking Corporation v. NLR17 wherein the Court made the following pronouncements –

By definition, a "bonus" is a gratuity or act of liberality of the giver which the recipient has no right to demand as a matter of right. It is something given in addition to what is ordinarily received by or strictly due the recipient. The granting of a bonus is basically a management prerogative which cannot be forced upon the employer who may not be obliged to assume the onerous burden of granting bonuses or other benefits aside from the employee's basic salaries or wages, especially so if it is incapable of doing so.

xxx xxx xxx

Clearly then, a bonus is an amount given ex gratia to an employee by an employer on account of success in business or realization of profits. How then can an employer be made liable to pay additional benefits in the nature of bonuses to its employees when it has been operating on considerable net losses for a given period of time?

Records bear out that petitioner Manilabank was already in dire financial straits in the mid-80's. As early as 1984, the Central Bank found that Manila bank had been suffering financial losses. Presumably, the problems commenced even before their discovery in 1984. As earlier chronicled, the Central Bank placed petitioner bank under comptrollership in 1984 because of liquidity problems and excessive interbank borrowings. In 1987, it was placed under receivership and ordered to close operation. In 1988, it was ordered liquidated.

It is evident, therefore, that petitioner bank was operating on net losses from the years 1984, 1985 and 1986, thus, resulting to its eventual closure in 1987 and liquidation in 1988. Clearly, there was no success in business or realization of profits to speak of that would warrant the conferment of additional benefits sought by private respondents. No company should be compelled to act liberally and confer upon its employees additional benefits over and above those mandated by law when it is plagued by economic difficulties and financial losses. No act of enlightened generosity and self-interest can be exacted from near empty , if not empty coffers.

It was established by the labor arbiter18 and the NLRC19 and admitted by both parties20 that petitioner was placed under conservatorship by the Monetary Board, pursuant to its authority under Section 28-A of Republic Act No. 265,21 as amended by Presidential Decree No. 72,22 which provides –

Sec.28-A. Appointment of conservator. - Whenever, on the basis of a report submitted by the appropriate supervising and examining department, the Monetary Board finds that a bank is in a state of continuing inability or unwillingness to maintain a condition of solvency and liquidity deemed adequate to protect the interest of depositors and creditors, the Monetary Board may appoint a conservator to take charge of the assets, liabilities, and the management of that banking institution, collect all monies and debts due said bank and exercise all powers necessary to preserve the assets of the bank, reorganize the management thereof and restore its viability .He shall have the power to overrule or revoke "the actions of the previous management and board of directors of the bank, any provision of law to the contrary notwithstanding, and such other powers as the Monetary Board shall deem necessary.1âwphi1.nêt

xxx xxx xxx

Under Section 28-A, the Monetary Board may place a bank under the control of a conservator when it finds that the bank is continuously unable or unwilling to maintain a condition of solvency or liquidity .In Central Bank of the Philippines v. Court of Appeals,23 the Court declared that the order placing petitioner herein under conservatorship had long become final and its validity could no longer be litigated upon. Also, in the same case, the Court found that sometime in August, 1983, some news items triggered a bank-run in petitioner which resulted in continuous over- drawings on petitioner's demand deposit account with the Central Bank; the over- drawings reached P143.955 million by 17 January 1984; and as of 13 February 1990, petitioner had over-drawings of up to P1.233 billion,

which evidences petitioner's continuing inability to maintain a condition of solvency and liquidity, thus justifying the conservatorship. Our findings in the Central Bank case coincide with petitioner's claims that it continuously suffered losses from 1984 to 1988 as follows –

YEAR NET LOSSES IN MILLIONS OF PESOS

1984 P 144.418

1985 P 144.940

1986 P 132.940

1987 P 84.182

January-February 1988

P 9.271

These losses do not include the interest expenses on the overdraft loan of the petitioner to the Central Bank, which interest as of July 31, 1987, amounted to P610.065 Million, and penalties on reserve deficiencies which amounted to P89.029 Million. The principal balance of the overdraft amounted to P971.632 Million as of March 16, 1988.24

Petitioner was not only experiencing a decline in its profits, but was reeling from tremendous losses triggered by a bank-run which began in 1983. In such a depressed financial condition, petitioner cannot be legally compelled to continue paying the same amount of bonuses to its employees. Thus, the conservator was justified in reducing the mid-year and Christmas bonuses of petitioner's employees. To hold otherwise would be to defeat the reason for the conservatorship which is to preserve the assets and restore the viability of the financially precarious bank. Ultimately, it is to the employees' advantage that the conservatorship achieve its purposes for the alternative would be petitioner's closure whereby employees would lose not only their benefits, but their jobs as well.

13th Month Pay

With regard to the 13th month pay, the NLRC adopted the position taken by private respondent and held that the conservator was not justified in diminishing or not paying the 13th month pay and that petitioner should have instead applied for an exemption, in accordance with section 7 of Presidential Decree No. 851 (PD 851), as amended by Presidential Decree No. 1364, but that it did not do so.25 The NLRC held that the actions of the conservator ran counter to the provisions of PD 851.

In its position paper,26 private respondent claimed that petitioner made the following payments to its members –

YEAR MID-YEAR BONUS 13th MONTH PAY CHRISTMAS BONUS

1984 1 month basic ½ month basic None

1985 ½ month basic ½ month basic None

1986 ½ month basic 1 month basic ½ month basic

1987 ½ month basic 1 month basic ½ month basic

However, in its Memorandum27 filed before this Court, private respondent revised its claims as follows –

YEAR MID- YEAR BONUS 13th MONTH PAY CHRISTMAS BONUS

1984 1 month basic None ½ month basic

1985 ½ month basic None ½ month basic

1986 ½ month basic 1/2 month basic 1 month basic

1987 1/2 month basic ½ month basic 1 month basic

1988 1/2 month basic ½ month basic 1 month basic

Petitioner argues that it is not covered by PD 851 since the mid-year and Christmas bonuses it has been giving its employees from 1984 to 1988 exceeds the basic salary for one month (except for 1985 where a total of one month basic salary was given). Hence, this amount should be applied towards the satisfaction of the 13th month pay, pursuant to Section 2 of PD 851.28

PD 851, which was issued by President Marcos on 16 December 1975, requires all employers to pay their employees receiving a basic salary of not more than P 1,000 a month,29 regardless of the nature of the employment, a 13th month pay, not later than December 24 of every year.30 However, employers already paying their employees a 13th month pay or its equivalent are not covered by the law. Under the Revised Guidelines on the Implementation of the 13th-Month Pay Law,31 the term "equivalent" shall be construed to include Christmas bonus, mid-year bonus, cash bonuses and other payments amounting to not less than 1/12 of the basic salary. The intention of the law was to grant some relief - not to all workers - but only to those not actually paid a 13thmonth salary or what amounts to it, by whatever name called. It was not envisioned that a double burden would be imposed on the employer already paying his employees a 13th month pay or its equivalent whether out of pure generosity or on the basis of a binding agreement. To impose upon an employer already giving his employees the equivalent of a 13th month pay would be to penalize him for his liberality and in all probability, the employer would react by withdrawing the bonuses or resist further voluntary grants for fear that if and when a law is passed giving the same benefits, his prior concessions might not be given due credit.32

In the case at bar, even assuming the truth of private respondent's claims as contained in its position paper or Memorandum regarding the payments received by its members in the form of 13th month pay, mid-year bonus and Christmas bonus, it is noted that, for each and every year involved, the total amount given by petitioner would still exceed, or at least be equal to, one month basic salary and thus, may be considered as an "equivalent" of the 13thmonth pay mandated by PD 851.

Thus, petitioner is justified in crediting the mid-year bonus and Christmas bonus as part of the 13th month pay.

Wage Order No. 6

Wage Order No.6, which came into effect on 1 November 1984, increased the statutory minimum wage of workers, with different increases being specified for agricultural plantation and non-agricultural workers. The bone of contention, however, involves Section 4 thereof which reads –

All wage increase in wage and/or allowance granted by employers between June 17, 1984 and the effectivity of this Order shall be credited as compliance with the minimum wage and allowance adjustments prescribed herein, provided that where the increases are less than the applicable amount provided in this Order, the employer shall pay the difference. Such increases shall not include anniversary wage increases provided in collective bargaining agreements unless the agreement expressly provide otherwise.

On 16 November 1984, the parties entered into a collective bargaining agreement providing for the following salary adjustments –

Article VIII. Section 1. Salary Adjustments. - Cognizant of the effects of, among others, price increases of oil and other commodities on the employees' wages and earnings, and the certainty of continued governmental or statutory actions adjusting employees' minimum wages, earnings, allowances, bonuses and other fringe benefits, the parties have formulated and agreed on the following highly substantial packaged increases in salary and allowance which take into account and cover (a) any deflation in income of employees because of such price increases and inflation

and (b) the expected governmental response thereto in the form of statutory adjustments in wages, allowances and benefits, during the next three (3) years of this Agreement:

(i) Effective March 1, 1984 - P225.00 per month as salary increase plus P100.00 per month as increase in allowance to employees within the bargaining unit on March 1, 1984.

(ii) Effective March 1,1985 -P125.00 per month as salary increase plus P100.00 per month as increase in allowance to employees within the bargaining unit on March 1,1985.

(iii) Effective March 1,1986 -P125.00 per month as salary increase plus P100.00 per month as increase in allowance to employees within the bargaining unit on March 1, 1986.

In addition, the collective bargaining agreement of the parties also included a provision on the chargeability of such salary or allowance increases against government-ordered or legislated income adjustments –

Section 2. Pursuant to the MOLE Decision dated October 2, 1984 and Order dated October 24, 1984, the first-year salary and allowance increases shall be chargeable against adjustments under Wage Order No. 5, which took effect on June 16, 1984. The charge ability of the foregoing salary increases against government-ordered or legislated income adjustments subsequent to Wage Order No. 5 shall be determined on the basis of the provisions of such government orders or legislation.

Petitioner argues that it complied with Wage Order No. 6 because the first year salary and allowance increase provided for under the collective bargaining agreement can be credited against the wage and allowance increase mandated by such wage order. Under Wage Order No. 6, all increases in wages or allowances granted by the employer between 17 June 1984 and 1 November 1984 shall be credited as compliance with the wage and allowance adjustments prescribed therein. Petitioner asserts that although the collective bargaining agreement was signed by the parties on 16 November. 1984, the first year salary and allowance increase was made to take effect retroactively, beginning from 1 March 1984 until 28 February 1985. Petitioner maintains that this period encompasses the period of creditability provided for under Wage Order No. 6 and that, therefore, the balance remaining after applying the first year salary and allowance increase in the collective bargaining agreement to the increase mandated by Wage Order No. 5, in the amount of P125.00, should be made chargeable against the increase prescribed by Wage Order No. 6, and if not sufficient, petitioner is willing to pay the difference.33

On the other hand, private respondent contends that the first year salary and allowance increases under the collective bargaining agreement cannot be applied towards the satisfaction of the increases prescribed by Wage Order No. 6 because the former were not granted within the period of creditability provided for in such wage order. According to private respondent, the significant dates with regard to the granting of the first year increases are 9 November 1984 the date of issuance of the MOLE Resolution, 16 November 1984 - the date when the collective bargaining agreement was signed by the parties and 1 March 1984 the retroactive date of effectivity of the first year increases. Private respondent points out that none of these dates fall within the period of creditability under Wage Order No. 6 which is

from 17 June 1984 to 1 November 1984. Thus, petitioner has not complied with Wage Order No. 6.34

The creditability provision in Wage Order No. 6 is based on important public policy, that is, the encouragement of employers to grant wage and allowance increases to their employees higher than the minimum rates of increases prescribed by statute or administrative regulation. Thus, we held in Apex Mining Company, Inc. v. NLRC35 that –

[t]o obliterate the creditability provisions in the Wage Orders through interpretation or otherwise, and to compel employers simply to add on legislated increases in salaries or allowances without regard to what is already being paid, would be to penalize employers who grant their workers more than the statutorily prescribed minimum rates of increases. Clearly, this would be counter-productive so far as securing the interest of labor is concerned. The creditability provisions in the Wage Orders prevent the penalizing of employers who are industry leaders and who do not wait for statutorily prescribed increases in salary or allowances and pay their workers more than what the law or regulations require.

Section 1 of Article VIII of the collective bargaining agreement of the parties states that "...the parties have formulated and agreed on the following highly substantial packaged increases in salary and allowance which take into account and cover (a) any deflation in income of employees because of such price increases and inflation and (b) the expected governmental response thereto in the form of statutory adjustments in wages, allowances and benefits, during the next three (3) years of this Agreement..." The unequivocal wording of this provision manifests the clear intent of the parties to apply the wage and allowance increases stipulated in the collective bargaining agreement to any statutory wage and allowance, adjustments issued during the effectivity of such agreement – from 1 March 1984 to 28 February 1987. Furthermore, contrary to private respondent's contentions, there is nothing in the wording of Section 2 of Article VIII of the collective bargaining agreement that would prevent petitioner from crediting the first year salary and allowance increases against the increases prescribed by Wage Order No. 6.

It would be inconsistent with the above stated rationale underlying the creditability provision of Wage Order No. 6 if, after applying the first year increase to Wage Order No. 5, the balance was not made chargeable to the increases under Wage Order No. 6 for the fact remains that petitioner actually granted wage and allowance increases sufficient to cover the increases mandated by Wage Order No. 5 and part of the increases mandated by Wage Order No. 6.

Holiday Pay

Article 94 of the Labor Code provides that every worker shall be paid his regular daily wage during regular holidays36 and that the employer may require an employee to work on any holiday but such employee shall be paid a compensation equivalent to twice his regular rate. In this case, the Labor Arbiter found that the divisor used by petitioner in arriving at the employees' daily rate for the purpose of computing salary-related benefits is 314.37This finding was not disputed by the NLRC.38 However, the divisor was reduced to 303 by virtue of an inter-office memorandum issued on 13 August 1986, to wit –

To increase the rate of overtime pay for rank and filers, we are pleased to inform that effective August 18, 1986, the acting Conservator approved the use of 303 days as divisor in the computation of Overtime pay. The present Policy of 314 days as divisor

used in the computation for cash conversion and determination of daily rate, among others, still remain, Saturdays, therefore, are still considered paid rest days.

Corollarily, the Acting Conservator also approved the increase of meal allowance from P25.00 to P30.00 for a minimum of four (4) hours of work for Saturdays.

Proceeding from the unambiguous terms of the above quoted memorandum, the Labor Arbiter observed that the reduction of the divisor to 303 was for the sole purpose of increasing the employees' overtime pay and was not meant to replace the use of 314 as the divisor in the computation of the daily rate for salary-related benefits.39

Private respondent admits that, prior to 18 August 1986, petitioner used a divisor of 314 in arriving at the daily wage rate of monthly-salaried employees. Private respondent also concedes that the divisor was changed to 303 for purposes of computing overtime pay only. In its Memorandum, private respondent states that –

49. The facts germane to this issue are not debatable. The Memorandum Circular issued by the Acting Conservator is clear. Prior to August 18,1986, the petitioner bank used a divisor of 314 days in arriving at the daily wage rate of the monthly-salaried employees. Effective August 18, 1986, this was changed. It adopted the following formula:

Basic salary x 12 months = Daily Wage Rate

303 days

50. By utilizing this formula even up to the present, the conclusion is inescapable that the petitioner bank is not actually paying its employees the regular holiday pay mandated by law. Consequently, it is bound to pay the salary differential of its employees effective November 1, 1974 up to the present.

xxx       xxx       xxx

54. Since it is a question of fact, the Inter-office Memorandum dated August 13,1986 (Annex "E") provides for a divisor of 303 days in computing overtime pay. The clear import of this document is that from the 365 days in a year, we deduct 52 rest days which gives a total of 313 days. Now, if 313 days is the number of working days of the employees then, there is a disputable presumption that the employees are paid their holiday pay. However, this is not so in the case at bar. The bank uses 303 days as its divisor. Hence, it is not paying its employees their corresponding holiday pay.40

In Union of Filipro Employees v. Vivar, ]r.41 the Court held that "[t]he divisor assumes an important role in determining whether or not holiday pay is already included in the monthly paid employee's salary and in the computation of his daily rate." This was also our ruling in Chartered Bank Employees Association v. Ople,42 as follows –

It is argued that even without the presumption found in the rules and in the policy instruction, the company practice indicates that the monthly salaries of the employees are so computed as to include the holiday pay provided by law. The petitioner contends otherwise.

One strong argument in favor of the petitioner's stand is the fact that the Chartered Bank, in computing overtime compensation for its employees, employs a "divisor" of 251 days. The 251 working days divisor is the result of subtracting all Saturdays, Sundays and the ten (10) legal holidays form the total number of calendar days in a year. If the employees are already paid for all non-working days, the divisor should be 365 and not 251.

Apparently, the divisor of 314 is arrived at by subtracting all Sundays from the total number of calendar days in a year, since Saturdays are considered paid rest days, as stated in the inter-office memorandum. Thus, the use of 314 as a divisor leads to the inevitable conclusion that the ten legal holidays are already included therein.

We agree with the labor arbiter that the reduction of the divisor to 303 was done for the sole purpose of increasing the employees' overtime pay, and was not meant to exclude holiday pay from the monthly salary of petitioner's employees. In fact, it was expressly stated in the inter-office memorandum - also referred to by private respondent in its pleadings - that the divisor of 314 will still be used in the computation for cash conversion and in the determination of the daily rate. Thus, based on the records of this case and the parties' own admissions, the Court holds that petitioner has complied with the requirements of Article 94 of the Labor Code.1âwphi1.nêt

Damages

As to private respondent's claim for damages, the NLRC was correct in ruling that there is no basis to support the same.

WHEREFORE, for the reasons above stated, the 30 April 1991 Decision of public respondent in NLRC-NCR Case No. 02-00753-88, entitled "Producers Bank Employees Association v. Producers Bank of the Philippines," and its 18 June 1991 - Resolution issued in the same case are hereby SET ASIDE, with the exception of public respondent's ruling on damages.

SO ORDERED.

Melo, Vitug , Panganiban, and Sandoval-Gutierrez, JJ., concur.

Footnote

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

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

D E C I S I O N

GARCIA, J.:

Thru this appeal by way of a petition for review on certiorari under Rule 45 of the Rules of Court, petitionerAbacus Real Estate Development Center, Inc. seeks to set aside the following issuances of the Court of Appeals in CA-G.R. CV No. 64877, to wit:

1. Decision dated May 26, 2003,1 reversing an earlier decision of the Regional Trial Court at Makati City, Branch 59, in an action for specific performance and damages thereat commenced by the petitioner against the herein respondent Manila Banking Corporation; and

2. Resolution of February 17, 2004,2 denying petitioner’s motion for reconsideration.

The petition is casts against the following factual backdrop:

Respondent Manila Banking Corporation (Manila Bank, for brevity), owns a 1,435-square meter parcel of land located along Gil Puyat Avenue Extension, Makati City and covered by Transfer Certificate of Title (TCT) No. 132935 of the Registry of Deeds of Makati. Prior to 1984, the bank began constructing on said land a 14-storey building. Not long after, however, the bank encountered financial difficulties that rendered it unable to finish construction of the building.

On May 22, 1987, the Central Bank of the Philippines, now Bangko Sentral ng Pilipinas, ordered the closure of Manila Bank and placed it under receivership, with Feliciano Miranda, Jr. being initially appointed as Receiver. The legality of the closure was contested by the bank before the proper court.

On November 11, 1988, the Central Bank, by virtue of Monetary Board (MB) Resolution No. 505, ordered the liquidation of Manila Bank and designated Atty. Renan V. Santos as Liquidator. The liquidation, however, was held in abeyance pending the outcome of the earlier suit filed by Manila Bank regarding the legality of its closure. Consequently, the designation of Atty. Renan V. Santos as Liquidator was amended by the Central Bank on December 22, 1988 to that of Statutory Receiver.

In the interim, Manila Bank’s then acting president, the late Vicente G. Puyat, in a bid to save the bank’s investment, started scouting for possible investors who could finance the completion of the building earlier mentioned. On August 18, 1989, a group of investors, represented by Calixto Y. Laureano (hereafter referred to as Laureano group), wrote Vicente G. Puyat offering to lease the building for ten (10) years and to advance the cost to complete the same, with the advanced cost to be amortized and offset against rental payments during the term of the lease. Likewise, the letter-offer stated that in consideration of advancing the construction cost, the group wanted to be given the "exclusive option to purchase" the building and the lot on which it was constructed.

Since no disposition of assets could be made due to the litigation concerning Manila Bank’s closure, an arrangement was thought of whereby the property would first be leased to Manila Equities Corporation (MEQCO, for brevity), a wholly-owned subsidiary of Manila Bank, with MEQCO thereafter subleasing the property to the Laureano group.

In a letter dated August 30, 1989, Vicente G. Puyat accepted the Laureano group’s offer and granted it an "exclusive option to purchase" the lot and building for One Hundred Fifty Million Pesos (P150,000,000.00). Later, or on October 31, 1989, the building was leased to MEQCO for a period of ten (10) years pursuant to a contract of lease bearing that date. On March 1, 1990, MEQCO subleased the property to petitioner Abacus Real Estate Development Center, Inc. (Abacus, for short), a corporation formed by the Laureano group for the purpose, under identical provisions as that of the October 31, 1989 lease contract between Manila Bank and MEQCO.

The Laureano group was, however, unable to finish the building due to the economic crisis brought about by the failed December 1989 coup attempt. On account thereof, the Laureano group offered its rights in Abacus and its "exclusive option to purchase" to Benjamin Bitanga (Bitanga hereinafter), for Twenty Million Five Hundred Thousand Pesos (P20,500,000.00). Bitanga would later allege that because of the substantial amount involved, he first had to talk with Atty. Renan Santos, the Receiver appointed by the Central Bank, to discuss Abacus’ offer. Bitanga further alleged that, over lunch, Atty. Santos then verbally approved his entry into Abacus and his take-over of the sublease and option to purchase.

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

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

Such was the state of things when, on November 10, 1995, in the Regional Trial Court (RTC) at Makati, Abacus Real Estate Development Center, Inc. filed a complaint3 for specific performance and damages against Manila Bank and/or the Estate of Vicente G. Puyat. In its complaint, docketed as Civil Case No. 96-1638 and raffled to Branch 59 of the court, plaintiff Abacus prayed for a judgment ordering Manila Bank, inter alia, to sell, transfer and convey unto it for P150,000,000.00 the land and building in dispute "free from all liens and encumbrances", plus payment of damages and attorney’s fees.

Subsequently, defendant Manila Bank, followed a month later by its co-defendant Estate of Vicente G. Puyat, filed separate motions to dismiss the complaint.

In an Order dated April 15, 1996, the trial court granted the motion to dismiss filed by the Estate of Vicente G. Puyat, but denied that of Manila Bank and directed the latter to file its answer.

Before plaintiff Abacus could adduce evidence but after pre-trial, defendant Manila Bank filed a Motion for Partial Summary Judgment, followed by a Supplement to Motion for Partial Summary Judgment. While initially opposed, Abacus would later join Manila Bank in submitting the case for summary judgment.

Eventually, in a decision dated May 27, 1999,4 the trial court rendered judgment for Abacus in accordance with the latter’s prayer in its complaint, thus:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff as follows:

1. Ordering the defendant [Manila Bank] to immediately sell to plaintiff the parcel of land and building, with an area of 1,435 square meters and covered by TCT No. 132935 of the Makati Registry of Deeds, situated along Sen. Gil J. Puyat Ave. in Makati City, at the price of One Hundred Fifty Million (P150,000.000.00) Pesos in accordance with the said exclusive option to purchase, and to execute the appropriate deed of sale therefor in favor of plaintiff;

2. Ordering the defendant [Manila Bank] to pay plaintiff the amount of Two Million (P2,000,000.00) Pesos representing reasonable attorney’s fees;

3. Ordering the DISMISSAL of defendant’s counterclaim, for lack of merit; and

4. With costs against the defendant.

SO ORDERED.

Its motion for reconsideration of the aforementioned decision having been denied by the trial court in its Order of August 17, 1999,5 Manila Bank then went on to the Court of Appeals whereat its appellate recourse was docketed as CA-G.R. CV No. 64877.

As stated at the threshold hereof, the Court of Appeals, in a decision dated May 26, 2003,6 reversed and set aside the appealed decision of the trial court, thus:

WHEREFORE, finding serious reversible error, the appeal is GRANTED.

The Decision dated May 27, 1999 of the Regional Trial Court of Makati City, Branch 59 is REVERSED and SET ASIDE.

Cost of the appeal to be paid by the appellee.

SO ORDERED.

On June 25, 2003, Abacus filed a Motion for Reconsideration, followed, with leave of court, by an Amended Motion for Reconsideration. Pending resolution of its motion for reconsideration, as amended, Abacus filed a Motion to Dismiss Appeal,7 therein praying for the dismissal of Manila Bank’s appeal from the RTC decision of May 27, 1999, contending that said appeal was filed out of time.

In its Resolution of February 17, 2004,8 the appellate court denied Abacus’ aforementioned motion for reconsideration.

Hence, this recourse by petitioner Abacus Real Estate Development Center, Inc.

As we see it, two (2) issues commend themselves for the resolution of the Court, namely:

WHETHER OR NOT RESPONDENT BANK’S APPEAL TO THE COURT OF APPEALS WAS FILED ON TIME; and

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

We rule for respondent Manila Bank on both issues.

Addressing the first issue, petitioner submits that respondent bank’s appeal to the Court of Appeals from the adverse decision of the trial court was belatedly filed. Elaborating thereon, petitioner alleges that respondent bank received a copy of the May 27, 1999 RTC decision on June 22, 1999, hence, petitioner had 15 days, or only up to July 7, 1999 within which to take an appeal from the same decision or move for a reconsideration thereof. Petitioner alleges that respondent furnished the trial court with a copy of its Motion for Reconsideration only on July 7, 1999, the last day for filing an appeal. Under Section 3, Rule 41 of the 1997 Rules of Civil Procedure, "the period of appeal shall be interrupted by a timely motion for

new trial or reconsideration". Since, according to petitioner, respondent filed its Motion for Reconsideration on the last day of the period to appeal, it only had one (1) more day within which to file an appeal, so much so that when it received on August 23, 1999 a copy of the trial court’s order denying its Motion for Reconsideration, respondent bank had only up to August 24, 1999 within which to file the corresponding appeal. As respondent bank appealed the decision of the trial court only on August 25, 1999, petitioner thus argues that respondent’s appeal was filed out of time.

As a counterpoint, respondent alleges that it sent the trial court a copy of its Motion for Reconsideration on July 6, 1999, through registered mail. Having sent a copy of its Motion for Reconsideration to the trial court with still two (2) days left to appeal, respondent then claims that its filing of an appeal on August 25, 1999, two (2) days after receiving the Order of the trial court denying its Motion for Reconsideration, was within the reglementary period.

Agreeing with respondent, the appellate court declared that respondent’s appeal was filed on time. Explained that court in its Resolution of February 17, 2004, denying petitioner’s motion for reconsideration:

Firstly, the file copy of the motion for reconsideration contains the written annotations "Registry Receipt No. 1633 Makati P.O. 7-6-99" in its page 13. The presence of the annotations proves that the motion for reconsiderationwas truly filed by registered mail on July 6, 1999 through registry receipt no. 1633.

Secondly, the appellant’s manifestation filed in the RTC personally on July 7, 1999 contains the following self-explanatory statements, to wit:

2. Defendant [Manila Bank] also filed with this Honorable Court a Motion for Reconsideration of the Decision dated 27 May 1999 promulgated by this Honorable Court in this case, and served a copy thereof to the plaintiff, by registered mail yesterday, 6 July 1999, due to lack of material time and messenger to effect personal service and filing.

3. In order for this Honorable Court to be able to review defendant [Manila Bank’s] Motion for Reconsideration without awaiting the mailed copy, defendant [Manila Bank] is now furnishing this Honorable Court with a copy of said motion, as well as the entry of appearance, by personal service.

The aforecited reference in the manifestation to the mailing of the motion for reconsideration on July 6, 1999, in light of the handwritten annotations adverted to herein, renders beyond doubt the appellant’s insistence of filing through registered mail on July 6, 1999.

Thirdly, the registry return cards attached to the envelopes separately addressed and mailed to the RTC and the appellee’s counsel, found in pages 728 and 729 of the rollo, indicate that the contents were the motion for reconsideration and the formal entry of appearance. Although the appellee argues that the handwritten annotations of what were contained by the envelopes at the time of mailing was easily self-serving, the fact remains that the envelope addressed to the appellee’s counsel appears thereon to have been received on July 6, 1999 ("7/6/99"), which enhances the probability of the motion for reconsideration being mailed, hence filed, on July 6, 1999, as claimed by the appellant.

Fourthly, the certification issued on October 2, 2003 by Atty. Jayme M. Luy, Branch Clerk of Court, Branch 59, RTC in Makati City, has no consequence because Atty. Luy based his

data only on page 3 of the 1995 Civil Case Docket Book without reference to the original records which were already with the Court of Appeals.

Fifthly, since the appellant received the denial of the motion for reconsideration on August 23, 1999, it had until August 25, 1999 within which to perfect its appeal from the decision of the RTC because 2 days remained in its reglementary period to appeal. It is not disputed that the appellant filed its notice of appeal and paid the appellate court docket fees on August 25, 1999.

These circumstances preponderantly demonstrate that the appellant’s appeal was not late by one day. (Emphasis in the original)

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

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

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

There can be no quibbling that respondent Manila Bank was under receivership, pursuant to Central Bank’s MB Resolution No. 505 dated May 22, 1987, at the time the late Vicente G. Puyat granted the "exclusive option to purchase" to the Laureano group of investors. Owing to this defining reality, the appellate court was correct in declaring that Vicente G. Puyat was without authority to grant the exclusive option to purchase the lot and building in question. The invocation by the appellate court of the following pronouncement in Villanueva vs. Court of Appeals12 was apropos, to say the least:

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

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

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

Petitioner’s argument is tenuous at best. Concededly, a contract unenforceable for lack of authority by one of the parties may be ratified by the person in whose name the contract was executed. However, even assuming, ingratia argumenti, that Atty. Renan Santos, Manila Bank’s receiver, approved the "exclusive option to purchase" granted by Vicente G. Puyat, the same would still be of no force and effect.

Section 29 of the Central Bank Act, as amended,14 pertinently provides:

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

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

For sure, Congress itself has recognized that a bank receiver only has powers of administration. Section 30 of the New Central Bank Act15 expressly provides that "[t]he receiver shall immediately gather and take charge of all the assets and liabilities of the institution, administer the same for the benefit of its creditors, and exercise the general powers of a receiver under the Revised Rules of Court but shall not, with the exception of administrative expenditures, pay or commit any act that will involve the transfer or disposition of any asset of the institution…"

In all, respondent bank’s receiver was without any power to approve or ratify the "exclusive option to purchase" granted by the late Vicente G. Puyat, who, in the first place, was himself bereft of any authority, to bind the bank under such exclusive option. Respondent Manila Bank may not thus be compelled to sell the land and building in question to petitioner Abacus under the terms of the latter’s "exclusive option to purchase".

WHEREFORE, the instant petition is DENIED and the challenged issuances of the Court of Appeals AFFIRMED.

Costs against petitioner.

SO ORDERED.

Panganiban, (Chairman), Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.

Footnotes

G.R. No. 114870 May 26, 1995

MIGUELA R. VILLANUEVA, RICHARD R. VILLANUEVA, and MERCEDITA VILLANUEVA-TIRADOS, petitioners, vs.COURT OF APPEALS, CENTRAL BANK OF THE PHILIPPINES, ILDEFONSO C. ONG, and PHILIPPINE VETERANS BANK, respondents.

 

DAVIDE, JR., J.:

Do petitioners have a better right than private respondent Ildefonso Ong to purchase from the Philippine Veterans Bank (PVB) the two parcels of land described as Lot No. 210-D-1 and Lot No. 210-D-2 situated at Muntinglupa, Metro Manila, containing an area of 529 and 300 square meters, respectively? This is the principal legal issue raised in this petition.

In its decision of 27 January 1994 in CA-G.R. CV No. 35890, 1 the Court of Appeals held for Ong, while the trial court, Branch 39 of the Regional Trial Court (RTC) of Manila, ruled for the petitioners in its joint decision of 31 October 1991 in Civil Case No. 87-42550 2 and Sp. Proc. No. 85-32311. 3

The operative antecedent facts are set forth in the challenged decision as follows:

The disputed lots were originally owned by the spouses Celestino Villanueva and Miguela Villanueva, acquired by the latter during her husband's sojourn in the United States since 1968. Sometime in 1975, Miguela Villanueva sought the help of one Jose Viudez, the then Officer-in-Charge of the PVB branch in Makati if she could obtain a loan from said bank. Jose Viudez told Miguela Villanueva to surrender the titles of said lots as collaterals. And to further facilitate a bigger loan, Viudez, in connivance with one Andres Sebastian, swayed Miguela Villanueva to execute a deed of sale covering the two (2) disputed lots, which she did but without the signature of her husband Celestino. Miguela Villanueva, however, never got the loan she was expecting. Subsequent attempts to contact Jose Viudez proved futile, until Miguela Villanueva thereafter found out that new titles over the two (2) lots were already issued in the name of the PVB. It appeared upon inquiry from the Registry of Deeds that the original titles of these lots were canceled and

new ones were issued to Jose Viudez, which in turn were again canceled and new titles issued in favor of Andres Sebastian, until finally new titles were issued in the name of PNB [should be PVB] after the lots were foreclosed for failure to pay the loan granted in the name of Andres Sebastian.

Miguela Villanueva sought to repurchase the lots from the PVB after being informed that the lots were about to be sold at auction. The PVB told her that she can redeem the lots for the price of P110,416.00. Negotiations for the repurchase of the lots nevertheless were stalled by the filing of liquidation proceedings against the PVB on August of 1985.

Plaintiff-appellant [Ong] on the other hand expounds on his claim over the disputed lots in this manner:

In October 1984, plaintiff-appellant offered to purchase two pieces of Land that had been acquired by PVB through foreclosure. To back-up plaintiff-appellant's offer he deposited the sum of P10,000.00.

In 23 November 1984, while appellant was still abroad, PVB approved his subject offer under Board Resolution No. 10901-84. Among the conditions imposed by PVB is that: "The purchase price shall be P110,000.00 (Less deposit of P10,000.00) payable in cash within fifteen (15) days from receipt of approval of the offer."

In mid-April 1985, appellant returned to the country. He immediately verified the status of his offer with the PVB, now under the control of CB, where he was informed that the same had already been approved. On 16 April 1985, appellant formally informed CB of his desire to pay the subject balance provided the bank should execute in his favor the corresponding deed of conveyance. The letter was not answered.

Plaintiff-appellant sent follow-up Letters that went unheeded, the last of which was on 21 May 1987. On 26 May 1987, appellant's payment for the balance of the subject properties were accepted by CB under Official Receipt #0816.

On 17 September 1987, plaintiff-appellant through his counsel, sent a letter to CB demanding for the latter to execute the corresponding deed of conveyance in favor of appellant. CB did not bother to answer the same. Hence, the instant case.

While appellant's action for specific performance against CB was pending, Miguela Villanueva and her children filed their claims with the Liquidation court. (Appellant's Brief, pp. 3-4). 4

From the pleadings, the following additional or amplificatory facts are established:

The efforts of Miguela Villanueva to reacquire the property began on 8 June 1983 when she offered to purchase the lots for P60,000.00 with a 20% downpayment and the balance payable in five years on a quarterly amortization basis. 5

Her offer not having been accepted, 6 Miguela Villanueva increased her bid to P70,000.00. It was only at this time that she disclosed to the bank her private transactions with Jose Viudez. 7

After this and her subsequent offers were rejected, 8 Miguela sent her sealed bid of P110,417.00 pursuant to the written advice of the vice president of the PVB. 9

The PVB was placed under receivership pursuant to Monetary Board (MB) Resolution No. 334 dated 3 April 1985 and later, under liquidation pursuant to MB Resolution No. 612 dated 7 June 1985. Afterwards, a petition for liquidation was filed with the RTC of Manila, which was docketed as Sp. Proc. No. 85-32311 and assigned to Branch 39 of the said court.

On 26 May 1987, Ong tendered the sum of P100,000.00 representing the balance of the purchase price of the litigated lots. 10 An employee of the PVB received the amount conditioned upon approval by the Central Bank liquidator. 11 Ong's demand for a deed of conveyance having gone unheeded, he filed on 23 October 1987 with the RTC of Manila an action for specific performance against the Central Bank. 12 It was raffled to Branch 47 thereof. Upon learning that the PVB had been placed under liquidation, the presiding judge of Branch 47 ordered the transfer of the case to Branch 39, the liquidation court. 13

On 15 June 1989, then Presiding Judge Enrique B. Inting issued an order allowing the purchase of the two lots at the price of P150,000.00. 14 The Central Bank liquidator of the PVB moved for the reconsideration of the order asserting that it is contrary to law as the disposal of the lots should be made through public auction. 15

On 26 July 1989, Miguela Villanueva filed her claim with the liquidation court. She averred, among others, that she is the lawful and registered owner of the subject lots which were mortgaged in favor of the PVB thru the falsification committed by Jose Viudez, the manager of the PVB Makati Branch, in collusion with Andres Sebastian; that upon discovering this fraudulent transaction, she offered to purchase the property from the bank; and that she reported the matter to the PC/INP Criminal Investigation Service Command, Camp Crame, and after investigation, the CIS officer recommended the filing of a complaint for estafa through falsification of public documents against Jose Viudez and Andres Sebastian. She then asked that the lots be excluded from the assets of the PVB and be conveyed back to her. 16 Later, in view of the death of her husband, she amended her claim to include her children, herein petitioners Mercedita Villanueva-Tirados and Richard Villanueva. 17

On 31 October 1991, the trial court rendered judgment 18 holding that while the board resolution approving Ong's offer may have created in his favor a vested right which may be enforced against the PVB at the time or against the liquidator after the bank was placed under liquidation proceedings, the said right was no longer enforceable, as he failed to exercise it within the prescribed 15-day period. As to Miguela's claim, the court ruled that the principle of estoppel bars her from questioning the transaction with Viudez and the subsequent transactions because she was a co-participant thereto, though only with respect to her undivided one-half (1/2) conjugal share in the disputed lots and her one-third (1/3) hereditary share in the estate of her husband.

Nevertheless, the trial court allowed her to purchase the lots if only to restore their status as conjugal properties. It further held that by reason of estoppel, the transactions having been perpetrated by a responsible officer of the PVB, and for reasons of equity, the PVB should not be allowed to charge interest on the price of the lots; hence, the purchase price should be the PVB's claim as of 29 August 1984 when it considered the sealed bids, i.e., P110,416.20, which should be borne by Miguela Villanueva alone.

The dispositive portion of the decision of the trial court reads as follows:

WHEREFORE, judgment is hereby rendered as follows:

1. Setting aside the order of this court issued on June 15, 1989 under the caption Civil Case No. 87-42550 entitled "Ildefonso Ong vs. Central Bank of the Phils., et al.;

2. Dismissing the claim of Ildefonso Ong over the two parcels of land originally covered by TCT No. 438073 and 366364 in the names of Miguela Villanueva and Celestino Villanueva, respectively which are now covered by TCT No. 115631 and 115632 in the name of the PVB;

3. Declaring the Deed of Absolute Sale bearing the signature of Miguela Villanueva and the falsified signature of Celestino [sic] Viudez under date May 6, 1975 and all transactions and related documents executed thereafter referring to the two lots covered by the above stated titles as null and void;

4. Ordering the Register of Deeds of Makati which has jurisdiction over the two parcels of land in question to re-instate in his land records, TCT No. 438073 in the name of Miguela Villanueva and TCT No. 366364 in the name of Celestino Villanueva who were the registered owners thereof, and to cancel all subsequent titles emanating therefrom; and

5. Ordering the Liquidator to reconvey the two lots described in TCT No. 115631 and 115632 and executing the corresponding deed of conveyance of the said lots upon the payment of One Hundred Ten Thousand Four Hundred Sixteen and 20/100 (P110,416.20) Pesos without interest and less the amount deposited by the claimant, Miguela Villanueva in connection with the bidding where she had participated and conducted by the PVB on August 29, 1984.

Cost against Ildefonso Ong and the PVB.

SO ORDERED. 19

Only Ong appealed the decision to the Court of Appeals. The appeal was docketed as CA-G.R. CV No. 35890. In its decision of 27 January 1994, the Court of Appeals reversed the decision of the trial court and ruled as follows:

WHEREFORE, premises considered, the assailed decision is hereby REVERSED and SET ASIDE, and a new one entered ordering the disputed-lots be awarded in favor of plaintiff-appellant Ildefonso Ong upon defendant-appellee Central Bank's execution of the corresponding deed of sale in his favor. 20

In support thereof, the Court of Appeals declared that Ong's failure to pay the balance within the prescribed period was excusable because the PVB neither notified him of the approval of his bid nor answered his letters manifesting his readiness to pay the balance, for which reason he could not have known when to reckon the 15-day period prescribed under its resolution. It went further to suggest that the Central Bank was in estoppel because it accepted Ong's late-payment of the balance. As to the petitioners' claim, the Court of Appeals stated:

The conclusion reached by the lower court favorable to Miguela Villanueva is, as aptly pointed out by plaintiff-appellant, indeed confusing. While the lower court's decision declared Miguela Villanueva as estopped from recovering her proportionate share and interest in the two (2) disputed lots for being a "co-participant" in the fraudulent scheme perpetrated by Jose Viudez and Andres Sebastian — a factual finding which We conform to and which Miguela Villanueva does not controvert in this appeal by not filing her appellee's brief, yet it ordered the reconveyance of the disputed lots to Miguela Villanueva as the victorious party upon her payment of P110,416.20. Would not estoppel defeat the claim of the party estopped? If so, which in fact must be so, would it not then be absurd or even defiant for the lower court to finally entitle Miguela Villanueva to the disputed lots after having been precluded from assailing their subsequent conveyance in favor of Jose Viudez by reason of her own negligence and/or complicity therein? The intended punitive effect of estoppel would merely be a dud if this Court leaves the lower court's conclusion unrectified. 21

Their motion for reconsideration 22 having been denied, 23 the petitioners filed this petition for review on certiorari.24

Subsequently, the respondent Central Bank apprised this Court that the PVB was no longer under receivership or liquidation and that the PVB has been back in operation since 3 August 1992. It then prayed that it be dropped from this case or at least be substituted by the PVB, which is the real party in interest. 25

In its Manifestation and Entry of Appearance, the PVB declared that it submits to the jurisdiction of this Court and that it has no objection to its inclusion as a party respondent in this case in lieu of the Central Bank. 26 The petitioners did not object to the substitution. 27

Later, in its Comment dated 10 October 1994, the PVB stated that it "submits to and shall abide by whatever judgment this Honorable Supreme Tribunal may announce as to whom said lands may be awarded without any touch of preference in favor of one or the other party

litigant in the instant case." 28

In support of their contention that the Court of Appeals gravely erred in holding that Ong is better entitled to purchase the disputed lots, the petitioners maintain that Ong is a disqualified bidder, his bid of P110,000.00 being lower than the starting price of P110,417.00 and his deposit of P10,000.00 being less than the required 10% of the bid price; that Ong failed to pay the balance of the price within the 15-day period from notice of the approval of his bid; and that his offer of payment is ineffective since it was conditioned on PVB's execution of the deed of absolute sale in his favor.

On the other hand, Ong submits that his offer, though lower than Miguela ViIlanueva's bid by P417.00, is much better, as the same is payable in cash, while Villanueva's bid is payable in installment; that his payment could not be said to have been made after the expiration of the 15-day period because this period has not even started to run, there being no notice yet of the approval of his offer; and that he has a legal right to compel the PVB or its liquidator to execute the corresponding deed of conveyance.

There is no doubt that the approval of Ong's offer constitutes an acceptance, the effect of which is to perfect the contract of sale upon notice thereof to Ong. 29 The peculiar circumstances in this case, however, pose a legal obstacle to his claim of a better right and deny support to the conclusion of the Court of Appeals.

Ong did not receive any notice of the approval of his offer. It was only sometime in mid-April 1985 when he returned from the United States and inquired about the status of his bid that he came to know of the approval.

It must be recalled that the PVB was placed under receivership pursuant to the MB Resolution of 3 April 1985 after a finding that it was insolvent, illiquid, and could not operate profitably, and that its continuance in business would involve probable loss to its depositors and creditors. The PVB was then prohibited from doing business in the Philippines, and the receiver appointed was directed to "immediately take charge of its assets and liabilities, as expeditiously as possible collect and gather all the assets and administer the same for the benefit of its creditors, exercising all the powers necessary for these purposes."

Under Article 1323 of the Civil Code, an offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party before acceptance is conveyed. The reason for this is that:

[T]he contract is not perfected except by the concurrence of two wills which exist and continue until the moment that they occur. The contract is not yet perfected at any time before acceptance is conveyed; hence, the disappearance of either party or his loss of capacity before perfection prevents the contractual tie from being formed. 30

It has been said that where upon the insolvency of a bank a receiver therefor is appointed, the assets of the bank pass beyond its control into the possession and control of the receiver whose duty it is to administer the assets for the benefit of the creditors of the bank. 31 Thus, the appointment of a receiver operates to suspend the authority of the bank and of its directors and officers over its property and effects, such authority being reposed in the receiver, and in this respect, the receivership is equivalent to an injunction to restrain the bank officers from intermeddling with the property of the bank in any way. 32

Section 29 of the Central Bank Act, as amended, provides thus:

Sec. 29. Proceedings upon insolvency. — Whenever, upon examination by the head of the appropriate supervising or examining department or his examiners or agents into the condition of any bank or non-bank financial intermediary performing quasi-banking functions, it shall be disclosed that the condition of the same is one of insolvency, or that its continuance in business would involve probable loss to its depositors or creditors, shall be the duty of the department head concerned forthwith, in writing, to inform the Monetary Board of the facts. The Board may, upon finding the statements of the department head to be true, forbid the institution to do business in the Philippines and designate an official of the Central Bank or a person of recognized competence in banking or finance as receiver to immediately take charge of its assets and liabilities, as expeditiously as possible collect and gather all the assets and administer the same for the benefit of its creditors . . . exercising all the powers necessary for these purposes. . . .

xxx xxx xxx

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

In a nutshell, the insolvency of a bank and the consequent appointment of a receiver restrict the bank's capacity to act, especially in relation to its property, Applying Article 1323 of the Civil Code, Ong's offer to purchase the subject lots became ineffective because the PVB became insolvent before the bank's acceptance of the offer came to his knowledge. Hence, the purported contract of sale between them did not reach the stage of perfection. Corollarily, he cannot invoke the resolution of the bank approving his bid as basis for his alleged right to buy the disputed properties.

Nor may the acceptance by an employee of the PVB of Ong's payment of P100,000.00 benefit him since the receipt of the payment was made subject to the approval by the Central Bank liquidator of the PVB thus:

Payment for the purchase price of the former property of Andres Sebastian per approved BR No. 10902-84 dated 11/13/84, subject to the approval of CB liquidator. 33

This payment was disapproved on the ground that the subject property was already in custodia legis, and hence, disposable only by public auction and subject to the approval of the liquidation court. 34

The Court of Appeals therefore erred when it held that Ong had a better right than the petitioners to the purchase of the disputed lots.

Considering then that only Ong appealed the decision of the trial court, the PVB and the Central Bank, as well as the petitioners, are deemed to have fully and unqualifiedly accepted the judgment, which thus became final as to them for their failure to appeal.

WHEREFORE, the instant petition is GRANTED and the challenged decision of the Court of Appeals of 27 January 1994 in CA-G.R. CV No. 35890 is hereby SET ASIDE. The decision of Branch 39 of the Regional Trial Court of Manila of 31 October 1991 in Civil Case No. 87-42550 and Sp. Proc. No. 85-32311 is hereby REINSTATED.

Respondent Philippine Veterans Bank is further directed to return to private respondent Ildefonso C. Ong the amount of P100,000.00.

No pronouncement as to costs.

SO ORDERED.

Padilla, Bellosillo and Kapunan, JJ., concur.

Quiason, J., is on leave.

 

Footnotes

G.R. No. 141297            October 8, 2001

DOMINGO R. MANALO, petitioner, vs.COURT OF APPEALS (Special Twelfth Division) and PAIC SAVINGS AND MORTGAGE BANK, respondents.

PUNO, J.:

This petition for certiorari seeks the review of the Decision of the Court of Appeals in C.A.-G.R. SP. No. 50341 promulgated December 23, 1999, which affirmed an Order issued by the Regional Trial Court, Branch 112, Pasay City, in Civil Case No. 9011 dated December 9, 1998.

On July 19, 1983, S. Villanueva Enterprises, represented by its president, Therese Villanueva Vargas, obtained a loan of three million pesos (P3,000,000.00) and one million pesos (P1,000,000.00) from the respondent PAIC Savings and Mortgage Bank and the Philippine American Investments Corporation (PAIC), respectively. To secure payment of both debts, Vargas executed in favor of the respondent and PAIC a Joint First Mortgage1 over two parcels of land registered under her name. One of the lots, located in Pasay City with an area of nine hundred nineteen square meters (919 sq. m.) and covered by TCT No. 6076, is the subject of the present case. Section 2 of the mortgage contract states that "the properties mortgaged therein shall include all buildings and improvements existing on the mortgaged property at the time of the execution of the mortgage contract and thereafter."2

S. Villanueva Enterprises defaulted in paying the amortizations due. Despite repeated demands from the respondent, it failed to settle its loan obligation. Accordingly, respondent instituted extrajudicial foreclosure proceedings over the mortgaged lots. On August 22, 1984, the Pasay City property was sold at a public auction to the respondent itself, after tendering the highest bid. The respondent then caused the annotation of the corresponding Sheriff's

Certificate of Sale3 on the title of the land on December 4, 1984. After the lapse of one year, or the statutory period extended by law to a mortgagor to exercise his/her right of redemption, title was consolidated in respondent's name for failure of Vargas to redeem.

On October 29, 1986, the Central Bank of the Philippines filed a Petition4 for assistance in the liquidation of the respondent with the Regional Trial Court. The petition was given due course in an Order5 dated May 19, 1987.

It appears that from the years 1986 to 1991, Vargas negotiated with the respondent (through its then liquidator, the Central Bank) for the repurchase of the foreclosed property. The negotiations, however, fizzled out as Vargas cannot afford the repurchase price fixed by the respondent based on the appraised value of the land at that time. On October 4, 1991, Vargas filed a case for annulment of mortgage and extrajudicial foreclosure sale before Branch 116 of the Pasay City Regional Trial Court. On July 22, 1993, the court rendered a decision6 dismissing the complaint and upholding the validity of the mortgage and foreclosure sale. On appeal, the appellate court upheld the assailed judgment and declared the said mortgage and foreclosure proceedings to be in accord with law.7 This decision of the Court of Appeals subsequently became final and executory when we summarily dismissed Vargas' Petition for Review on Certiorari for having been filed beyond the reglementary period.8

In the meantime, on June 22, 1992, respondent petitioned the Regional Trial Court, Branch 112, of Pasay City, herein court a quo, for the issuance of a writ of possession for the subject property in Civil Case No. 9011. This is in view of the consolidation of its ownership over the same as mentioned earlier. Vargas and S. Villanueva Enterprises, Inc. filed their opposition thereto. After which, trial ensued.

During the pendency of Civil Case No. 9011 (for the issuance of a writ of possession), Vargas, on December 23, 1992, executed a Deed of Absolute Sale9 selling, transferring, and conveying ownership of the disputed lot in favor of a certain Armando Angsico. Notwithstanding this sale, Vargas, still representing herself to be the lawful owner of the property, leased the same to petitioner Domingo R. Manalo on August 25, 1994. Pertinent provisions of the lease agreement10 state:

"3. (a) The lease is for a period of ten year lease (sic), involving 450 square meters, a portion of the above 919 square meter property.

x x x (d) The LESSEE has to introduce into the said 450 square meter premises improvements thereon (sic) consisting of one story building to house a Karaoke Music Restaurant Business, which improvements constructed thereof (sic), upon the termination of the lease contract, by said LESSEE be surrendered in favor of the LESSOR (sic).''11

Later, on June 29, 1997, Armando Angsico, as buyer of the property, assigned his rights therein to petitioner.12

On April 21, 1998, the court a quo granted the petition for the issuance of the Writ of Possession.13 The writ was subsequently issued on April 24, 1998, the pertinent portion of which reads:14

"NOW THEREFORE you are hereby commanded that you cause oppositors THERESE VILLANUEVA VARGAS and S. VILLANUEVA ENTERPRISES, INC. and

any and all persons claiming rights or title under them, to forthwith vacate and surrender the possession of subject premises in question known as that parcel of land and improvements covered by TCT No. 6076 of the Registry of Deeds of Pasay City; you are hereby further ordered to take possession and deliver to the petitioner PAIC SAVINGS AND MORTGAGE BANK the subject parcel of land and improvements."

Shortly, on May 8, 1998, S. Villanueva Enterprises and Vargas moved for its quashal.15 Thereafter on June 25, 1998, petitioner, on the strength of the lease contract and Deed of Assignment made in his favor, submitted a Permission to File an Ex-parte Motion to Intervene.16 It bears mentioning, however, that before petitioner sought intervention in the present case, he had separately instituted a Complaint for Mandamus, docketed as Civil Case No. 98-0868 before another branch17 of the Pasay City RTC to compel PAIC Bank to allow him to repurchase the subject property.

On October 7, 1998, the court a quo denied the Motion to Quash and Motion to Intervene filed respectively by Vargas and petitioner.18 A Motion for Reconsideration and a Supplemental Motion for Reconsideration were filed by the petitioner which, however, were similarly denied on December 9, 1998.

Petitioner then sought relief with the Court of Appeals, filing therein a Petition for Certiorari. While this was awaiting resolution, he entered into another lease agreement,19 this time with the respondent, represented by its liquidator, over the same 450 sq. m. portion of the lot. The contract fixed a period of one month beginning January 28, 1999, renewable for another month at the exclusive option of the lessor, respondent PAIC Bank.

On December 23, 1999, the appellate court rendered the impugned Decision, dismissing the petition, thus:

"All told, WE find the Order, subject of the instant Petition for Certiorari and Prohibition, to be not without rational bases and we observe that the court a quo, in issuing its questioned Order, committed no grave abuse of discretion amounting to lack of jurisdiction.

WHEREFORE, the Petition for Certiorari and Prohibition is hereby DISMISSED and the assailed December 9, 1998 Order is AFFIRMED in all respects.

SO ORDERED."20

Hence, this appeal, where petitioner raises and argues the following legal issues:

"I. Whether or not public respondent acted without or in excess of its jurisdiction and/or was patently in error when it affirmed the denial of petitioner's motion for intervention, despite the fact that he has a legal interest, being a lessee and an assignee of the property subject matter of this case.

II. Whether or not the public respondent committed grave abuse of discretion when it held that what are required to be instituted before the liquidation court are those claims against the insolvent banks only considering that the private respondent bank is legally dead due to insolvency and considering further that there is already a liquidation court (Regional Trial Court of Makati, Branch 57, docketed as Spec. Pro.

No. M-1280) which is exclusively vested with jurisdiction to hear all matters and incidents on liquidation pursuant to Section 29, Republic Act No. 265, otherwise known as The Central Bank Act, as amended.

III. Whether or not the public respondent committed grave abuse of discretion and/or was patently in error in affirming the ruling of the trial court, totally disregarding the arguments raised in petitioner's supplemental motion for reconsideration only through a minute order and without taking into consideration the fact that there is a pending action in another court (RTC, Pasay City, Branch 231 ) which presents a prejudicial question to the case at bar.

IV. Whether or not the petitioner is estopped from questioning private respondent's ownership when it entered into a contract of lease involving the property in question."21

We will first resolve the jurisdictional and procedural questions raised by the petitioner.

I.

Petitioner postulates that the lower court should have dismissed respondent's "Ex-Parte Petition for Issuance of Writ of Possession" in Civil Case No. P-9011 for want of jurisdiction over the subject matter of the claim. The power to hear the same, he insists, exclusively vests with the Liquidation Court pursuant to Section 29 of Republic Act No. 265, otherwise known as The Central Bank Act.22 He then cites our decision in Valenzuela v. Court of Appeals,23 where we held that "if there is a judicial liquidation of an insolvent bank, all claims against the bank should be filed in the liquidation proceeding." For going to another court, the respondent, he accuses, is guilty of forum shopping.

These contentions can not pass judicial muster. The pertinent portion of Section 29 states:

"x x x The liquidator designated as hereunder provided shall, by the Solicitor General, file a petition in the Regional Trial Court reciting the proceedings which have been taken and praying the assistance of the court in the liquidation of such institution. The court shall have jurisdiction in the same proceedings to assist in the adjudication of disputed claims against the bank or non-bank financial intermediary performing quasi-banking functions and the enforcement of individual liabilities of the stockholders and do all that is necessary to preserve the assets of such institution and to implement the liquidation plan approved by the Monetary Board, x x x"24 (emphasis supplied.)

Petitioner apparently failed to appreciate the correct meaning and import of the above-quoted law. The legal provision only finds operation in cases where there are claims against an insolvent bank. In fine, the exclusive jurisdiction of the liquidation court pertains only to the adjudication of claims against the bank. It does not cover the reverse situation where it is the bank which files a claim against another person or legal entity.

This interpretation of Section 29 becomes more obvious in the light of its intent. The requirement that all claims against the bank be pursued in the liquidation proceedings filed by the Central Bank is intended to prevent multiplicity of actions against the insolvent bank and designed to establish due process and orderliness in the liquidation of the bank, to obviate the proliferation of litigations and to avoid injustice and arbitrariness.25 The lawmaking body contemplated that for convenience, only one court, if possible, should pass upon the

claims against the insolvent bank and that the liquidation court should assist the Superintendents of Banks and regulate his operations.26

It then ought to follow that petitioner's reliance on Section 29 and the Valenzuela case is misplaced. The Petition for the Issuance of a Writ of Possession in Civil Case No. 9011 is not in the nature of a disputed claim against the bank. On the contrary, it is an action instituted by the respondent bank itself for the preservation of its asset and protection of its property. It was filed upon the instance of the respondent's liquidator in order to take possession of a tract of land over which it has ownership claims.

To be sure, the liquidator took the proper course of action when it applied for a writ in the Pasay City RTC. Act 3135,27 entitled An Act to Regulate the Sale of Property Under Special Powers Inserted In or Annexed To Real Estate Mortgages, mandates that jurisdiction over a Petition for Writ of Possession lies with the court of the province, city, or municipality where the property subject thereof is situated. This is sanctioned by Section 7 of the said Act, thus:

"SECTION 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of First Instance of the province or place where the property or any part thereof is situated, to give him possession thereof during the redemption period, furnishing bond in an amount equivalent to the use of the property for a period of twelve months, to indemnify the debtor in case it be shown that the sale was made without violating the mortgage or without complying with the requirements of this Act x x x"28 (emphasis supplied)

Since the land subject of this controversy is located in Pasay City, then the city's RTC should rightly take cognizance of the case, to the exclusion of other courts.

Anent petitioner's auxiliary contention that respondent should be held guilty of forum shopping for not filing the case in the liquidation court, suffice it to state here that the doctrine only ponders situations where two (or more) cases are pending before different tribunals.29 Well to point, we have laid down the yardstick to determine whether a party violated the rule against forum shopping as where the elements of litis pendentia are present or where a final judgment in one case will amount to res judicata in the other.30 Inasmuch as the case at bar is the only one filed by the respondent for the issuance of a writ of possession over the subject property, there is no occasion for the doctrine to apply.

Petitioner next casts doubt on the capacity of the respondent to continue litigating the petition for the issuance of the writ. He asserts that, being under liquidation, respondent bank is already a "dead" corporation that cannot maintain the suit in the RTC. Hence, no writ may be issued in its favor.

The argument is devoid of merit. A bank which had been ordered closed by the monetary board retains its juridical personality which can sue and be sued through its liquidator. The only limitation being that the prosecution or defense of the action must be done through the liquidator.31 Otherwise, no suit for or against an insolvent entity would prosper. In such situation, banks in liquidation would lose what justly belongs to them through a mere technicality.32

That the law allows a bank under liquidation to participate in an action can be clearly inferred from the third paragraph of the same Section 29 of The Central Bank Act earlier quoted, which authorizes or empowers a liquidator to institute actions, thus: "x x x and he (liquidator) may in the name of the bank or non-bank financial

intermediary performing quasi-banking functions and with the assistance of counsel as he may retain, institute such actions as may be necessary in the appropriate court to collect and recover accounts and assets of such institution or defend any action filed against the institution."33 (emphasis supplied.)

It is therefore beyond dispute that respondent was legally capacitated to petition the court a quo for the issuance of the writ.

II.

Petitioner likewise proffers one other procedural obstacle, which is the pendency of Civil Case No. 98-0868 in Branch 231 of Pasay City RTC. The said action is the complaint he filed against the respondent for the latter to receive and accept the redemption price of eighteen million pesos for the subject property. He argues that the primary issue therein constitutes a prejudicial question in relation to the present case in that if the Court therein will grant petitioner's prayer, then this will necessarily negate the possessory writ issued by the court a quo.

Again, we are not persuaded. A prejudicial question is one which arises in a case the resolution of which is a logical antecedent of the issue involved therein, and the cognizance of which pertains to another tribunal.34 It generally comes into play in a situation where a civil action and a criminal action are both pending and there exists in the former an issue which must be preemptively resolved before the criminal action may proceed, because howsoever the issue raised in the civil action is resolved would be determinative juris et de jure of the guilt or innocence of the accused in the criminal case. The rationale behind the principle of prejudicial question is to avoid two conflicting decisions.35

Here, aside from the fact that Civil Case No. 98-0868 and the present one are both civil in nature and therefore no prejudicial question can arise from the existence of the two actions,36 it is apparent that the former action was instituted merely to frustrate the Court's ruling in the case at bar granting the respondent the right to possess the subject property. It is but a canny and preemptive maneuver on the part of the petitioner to delay, if not prevent, the execution of a judgment adverse to his interests. It bears stressing that the complaint for mandamus was filed only on May 7, 1998, sixteen days after the lower court granted respondent's petition and thirteen days after it issued the writ. It cannot then possibly prejudice a decided case.

At any rate, it taxes our imagination why the questions raised in Case No. 98-0868 must be considered determinative of Case No. 9011. The basic issue in the former is whether the respondent, as the purchaser in the extra-judicial foreclosure proceedings, may be compelled to have the property repurchased or resold to a mortgagor's successor-in-interest (petitioner): while that in the latter is merely whether the respondent, as the purchaser in the extrajudicial foreclosure proceedings, is entitled to a writ of possession after the statutory period for redemption has expired. The two cases, assuming both are pending, can proceed separately and take their own direction independent of each other.

III.

Having disposed of the jurisdictional and procedural issues, we now come to the merits of the case. Petitioner seeks intervention in this case by virtue of the lease agreement and the deed of assignment executed in his favor by the mortgagor (Vargas) and an alleged buyer (Angsico) of the land, respectively. He posits that as a lessee and assignee in possession of

the foreclosed real estate, he automatically acquires interest over the subject matter of the litigation. This interest is coupled with the fact that he introduced improvements thereon, consisting of a one-storey building which houses a karaoke-music restaurant, allegedly to the tune of fifteen million pesos (P15,000,000.00). Enforcing the writ, he adds, without hearing his side would be an injustice to him.

Intervention is a remedy by which a third party, not originally impleaded in the proceeding, becomes a litigant therein to enable him to protect or preserve a right or interest which may be affected by such proceeding.37 The pertinent provision is stated in Section 1, Rule 19 of the 1997 Rules of Civil Procedure, thus:

"SECTION 1. Who may intervene. — A person who has a legal interest in the matter in litigation, or in the success of either of the parties, or an interest against both, or is so situated as to be adversely affected by a distribution or other disposition of property in the custody of the court or of an officer thereof may, with leave of court, be allowed to intervene in the action. The court shall consider whether or not the intervention will unduly delay or prejudice the adjudication of the rights of the original parties, and whether or not the intervenor's rights may be fully protected in a separate proceeding."38

Intervention is not a matter of right but may be permitted by the courts only when the statutory conditions for the right to intervene is shown.39 Thus, the allowance or disallowance of a motion to intervene is addressed to the sound discretion of the court.40 In determining the propriety of letting a party intervene in a case, the tribunal should not limit itself to inquiring whether "a person (1) has a legal interest in the matter in litigation; (2) or in the success of either of the parties; (3) or an interest against both; (4) or when is so situated as to be adversely affected by a distribution or other disposition of property in the custody of the court or of an officer thereof."41 Just as important, as we have stated in Big Country Ranch Corporation v. Court of Appeals,42 is the function to consider whether or not the intervention will unduly delay or prejudice the adjudication of the rights of the original parties, and whether or not the intervenor's rights may be fully protected in a separate proceeding.

The period within which a person may intervene is also restricted. Section 2, Rule 19 of the 1997 Rules of Civil Procedure requires:

"SECTION 2. Time to intervene. — The motion to intervene may be filed at any time before the rendition of judgment by the trial court, x x x"

After the lapse of this period, it will not be warranted anymore. This is because, basically, intervention is not an independent action but is ancillary and supplemental to an existing litigation.43

Taking into account these fundamental precepts, we rule that the petitioner may not properly intervene in the case at bar. His insistence to participate in the proceeding is an unfortunate case of too little, too late.

In the first place, petitioner's Ex-parte Permission to File a Motion to Intervene was submitted to the RTC only on June 25, 1998. At that stage, the lower court had already granted respondent's petition for the writ in an Order dated April 21, 1998. It had issued the Writ of Possession on April 24, 1998. Petitioner's motion then was clearly out of time, having been filed only at the execution stage. For that reason alone, it must meet the consequence of denial. While it is true that on May 8, 1998, Vargas and S. Villanueva Enterprises moved to

quash the writ, that did not in any way affect the nature of the RTC's Order as an adjudication on the merits. The issuance of the Order is in essence a rendition of judgment within the purview of Section 2, Rule 19.

Allowing petitioner to intervene, furthermore, will serve no other purpose but to unduly delay the execution of the writ, to the prejudice of the respondent. This cannot be countenanced considering that after the consolidation of title in the buyer's name, for failure of the mortgagor to redeem, the writ of possession becomes a matter of right.44 Its issuance to a purchaser in an extrajudicial foreclosure is merely a ministerial function.45 As such, the court neither exercises its official discretion nor judgment.46 If only to stress the writ's ministerial character, we have, in previous cases, disallowed injunction to prohibit its issuance,47 just as we have held that issuance of the same may not be stayed by a pending action for annulment of mortgage or the foreclosure itself.48

Even if he anchors his intervention on the purported interest he has over the land and the improvements thereon, petitioner, still, should not be allowed to do so. He admits that he is a mere lessee and assignee. Whatever possessory rights he holds only emanate from that of Vargas, from whom he leased the lot, and from whom his assignor/predecessor-in-interest bought it. Therein lies the precariousness of his title. Petitioner cannot validly predicate his supposed interest over the property in litigation on that of Vargas, for the simple reason that as early as December 4, 1985, the latter has already been stripped of all her rights over the land when she, as mortgagor, failed to redeem it. A mortgagor has only one year within which to redeem her foreclosed real estate.49 After that period, she loses all her interests over it. This is in consonance with Section 78 of the General Banking Act, 50viz.:

"x x x In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on real estate which is security for any loan granted before the passage of this Act or the provisions of this Act, the mortgagor or debtor whose real property has been sold at public auction, judicially or extrajudicially, for the full or partial payment of an obligation to any bank, banking or credit institution, within the purview of this Act shall have the right, within one year after the sale of the real estate mortgage as a result of the foreclosure of the respective mortgage, to redeem the property by paying the amount fixed by the court in the order or execution x x x"51 (emphasis supplied.)

Being herself bereft of valid title and rights, Vargas can not legitimately convey any to some other person. She could not have lawfully sold the land to Angsico nor leased it to petitioner for her own account. It is axiomatic that one can not transmit what one does not have.52 It ought to follow that petitioner could not have acquired any right or interest from Vargas.

Withal, all is not lost for the petitioner. He can still fully protect his rights in Civil Case No. 98-0868 or the complaint for mandamus he filed before Branch 231 of the Pasay City RTC. There, he can ventilate his side to a fuller extent as that would be the more appropriate venue for elucidating whatever legal basis he alleges in compelling the respondent to sell to him the currently disputed land.

IV.

This brings us to petitioner's final point. He briefly asserts that his act of entering into a lease contract with the respondent should not affect his right to redeem the subject property.

The possible legal implication of the lease on the petitioner's act of trying to redeem the disputed lot is a question which, in our opinion, can best be resolved in the mandamus

complaint. Whether the agreement must be construed as a waiver on his part of exercising his purported right of redemption is an issue best left for the court therein to decide. Whether by acknowledging the legality of the respondent's claim and title over the land at the time of the execution of the contract, he likewise perpetually barred himself from redeeming the same is a matter which can be addressed most aptly in that pending action. Hence, there is presently no need for us to squarely rule on this ultimate point.

IN VIEW WHEREOF, finding no cogent reason to disturb the assailed Decision, the instant petition is hereby DENIED.

SO ORDERED.

Davide, Jr., C.J., Pardo, and Ynares-Santiago, JJ., concur.Kapunan, J., on official leave.

Footnotes

SECOND SET

G.R. No. 176434             June 25, 2008

BANK OF THE PHILIPPINE ISLANDS, petitioner, vs.LIFETIME MARKETING CORPORATION, respondent.

D E C I S I O N

TINGA, J.:

The Bank of the Philippine Islands (BPI) seeks the reversal of the Decision1 of the Court of Appeals dated 31 July 2006 in CA-G.R. CV No. 62769 which ordered it to pay Lifetime Marketing Corporation (LMC) actual damages in the amount of P2,075,695.50 on account of its gross negligence in handling LMC's account.

The following facts, quoted from the decision of the Court of Appeals, are undisputed:

On October 22, 1981, Lifetime Marketing Corporation (LMC, for brevity), opened a current account with the Bank of the Philippine Islands (BPI, for brevity), Greenhills-Edsa branch, denominated as Account No. 3101-0680-63. In this account, the "sales agents" of LMC would have to deposit their collections or payments to the latter. As a result, LMC and BPI, made a special arrangement that the former's agents will accomplish three (3) copies of the deposit slips, the third copy to be retained and held by the teller until LMC's authorized representatives, Mrs. Virginia Mongon and Mrs. Violeta Ancajas, shall retrieve them on the following banking day.

Sometime in 1986, LMC availed of the BPI's inter-branch banking network services in Metro Manila, whereby the former's agents could make [a] deposit to any BPI branch in Metro Manila under the same account. Under this system, BPI's bank

tellers were no longer obliged to retain the extra copy of the deposit slips instead, they will rely on the machine-validated deposit slip, to be submitted by LMC's agents. For its part, BPI would send to LMC a monthly bank statement relating to the subject account. This practice was observed and complied with by the parties.

As a business practice, the registered sales agents or the Lifetime Educational Consultants of LMC, can get the books from the latter on consignment basis, then they would go directly to their clients to sell. These agents or Lifetime Educational Consultants would then pay to LMC, seven (7) days after they pick up all the books to be sold. Since LMC have several agents around the Philippines, it required to remit their payments through BPI, where LMC maintained its current account. It has been LMC's practice to require its agents to present a validated deposit slip and, on that basis, LMC would issue to the latter an acknowledgement receipt.

Alice Laurel, is one of LMC's "Educational Consultants" or agents. On various dates covering the period from May, [sic] 1991 up to August, 1992, Alice Laurel deposited checks to LMC's subject account at different branches of BPI, specifically: at the Harrison/Buendia branch-8 checks; at Arrangue branch-4 checks; at Araneta branch-1 check; at Binondo branch-3 checks; at Ermita branch-5 checks; at Cubao Shopping branch-1 check; at Escolta branch-4 checks; at the Malate branch-2 checks; at Taft Avenue branch-2 checks; at Paseo de Roxas branch-1 check; at J. Ruiz, San Juan branch, at West Avenue and Commonwealth Quezon City branch- 2 checks; and at Vito Cruz branch-2 checks.

Each check thus deposited were retrieved by Alice Laurel after the deposit slips were machine-validated, except the following thirteen (13) checks, which bore no machine validation, to wit: CBC Check No. 484004, RCBC Check No. 419818, CBC Check No. 484042, FEBTC Check No. 171857, RCBC Check No. 419847, CBC Check No. 484053, MBTC Check No. 080726, CBC Check No. 484062, PBC Check No. 158076, CBC Check No. 484027, CBC Check No. 484017, CBC Check No. 484023 and CBC Check No. 218190.

A verification with BPI by LMC showed that Alice Laurel made check deposits with the named BPI branches and, after the check deposit slips were machine-validated, requested the teller to reverse the transactions. Based on general banking practices, however, the cancellation of deposit or payment transactions upon request by any depositor or payor, requires that all copies of the deposit slips must be retrieved or surrendered to the bank. This practice, in effect, cancels the deposit or payment transaction, thus, it leaves no evidence for any subsequent claim or misrepresentation made by any innocent third person. Notwithstanding this, the verbal requests of Alice Laurel and her husband to reverse the deposits even after the deposit slips were already received and consummated were accommodated by BPI tellers.

Alice Laurel presented the machine-validated deposit slips to LMC which, on the strength thereof, considered her account paid. LMC even granted her certain privileges or prizes based on the deposits she made.

The total aggregate amount covered by Alice Laurel's deposit slips was Two Million Seven Hundred Sixty Seven Thousand, Five Hundred Ninety Four Pesos (P2,767,594.00) and, for which, LMC paid Laurel the total sum of Five Hundred Sixty

Thousand Seven Hundred Twenty Six Pesos (P560,726.00) by way of "sales discount and promo prizes."

The above fraudulent transactions of Alice Laurel and her husband was made possible through BPI teller's failure to retrieve the duplicate original copies of the deposit slips from the former, every time they ask for cancellation or reversal of the deposit or payment transaction.

Upon discovery of this fraud in early August 1992, LMC made queries from the BPI branches involved. In reply to said queries, BPI branch managers formally admitted that they cancelled, without the permission of or due notice to LMC, the deposit transactions made by Alice and her husband, and based only upon the latter's verbal request or representation.

Thereafter, LMC immediately instituted a criminal action for Estafa against Alice Laurel and her husband Thomas Limoanco, before the Regional Trial Court of Makati, Branch 65, docketed as Criminal Case No. 93-7970 to 71, entitled People of the Philippines v. Thomas Limoanco and Alice Laurel. This case for estafa, however, was archived because summons could not be served upon the spouses as they have absconded. Thus, the BPI's apparent reluctance to admit liability and settle LMC's claim for damages, and a hopeless case of recovery from Alice Laurel and her husband, has left LMC, with no option but to recover damages from BPI.

On July 24, 1995, LMC, through its representative, Miss Consolacion C. Rogacion, the President of the company, filed a Complaint for Damages against BPI, docketed as Civil Case No. 95-1106, and was raffled to Regional Trial Court of Makati City, Branch 141.

After trial on the merits, the court a quo rendered a Decision in favor of LMC. The dispositive portion of which reads, as follows:

WHEREFORE, decision is hereby rendered ordering defendant bank to pay plaintiff actual damages equitably reduced to one (1) million pesos plus attorney's fees of P100,000.00.

No pronouncement as to costs.

SO ORDERED.2

Only BPI filed an appeal. The Court of Appeals affirmed the decision of the trial court but increased the award of actual damages to P2,075,695.50 and deleted the award of P100,000.00 as attorney's fees.3 Citing public interest, the appellate court denied reconsideration in a Resolution4 dated 30 January 2007.

In this Petition for Review5 dated 19 March 2007, BPI insists that LMC should have presented evidence to prove not only the amount of the checks that were deposited and subsequently reversed, but also the actual delivery of the books and the payment of "sales and promo prizes" to Alice Laurel. Failing this, there was allegedly no basis for the award of actual damages. Moreover, the actual damages should not have been increased because the decision of the trial court became conclusive as regards LMC when it did not appeal the said decision.

BPI further avers that LMC's negligence in considering the machine-validated check deposit slips as evidence of Alice Laurel's payment was the proximate cause of its own loss. Allegedly, by allowing its agents to make deposits with other BPI branches, LMC violated its own special arrangement with BPI's Greenhills-EDSA branch for the latter to hold on to an extra copy of the deposit slip for pick up by LMC's authorized representatives. BPI points out that the deposits were in check and not in cash. As such, LMC should have borne in mind that the machine validation in the deposit slips is still subject to the sufficiency of the funds in the drawers' account. Furthermore, LMC allegedly ignored the express notice indicated in its monthly bank statements and consequently failed to check the accuracy of the transactions reflected therein.

In its Manifestation of Compliance by Respondent on the Order Dated 20 June 2007 Received on 29 July 2007 to Submit Comment,6 dated 9 August 2007, LMC insists that it is indeed entitled to the actual damages awarded to it by the appellate court.

BPI filed a Reply7 dated 15 January 2008, in reiteration of its submissions.

We have repeatedly emphasized that the banking industry is impressed with public interest. Of paramount importance thereto is the trust and confidence of the public in general. Accordingly, the highest degree of diligence is expected, and high standards of integrity and performance are required of it. By the nature of its functions, a bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of its relationship with them.8 The fiduciary nature of banking, previously imposed by case law, is now enshrined in Republic Act No. 8791 or the General Banking Law of 2000. Section 2 thereof specifically says that the state recognizes the fiduciary nature of banking that requires high standards of integrity and performance.9

Whether BPI observed the highest degree of care in handling LMC's account is the subject of the inquiry in this case.

LMC sought recovery from BPI on a cause of action based on tort. Article 2176 of the Civil Code provides, "Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter." There are three elements of quasi-delict: (a) fault or negligence of the defendant, or some other person for whose acts he must respond; (b) damages suffered by the plaintiff; and (c) the connection of cause and effect between the fault or negligence of the defendant and the damages incurred by the plaintiff.10

In this case, both the trial court and the Court of Appeals found that the reversal of the transactions in question was unilaterally undertaken by BPI's tellers without following normal banking procedure which requires them to ensure that all copies of the deposit slips are surrendered by the depositor. The machine-validated deposit slips do not show that the transactions have been cancelled, leading LMC to rely on these slips and to consider Alice Laurel's account as already paid.

Negligence is the omission to do something which a reasonable man, guided by those considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of something which a prudent and reasonable man would not do.11 Negligence in this case lies in the tellers' disregard of the validation procedures in place and BPI's utter failure to supervise its employees. Notably, BPI's managers admitted in several correspondences with

LMC that the deposit transactions were cancelled without LMC's knowledge and consent and based only upon the request of Alice Laurel and her husband.12

It is well to reiterate that the degree of diligence required of banks is more than that of a reasonable man or a good father of a family. In view of the fiduciary nature of their relationship with their depositors, banks are duty-bound to treat the accounts of their clients with the highest degree of care.13

BPI cannot escape liability because of LMC's failure to scrutinize the monthly statements sent to it by the bank. This omission does not change the fact that were it not for the wanton and reckless negligence of BPI's tellers in failing to require the surrender of the machine-validated deposit slips before reversing the deposit transactions, the loss would not have occurred. BPI's negligence is undoubtedly the proximate cause of the loss. Proximate cause is that cause which, in a natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred.14

It is also true, however, that LMC should have been more vigilant in managing and overseeing its own financial affairs. The damages awarded to it were correctly reduced on account of its own contributory negligence in accordance with Article 1172 of the Civil Code.15

Parenthetically, we find no merit in BPI's allegation that LMC should have presented evidence of delivery of the books and payment of sales and promo prizes to Alice Laurel. The evidence presented by LMC in the form of BPI's own admission that the deposit transactions were

reversed at the instance of Alice Laurel and her husband, coupled with the machine-validated deposit slips16which were supposed to have been deposited to LMC's account but were cancelled without its knowledge and consent, sufficiently form the bases for the actual damages claimed because they are the very same documents relied upon by LMC in considering Alice Laurel's account paid and in granting her monetary privileges and prizes.

Be that as it may, we find the appellate court's decision increasing the award of actual damages in favor of LMC improper since the latter did not appeal from the decision of the trial court. It is well-settled that a party who does not appeal from the decision may not obtain any affirmative relief from the appellate court other than what he has obtained from the lower court whose decision is brought up on appeal. The exceptions to this rule, such as where there are (1) errors affecting the lower court's jurisdiction over the subject matter, (2) plain errors not specified, and (3) clerical errors, do not apply in this case.17

WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 62769 dated 31 July 2006 and its Resolution dated January 30, 2007 are AFFIRMED with the MODIFICATION that the Bank of the Philippine Islands is ordered to pay actual damages to Lifetime

Marketing Corporation in the amount of One Million Pesos (P1,000,000.00). No pronouncement as to costs.

SO ORDERED.

G.R. No. 157845 September 20, 2005

PHILIPPINE NATIONAL BANK, Petitioners, vs.NORMAN Y. PIKE, Respondent.

D E C I S I O N

CHICO-NAZARIO, J.:

This petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, seeks to reverse the Decision1 dated 19 December 2002, and the Resolution2 dated 02 April 2003, both of the Court of Appeals, in CA-G.R. CV No. 59389, which affirmed with modification the Decision3 rendered by the Regional Trial Court (RTC), Branch 07 of Manila, dated 10 January 1997, in Civil Case No. 94-68821 in favor of herein respondent Norman Pike (Pike).

The case stemmed from a complaint4 filed by herein respondent Pike for damages5 against Philippine National Bank (PNB) on 04 January 1994.

Complainant Pike often traveled to and from Japan as a gay entertainer in said country. Sometime in 1991, he opened U.S. Dollar Savings Account No. 0265-704591-0 with herein petitioner PNB Buendia branch for which he was issued a corresponding passbook. The complaint alleged in substance that before complainant Pike left for Japan on 18 March 1993, he kept the aforementioned passbook inside a cabinet under lock and key, in his home; that on 19 April 1993, a few hours after he arrived from Japan, he discovered that some of his valuables were missing including the passbook; that he immediately reported the incident to the police which led to the arrest and prosecution of a certain Mr. Joy Manuel Davasol; that complainant Pike also discovered that Davasol made two (2) unauthorized withdrawals from his U.S. Dollar Savings Account No. 0265-704591-0, both times at the PNB Buendia branch on the following dates:

DATE AMOUNT

31 March 1993 $3,500.00

05 April 1993 4,000.00

TOTAL $7,500.00

that on several occasions, complainant Pike went to defendant PNB’s Buendia branch and verbally protested the unauthorized withdrawals and likewise demanded the return of the total withdrawn amount of U.S. $7,500.00, on the ground that he never authorized anybody to withdraw from his account as the signatures appearing on the subject withdrawal slips were clearly forgeries; that defendant PNB refused to credit said amount back to complainant’s U.S. Dollar Savings Account without justifiable reason, and instead, defendant bank wrote him that it exercised due diligence in the handling of said account; and that on 06 May 1993, complainant Pike wrote defendant PNB simply to request that the hold-account

be lifted so that he may withdraw the remaining balance left in his U.S.$ Savings Account and nothing else.

On the other hand, defendant PNB alleged, in its Motion to Dismiss6 of 18 April 1994, a counterstatement of facts. Its factual allegations read:

. . . On March 15, 1993 at PNB Buendia Branch, Mr. Norman Y. Pike, together with a certain Joy Davasol went to see PNB AVP Mr. Lorenzo T. Val (sic), Jr. purposely to withdraw the amount of $2,000.00. Mr. Pike also informed AVP Val that he is leaving for abroad (Japan) and made verbal instruction to honor all withdrawals to be transmitted by his Talent Manager and Choreographer, Joy Davasol who shall present pre-signed withdrawal slips bearing his (Pike’s) signature. . .

On April 19, 1993, a certain Josephine Balmaceda, who claimed to be plaintiff’s sister executed an affidavit . . . . stating therein that they discovered today (April 19, 1993) the lost (sic) of her brother’s passbook issued by PNB on account of robbery, committed in the residence/office of her brother, promptly reporting the matter to the police authorities and her brother cannot report the matter to the Bank because he was currently in Japan and therefore requesting the Bank to issue a hold-order on her brother’s passbook.

But a copy of an alarm (Police) Report dated April 19, 1993. . . stated that plaintiff (who was the one who reported the matter) after one month in Japan, he (complainant) arrived yesterday. . .

On April 26, 1993, Atty. Nathaniel Ifurung who claims to be plaintiff’s counsel sent a demand letter to VP Violeta T. Suquila (then VP and Manager of PNB Buendia Branch) demanding the bank to credit back the amount of US$7,500.00 which were withdrawn on March 31, 1993 and April 5, 1993, because his client’s signatures were forged and the withdrawal made thereon were unauthorized. . .

On May 5, 1993, Mr. Norman Y. Pike executed an affidavit of loss (sic) Dollar Account Passbook … and requested the PNB to replace the same and allow him to make withdrawals thereon. He stated that his passbook was stolen together with other valuables which he discovered only in the early morning of April 19, 1993. . .

On May 6, 1993, plaintiff Norman Y. Pike wrote a letter. . . addressed to the Manager of PNB, Buendia Branch the full contents of said letter hereto quoted as follows:

May 6, 1993

The Manager

Philippine National Bank

Buendia Branch

Paseo de Roxas cor. Gil Puyat Street

Makati, Metro Manila

Sir:

In connection with the request of my sister, Mrs. Josephine P. Balmaceda for the hold-order on my dollar savings passbook No. 265-704591-0, I am now requesting your good office to lift the same so I can withdraw the remaining balance of my passbook which was reported lost sometime in March of this year.

I also promise not to hold responsible the bank and its officers for the withdrawal made on my dollar savings passbook on March 19 and April 5, 1993 respectively as a result of the lost (sic) of my passbook.

Sgd. NORMAN Y. PIKE

Depositor

Philippine Passport

No. H918022

Issued at Manila on

Sept. 6, 1990

Place of Issuance

On the same day May 6, 1993 Plaintiff Norman Y. Pike was allowed by defendant bank to withdraw the remaining balance from his passbook … .

A letter dated May 18, 1993 was sent to Plaintiff’s counsel … by PNB … stating that the Bank regrets that it cannot accede to such request inasmuch as the Bank exercised due diligence of a good father to his family in the handling of transactions covering the deposit account of Mr. Pike … .

On July 2, 1993, Plaintiff’s counsel sent a letter to PNB Vice Pres. Suquila denying that his client made any such promise not to hold responsible the bank and its officers for the withdrawal made … .

A letter dated July 29, 1993 … was sent to Plaintiff’s counsel by VP Suquila stating that plaintiff’s withdrawal of the remaining balance of his account with the Bank effectively estops him from claiming on the alleged unauthorized withdrawals.

The trial court, in its decision dated 10 January 1997, made the following findings of fact:

. . . [T]hat the bank is responsible for such unauthorized withdrawals. The court is not impressed with the defense put up by the bank. Its contention that the withdrawals were authorized by the plaintiff because there was an arrangement between the bank represented by its Asst. Vice President Lorenzo Bal, Jr. and the depositor Norman Y. Pike to the effect that pre-signed withdrawal slips, that is, withdrawal slip signed by the depositor in the presence of Mr. Bal whereby it would be made to appear that it was the depositor himself who presented the same to the bank despite the fact that it was another person who presented the same should be honored by the bank cannot be sanctioned by the court. Firstly, the court is not satisfied that there was indeed such an arrangement. . . It is Mr. Bal’s contention that such an arrangement although not ordinarily entered into is still a legal

procedure of the bank and is resorted to accommodate the depositors’ specially honored and valued depositor at that.

. . .

The court compared the signatures in the questioned withdrawal slips with the known signatures of the depositor and is convinced that the signatures in the unauthorized withdrawal slips do not correspond to the true signatures of the depositor.

From the evidence that it received, the court is convinced that the bank was negligent in the performance of its duties such that unauthorized withdrawals were made in the deposit of plaintiff Norman Y. Pike.7

The dispositive portion of the trial court’s decision reads:

WHEREFORE and considering the foregoing, judgment is hereby rendered in favor of the plaintiff and against the defendant and ordering the defendant to pay the following:

1. US$7,500.00 plus interest thereon at the rate of 12% per annum until the full amount is paid;

2. P25,000.00 for and as attorney’s fees;

3. P50,000.00 as moral damages and P50,000.00 as exemplary damages; and

4. Plus the costs of suit.8

Defendant PNB’s motion for reconsideration was subsequently denied by the court a quo.9

On appeal, the Court of Appeals issued the assailed decision dated 19 December 2002, affirming the findings of the RTC that indeed defendant-appellant PNB was negligent in exercising the diligence required of a business imbued with public interest such as that of the banking industry, however, it modified the rate of interest and award for damages, to wit:

WHEREFORE, premises considered, the Decision dated January 10, 1997 issued by the Regional Trial Court of Manila, Branch 7, in Civil Case No. 94-68821, is hereby AFFIRMED with MODIFICATION, as follows:

1. Ordering appellant, the Philippine National Bank, Buendia Branch, to refund appellee the amount of $7,500.00 plus interest of 6% per annum to be computed from the date of the filing of the complaint which interest rate shall become 12% per annum from the time the judgment in this case becomes final and executory until its satisfaction;

2. The award for moral damages is reduced to P20,000.00; and

3. The award for exemplary damages is likewise reduced to P20,000.00.

Costs against appellant.10

The appellate court held that:

Appellant claims that appellee personally talked to its officers to allow Joy Manuel Davasol to make withdrawals. Appellee even left pre-signed withdrawal slips before he went to Japan. However, appellant could have told appellee to authorize the withdrawal by a representative by indicating the same at the space provided at the back portion of the withdrawal slip. This operational flaw was observed by the trial court, when it ruled:

The court cannot also understand why the bank did not require the correct, proper and the usual procedure of requiring a depositor who is withdrawing the money through a representative to fill up the back portion of the withdrawal slips, which form was issued by the bank itself.

A perusal of the records discloses that appellee had previously authorized withdrawals by a representative. However, these withdrawals were properly accompanied by a "withdrawal by a representative" form aside from a handwritten request by appellee to allow such withdrawals by his representative, or a typewritten letter-request for withdrawal by a representative. Certainly, appellant lacked the due care and caution required of managers and employees of a firm engaged in so sensitive and demanding business as banking. …

In its desire to be exonerated from liability, appellant advances the argument that, granting negligence on its part, appellee condoned this negligence as shown in his letter dated May 6, 1993, wherein appellee purportedly undertook, not to hold the bank and its officers responsible for the unauthorized withdrawals from his account.

We do not agree. It should be emphasized that while the appellee admitted signing the letter dated May 6, 1993, he, however, denied having undertook (sic) to exonerate the appellant from liability for the unauthorized withdrawals. Appellee questioned the second paragraph of the said letter as being superimposed so that his signature overlapped the text of the second paragraph of said letter. A waiver of right, in order to be valid, should be in a language that clearly manifests his desire to do so. … In the instant case, appellee’s filing of the instant action is inconsistent with appellant’s contention that he had waived his right to question appellant’s negligent act of allowing the unauthorized withdrawals from his account.11

Defendant-appellant PNB filed a motion for reconsideration. In a Resolution dated 02 April 2003, the Court of Appeals denied said motion.

Hence, this petition.

Petitioner PNB now seeks the review of the aforequoted decision and resolution of the Court of Appeals predicated on the following issues:

I.

WHETHER OR NOT THE PRINCIPLE OF ESTOPPEL WAS NOT PROPERLY APPLIED IN THIS CASE;

II.

WHETHER OR NOT RESPONDENT HAVE SUBSTANTIALLY PROVEN THAT THE SIGNATURES APPEARING ON THE TWO (2) QUESTIONED PRE-SIGNED

WITHDRAWAL SLIP FORMS ARE ALL FORGERIES IN ACCORDANCE WITH SECTION 22, RULE 132 OF THE REVISED RULES OF COURT; and

III.

WHETHER OR NOT MORAL AND EXEMPLARY DAMAGES CAN BE AWARDED AGAINST A PARTY IN GOOD FAITH.

Petitioner PNB contends that due to the verbal instructions12 of respondent Pike, a valued depositor, it allowed the withdrawal by another person. Plus, the fact that said respondent withdrew the remaining balance in his US Savings Account and executed a waiver releasing petitioner PNB from any liability due to the loss of the funds should rightly negate a finding of negligence on its part. Accordingly, petitioner PNB claims that the appellate court, as well as the trial court erred in holding that the withdrawals in question were unauthorized as the signatures appearing on the subject withdrawal slips were forgeries. Petitioner PNB, therefore, argues that it should not be held liable for the amount withdrawn from the account of respondent Pike in the sum of $7,500.00, as well as for moral and exemplary damages.

A priori, it is quite evident that the petition is anchored on a plea to review or re-examine the factual conclusions reached by the trial court and affirmed by the Court of Appeals, and for this Court to hold otherwise. Whether:

1) respondent Pike’s signatures appearing on the pertinent withdrawal slips used by Joy Manuel Davasol13 to withdraw the amount of $7,500.00, were forgeries, as found by the trial court and affirmed by the Court of Appeals, or were authentic as claimed by petitioner bank; and

2) respondent Pike in fact executed a waiver absolving petitioner bank from any legal responsibility due to the unauthorized withdrawals, as maintained by petitioner bank, or the paragraph containing said waiver was intercalated by some other person, thus, amounting no waiver at all, as held by the courts a quo.

are questions of fact and not of law. Inexorably, these issues call for an inquiry into the facts and evidence on record. This, as we have so often held, we cannot do.

Elementary is the rule that this Court is not the appropriate venue to consider anew the factual issues as it is not a trier of facts, and, it generally does not weigh anew the evidence already passed upon by the Court of Appeals.14When this Court is tasked to go over once more the evidence presented by both parties, and analyze, assess and weigh them to ascertain if the trial court and the appellate court were correct in according superior credit to this or that piece of evidence of one party or the other, the Court cannot and will not do the same.15 Such task is foreclosed by the rule enunciated under Section 1 of Rule 4516 of the Rules of Court:

SECTION 1. Filing of petition with Supreme Court. - . . . The petition shall raise only questions of law17 which must be distinctly set forth.

We have oft "ruled that factual findings of the Court of Appeals are conclusive on the parties and not reviewable by this Court – and they carry even more weight when the Court of Appeals affirms the factual findings of the trial court,"18 and in the absence of any showing that the findings complained of are totally devoid of support in the evidence on record, or that they are so glaringly erroneous as to constitute serious abuse of discretion, such findings must stand. The courts a quo are in a much better position to evaluate properly the evidence.

Finding no other alternative but to affirm their finding that petitioner PNB negligently allowed the unauthorized withdrawals subject of the case at bar, the instant petition for review must necessarily fail.

At this juncture, it bears emphasizing that negligence of banking institutions should never be countenanced. The negligence here lies in the lackadaisical attitude exhibited by employees of petitioner PNB in their treatment of respondent Pike’s US Dollar Savings Account that resulted in the unauthorized withdrawal of $7,500.00. Nevertheless, though its employees may be the ones negligent, a bank’s liability as an obligor is not merely vicarious but primary, as banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees,19 and having such obligation, this Court cannot ignore the circumstances surrounding the case at bar – how the employees of petitioner PNB turned their heads, nay, closed their eyes to the suspicious circumstances enfolding the two withdrawals subject of the case at bar. It may even be said that they went out of their ways to disregard standard operating procedures formulated to ensure the security of each and every account that they are handling. Petitioner PNB does not deny that the withdrawal slips used were in breach of standard operating procedures of banks in the ordinary and usual course of banking operations as testified to by one of its witnesses, Mr. Lorenzo T. Bal, Assistant Vice President of Petitioner PNB’s Buendia branch, on cross-examination20 he stated thus:

Q: Mr. Witness, when the original of Exhibit "B"21  was presented to you for approval, how many signatures of depositor appears thereon?

A: Two (2) signatures appears (sic) on the face of the withdrawal slip.

Q: When it (sic) was (sic) presented to you immediately?

A: Yes, sir.

Q: Are you sure of that?

A: Yes, sir. Because it was pre signed withdrawal slip.

Q: What does the signature appear, the word recipient means?

A: Received.

Q: So, what you are saying is that, the depositor here signed this even before receiving the amount?

A: Because before the withdrawal was made, Mr. Pike, the depositor came to the bank when he withdrew the $2,000.00 and instructed me or requested us even the supervisor to honor all withdrawal slip.

Q: And this is a regular procedure?

A: Yes, sir.

Q: Are you sure of that?

A: Yes, sir.

Q: Do you have written manual on this particular procedure, Mr. Witness?

A: Of course, that includes in the Rules and regulations of the bank.

Q: Are you are (sic) are very sure of that?

A: And banking is a fast transaction between the depositor and the bank.

Q: And then, is the use of the back portion of the withdrawal slip … with a heading of authorization?

A: Normally, a depositor and the bank agrees on certain terms that if you allow withdrawal from his account, his or her account, its enough that the signature of the depositor appears on both spaces in the front side of the withdrawal slip. Even if you do not have the back portion of the withdrawal slip.

Q: You are very sure of that?

A: Yes, sir.

Q: And that has been done with the other withdrawal slip of Norman Pike as stated or as shown in the Statement of Account?

A: Yes, sir.

Q: That withdrawal made by representative?

A: Yes, sir.

From the foregoing, petitioner PNB’s witness was utterly remiss in protecting the bank’s client, as well as the bank itself, when he allowed an account holder to make it appear as if he was the one actually withdrawing from an account and actually receiving the withdrawn amount. Ordinarily, banks allow withdrawal by someone who is not the account holder so long as the account holder authorizes his representative to withdraw and receive from his account by signing on the space provided particularly for such transactions, usually found at the back of withdrawal slips. As fittingly found by the courts a quo, if indeed, respondent Pike signed the withdrawal slips in the presence of Mr. Lorenzo Bal, petitioner PNB’s AVP at its Buendia branch, why did he not call respondent Pike’s attention and refer him to the space provided for authorizing representatives to withdraw from and receive the proceeds of such withdrawal? Or, at the very least, sign or initial the same so that he could identify the pre-signed withdrawal slips made by Mr. Pike?

Q: You are also saying that on March 15, 1993, you likewise met Joy Manuel Dabasol?

A: Yes, sir.

Q: And you (sic) also saying on March 15, 1993, you also met Norman Pike, the depositor,

A: Yes, sir.

Q: And when did you first met (sic) Norman Pike?

A: March 15 when he withdrew $2,000.00.

Q: That was the first time?

A: First time, yes.

Q: And Mr. Norman Pike was already transacting with you long before that day, is this correct? For how long was he transacting with you?

A: That was my first time.

Q: That was the first time. What I mean is, that he was transacting with the PNB, Buendia Branch long before you met him?

A: Maybe.

…

Q: And the withdrawal made on April 5, 1993 which you approved, you did not look at Exhibit "C", the Savings Signature Card Individual?

A: We do not look at that, that is kept in the vault.

Q: Yes or no?

A: No, sir.

…

Q: And Mr. witness, Exhibit "C-1"22 which is being kept at your vault, also contains a picture?

A: Yes, sir.

Q: And the picture of the depositor?

A: Yes, sir.

Q: And are you familiar with the identity of the depositor Norman Pike?

A: What particular identity?

Q: His appearance?

A: He is gay looking fellow.

COURT: Answer. You are familiar with his physical appearance?

A: Not so much. Because there are so much depositor   (sic)   in the bank .23 [Emphasis ours.]

By his own testimony, the witness negated the very reason for the bank’s bizarre "accommodation" of the alleged verbal request of respondent Pike – that he was a "valued client." From the aforequoted, it appears that the witness, Lorenzo Bal, was not even reasonably familiar with respondent Pike, yet, he was ready, willing and able to accommodate the verbal request of said depositor. Worse still, the witness still approved the withdrawal transaction without asking for any proof of identification for the reason that: 1) Davasol was in possession of a pre-signed withdrawal slip; and 2) the witness "recognized" the signature of respondent Pike – even after admitting that he did not bother to counter check the signature on the slip with the specimen signature card of respondent Pike and that he met respondent Pike just once so that he cannot seem to recall what the latter looks like. The ensuing quoted testimony of the same witness will justify a finding of negligence amounting to bad faith, to wit:

Q: And you also met Joy Manuel Dabasol on March 15?

A: Yes, sir.

Q: And can you describe Joy Manuel Dabasol?

A: I cannot recall his face but then he is a Talent manager, because there are so many depositors in the bank.

. . .

Q: Mr. witness, you are saying that Mr. Pike, the depositor gave you verbal authority to honor withdrawal by Joy Manuel Dabasol?

A: Yes, sir.

Q: Why did you not require then that Mr. Pike instead sign the authorization portion and that the name of Joy Manuel Dabasol appear thereon with his signature?

. . .

A: I required Mr. Norman Pike to sign the withdrawal slip on the face of the withdrawal slip.

Q: But not the authorization portion of the said withdrawal slip?

. . .

A: No, because that is sufficient already.

Q: And is this your normal procedure, Mr. witness? This particular procedure that you conducted?

A: I don’t think so.

Q: Mr. witness, when – on April 5, 1993, when Joy Dabasol came to the office and according to you, you do not remember him, is that correct?

A: I cannot recall his face.

. . .

Q: And he just showed you a withdrawal slip, is this correct?

A: Yes, on April 5.

Q: Did you require him to produce any Identification Card, yes or no?

A: No.

Q: And how did you know then that it was Joy Dabasol who was making the withdrawal on April 5?

A: Because the presigned withdrawal slip was presented to me.

Q: Is that all your basis?

A: Yes, sir. Because his signature appears.

. . .

Q: Mr. witness, this alleged authority given to you by Norman Pike to honor withdrawal by Joy Manuel Dabasol, was that in writing?

A: It was verbally requested.

Q: And that is SPO (sic) of PNB, Buendia Branch to accept verbal authorities?

A: Yes.

Q: Is that Standard Operating Procedure?

A: It is not SPO, but when you knew the client, Your Honor, you have to honor also the trust and confidence. Let us say if you…

Q: According to you, you met Norman Pike only on March 15, 1993 and immediately you allowed him to withdraw through pre-signed withdrawal slip?

A: Yes, Your Honor. Because a depositor requested you to honor his signature, you have to do that or else will…and besides the request is for purpose of expediency, Your Honor. Because most often than that, he is out of the country, in Japan. And his Talent Manager is the one managing the recruiting agency. The money will be used in the operating expenses.

. . .

Q: You did not even bother to look at the Savings Signature Card Individual, yes or no?

A: No, sir.24 [Emphases supplied.]

Having admitted that pre-signed withdrawal slips do not constitute the normal procedure with respect to withdrawals by representatives should have already put petitioner PNB’s employees on guard. Rather than readily validating and permitting said withdrawals, they should have proceeded more cautiously. Clearly, petitioner bank’s employee, Lorenzo T. Bal, an Assistant Vice President at that, was exceedingly careless in his treatment of respondent Pike’s savings account.

From the foregoing, the evidence clearly showed that the petitioner bank did not exercise the degree of diligence that it ought to have exercised in dealing with their clients.

With banks, the degree of diligence required, contrary to the position of petitioner PNB, is more than that of a good father of a family considering that the business of banking is imbued with public interest due to the nature of their functions. The stability of banks largely depends on the confidence of the people in the honesty and efficiency of banks. Thus, the law imposes on banks a high degree of obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of banking. Section 2 of Republic Act No. 8791,25 which took effect on 13 June 2000, makes a categorical declaration that the State recognizes the "fiduciary nature of banking that requires high standards of integrity and performance."26

Though passed long after the unauthorized withdrawals in this case, the aforequoted provision is a statutory affirmation of Supreme Court decisions already in esse at the time of such withdrawals. We elucidated in the 1990 case of Simex International, Inc. v. Court of Appeals,27 that "the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship."28

Likewise, in the case of The Consolidated Bank and Trust Corporation v. Court of Appeals,29 we clarified that said fiduciary relationship means that the bank’s obligation to observe "highest standards of integrity and performance" is deemed written into every deposit agreement between a bank and its depositor. The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family. Article 1172 of the New Civil Code states that the degree of diligence required of an obligor30 is that prescribed by law or contract, and absent such stipulation then the diligence of a family. In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such accounts consist only of a few hundred pesos or of millions of pesos.31

Anent the issue of the propriety of the award of damages in this case, petitioner PNB asseverates that there was no evidence to prove that respondent Pike "suffered anguish, embarrassment and mental sufferings"32 due to its acts in allowing the alleged unauthorized withdrawals. And, having relied on the instructions of a valued depositor, petitioner PNB likewise avers that its actions were made in good faith, for this reason, there is no factual basis for said award.

Petitioner PNB’s assertions fail to impress us.

The award of moral and exemplary damages is left to the sound discretion of the court, and if such discretion is well exercised, as in this case, it will not be disturbed on appeal.33 In the case of Philippine Telegraph & Telephone Corporation v. Court of Appeals,34 we had the

occasion to reiterate the conditions to be met in order that moral damages may be recovered. In said case we stated:

An award of moral damages would require, firstly, evidence of besmirched reputation, or physical, mental or psychological suffering sustained by the claimant; secondly, a culpable act or omission factually established; thirdly, proof that the wrongful act or omission of the defendant is the proximate cause of the damages sustained by the claimant; and fourthly, that the case is predicated on any of the instances expressed or envisioned by Articles 221935 and 222036 of the Civil Code.

Specifically, in culpa contractual or breach of contract, as here, moral damages are recoverable only if the defendant has acted fraudulently or in bad faith,37 or is found guilty of gross negligence amounting to bad faith,38or in wanton disregard of his contractual obligations.39 Verily, the breach must be wanton, reckless, malicious, or in bad faith, oppressive or abusive.40

There is no reason to disturb the trial court’s finding of petitioner bank’s employees’ negligence in their treatment of respondent Pike’s account. In the case on hand, the Court of Appeals sustained, and rightly so, that an award of moral damages is warranted. For, as found by said appellate court, citing the case of Prudential Bank v. Court of Appeals,41 "the bank’s negligence is a result of lack of due care and caution required of managers and employees of a firm engaged in so sensitive and demanding business, as banking, hence, the award ofP20,000.00 as moral damages, is proper.

The award of exemplary damages is also proper as a warning to petitioner PNB and all concerned not to recklessly disregard their obligation to exercise the highest and strictest diligence in serving their depositors.

Finally, the aforestated grant of exemplary damages entitles respondent Pike the award of attorney's fees in the amount of P20,000.00 and the award of P10,000.00 for litigation expenses.42

WHEREFORE, the instant petition is DENIED. The assailed Decision dated 19 December 2002, and the Resolution dated 02 April 2003, both of the Court of Appeals, in CA-G.R. CV No. 59389, which affirmed with modification the Decision rendered by the Regional Trial Court (RTC), Branch 07 of Manila, dated 10 January 1997, in Civil Case No. 94-68821, are hereby AFFIRMED with the modification that petitioner PNB is directed to pay respondent Pike additional 1) P20,000.00 representing attorney’s fees; and 2) P10,000.00 representing expenses of litigation. Costs against petitioner PNB.

SO ORDERED.

G.R. No. 127469             January 15, 2004

PHILIPPINE BANKING CORPORATION, petitioner, vs.COURT OF APPEALS and LEONILO MARCOS, respondents.

D E C I S I O N

CARPIO, J.:

The Case

Before us is a petition for review of the Decision1 of the Court of Appeals in CA-G.R. CV No. 34382 dated 10 December 1996 modifying the Decision2 of the Regional Trial Court, Fourth Judicial Region, Assisting Court, Biñan, Laguna in Civil Case No. B-3148 entitled "Leonilo Marcos v. Philippine Banking Corporation."

The Antecedent Facts

On 30 August 1989, Leonilo Marcos ("Marcos") filed with the trial court a Complaint for Sum of Money with Damages3 against petitioner Philippine Banking Corporation ("BANK").4

Marcos alleged that sometime in 1982, the BANK through Florencio B. Pagsaligan ("Pagsaligan"), one of the officials of the BANK and a close friend of Marcos, persuaded him to deposit money with the BANK. Marcos yielded to Pagsaligan’s persuasion and claimed he made a time deposit with the BANK on two occasions. The first was on 11 March 1982 for P664,897.67. The BANK issued Receipt No. 635734 for this time deposit. On 12 March 1982, Marcos claimed he again made a time deposit with the BANK for P764,897.67. The BANK did not issue an official receipt for this time deposit but it acknowledged a deposit of this amount through a letter-certification Pagsaligan issued. The time deposits earned interest at 17% per annum and had a maturity period of 90 days.

Marcos alleged that Pagsaligan kept the various time deposit certificates on the assurance that the BANK would take care of the certificates, interests and renewals. Marcos claimed that from the time of the deposit, he had not received the principal amount or its interest.

Sometime in March 1983, Marcos wanted to withdraw from the BANK his time deposits and the accumulated interests to buy materials for his construction business. However, the BANK through Pagsaligan convinced Marcos to keep his time deposits intact and instead to open several domestic letters of credit. The BANK required Marcos to give a marginal deposit of 30% of the total amount of the letters of credit. The time deposits of Marcos would secure 70% of the letters of credit. Since Marcos trusted the BANK and Pagsaligan, he signed blank printed forms of the application for the domestic letters of credit, trust receipt agreements and promissory notes.

Marcos executed three Trust Receipt Agreements totalling P851,250, broken down as follows: (1) Trust Receipt No. CD 83.7 dated 8 March 1983 for P300,000; (2) Trust Receipt No. CD 83.9 dated 15 March 1983 for P300,000; and (3) Trust Receipt No. CD 83.10 dated 15 March 1983 for P251,250. Marcos deposited the required 30% marginal deposit for the trust receipt agreements. Marcos claimed that his obligation to the BANK was therefore only P595,875 representing 70% of the letters of credit.

Marcos believed that he and the BANK became creditors and debtors of each other. Marcos expected the BANK to offset automatically a portion of his time deposits and the accumulated interest with the amount covered by the three trust receipts totalling P851,250 less the 30% marginal deposit that he had paid. Marcos argued that if only the BANK applied his time deposits and the accumulated interest to his remaining obligation, which is 70% of

the total amount of the letters of credit, he would have paid completely his debt. Marcos further pointed out that since he did not apply for a renewal of the trust receipt agreements, the BANK had no right to renew the same.

Marcos accused the BANK of unjustly demanding payment for the total amount of the trust receipt agreements without deducting the 30% marginal deposit that he had already made. He decried the BANK’s unlawful charging of accumulated interest because he claimed there was no agreement as to the payment of interest. The interest arose from numerous alleged extensions and penalties. Marcos reiterated that there was no agreement to this effect because his time deposits served as the collateral for his remaining obligation.

Marcos also denied that he obtained another loan from the BANK for P500,000 with interest at 25% per annumsupposedly covered by Promissory Note No. 20-979-83 dated 24 October 1983. Marcos bewailed the BANK’s belated claim that his time deposits were applied to this void promissory note on 12 March 1985.

In sum, Marcos claimed that:

(1) his time deposit with the BANK "in the total sum of P1,428,795.345 has earned accumulated interest since March 1982 up to the present in the total amount of P1,727,305.45 at the rate of 17% per annum so his total money with defendant (the BANK) is P3,156,100.79 less the amount of P595,875 representing the 70% balance of the marginal deposit and/or balance of the trust agreements;" and

(2) his indebtedness was only P851,250 less the 30% paid as marginal deposit or a balance of P595,875, which the BANK should have automatically deducted from his time deposits and accumulated interest, leaving the BANK’s indebtedness to him at P2,560,025.79.

Marcos prayed the trial court to declare Promissory Note No. 20-979-83 void and to order the BANK to pay the amount of his time deposits with interest. He also sought the award of moral and exemplary damages as well as attorney’s fees for P200,000 plus 25% of the amount due.

On 18 September 1989, summons and a copy of the complaint were served on the BANK.6

On 9 October 1989, the BANK filed its Answer with Counterclaim. The BANK denied the allegations in the complaint. The BANK believed that the suit was Marcos’ desperate attempt to avoid liability under several trust receipt agreements that were the subject of a criminal complaint.

The BANK alleged that as of 12 March 1982, the total amount of the various time deposits of Marcos was onlyP764,897.67 and not P1,428,795.357 as alleged in the complaint. The P764,897.67 included the P664,897.67 that Marcos deposited on 11 March 1982.

The BANK pointed out that Marcos delivered to the BANK the time deposit certificates by virtue of the Deed of Assignment dated 2 June 1989. Marcos executed the Deed of Assignment to secure his various loan obligations. The BANK claimed that these loans are covered by Promissory Note No. 20-756-82 dated 2 June 1982 forP420,000 and Promissory Note No. 20-979-83 dated 24 October 1983 for P500,000. The BANK stressed that these obligations are separate and distinct from the trust receipt agreements.

When Marcos defaulted in the payment of Promissory Note No. 20-979-83, the BANK debited his time deposits and applied the same to the obligation that is now considered fully paid.8 The BANK insisted that the Deed of Assignment authorized it to apply the time deposits in payment of Promissory Note No. 20-979-83.

In March 1982, the wife of Marcos, Consolacion Marcos, sought the advice of Pagsaligan. Consolacion informed Pagsaligan that she and her husband needed to finance the purchase of construction materials for their business, L.A. Marcos Construction Company. Pagsaligan suggested the opening of the letters of credit and the execution of trust receipts, whereby the BANK would agree to purchase the goods needed by the client through the letters of credit. The BANK would then entrust the goods to the client, as entrustee, who would undertake to deliver the proceeds of the sale or the goods themselves to the entrustor within a specified time.

The BANK claimed that Marcos freely entered into the trust receipt agreements. When Marcos failed to account for the goods delivered or for the proceeds of the sale, the BANK filed a complaint for violation of Presidential Decree No. 115 or the Trust Receipts Law. Instead of initiating negotiations for the settlement of the account, Marcos filed this suit.

The BANK denied falsifying Promissory Note No. 20-979-83. The BANK claimed that the promissory note is supported by documentary evidence such as Marcos’ application for this loan and the microfilm of the cashier’s check issued for the loan. The BANK insisted that Marcos could not deny the agreement for the payment of interest and penalties under the trust receipt agreements. The BANK prayed for the dismissal of the complaint, payment of damages, attorney’s fees and cost of suit.

On 15 December 1989, the trial court on motion of Marcos’ counsel issued an order declaring the BANK in default for filing its answer five days after the 15-day period to file the answer had lapsed.9 The trial court also held that the answer is a mere scrap of paper because a copy was not furnished to Marcos. In the same order, the trial court allowed Marcos to present his evidence ex parte on 18 December 1989. On that date, Marcos testified and presented documentary evidence. The case was then submitted for decision.

On 19 December 1989, Marcos received a copy of the BANK’s Answer with Compulsory Counterclaim.

On 29 December 1989, the BANK filed an opposition to Marcos’ motion to declare the BANK in default. On 9 January 1990, the BANK filed a motion to lift the order of default claiming that it had only then learned of the order of default. The BANK explained that its delayed filing of the Answer with Counterclaim and failure to serve a copy of the answer on Marcos was due to excusable negligence. The BANK asked the trial court to set aside the order of default because it had a valid and meritorious defense.

On 7 February 1990, the trial court issued an order setting aside the default order and admitting the BANK’s Answer with Compulsory Counterclaim. The trial court ordered the BANK to present its evidence on 12 March 1990.

On 5 March 1990, the BANK filed a motion praying to cross-examine Marcos who had testified during the ex-partehearing of 18 December 1989. On 12 March 1990, the trial court denied the BANK’s motion and directed the BANK to present its evidence. Trial then ensued.

The BANK presented two witnesses, Rodolfo Sales, the Branch Manager of the BANK’s Cubao Branch since 1987, and Pagsaligan, the Branch Manager of the same branch from 1982 to 1986.

On 24 April 1990, the counsel of Marcos cross-examined Pagsaligan. Due to lack of material time, the trial court reset the continuation of the cross-examination and presentation of other evidence. The succeeding hearings were postponed, specifically on 24, 27 and 28 of August 1990, because of the BANK’s failure to produce its witness, Pagsaligan. The BANK on these scheduled hearings also failed to present other evidence.

On 7 September 1990, the BANK moved to postpone the hearing on the ground that Pagsaligan could not attend the hearing because of illness. The trial court denied the motion to postpone and on motion of Marcos’ counsel ruled that the BANK had waived its right to present further evidence. The trial court considered the case submitted for decision. The BANK moved for reconsideration, which the trial court denied.

On 8 October 1990, the trial court rendered its decision in favor of Marcos. Aggrieved, the BANK appealed to the Court of Appeals.

On 10 December 1996, the Court of Appeals modified the decision of the trial court by reducing the amount of actual damages and deleting the attorney’s fees awarded to Marcos.

The Ruling of the Trial Court

The trial court ruled that the total amount of time deposits of Marcos was P1,429,795.34 and not only P764,897.67 as claimed by the BANK. The trial court found that Marcos made a time deposit on two occasions. The first time deposit was made on 11 March 1982 for P664,897.67 as shown by Receipt No. 635743. On 12 March 1982, Marcos again made a time deposit for P764,897.67 as acknowledged by Pagsaligan in a letter of certification. The two time deposits thus amounted to P1,429,795.34.

The trial court pointed out that no receipt was issued for the 12 March 1982 time deposit because the letter of certification was sufficient. The trial court made a finding that the certification letter did not include the time deposit made on 11 March 1982. The 12 March 1982 deposit was in cash while the 11 March 1982 deposit was in checks which still had to clear. The checks were not included in the certification letter since the BANK could not credit the amounts of the checks prior to clearing. The trial court declared that even the Deed of Assignment acknowledged that Marcos made several time deposits as the Deed stated that the assigment was charged against "various" time deposits.

The trial court recognized the existence of the Deed of Assignment and the two loans that Marcos supposedly obtained from the BANK on 28 May 1982 for P340,000 and on 2 June 1982 for P420,000. The two loans amounted to P760,000. On 2 June 1982, the same day that he secured the second loan, Marcos executed a Deed of Assignment assigning to the BANK P760,000 of his time deposits. The trial court concluded that obviously the two loans were immediately paid by virtue of the Deed of Assignment.

The trial court found it strange that Marcos borrowed money from the BANK at a higher rate of interest instead of just withdrawing his time deposits. The trial court saw no rhyme or reason why Marcos had to secure the loans from the BANK. The trial court was convinced that Marcos did not know that what he had signed were loan applications and a Deed of Assignment in payment for his loans. Nonetheless, the trial court recognized "the said loan

of P760,000 and its corresponding payment by virtue of the Deed of Assignment for the equal sum."10

If the BANK’s claim is true that the time deposits of Marcos amounted only to P764,897.67 and he had already assigned P760,000 of this amount, the trial court pointed out that what would be left as of 3 June 1982 would only be P4,867.67.11 Yet, after the time deposits had matured, the BANK allowed Marcos to open letters of credit three times. The three letters of credit were all secured by the time deposits of Marcos after he had paid the 30% marginal deposit. The trial court opined that if Marcos’ time deposit was only P764,897.67, then the letters of credit totalling P595,875 (less 30% marginal deposit) was guaranteed by only P4,867.67,12 the remaining time deposits after Marcos had executed the Deed of Assignment for P760,000.

According to the trial court, a security of only P4,867.6713 for a loan worth P595,875 (less 30% marginal deposit) is not only preposterous, it is also comical. Worse, aside from allowing Marcos to have unsecured trust receipts, the BANK still claimed to have granted Marcos another loan for P500,000 on 25 October 1983 covered by Promissory Note No. 20-979-83. The BANK is a commercial bank engaged in the business of lending money. Allowing a loan of more than a million pesos without collateral is in the words of the trial court, "an impossibility and a gross violation of Central Bank Rules and Regulations, which no Bank Manager has such authority to grant."14Thus, the trial court held that the BANK could not have granted Marcos the loan covered by Promissory Note No. 20-979-83 because it was unsecured by any collateral.

The trial court required the BANK to produce the original copies of the loan application and Promissory Note No. 20-979-83 so that it could determine who applied for this loan. However, the BANK presented to the trial court only the "machine copies of the duplicate" of these documents.

Based on the "machine copies of the duplicate" of the two documents, the trial court noticed the following discrepancies: (1) Marcos’ signature on the two documents are merely initials unlike in the other documents submitted by the BANK; (2) it is highly unnatural for the BANK to only have duplicate copies of the two documents in its custody; (3) the address of Marcos in the documents is different from the place of residence as stated by Marcos in the other documents annexed by the BANK in its Answer; (4) Pagsaligan made it appear that a check for the loan proceeds of P470,588 less bank charges was issued to Marcos but the check’s payee was one ATTY. LEONILO MARCOS and, as the trial court noted, Marcos is not a lawyer; and (5) Pagsaligan was not sure what branch of the BANK issued the check for the loan proceeds. The trial court was convinced that Marcos did not execute the questionable documents covering the P500,000 loan and Pagsaligan used these documents as a means to justify his inability to explain and account for the time deposits of Marcos.

The trial court noted the BANK’s "defective" documentation of its transaction with Marcos. First, the BANK was not in possession of the original copies of the documents like the loan applications. Second, the BANK did not have a ledger of the accounts of Marcos or of his various transactions with the BANK. Last, the BANK did not issue a certificate of time deposit to Marcos. Again, the trial court attributed the BANK’s lapses to Pagsaligan’s scheme to defraud Marcos of his time deposits.

The trial court also took note of Pagsaligan’s demeanor on the witness stand. Pagsaligan evaded the questions by giving unresponsive or inconsistent answers compelling the trial court to admonish him. When the trial court ordered Pagsaligan to produce the documents,

he "conveniently became sick"15 and thus failed to attend the hearings without presenting proof of his physical condition.

The trial court disregarded the BANK’s assertion that the time deposits were converted into a savings account at 14% or 10% per annum upon maturity. The BANK never informed Marcos that his time deposits had already matured and these were converted into a savings account. As to the interest due on the trust receipts, the trial court ruled that there is no basis for such a charge because the documents do not stipulate any interest.

In computing the amount due to Marcos, the trial court took into account the marginal deposit that Marcos had already paid which is equivalent to 30% of the total amount of the three trust receipts. The three trust receipts totalling P851,250 would then have a balance of P595,875. The balance became due in March 1987 and on the same date, Marcos’ time deposits of P669,932.30 had already earned interest from 1983 to 1987 totallingP569,323.21 at 17% per annum. Thus, the trial court ruled that the time deposits in 1987 totalled P1,239,115. From this amount, the trial court deducted P595,875, the amount of the trust receipts, leaving a balance on the time deposits of P643,240 as of March 1987. However, since the BANK failed to return the time deposits of Marcos, which again matured in March 1990, the time deposits with interest, less the amount of trust receipts paid in 1987, amounted to P971,292.49 as of March 1990.

In the alternative, the trial court ruled that even if Marcos had only one time deposit of P764,897.67 as claimed by the BANK, the time deposit would have still earned interest at the rate of 17% per annum. The time deposit ofP650,163 would have increased to P1,415,060 in 1987 after earning interest. Deducting the amount of the three trust receipts, Marcos’ time deposits still totalled P1,236,969.30 plus interest.

The dispositive portion of the decision of the trial court reads:

WHEREFORE, under the foregoing circumstances, judgment is hereby rendered in favor of Plaintiff, directing Defendant Bank as follows:

1) to return to Plaintiff his time deposit in the sum of P971,292.49 with interest thereon at the legal rate, until fully restituted;

2) to pay attorney’s fees of P200,000.00; [and]

3) [to pay the] cost of these proceedings.

IT IS SO ORDERED.16

The Ruling of the Court of Appeals

The Court of Appeals addressed the procedural and substantive issues that the BANK raised.

The appellate court ruled that the trial court committed a reversible error when it denied the BANK’s motion to cross-examine Marcos. The appellate court ruled that the right to cross-examine is a fundamental right that the BANK did not waive because the BANK vigorously asserted this right. The BANK’s failure to serve a notice of the motion to Marcos is not a valid ground to deny the motion to cross-examine. The appellate court held that the motion to

cross-examine is one of those non-litigated motions that do not require the movant to provide a notice of hearing to the other party.

The Court of Appeals pointed out that when the trial court lifted the order of default, it had the duty to afford the BANK its right to cross-examine Marcos. This duty assumed greater importance because the only evidence supporting the complaint is Marcos’ ex-parte testimony. The trial court should have tested the veracity of Marcos’ testimony through the distilling process of cross-examination. The Court of Appeals, however, believed that the case should not be remanded to the trial court because Marcos’ testimony on the time deposits is supported by evidence on record from which the appellate court could make an intelligent judgment.

On the second procedural issue, the Court of Appeals held that the trial court did not err when it declared that the BANK had waived its right to present its evidence and had submitted the case for decision. The appellate court agreed with the grounds relied upon by the trial court in its Order dated 7 September 1990.

The Court of Appeals, however, differed with the finding of the trial court as to the total amount of the time deposits. The appellate court ruled that the total amount of the time deposits of Marcos is only P764,897.67 and not P1,429,795.34 as found by the trial court. The certification letter issued by Pagsaligan showed that Marcos made a time deposit on 12 March 1982 for P764,897.67. The certification letter shows that the amount mentioned in the letter was the aggregate or total amount of the time deposits of Marcos as of that date. Therefore, theP764,897.67 already included the P664,897.67 time deposit made by Marcos on 11 March 1982.

The Court of Appeals further explained:

Besides, the Official Receipt (Exh. "B", p. 32, Records) dated March 11, 1982 covering the sum ofP664,987.67 time deposit did not provide for a maturity date implying clearly that the amount covered by said receipt forms part of the total sum shown in the letter-certification which contained a maturity date. Moreover, it taxes one’s credulity to believe that appellee would make a time deposit on March 12, 1982 in the sum of P 764,897.67   which except for the additional sum of P100,000.00 is practically identical (see underlined figures) to the sum of P 664,897.67   deposited the day before March 11, 1982.

Additionally, We agree with the contention of the appellant that the lower court wrongly appreciated the testimony of Mr. Pagsaligan. Our finding is strengthened when we consider the alleged application for loan by the appellee with the appellant in the sum of P500,000.00 dated October 24, 1983. (Exh. "J", p. 40, Records), wherein it was stated that the loan is for additional working capital versus the various time deposit amounting to   P 760,000.00 .17 (Emphasis supplied)

The Court of Appeals sustained the factual findings of the trial court in ruling that Promissory Note No. 20-979-83 is void. There is no evidence of a bank ledger or computation of interest of the loan. The appellate court blamed the BANK for failing to comply with the orders of the trial court to produce the documents on the loan. The BANK also made inconsistent statements. In its Answer to the Complaint, the BANK alleged that the loan was fully paid when it debited the time deposits of Marcos with the loan. However, in its discussion of the assigned errors, the BANK claimed that Marcos had yet to pay the loan.

The appellate court deleted the award of attorney’s fees. It noted that the trial court failed to justify the award of attorney’s fees in the text of its decision. The dispositive portion of the decision of the Court of Appeals reads:

WHEREFORE, premises considered, the appealed decision is SET ASIDE. A new judgment is hereby rendered ordering the appellant bank to return to the appellee his time deposit in the sum ofP764,897.67 with 17% interest within 90 days from March 11, 1982 in accordance with the letter-certification and with legal interest thereafter until fully paid. Costs against the appellant.

SO ORDERED.18 (Emphasis supplied)

The Issues

The BANK anchors this petition on the following issues:

1) WHETHER OR NOT THE PETITIONER [sic] ABLE TO PROVE THE PRIVATE RESPONDENT’S OUTSTANDING OBLIGATIONS SECURED BY THE ASSIGNMENT OF TIME DEPOSITS?

1.1) COROLLARILY, WHETHER OR NOT THE PROVISIONS OF SECTION 8 RULE 10 OF [sic] THEN REVISED RULES OF COURT BE APPLIED [sic] SO AS TO CREATE A JUDICIAL ADMISSION ON THE GENUINENESS AND DUE EXECUTION OF THE ACTIONABLE DOCUMENTS APPENDED TO THE PETITIONER’S ANSWER?

2) WHETHER OR NOT PETITIONER [sic] DEPRIVED OF DUE PROCESS WHEN THE LOWER COURT HAS [sic] DECLARED PETITIONER TO HAVE WAIVED PRESENTATION OF FURTHER EVIDENCE AND CONSIDERED THE CASE SUBMITTED FOR RESOLUTION?19

The Ruling of the Court

The petition is without merit.

Procedural Issues

There was no violation of the BANK’s right to procedural due process when the trial court denied the BANK’s motion to cross-examine Marcos. Prior to the denial of the motion, the trial court had properly declared the BANK in default. Since the BANK was in default, Marcos was able to present his evidence ex-parte including his own testimony. When the trial court lifted the order of default, the BANK was restored to its standing and rights in the action. However, as a rule, the proceedings already taken should not be disturbed.20 Nevertheless, it is within the trial court’s discretion to reopen the evidence submitted by the plaintiff and allow the defendant to challenge the same, by cross-examining the plaintiff’s witnesses or introducing countervailing evidence.21 The 1964 Rules of Court, the rules then in effect at the time of the hearing of this case, recognized the trial court’s exercise of this discretion. The 1997 Rules of Court retained this discretion.22 Section 3, Rule 18 of the 1964 Rules of Court reads:

Sec. 3. Relief from order of default. — A party declared in default may any time after discovery thereof and before judgment file a motion under oath to set aside the order of default upon proper showing that his failure to answer was due to fraud, accident, mistake or excusable neglect and that he has a meritorious defense. In such case the order of default may be set aside on such terms and conditions as the judge may impose in the interest of justice. (Emphasis supplied)

The records show that the BANK did not ask the trial court to restore its right to cross-examine Marcos when it sought the lifting of the default order on 9 January 1990. Thus, the order dated 7 February 1990 setting aside the order of default did not confer on the BANK the right to cross-examine Marcos. It was only on 2 March 1990 that the BANK filed the motion to cross-examine Marcos. During the 12 March 1990 hearing, the trial court denied the BANK’s oral manifestation to grant its motion to cross-examine Marcos because there was no proof of service on Marcos. The BANK’s counsel pleaded for reconsideration but the trial court denied the plea and ordered the BANK to present its evidence. Instead of presenting its evidence, the BANK moved for the resetting of the hearing and when the trial court denied the same, the BANK informed the trial court that it was elevating the denial to the "upper court."23

To repeat, the trial court had previously declared the BANK in default. The trial court therefore had the right to decide whether or not to disturb the testimony of Marcos that had already been terminated even before the trial court lifted the order of default.

We do not agree with the appellate court’s ruling that a motion to cross-examine is a non-litigated motion and that the trial court gravely abused its discretion when it denied the motion to cross-examine. A motion to cross-examine is adversarial. The adverse party in this case had the right to resist the motion to cross-examine because the movant had previously forfeited its right to cross-examine the witness. The purpose of a notice of a motion is to avoid surprises on the opposite party and to give him time to study and meet the arguments.24 In a motion to cross-examine, the adverse party has the right not only to prepare a meaningful opposition to the motion but also to be informed that his witness is being recalled for cross-examination. The proof of service was therefore indispensable and the trial court was correct in denying the oral manifestation to grant the motion for cross-examination.

We find no justifiable reason to relax the application of the rule on notice of motions25 to this case. The BANK could have easily re-filed the motion to cross-examine with the requisite notice to Marcos. It did not do so. The BANK did not make good its threat to elevate the denial to a higher court. The BANK waited until the trial court rendered a judgment on the merits before questioning the interlocutory order of denial.

While the right to cross-examine is a vital element of procedural due process, the right does not necessarily require an actual cross-examination, but merely an opportunity to exercise this right if desired by the party entitled to it.26 Clearly, the BANK’s failure to cross-examine is imputable to the BANK when it lost this right27 as it was in default and failed thereafter to exhaust the remedies to secure the exercise of this right at the earliest opportunity.

The two other procedural lapses that the BANK attributes to the appellate and trial courts deserve scant consideration.

The BANK raises for the very first time the issue of judicial admission on the part of Marcos. The BANK even has the audacity to fault the Court of Appeals for not ruling on this issue

when it never raised this matter before the appellate court or before the trial court. Obviously, this issue is only an afterthought. An issue raised for the first time on appeal and not raised timely in the proceedings in the lower court is barred by estoppel.28

The BANK cannot claim that Marcos had admitted the due execution of the documents attached to its answer because the BANK filed its answer late and even failed to serve it on Marcos. The BANK’s answer, including the actionable documents it pleaded and attached to its answer, was a mere scrap of paper. There was nothing that Marcos could specifically deny under oath. Marcos had already completed the presentation of his evidence when the trial court lifted the order of default and admitted the BANK’s answer. The provision of the Rules of Court governing admission of actionable documents was not enacted to reward a party in default. We will not allow a party to gain an advantage from its disregard of the rules.

As to the issue of its right to present additional evidence, we agree with the Court of Appeals that the trial court correctly ruled that the BANK had waived this right. The BANK cannot now claim that it was deprived of its right to conduct a re-direct examination of Pagsaligan. The BANK postponed the hearings three times29 because of its inability to secure Pagsaligan’s presence during the hearings. The BANK could have presented another witness or its other evidence but it obstinately insisted on the resetting of the hearing because of Pagsaligan’s absence allegedly due to illness.

The BANK’s propensity for postponements had long delayed the case. Its motion for postponement based on Pagsaligan’s illness was not even supported by documentary evidence such as a medical certificate. Documentary evidence of the illness is necessary before the trial court could rule that there is a sufficient basis to grant the postponement.30

The BANK’s Fiduciary Duty to its Depositor

The BANK is liable to Marcos for offsetting his time deposits with a fictitious promissory note. The existence of Promissory Note No. 20-979-83 could have been easily proven had the BANK presented the original copies of the promissory note and its supporting evidence. In lieu of the original copies, the BANK presented the "machine copies of the duplicate" of the documents. These substitute documents have no evidentiary value. The BANK’s failure to explain the absence of the original documents and to maintain a record of the offsetting of this loan with the time deposits bring to fore the BANK’s dismal failure to fulfill its fiduciary duty to Marcos.

Section 2 of Republic Act No. 8791 (General Banking Law of 2000) expressly imposes this fiduciary duty on banks when it declares that the State recognizes the "fiduciary nature of banking that requires high standards of integrity and performance." This statutory declaration merely echoes the earlier pronouncement of the Supreme Court inSimex International (Manila) Inc. v. Court of Appeals31 requiring banks to "treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship."32 The Court reiterated this fiduciary duty of banks in subsequent cases.33

Although RA No. 8791 took effect only in the year 2000,34 at the time that the BANK transacted with Marcos, jurisprudence had already imposed on banks the same high standard of diligence required under RA No. 8791.35This fiduciary relationship means that the bank’s obligation to observe "high standards of integrity and performance" is deemed written into every deposit agreement between a bank and its depositor.

The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family. Thus, the BANK’s fiduciary duty imposes upon it a higher level of accountability than that expected of Marcos, a businessman, who negligently signed blank forms and entrusted his certificates of time deposits to Pagsaligan without retaining copies of the certificates.

The business of banking is imbued with public interest. The stability of banks largely depends on the confidence of the people in the honesty and efficiency of banks. In Simex International (Manila) Inc. v. Court of Appeals36 we pointed out the depositor’s reasonable expectations from a bank and the bank’s corresponding duty to its depositor, as follows:

In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account consists only of a few hundred pesos or of millions. The bank must record every single transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if the account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit, confident that the bank will deliver it as and to whomever he directs.

As the BANK’s depositor, Marcos had the right to expect that the BANK was accurately recording his transactions with it. Upon the maturity of his time deposits, Marcos also had the right to withdraw the amount due him after the BANK had correctly debited his outstanding obligations from his time deposits.

By the very nature of its business, the BANK should have had in its possession the original copies of the disputed promissory note and the records and ledgers evidencing the offsetting of the loan with the time deposits of Marcos. The BANK inexplicably failed to produce the original copies of these documents. Clearly, the BANK failed to treat the account of Marcos with meticulous care.

The BANK claims that it is a reputable banking institution and that it has no reason to forge Promissory Note No. 20-979-83. The trial court and appellate court did not rule that it was the bank that forged the promissory note. It was Pagsaligan, the BANK’s branch manager and a close friend of Marcos, whom the trial court categorically blamed for the fictitious loan agreements. The trial court held that Pagsaligan made up the loan agreement to cover up his inability to account for the time deposits of Marcos.

Whether it was the BANK’s negligence and inefficiency or Pagsaligan’s misdeed that deprived Marcos of the amount due him will not excuse the BANK from its obligation to return to Marcos the correct amount of his time deposits with interest. The duty to observe "high standards of integrity and performance" imposes on the BANK that obligation. The BANK cannot also unjustly enrich itself by keeping Marcos’ money.

Assuming Pagsaligan was behind the spurious promissory note, the BANK would still be accountable to Marcos. We have held that a bank is liable for the wrongful acts of its officers done in the interest of the bank or in their dealings as bank representatives but not for acts outside the scope of their authority.37 Thus, we held:

A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by the frauds they may thus be enabled to perpetrate in the apparent scope of their employment; nor will it be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking corporation is liable to innocent third persons

where the representation is made in the course of its business by an agent acting within the general scope of his authority even though, in the particular case, the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his principal or some other person, for his own ultimate benefit.38

The Existence of Promissory Note No. 20-979-83 was not Proven

The BANK failed to produce the best evidence — the original copies of the loan application and promissory note. The Best Evidence Rule provides that the court shall not receive any evidence that is merely substitutionary in its nature, such as photocopies, as long as the original evidence can be had.39 Absent a clear showing that the original writing has been lost, destroyed or cannot be produced in court, the photocopy must be disregarded, being unworthy of any probative value and being an inadmissible piece of evidence.40

What the BANK presented were merely the "machine copies of the duplicate" of the loan application and promissory note. No explanation was ever offered by the BANK for its inability to produce the original copies of the documentary evidence. The BANK also did not comply with the orders of the trial court to submit the originals.

The purpose of the rule requiring the production of the best evidence is the prevention of fraud.41 If a party is in possession of evidence and withholds it, and seeks to substitute inferior evidence in its place, the presumption naturally arises that the better evidence is withheld for fraudulent purposes, which its production would expose and defeat.42

The absence of the original of the documentary evidence casts suspicion on the existence of Promissory Note No. 20-979-83 considering the BANK’s fiduciary duty to keep efficiently a record of its transactions with its depositors. Moreover, the circumstances enumerated by the trial court bolster the conclusion that Promissory Note No. 20-979-83 is bogus. The BANK has only itself to blame for the dearth of competent proof to establish the existence of Promissory Note No. 20-979-83.

Total Amount Due to Marcos

The BANK and Marcos do not now dispute the ruling of the Court of Appeals that the total amount of time deposits that Marcos placed with the BANK is only P764,897.67 and not P1,429,795.34 as found by the trial court. The BANK has always argued that Marcos’ time deposits only totalled P764,897.67.43 What the BANK insists on in this petition is the trial court’s violation of its right to procedural due process and the absence of any obligation to pay or return anything to Marcos. Marcos, on the other hand, merely prays for the affirmation of either the trial court or appellate court decision.44 We uphold the finding of the Court of Appeals as to the amount of the time deposits as such finding is in accord with the evidence on record.

Marcos claimed that the certificates of time deposit were with Pagsaligan for safekeeping. Marcos was only able to present the receipt dated 11 March 1982 and the letter-certification dated 12 March 1982 to prove the total amount of his time deposits with the BANK. The letter-certification issued by Pagsaligan reads:

March 12, 1982

Dear Mr. Marcos:

This is to certify that we are taking care in your behalf various Time Deposit Certificates with an aggregate value of PESOS: SEVEN HUNDRED SIXTY FOUR THOUSAND EIGHT HUNDRED NINETY SEVEN AND 67/100 (P764,897.67) ONLY, issued today for 90 days at 17% p.a. with the interest payable at maturity on June 10, 1982.

Thank you.

Sgd. FLORENCIO B. PAGSALIGANBranch Manager45

The foregoing certification is clear. The total amount of time deposits of Marcos as of 12 March 1982 isP764,897.67, inclusive of the sum of P664,987.67 that Marcos placed on time deposit on 11 March 1982. This is plainly seen from the use of the word "aggregate."

We are not swayed by Marcos’ testimony that the certification is actually for the first time deposit that he placed on 11 March 1982. The letter-certification speaks of "various Time Deposits Certificates with an ‘aggregate value’ ofP764,897.67." If the amount stated in the letter-certification is for a single time deposit only, and did not include the 11 March 1982 time deposit, then Marcos should have demanded a new letter of certification from Pagsaligan. Marcos is a businessman. While he already made an error in judgment in entrusting to Pagsaligan the certificates of time deposits, Marcos should have known the importance of making the letter-certification reflect the true nature of the transaction. Marcos is bound by the letter-certification since he was the one who prodded Pagsaligan to issue it.

We modify the amount that the Court of Appeals ordered the BANK to return to Marcos. The appellate court did not offset Marcos’ outstanding debt with the BANK covered by the three trust receipt agreements even though Marcos admits his obligation under the three trust receipt agreements. The total amount of the trust receipts isP851,250 less the 30% marginal deposit of P255,375 that Marcos had already paid the BANK. This reduced Marcos’ total debt with the BANK to P595,875 under the trust receipts.

The trial and appellate courts found that the parties did not agree on the imposition of interest on the loan covered by the trust receipts and thus no interest is due on this loan. However, the records show that the three trust receipt agreements contained stipulations for the payment of interest but the parties failed to fill up the blank spaces on the rate of interest. Put differently, the BANK and Marcos expressly agreed in writing on the payment of interest46without, however, specifying the rate of interest. We, therefore, impose the legal interest of 12% per annum, the legal interest for the forbearance of money,47 on each of the three trust receipts.

Based on Marcos’ testimony48 and the BANK’s letter of demand,49 the trust receipt agreements became due in March 1987. The records do not show exactly when in March 1987 the obligation became due. In accordance with Article 2212 of the Civil Code, in such a case the court shall fix the period of the duration of the obligation.50 The BANK’s letter of demand is dated 6 March 1989. We hold that the trust receipts became due on 6 March 1987.

Marcos’ payment of the marginal deposit of P255,375 for the trust receipts resulted in the proportionate reduction of the three trust receipts. The reduced value of the trust receipts and their respective interest as of 6 March 1987 are as follows:

1. Trust Receipt No. CD 83.7 issued on 8 March 1983 originally for P300,000 was reduced to P210,618.75 with interest of P101,027.76.51

2. Trust Receipt No. CD 83.9 issued on 15 March 1983 originally for P300,000 was reduced to P210,618.75 with interest of P100,543.04.52

3. Trust Receipt No. CD 83.10 issued on 15 March 1983 originally for P251,250 was reduced to P174,637.5 with interest of P83,366.68. 53

When the trust receipts became due on 6 March 1987, Marcos owed the BANK P880,812.48. This amount included P595,875, the principal value of the three trust receipts after payment of the marginal deposit, andP284,937.48, the interest then due on the three trust receipts.

Upon maturity of the three trust receipts, the BANK should have automatically deducted, by way of offsetting, Marcos’ outstanding debt to the BANK from his time deposits and its accumulated interest. Marcos’ time deposits of P764,897.67 had already earned interest54 of P616,318.92 as of 6 March 1987.55 Thus, Marcos’ total funds with the BANK amounted to P1,381,216.59 as of the maturity of the trust receipts. After deducting P880,812.48, the amount Marcos owed the BANK, from Marcos’ funds with the BANK of P1,381,216.59, Marcos’ remaining time deposits as of 6 March 1987 is only P500,404.11. The accumulated interest on this P500,404.11 as of 30 August 1989, the date of filing of Marcos’ complaint with the trial court, is P211,622.96.56 From 30 August 1989, the interest due on the accumulated interest of P211,622.96 should earn legal interest at 12% per annum pursuant to Article 221257 of the Civil Code.

The BANK’s dismal failure to account for Marcos’ money justifies the award of moral58 and exemplary damages.59Certainly, the BANK, as employer, is liable for the negligence or the misdeed of its branch manager which caused Marcos mental anguish and serious anxiety.60 Moral damages of P100,000 is reasonable and is in accord with our rulings in similar cases involving banks’ negligence with regard to the accounts of their depositors.61

We also award P20,000 to Marcos as exemplary damages. The law allows the grant of exemplary damages by way of example for the public good.62 The public relies on the banks’ fiduciary duty to observe the highest degree of diligence. The banking sector is expected to maintain at all times this high level of meticulousness.63

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION. Petitioner Philippine Banking Corporation is ordered to return to private respondent Leonilo Marcos P500,404.11, the remaining principal amount of his time deposits, with interest at 17% per annum from 30 August 1989 until full payment. Petitioner Philippine Banking Corporation is also ordered to pay to private respondent Leonilo MarcosP211,622.96, the accumulated interest as of 30 August 1989, plus 12% legal interest per annum from 30 August 1989 until full payment. Petitioner Philippine Banking Corporation is further ordered to pay P100,000 by way of moral damages and P20,000 as exemplary damages to private respondent Leonilo Marcos.

Costs against petitioner.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Panganiban, Ynares-Santiago, and Azcuna, JJ., concur.

Footnotes

G.R. No. 149454             May 28, 2004

BANK OF THE PHILIPPINE ISLANDS, petitioner, vs.CASA MONTESSORI INTERNATIONALE LEONARDO T. YABUT, respondents.

x ----------------------------- x

G.R. No. 149507             May 28, 2004

CASA MONTESSORI INTERNATIONALE, petitioner, vs.BANK OF THE PHILIPPINE ISLANDS, respondent.

D E C I S I O N

PANGANIBAN, J.:

By the nature of its functions, a bank is required to take meticulous care of the deposits of its clients, who have the right to expect high standards of integrity and performance from it.

Among its obligations in furtherance thereof is knowing the signatures of its clients. Depositors are not estopped from questioning wrongful withdrawals, even if they have failed to question those errors in the statements sent by the bank to them for verification.

The Case

Before us are two Petitions for Review1 under Rule 45 of the Rules of Court, assailing the March 23, 2001 Decision2 and the August 17, 2001 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 63561. The decretal portion of the assailed Decision reads as follows:

"WHEREFORE, upon the premises, the decision appealed from is AFFIRMED with the modification that defendant bank [Bank of the Philippine Islands (BPI)] is held liable only for one-half of the value of the forged checks in the amount of P547,115.00 after deductions subject to REIMBURSEMENT from third party defendant Yabut who is likewise ORDERED to pay the other half to plaintiff corporation [Casa Montessori Internationale (CASA)]."4

The assailed Resolution denied all the parties’ Motions for Reconsideration.

The Facts

The facts of the case are narrated by the CA as follows:

"On November 8, 1982, plaintiff CASA Montessori International5 opened Current Account No. 0291-0081-01 with defendant BPI[,] with CASA’s President Ms. Ma. Carina C. Lebron as one of its authorized signatories.

"In 1991, after conducting an investigation, plaintiff discovered that nine (9) of its checks had been encashed by a certain Sonny D. Santos since 1990 in the total amount of P782,000.00, on the following dates and amounts:

‘Check No. Date Amount

1. 839700 April 24, 1990 P 43,400.00

2. 839459 Nov. 2, 1990 110,500.00

3. 839609 Oct. 17, 1990 47,723.00

4. 839549 April 7, 1990 90,700.00

5. 839569 Sept. 23, 1990 52,277.00

6. 729149 Mar. 22, 1990 148,000.00

7. 729129 Mar. 16, 1990 51,015.00

8. 839684 Dec. 1, 1990 140,000.00

9. 729034 Mar. 2, 1990 98,985.00

Total -- P 782,600.006

"It turned out that ‘Sonny D. Santos’ with account at BPI’s Greenbelt Branch [was] a fictitious name used by third party defendant Leonardo T. Yabut who worked as external auditor of CASA. Third party defendant voluntarily admitted that he forged the signature of Ms. Lebron and encashed the checks. "The PNP Crime Laboratory conducted an examination of the nine (9) checks and concluded that the handwritings thereon compared to the standard signature of Ms. Lebron were not written by the latter.

"On March 4, 1991, plaintiff filed the herein Complaint for Collection with Damages against defendant bank praying that the latter be ordered to reinstate the amount of P782,500.007 in the current and savings accounts of the plaintiff with interest at 6% per annum.

"On February 16, 1999, the RTC rendered the appealed decision in favor of the plaintiff."8

Ruling of the Court of Appeals

Modifying the Decision of the Regional Trial Court (RTC), the CA apportioned the loss between BPI and CASA. The appellate court took into account CASA’s contributory negligence that resulted in the undetected forgery. It then ordered Leonardo T. Yabut to

reimburse BPI half the total amount claimed; and CASA, the other half. It also disallowed attorney’s fees and moral and exemplary damages.

Hence, these Petitions.9

Issues

In GR No. 149454, Petitioner BPI submits the following issues for our consideration:

"I. The Honorable Court of Appeals erred in deciding this case NOT in accord with the applicable decisions of this Honorable Court to the effect that forgery cannot be presumed; that it must be proved by clear, positive and convincing evidence; and that the burden of proof lies on the party alleging the forgery.

"II. The Honorable Court of Appeals erred in deciding this case not in accord with applicable laws, in particular the Negotiable Instruments Law (NIL) which precludes CASA, on account of its own negligence, from asserting its forgery claim against BPI, specially taking into account the absence of any negligence on the part of BPI."10

In GR No. 149507, Petitioner CASA submits the following issues:

"1. The Honorable Court of Appeals erred when it ruled that ‘there is no showing that [BPI], although negligent, acted in bad faith x x x’ thus denying the prayer for the award of attorney’s fees, moral damages and exemplary damages to [CASA]. The Honorable Court also erred when it did not order [BPI] to pay interest on the amounts due to [CASA].

"2. The Honorable Court of Appeals erred when it declared that [CASA] was likewise negligent in the case at bar, thus warranting its conclusion that the loss in the amount of P547,115.00 be ‘apportioned between [CASA] and [BPI] x x x.’"11

These issues can be narrowed down to three. First, was there forgery under the Negotiable Instruments Law (NIL)? Second, were any of the parties negligent and therefore precluded from setting up forgery as a defense?Third, should moral and exemplary damages, attorney’s fees, and interest be awarded?

The Court’s Ruling

The Petition in GR No. 149454 has no merit, while that in GR No. 149507 is partly meritorious.

First Issue:

Forged Signature Wholly Inoperative

Section 23 of the NIL provides:

"Section 23. Forged signature; effect of. -- When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right x x x to enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the party against whom it is

sought to enforce such right is precluded from setting up the forgery or want of authority."12

Under this provision, a forged signature is a real13 or absolute defense,14 and a person whose signature on a negotiable instrument is forged is deemed to have never become a party thereto and to have never consented to the contract that allegedly gave rise to it.15

The counterfeiting of any writing, consisting in the signing of another’s name with intent to defraud, is forgery.16

In the present case, we hold that there was forgery of the drawer’s signature on the check.

First, both the CA17 and the RTC18 found that Respondent Yabut himself had voluntarily admitted, through an Affidavit, that he had forged the drawer’s signature and encashed the checks.19 He never refuted these findings.20 That he had been coerced into admission was not corroborated by any evidence on record.21

Second, the appellate and the trial courts also ruled that the PNP Crime Laboratory, after its examination of the said checks,22 had concluded that the handwritings thereon -- compared to the standard signature of the drawer -- were not hers.23 This conclusion was the same as that in the Report24 that the PNP Crime Laboratory had earlier issued to BPI -- the drawee bank -- upon the latter’s request.

Indeed, we respect and affirm the RTC’s factual findings, especially when affirmed by the CA, since these are supported by substantial evidence on record.25

Voluntary Admission Not Violative of Constitutional Rights

The voluntary admission of Yabut did not violate his constitutional rights (1) on custodial investigation, and (2) against self-incrimination.

In the first place, he was not under custodial investigation.26 His Affidavit was executed in private and before private individuals.27 The mantle of protection under Section 12 of Article III of the 1987 Constitution28 covers only the period "from the time a person is taken into custody for investigation of his possible participation in the commission of a crime or from the time he is singled out as a suspect in the commission of a crime although not yet in custody."29

Therefore, to fall within the ambit of Section 12, quoted above, there must be an arrest or a deprivation of freedom, with "questions propounded on him by the police authorities for the purpose of eliciting admissions, confessions, or any information."30 The said constitutional provision does "not apply to spontaneous statements made in a voluntary manner"31 whereby an individual orally admits to authorship of a crime.32 "What the Constitution proscribes is the compulsory or coercive disclosure of incriminating facts."33

Moreover, the right against self-incrimination34 under Section 17 of Article III35 of the Constitution, which is ordinarily available only in criminal prosecutions, extends to all other government proceedings -- including civil actions, legislative investigations,36 and administrative proceedings that possess a criminal or penal aspect37 -- but not to private investigations done by private individuals. Even in such government proceedings, this right

may be waived,38 provided the waiver is certain; unequivocal; and intelligently, understandingly and willingly made.39

If in these government proceedings waiver is allowed, all the more is it so in private investigations. It is of no moment that no criminal case has yet been filed against Yabut. The filing thereof is entirely up to the appropriate authorities or to the private individuals upon whom damage has been caused. As we shall also explain later, it is not mandatory for CASA -- the plaintiff below -- to implead Yabut in the civil case before the lower court.

Under these two constitutional provisions, "[t]he Bill of Rights40 does not concern itself with the relation between a private individual and another individual. It governs the relationship between the individual and the State."41Moreover, the Bill of Rights "is a charter of liberties for the individual and a limitation upon the power of the [S]tate."42 These rights43 are guaranteed to preclude the slightest coercion by the State that may lead the accused "to admit something false, not prevent him from freely and voluntarily telling the truth."44

Yabut is not an accused here. Besides, his mere invocation of the aforesaid rights "does not automatically entitle him to the constitutional protection."45 When he freely and voluntarily executed46 his Affidavit, the State was not even involved. Such Affidavit may therefore be admitted without violating his constitutional rights while under custodial investigation and against self-incrimination.

Clear, Positive and Convincing Examination and Evidence

The examination by the PNP, though inconclusive, was nevertheless clear, positive and convincing.

Forgery "cannot be presumed."47 It must be established by clear, positive and convincing evidence.48 Under the best evidence rule as applied to documentary evidence like the checks in question, no secondary or substitutionary evidence may inceptively be introduced, as the original writing itself must be produced in court.49But when, without bad faith on the part of the offeror, the original checks have already been destroyed or cannot be produced in court, secondary evidence may be produced.50 Without bad faith on its part, CASA proved the loss or destruction of the original checks through the Affidavit of the one person who knew of that fact51 -- Yabut. He clearly admitted to discarding the paid checks to cover up his misdeed.52 In such a situation, secondary evidence like microfilm copies may be introduced in court.

The drawer’s signatures on the microfilm copies were compared with the standard signature. PNP Document Examiner II Josefina de la Cruz testified on cross-examination that two different persons had written them.53Although no conclusive report could be issued in the absence of the original checks,54 she affirmed that her findings were 90 percent conclusive.55 According to her, even if the microfilm copies were the only basis of comparison, the differences were evident.56 Besides, the RTC explained that although the Report was inconclusive, no conclusive report could have been given by the PNP, anyway, in the absence of the original checks.57 This explanation is valid; otherwise, no such report can ever be relied upon in court.

Even with respect to documentary evidence, the best evidence rule applies only when the contents of a document -- such as the drawer’s signature on a check -- is the subject of inquiry.58 As to whether the document has been actually executed, this rule does not apply; and testimonial as well as any other secondary evidence is admissible.59 Carina Lebron herself, the drawer’s authorized signatory, testified many times that she had never signed

those checks. Her testimonial evidence is admissible; the checks have not been actually executed. The genuineness of her handwriting is proved, not only through the court’s comparison of the questioned handwritings and admittedly genuine specimens thereof,60 but above all by her.

The failure of CASA to produce the original checks neither gives rise to the presumption of suppression of evidence61 nor creates an unfavorable inference against it.62 Such failure merely authorizes the introduction of secondary evidence63 in the form of microfilm copies. Of no consequence is the fact that CASA did not present the signature card containing the signatures with which those on the checks were compared.64 Specimens of standard signatures are not limited to such a card. Considering that it was not produced in evidence, other documents that bear the drawer’s authentic signature may be resorted to.65 Besides, that card was in the possession of BPI -- the adverse party.

We have held that without the original document containing the allegedly forged signature, one cannot make a definitive comparison that would establish forgery;66 and that a comparison based on a mere reproduction of the document under controversy cannot produce reliable results.67 We have also said, however, that a judge cannot merely rely on a handwriting expert’s testimony,68 but should also exercise independent judgment in evaluating the authenticity of a signature under scrutiny.69 In the present case, both the RTC and the CA conducted independent examinations of the evidence presented and arrived at reasonable and similar conclusions. Not only did they admit secondary evidence; they also appositely considered testimonial and other documentary evidence in the form of the Affidavit.

The best evidence rule admits of exceptions and, as we have discussed earlier, the first of these has been met.70The result of examining a questioned handwriting, even with the aid of experts and scientific instruments, may be inconclusive;71 but it is a non sequitur to say that such result is not clear, positive and convincing. The preponderance of evidence required in this case has been satisfied.72

Second Issue:

Negligence Attributable to BPI Alone

Having established the forgery of the drawer’s signature, BPI -- the drawee -- erred in making payments by virtue thereof. The forged signatures are wholly inoperative, and CASA -- the drawer whose authorized signatures do not appear on the negotiable instruments -- cannot be held liable thereon. Neither is the latter precluded from setting up forgery as a real defense.

Clear Negligence in Allowing Payment Under a Forged Signature

We have repeatedly emphasized that, since the banking business is impressed with public interest, of paramount importance thereto is the trust and confidence of the public in general. Consequently, the highest degree of diligence73 is expected,74 and high standards of integrity and performance are even required, of it.75 By the nature of its functions, a bank is "under obligation to treat the accounts of its depositors with meticulous care,76always having in mind the fiduciary nature of their relationship."77

BPI contends that it has a signature verification procedure, in which checks are honored only when the signatures therein are verified to be the same with or similar to the specimen

signatures on the signature cards. Nonetheless, it still failed to detect the eight instances of forgery. Its negligence consisted in the omission of that degree of diligence required78 of a bank. It cannot now feign ignorance, for very early on we have already ruled that a bank is "bound to know the signatures of its customers; and if it pays a forged check, it must be considered as making the payment out of its own funds, and cannot ordinarily charge the amount so paid to the account of the depositor whose name was forged."79 In fact, BPI was the same bank involved when we issued this ruling seventy years ago.

Neither Waiver nor Estoppel Results from Failure to Report Error in Bank Statement

The monthly statements issued by BPI to its clients contain a notice worded as follows: "If no error is reported in ten (10) days, account will be correct."80 Such notice cannot be considered a waiver, even if CASA failed to report the error. Neither is it estopped from questioning the mistake after the lapse of the ten-day period.

This notice is a simple confirmation81 or "circularization" -- in accounting parlance -- that requests client-depositors to affirm the accuracy of items recorded by the banks.82 Its purpose is to obtain from the depositors a direct corroboration of the correctness of their account balances with their respective banks.83 Internal or external auditors of a bank use it as a basic audit procedure84 -- the results of which its client-depositors are neither interested in nor privy to -- to test the details of transactions and balances in the bank’s records.85 Evidential matter obtained from independent sources outside a bank only serves to provide greater assurance of reliability86than that obtained solely within it for purposes of an audit of its own financial statements, not those of its client-depositors.

Furthermore, there is always the audit risk that errors would not be detected87 for various reasons. One,materiality is a consideration in audit planning;88 and two, the information obtained from such a substantive test is merely presumptive and cannot be the basis of a valid waiver.89 BPI has no right to impose a condition unilaterally and thereafter consider failure to meet such condition a waiver. Neither may CASA renounce a right90 it has never possessed.91

Every right has subjects -- active and passive. While the active subject is entitled to demand its enforcement, the passive one is duty-bound to suffer such enforcement.92

On the one hand, BPI could not have been an active subject, because it could not have demanded from CASA a response to its notice. Besides, the notice was a measly request worded as follows: "Please examine x x x and report x x x."93 CASA, on the other hand, could not have been a passive subject, either, because it had no obligation to respond. It could -- as it did -- choose not to respond.

Estoppel precludes individuals from denying or asserting, by their own deed or representation, anything contrary to that established as the truth, in legal contemplation.94 Our rules on evidence even make a juris et de jurepresumption95 that whenever one has, by one’s own act or omission, intentionally and deliberately led another to believe a particular thing to be true and to act upon that belief, one cannot -- in any litigation arising from such act or omission -- be permitted to falsify that supposed truth.96

In the instant case, CASA never made any deed or representation that misled BPI. The former’s omission, if any, may only be deemed an innocent mistake oblivious to the procedures and consequences of periodic audits. Since its conduct was due to such ignorance founded upon an innocent mistake, estoppel will not arise.97 A person who has no

knowledge of or consent to a transaction may not be estopped by it.98 "Estoppel cannot be sustained by mere argument or doubtful inference x x x."99 CASA is not barred from questioning BPI’s error even after the lapse of the period given in the notice.

Loss Borne by Proximate Source of Negligence

For allowing payment100 on the checks to a wrongful and fictitious payee, BPI -- the drawee bank -- becomes liable to its depositor-drawer. Since the encashing bank is one of its branches,101 BPI can easily go after it and hold it liable for reimbursement.102 It "may not debit the drawer’s account103 and is not entitled to indemnification from the drawer."104 In both law and equity, when one of two innocent persons "must suffer by the wrongful act of a third person, the loss must be borne by the one whose negligence was the proximate cause of the loss or who put it into the power of the third person to perpetrate the wrong."105

Proximate cause is determined by the facts of the case.106 "It is that cause which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred."107

Pursuant to its prime duty to ascertain well the genuineness of the signatures of its client-depositors on checks being encashed, BPI is "expected to use reasonable business prudence."108 In the performance of that obligation, it is bound by its internal banking rules and regulations that form part of the contract it enters into with its depositors.109

Unfortunately, it failed in that regard. First, Yabut was able to open a bank account in one of its branches without privity;110 that is, without the proper verification of his corresponding identification papers. Second, BPI was unable to discover early on not only this irregularity, but also the marked differences in the signatures on the checks and those on the signature card. Third, despite the examination procedures it conducted, the Central Verification Unit111 of the bank even passed off these evidently different signatures as genuine. Without exercising the required prudence on its part, BPI accepted and encashed the eight checks presented to it. As a result, it proximately contributed to the fraud and should be held primarily liable112 for the "negligence of its officers or agents when acting within the course and scope of their employment."113 It must bear the loss.

CASA Not Negligent in Its Financial Affairs

In this jurisdiction, the negligence of the party invoking forgery is recognized as an exception114 to the general rule that a forged signature is wholly inoperative.115 Contrary to BPI’s claim, however, we do not find CASA negligent in handling its financial affairs. CASA, we stress, is not precluded from setting up forgery as a real defense.

Role of Independent Auditor

The major purpose of an independent audit is to investigate and determine objectively if the financial statements submitted for audit by a corporation have been prepared in accordance with the appropriate financial reporting practices116 of private entities. The relationship that arises therefrom is both legal and moral.117 It begins with the execution of the engagement letter118 that embodies the terms and conditions of the audit and ends with the fulfilled expectation of the auditor’s ethical119 and competent performance in all aspects of the audit.120

The financial statements are representations of the client; but it is the auditor who has the responsibility for the accuracy in the recording of data that underlies their preparation, their form of presentation, and the opinion121expressed therein.122 The auditor does not assume the role of employee or of management in the client’s conduct of operations123 and is never under the control or supervision124 of the client.

Yabut was an independent auditor125 hired by CASA. He handled its monthly bank reconciliations and had access to all relevant documents and checkbooks.126 In him was reposed the client’s127 trust and confidence128 that he would perform precisely those functions and apply the appropriate procedures in accordance with generally accepted auditing standards.129 Yet he did not meet these expectations. Nothing could be more horrible to a client than to discover later on that the person tasked to detect fraud was the same one who perpetrated it.

Cash Balances Open to Manipulation

It is a non sequitur to say that the person who receives the monthly bank statements, together with the cancelled checks and other debit/credit memoranda, shall examine the contents and give notice of any discrepancies within a reasonable time. Awareness is not equipollent with discernment.

Besides, in the internal accounting control system prudently installed by CASA,130 it was Yabut who should examine those documents in order to prepare the bank reconciliations.131 He owned his working papers,132 and his output consisted of his opinion as well as the client’s financial statements and accompanying notes thereto. CASA had every right to rely solely upon his output -- based on the terms of the audit engagement -- and could thus be unwittingly duped into believing that everything was in order. Besides, "[g]ood faith is always presumed and it is the burden of the party claiming otherwise to adduce clear and convincing evidence to the contrary."133

Moreover, there was a time gap between the period covered by the bank statement and the date of its actual receipt. Lebron personally received the December 1990 bank statement only in January 1991134 -- when she was also informed of the forgery for the first time, after which she immediately requested a "stop payment order." She cannot be faulted for the late detection of the forged December check. After all, the bank account with BPI was not personal but corporate, and she could not be expected to monitor closely all its finances. A preschool teacher charged with molding the minds of the youth cannot be burdened with the intricacies or complexities of corporate existence.

There is also a cutoff period such that checks issued during a given month, but not presented for payment within that period, will not be reflected therein.135 An experienced auditor with intent to defraud can easily conceal any devious scheme from a client unwary of the accounting processes involved by manipulating the cash balances on record -- especially when bank transactions are numerous, large and frequent. CASA could only be blamed, if at all, for its unintelligent choice in the selection and appointment of an auditor -- a fault that is not tantamount to negligence.

Negligence is not presumed, but proven by whoever alleges it.136 Its mere existence "is not sufficient without proof that it, and no other cause,"137 has given rise to damages.138 In addition, this fault is common to, if not prevalent among, small and medium-sized business entities, thus leading the Professional Regulation Commission (PRC), through the Board of Accountancy (BOA), to require today not only accreditation for the practice of public

accountancy,139 but also the registration of firms in the practice thereof. In fact, among the attachments now required upon registration are the code of good governance140 and a sworn statement on adequate and effective training.141

The missing checks were certainly reported by the bookkeeper142 to the accountant143 -- her immediate supervisor -- and by the latter to the auditor. However, both the accountant and the auditor, for reasons known only to them, assured the bookkeeper that there were no irregularities.

The bookkeeper144 who had exclusive custody of the checkbooks145 did not have to go directly to CASA’s president or to BPI. Although she rightfully reported the matter, neither an investigation was conducted nor a resolution of it was arrived at, precisely because the person at the top of the helm was the culprit. The vouchers, invoices and check stubs in support of all check disbursements could be concealed or fabricated -- even in collusion -- and management would still have no way to verify its cash accountabilities.

Clearly then, Yabut was able to perpetrate the wrongful act through no fault of CASA. If auditors may be held liable for breach of contract and negligence,146 with all the more reason may they be charged with the perpetration of fraud upon an unsuspecting client. CASA had the discretion to pursue BPI alone under the NIL, by reason of expediency or munificence or both. Money paid under a mistake may rightfully be recovered,147 and under such terms as the injured party may choose.

Third Issue:

Award of Monetary Claims

Moral Damages Denied

We deny CASA’s claim for moral damages.

In the absence of a wrongful act or omission,148 or of fraud or bad faith,149 moral damages cannot be awarded.150 The adverse result of an action does not per se make the action wrongful, or the party liable for it. One may err, but error alone is not a ground for granting such damages.151 While no proof of pecuniary loss is necessary therefor -- with the amount to be awarded left to the court’s discretion152 -- the claimant must nonetheless satisfactorily prove the existence of its factual basis153 and causal relation154 to the claimant’s act or omission.155

Regrettably, in this case CASA was unable to identify the particular instance -- enumerated in the Civil Code -- upon which its claim for moral damages is predicated.156 Neither bad faith nor negligence so gross that it amounts to malice157 can be imputed to BPI. Bad faith, under the law, "does not simply connote bad judgment or negligence;158 it imports a dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach of a known duty through some motive or interest or ill will that partakes of the nature of fraud."159

As a general rule, a corporation -- being an artificial person without feelings, emotions and senses, and having existence only in legal contemplation -- is not entitled to moral damages,160 because it cannot experience physical suffering and mental anguish.161 However, for breach of the fiduciary duty required of a bank, a corporate client may claim such damages when its good reputation is besmirched by such breach, and social humiliation

results therefrom.162 CASA was unable to prove that BPI had debased the good reputation of,163 and consequently caused incalculable embarrassment to, the former. CASA’s mere allegation or supposition thereof, without any sufficient evidence on record,164 is not enough.

Exemplary Damages Also Denied

We also deny CASA’s claim for exemplary damages.

Imposed by way of correction165 for the public good,166 exemplary damages cannot be recovered as a matter of right.167 As we have said earlier, there is no bad faith on the part of BPI for paying the checks of CASA upon forged signatures. Therefore, the former cannot be said to have acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.168 The latter, having no right to moral damages, cannot demand exemplary damages.169

Attorney’s Fees Granted

Although it is a sound policy not to set a premium on the right to litigate,170 we find that CASA is entitled to reasonable attorney’s fees based on "factual, legal, and equitable justification."171

When the act or omission of the defendant has compelled the plaintiff to incur expenses to protect the latter’s interest,172 or where the court deems it just and equitable,173 attorney’s fees may be recovered. In the present case, BPI persistently denied the claim of CASA under the NIL to recredit the latter’s account for the value of the forged checks. This denial constrained CASA to incur expenses and exert effort for more than ten years in order to protect its corporate interest in its bank account. Besides, we have already cautioned BPI on a similar act of negligence it had committed seventy years ago, but it has remained unrelenting. Therefore, the Court deems it just and equitable to grant ten percent (10%)174 of the total value adjudged to CASA as attorney’s fees.

Interest Allowed

For the failure of BPI to pay CASA upon demand and for compelling the latter to resort to the courts to obtain payment, legal interest may be adjudicated at the discretion of the Court, the same to run from the filing175 of the Complaint.176 Since a court judgment is not a loan or a forbearance of recovery, the legal interest shall be at six percent (6%) per annum.177 "If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of x x x legal interest, which is six percent per annum."178 The actual base for its computation shall be "on the amount finally adjudged,"179 compounded180 annually to make up for the cost of money181 already lost to CASA.

Moreover, the failure of the CA to award interest does not prevent us from granting it upon damages awarded for breach of contract.182 Because BPI evidently breached its contract of deposit with CASA, we award interest in addition to the total amount adjudged. Under Section 196 of the NIL, any case not provided for shall be "governed by the provisions of existing legislation or, in default thereof, by the rules of the law merchant."183 Damages are not provided for in the NIL. Thus, we resort to the Code of Commerce and the Civil Code. Under Article 2 of the Code of Commerce, acts of commerce shall be governed by its provisions and, "in their absence, by the usages of commerce generally observed in each place; and in the absence of both rules, by those of the civil law."184 This law being silent, we

look at Article 18 of the Civil Code, which states: "In matters which are governed by the Code of Commerce and special laws, their deficiency shall be supplied" by its provisions. A perusal of these three statutes unmistakably shows that the award of interest under our civil law is justified.

WHEREFORE, the Petition in GR No. 149454 is hereby DENIED, and that in GR No. 149507 PARTLY GRANTED. The assailed Decision of the Court of Appeals is AFFIRMED with modification: BPI is held liable for P547,115, the total value of the forged checks less the amount already recovered by CASA from Leonardo T. Yabut, plus interest at the legal rate of six percent (6%) per annum -- compounded annually, from the filing of the complaint until paid in full; and attorney’s fees of ten percent (10%) thereof, subject to reimbursement from Respondent Yabut for the entire amount, excepting attorney’s fees. Let a copy of this Decision be furnished the Board of Accountancy of the Professional Regulation Commission for such action as it may deem appropriate against Respondent Yabut. No costs.

SO ORDERED.

Davide, Jr.*, Ynares-Santiago**, Carpio, and Azcuna, JJ., concur.

Footnotes

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

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

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

 

CONCEPCION, C.J.:

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

NAME POSITION

Rosendo T. Resuello President & Chairman of the Board

Pablo Tanjutco Director

Arturo Soriano Director

Ruben Beltran Director

Bienvenido V. Zapa Director & Vice-President

Pilar G. Resuello Director & Secretary-Treasurer

Ricardo D. Balatbat Director & Auditor

Jose R. Sebastian Director & Legal Counsel

Vito Tanjutco Jr. Director & Personnel Manager

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

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

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

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

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

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

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

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

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

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

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

13. Premises considered, the examination disclosed that the Security Credit and Acceptance Corporation isregularly lending funds obtained from the receipt of deposits and/or the sale of securities. The Corporation therefore is performing

'banking functions' as contemplated in Republic Act No. 337, without having first complied with the provisions of said Act.

Recommendations:

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

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

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

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

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

In their answer, defendants admitted practically all of the allegations of fact made in the petition. They, however, denied that defendants Tanjutco (Pablo and Vito, Jr.), Soriano, Beltran, Zapa, Balatbat and Sebastian, are directors of the corporation, as well as the validity

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

In its reply, plaintiff alleged that a photostat copy, attached to said pleading, of the anniversary publication of defendant corporation showed that defendants Pablo Tanjutco, Arturo Soriano, Ruben Beltran, Bienvenido V. Zapa, Ricardo D. Balatbat, Jose R. Sebastian and Vito Tanjutco Jr. are officers and/or directors thereof; that this is confirmed by the minutes of a meeting of stockholders of the corporation, held on September 27, 1962, showing that said defendants had been elected officers thereof; that the views of the legal counsel of the Central Bank, of the Securities and Exchange Commission, the Intelligence Division, the Superintendent of Banks and the Monetary Board above referred to have been expressed in the lawful performance of their respective duties and have not been assailed or impugned in accordance with law; that neither has the validity of Search Warrant No. A-1019 been contested as provided by law; that the only assets of the corporation now consist of accounts receivable amounting approximately to P500,000, and its office equipment and appliances, despite its increased capitalization of P3,000,000 and its deposits amounting to not less than P1,689,136.74; and that the aforementioned petition of the corporation, in Civil

Case No. 52342 of the Court of First Instance of Manila, for a declaratory relief is now highly improper, the defendants having already committed infractions and violations of the law justifying the dissolution of the corporation.

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

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

Moreover, it has been held that:

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

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

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

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

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

For this reason, and because public interest demands an early disposition of the case, we have deemed it best to determine the merits thereof.

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

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

Footnotes

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

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

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

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

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

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

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

2Empowering said Board, inter alia:

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

"d) To lend or borrow money for the corporation with or without security and for such purpose to accept or create, make and issue mortgages, bonds,

deeds of trust and negotiable instruments or securities, secured by mortgage or pledge of property belonging to the corporation; provided, that as hereinafter provided, the proper officers of the corporation shall have these powers, unless expressly limited by the Board of Directors: ... (Emphasis supplied).

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

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

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

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

G.R. No. 128703. October 18, 2000]

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

D E C I S I O N

BELLOSILLO, J.:

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

On 20 March 1981 Asia Pacific Finance Corporation (ASIA PACIFIC for short) filed a complaint for a sum of money with prayer for a writ of replevin against Teodoro Bañas, C. G. Dizon Construction and Cenen Dizon. Sometime in August 1980 Teodoro Bañas executed a Promissory Note in favor of C. G. Dizon Construction whereby for value received he promised to pay to the order of C. G. Dizon Construction the sum ofP390,000.00 in installments of "P32,500.00 every 25th day of the month starting from September 25, 1980 up to August 25, 1981."[3]

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

In compliance with the provisions of the Promissory Note, C. G. Dizon Construction made the following installment payments to ASIA PACIFIC: P32,500.00 on 25 September 1980, P32,500.00 on 27 October 1980 and P65,000.00 on 27 February 1981, or a total ofP130,000.00. Thereafter, however, C. G. Dizon Construction defaulted in the payment of the remaining installments, prompting ASIA PACIFIC to send a Statement of Account to Cenen Dizon for the unpaid balance of P267,737.50 inclusive of interests and charges, and P66,909.38 representing attorney's fees. As the demand was unheeded, ASIA PACIFIC sued Teodoro Bañas, C. G. Dizon Construction and Cenen Dizon.

While defendants (herein petitioners) admitted the genuineness and due execution of the Promissory Note, the Deed of Chattel Mortgageand

the Continuing Undertaking, they nevertheless maintained that these documents were never intended by the parties to be legal, valid and binding but a mere subterfuge to conceal the loan of P390,000.00 with usurious interests.

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

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

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

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

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

of the Philippines was substituted as a party in lieu of International Corporate Bank.[6]

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

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

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

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

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

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

We reject the argument. An investment company refers to any issuer which is or holds itself out as being engaged or proposes to engage primarily in the business of investing, reinvesting or trading in securities.[8] As defined in Sec. 2, par. (a), of the Revised Securities Act,[9]securities "shall include x x x x commercial papers evidencing indebtedness of any person, financial or non-financial entity, irrespective of maturity, issued, endorsed, sold, transferred or in any manner conveyed to another with or without recourse, such as promissory

notes x x x x" Clearly, the transaction between petitioners and respondent was one involving not a loan but purchase of receivables at a discount, well within the purview of "investing, reinvesting or trading in securities" which an investment company, like ASIA PACIFIC, is authorized to perform and does not constitute a violation of the General Banking Act.[10] Moreover, Sec. 2 of the General Banking Act provides in part -

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

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

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

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

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

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

If any amount due on this note is not paid at its maturity and this note is placed in the hands of an attorney for collection, I/We agree to pay in addition to the aggregate of the principal amount and interest due, a sum equivalent to TEN

PERCENT (10%) thereof as Attorney's fees, in case no action is filed, otherwise, the sum will be equivalent to TWENTY FIVE (25%) of the said principal amount and interest due x x x x

Makati, Metro Manila, August 25, 1980.

(Sgd) Teodoro Bañas

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

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

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

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

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

Petitioners contend that the parties already had a verbal understanding wherein ASIA PACIFIC actually agreed to consider petitioners' account closed

and the principal obligation fully paid in exchange for the ownership of the two (2) bulldozer crawler tractors.

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

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

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

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

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

In other words, there was no binding and perfected contract between petitioners and respondent regarding the settlement of the obligation, but only a conditional one, a mere conjecture in fact, depending on whether the value of the tractors to be surrendered would equal the balance of the loan plus interests. And since the bulldozer crawler tractors were sold at the foreclosure sale for only P180,000.00,[14] which was not enough to cover the unpaid balance of P267,637.50, petitioners are still liable for the deficiency.

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

With regard to the computation of petitioners' liability, the records show that petitioners actually paid to respondent a total sum ofP130,000.00 in addition to the P180,000.00 proceeds realized from the sale of the bulldozer crawler tractors at public auction. Deducting these amounts from the principal obligation of P390,000.00 leaves a balance of P80,000.00, to which must be added P7,637.50 accrued interests and charges as of 20 March 1981, or a total unpaid balance of P87,637.50 for which petitioners are jointly and severally liable. Furthermore, the unpaid balance should earn 14% interest per annum as stipulated in the Promissory Note, computed from 20 March 1981 until fully paid.

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

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

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

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

SO ORDERED.

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

G.R. No. 95326 March 11, 1999

ROMEO P. BUSUEGO, CATALINO F. BANEZ and RENATO F. LIM, petitioners, vs.

THE HONORABLE COURT OF APPEALS and THE MONETARY BOARD OF THE CENTRAL BANK OF THE PHILIPPINES, respondents.

 

PURISIMA, J.:

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

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

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

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

2. Conflict of interest in the conduct of business.

3. Unwarranted declaration and payment of dividends.

4. Commission of unsound and unsafe business practices.

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

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

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

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

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

2. To require the board of directors of PESALA to immediately inform the members of PESALA of the results of the "Central

Bank examination. and their effects on the financial condition of the Association;

xxx xxx xxx

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

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

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

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

xxx xxx xxx

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

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

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

On September 11, 1999, the trial court handed down its Decision, 8 disposing thus:

WHEREFORE, judgment is hereby rendered declaring Monetary Board Resolution No. 805 as void and in existent. The writ of preliminary prohibitory injunctions issued on

February 10, 1989 is deemed permanent. Costs against respondent.

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

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

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

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

The petition poses as issues for resolution:

I

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

II

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

III

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

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

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

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

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

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

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

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

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

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

2. The tribunal must consider the evidence presented;

3. The decision must have something to support itself;

4. The evidence must be substantial;

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

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

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

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

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

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

Even Section 28, (c) and (d), of Republic Act No. 3779 ("RA 1779") delineating the powers of the Monetary Board over savings and loan associations, require observance of due process in the exercise of its powers:

xxx xxx xxx

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

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

xxx xxx xxx

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

xxx xxx xxx (emphasis supplied)

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

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

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

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

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

Petitioners' contentions are untenable. It must be remembered that the Central Bank of the Philippines (now Bangko Sentral ng Pilipinas), through the Monetary Board, is the government agency charged with the responsibility of administering the monetary, banking and credit system of the country 19 and is granted the power of supervision and examination

over banks and non-bank financial institutions performing quasi-banking functions of which savings and loan associations, such as PESALA, from part of. 20

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

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

xxx xxx xxx

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

xxx xxx xxx

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

violation or acts contrary to the interest of the government, depositors or creditors;

xxx xxx xxx

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

xxx xxx xxx

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

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

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

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

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

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

WHEREFORE, the petition is DENIED, and the assailed Decision dated September 14, 1996 of the AFFIRMED. No pronouncement as to costs.

SO ORDERED.

Romero, Vitug, Panganiban and Gonzaga-Reyes, JJ., concur.

Footnotes

G.R. No. 90027 March 3, 1993

CA AGRO-INDUSTRIAL DEVELOPMENT CORP., petitioner, vs.THE HONORABLE COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.

Dolorfino & Dominguez Law Offices for petitioner.

Danilo B. Banares for private respondent.

 

DAVIDE, JR., J.:

Is the contractual relation between a commercial bank and another party in a contract of rent of a safety deposit box with respect to its contents placed by the latter one of bailor and bailee or one of lessor and lessee?

This is the crux of the present controversy.

On 3 July 1979, petitioner (through its President, Sergio Aguirre) and the spouses Ramon and Paula Pugao entered into an agreement whereby the former purchased from the latter two (2) parcels of land for a consideration of P350,625.00. Of this amount, P75,725.00 was paid as downpayment while the balance was covered by three (3) postdated checks. Among the terms and conditions of the agreement embodied in a Memorandum of True and Actual Agreement of Sale of Land were that the titles to the lots shall be transferred to the petitioner upon full payment of the purchase price and that the owner's copies of the certificates of titles thereto, Transfer Certificates of Title (TCT) Nos. 284655 and 292434, shall be deposited in a safety deposit box of any bank. The same could be withdrawn only upon the joint signatures of a representative of the petitioner and the Pugaos upon full payment of the purchase price. Petitioner, through Sergio Aguirre, and the Pugaos then rented Safety Deposit Box No. 1448 of private respondent Security Bank and Trust Company, a domestic banking corporation hereinafter referred to as the respondent Bank. For this purpose, both signed a contract of lease (Exhibit "2") which contains, inter alia, the following conditions:

13. The bank is not a depositary of the contents of the safe and it has neither the possession nor control of the same.

14. The bank has no interest whatsoever in said contents, except herein expressly provided, and it assumes absolutely no liability in connection therewith. 1

After the execution of the contract, two (2) renter's keys were given to the renters — one to Aguirre (for the petitioner) and the other to the Pugaos. A guard key remained in the possession of the respondent Bank. The safety deposit box has two (2) keyholes, one for the guard key and the other for the renter's key, and can be opened only with the use of both keys. Petitioner claims that the certificates of title were placed inside the said box.

Thereafter, a certain Mrs. Margarita Ramos offered to buy from the petitioner the two (2) lots at a price of P225.00 per square meter which, as petitioner alleged in its complaint, translates to a profit of P100.00 per square meter or a total of P280,500.00 for the entire property. Mrs. Ramos demanded the execution of a deed of sale which necessarily entailed the production of the certificates of title. In view thereof, Aguirre, accompanied by the Pugaos, then proceeded to the respondent Bank on 4 October 1979 to open the safety deposit box and get the certificates of title. However, when opened in the presence of the Bank's representative, the box yielded no such certificates. Because of the delay in the reconstitution of the title, Mrs. Ramos withdrew her earlier offer to purchase the lots; as a consequence thereof, the petitioner allegedly failed to realize the expected profit of P280,500.00. Hence, the latter filed on 1 September 1980 a complaint 2 for damages against the respondent Bank with the Court of First Instance (now Regional Trial Court) of Pasig, Metro Manila which docketed the same as Civil Case No. 38382.

In its Answer with Counterclaim, 3 respondent Bank alleged that the petitioner has no cause of action because of paragraphs 13 and 14 of the contract of lease (Exhibit "2"); corollarily, loss of any of the items or articles contained in the box could not give rise to an action against it. It then interposed a counterclaim for exemplary damages as well as attorney's fees in the amount of P20,000.00. Petitioner subsequently filed an answer to the counterclaim. 4

In due course, the trial court, now designated as Branch 161 of the Regional Trial Court (RTC) of Pasig, Metro Manila, rendered a decision 5 adverse to the petitioner on 8 December 1986, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered dismissing plaintiff's complaint.

On defendant's counterclaim, judgment is hereby rendered ordering plaintiff to pay defendant the amount of FIVE THOUSAND (P5,000.00) PESOS as attorney's fees.

With costs against plaintiff. 6

The unfavorable verdict is based on the trial court's conclusion that under paragraphs 13 and 14 of the contract of lease, the Bank has no liability for the loss of the certificates of title. The court declared that the said provisions are binding on the parties.

Its motion for reconsideration 7 having been denied, petitioner appealed from the adverse decision to the respondent Court of Appeals which docketed the appeal as CA-G.R. CV No. 15150. Petitioner urged the respondent Court to reverse the challenged decision because the trial court erred in (a) absolving the respondent Bank from liability from the loss, (b) not declaring as null and void, for being contrary to law, public order and public policy, the provisions in the contract for lease of the safety deposit box absolving the Bank from any liability for loss, (c) not concluding that in this jurisdiction, as well as under American jurisprudence, the liability of the Bank is settled and (d) awarding attorney's fees to the Bank and denying the petitioner's prayer for nominal and exemplary damages and attorney's fees. 8

In its Decision promulgated on 4 July 1989, 9 respondent Court affirmed the appealed decision principally on the theory that the contract (Exhibit "2") executed by the petitioner and respondent Bank is in the nature of a contract of lease by virtue of which the petitioner and

its co-renter were given control over the safety deposit box and its contents while the Bank retained no right to open the said box because it had neither the possession nor control over it and its contents. As such, the contract is governed by Article 1643 of the Civil Code 10 which provides:

Art. 1643. In the lease of things, one of the parties binds himself to give to another the enjoyment or use of a thing for a price certain, and for a period which may be definite or indefinite. However, no lease for more than ninety-nine years shall be valid.

It invoked Tolentino vs. Gonzales 11 — which held that the owner of the property loses his control over the property leased during the period of the contract — and Article 1975 of the Civil Code which provides:

Art. 1975. The depositary holding certificates, bonds, securities or instruments which earn interest shall be bound to collect the latter when it becomes due, and to take such steps as may be necessary in order that the securities may preserve their value and the rights corresponding to them according to law.

The above provision shall not apply to contracts for the rent of safety deposit boxes.

and then concluded that "[c]learly, the defendant-appellee is not under any duty to maintain the contents of the box. The stipulation absolving the defendant-appellee from liability is in accordance with the nature of the contract of lease and cannot be regarded as contrary to law, public order and public policy." 12 The appellate court was quick to add, however, that under the contract of lease of the safety deposit box, respondent Bank is not completely free from liability as it may still be made answerable in case unauthorized persons enter into the vault area or when the rented box is forced open. Thus, as expressly provided for in stipulation number 8 of the contract in question:

8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented safe and beyond this, the Bank will not be responsible for the contents of any safe rented from it. 13

Its motion for reconsideration 14 having been denied in the respondent Court's Resolution of 28 August 1989, 15petitioner took this recourse under Rule 45 of the Rules of Court and urges Us to review and set aside the respondent Court's ruling. Petitioner avers that both the respondent Court and the trial court (a) did not properly and legally apply the correct law in this case, (b) acted with grave abuse of discretion or in excess of jurisdiction amounting to lack thereof and (c) set a precedent that is contrary to, or is a departure from precedents adhered to and affirmed by decisions of this Court and precepts in American jurisprudence adopted in the Philippines. It reiterates the arguments it had raised in its motion to reconsider the trial court's decision, the brief submitted to the respondent Court and the motion to reconsider the latter's decision. In a nutshell, petitioner maintains that regardless of nomenclature, the contract for the rent of the safety deposit box (Exhibit "2") is actually a contract of deposit governed by Title XII, Book IV of the Civil Code of thePhilippines. 16 Accordingly, it is claimed that the respondent Bank is liable for the loss of the certificates of title pursuant to Article 1972 of the said Code which provides:

Art. 1972. The depositary is obliged to keep the thing safely and to return it, when required, to the depositor, or to his heirs and successors, or to the person who may have been designated in the contract. His responsibility, with regard to the safekeeping and the loss of the thing, shall be governed by the provisions of Title I of this Book.

If the deposit is gratuitous, this fact shall be taken into account in determining the degree of care that the depositary must observe.

Petitioner then quotes a passage from American Jurisprudence 17 which is supposed to expound on the prevailing rule in the United States, to wit:

The prevailing rule appears to be that where a safe-deposit company leases a safe-deposit box or safe and the lessee takes possession of the box or safe and places therein his securities or other valuables, the relation of bailee and bail or is created between the parties to the transaction as to such securities or other valuables; the fact that thesafe-deposit company does not know, and that it is not expected that it shall know, the character or description of the property which is deposited in such safe-deposit box or safe does not change that relation. That access to the contents of the safe-deposit box can be had only by the use of a key retained by the lessee ( whether it is the sole key or one to be used in connection with one retained by the lessor) does not operate to alter the foregoing rule. The argument that there is not, in such a case, a delivery of exclusive possession and control to the deposit company, and that therefore the situation is entirely different from that of ordinary bailment, has been generally rejected by the courts, usually on the ground that as possession must be either in the depositor or in the company, it should reasonably be considered as in the latter rather than in the former, since the company is, by the nature of the contract, given absolute control of access to the property, and the depositor cannot gain access thereto without the consent and active participation of the company. . . . (citations omitted).

and a segment from Words and Phrases 18 which states that a contract for the rental of a bank safety deposit box in consideration of a fixed amount at stated periods is a bailment for hire.

Petitioner further argues that conditions 13 and 14 of the questioned contract are contrary to law and public policy and should be declared null and void. In support thereof, it cites Article 1306 of the Civil Code which provides that parties to a contract may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy.

After the respondent Bank filed its comment, this Court gave due course to the petition and required the parties to simultaneously submit their respective Memoranda.

The petition is partly meritorious.

We agree with the petitioner's contention that the contract for the rent of the safety deposit box is not an ordinary contract of lease as defined in Article 1643 of the Civil Code. However, We do not fully subscribe to its view that the same is a contract of deposit that is to be strictly governed by the provisions in the Civil Code on deposit; 19the contract in the case at bar is a

special kind of deposit. It cannot be characterized as an ordinary contract of lease under Article 1643 because the full and absolute possession and control of the safety deposit box was not given to the joint renters — the petitioner and the Pugaos. The guard key of the box remained with the respondent Bank; without this key, neither of the renters could open the box. On the other hand, the respondent Bank could not likewise open the box without the renter's key. In this case, the said key had a duplicate which was made so that both renters could have access to the box.

Hence, the authorities cited by the respondent Court 20 on this point do not apply. Neither could Article 1975, also relied upon by the respondent Court, be invoked as an argument against the deposit theory. Obviously, the first paragraph of such provision cannot apply to a depositary of certificates, bonds, securities or instruments which earn interest if such documents are kept in a rented safety deposit box. It is clear that the depositary cannot open the box without the renter being present.

We observe, however, that the deposit theory itself does not altogether find unanimous support even in American jurisprudence. We agree with the petitioner that under the latter, the prevailing rule is that the relation between a bank renting out safe-deposit boxes and its customer with respect to the contents of the box is that of a bail or and bailee, the bailment being for hire and mutual benefit. 21 This is just the prevailing view because:

There is, however, some support for the view that the relationship in question might be more properly characterized as that of landlord and tenant, or lessor and lessee. It has also been suggested that it should be characterized as that of licensor and licensee. The relation between a bank, safe-deposit company, or storage company, and the renter of a safe-deposit box therein, is often described as contractual, express or implied, oral or written, in whole or in part. But there is apparently no jurisdiction in which any rule other than that applicable to bailments governs questions of the liability and rights of the parties in respect of loss of the contents of safe-deposit boxes. 22 (citations omitted)

In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is clear that in this jurisdiction, the prevailing rule in the United States has been adopted. Section 72 of the General Banking Act 23pertinently provides:

Sec. 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions other than building and loan associations may perform the following services:

(a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for the safeguarding of such effects.

xxx xxx xxx

The banks shall perform the services permitted under subsections (a), (b) and (c) of this section asdepositories or as agents. . . . 24 (emphasis supplied)

Note that the primary function is still found within the parameters of a contract of deposit, i.e., the receiving in custody of funds, documents and other valuable objects for safekeeping. The renting out of the safety deposit boxes is not independent from, but related to or in conjunction with, this principal function. A contract of deposit may be entered into orally or in

writing 25 and, pursuant to Article 1306 of the Civil Code, the parties thereto may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy. The depositary's responsibility for the safekeeping of the objects deposited in the case at bar is governed by Title I, Book IV of the Civil Code. Accordingly, the depositary would be liable if, in performing its obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of the agreement. 26 In the absence of any stipulation prescribing the degree of diligence required, that of a good father of a family is to be observed. 27 Hence, any stipulation exempting the depositary from any liability arising from the loss of the thing deposited on account of fraud, negligence or delay would be void for being contrary to law and public policy. In the instant case, petitioner maintains that conditions 13 and 14 of the questioned contract of lease of the safety deposit box, which read:

13. The bank is not a depositary of the contents of the safe and it has neither the possession nor control of the same.

14. The bank has no interest whatsoever in said contents, except herein expressly provided, and it assumes absolutely no liability in connection therewith. 28

are void as they are contrary to law and public policy. We find Ourselves in agreement with this proposition for indeed, said provisions are inconsistent with the respondent Bank's responsibility as a depositary under Section 72(a) of the General Banking Act. Both exempt the latter from any liability except as contemplated in condition 8 thereof which limits its duty to exercise reasonable diligence only with respect to who shall be admitted to any rented safe, to wit:

8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented safe and beyond this, the Bank will not be responsible for the contents of any safe rented from it. 29

Furthermore, condition 13 stands on a wrong premise and is contrary to the actual practice of the Bank. It is not correct to assert that the Bank has neither the possession nor control of the contents of the box since in fact, the safety deposit box itself is located in its premises and is under its absolute control; moreover, the respondent Bank keeps the guard key to the said box. As stated earlier, renters cannot open their respective boxes unless the Bank cooperates by presenting and using this guard key. Clearly then, to the extent above stated, the foregoing conditions in the contract in question are void and ineffective. It has been said:

With respect to property deposited in a safe-deposit box by a customer of a safe-deposit company, the parties, since the relation is a contractual one, may by special contract define their respective duties or provide for increasing or limiting the liability of the deposit company, provided such contract is not in violation of law or public policy. It must clearly appear that there actually was such a special contract, however, in order to vary the ordinary obligations implied by law from the relationship of the parties; liability of the deposit company will not be enlarged or restricted by words of doubtful meaning. The company, in rentingsafe-deposit boxes, cannot exempt itself from liability for loss of the contents by its own fraud or negligence or that of its agents or servants, and if a provision of the contract may be construed as an attempt to do so, it will be held ineffective for the purpose. Although it has been held that the lessor of a safe-deposit box cannot limit its liability for loss of the contents thereof through its own negligence,

the view has been taken that such a lessor may limits its liability to some extent by agreement or stipulation. 30 (citations omitted)

Thus, we reach the same conclusion which the Court of Appeals arrived at, that is, that the petition should be dismissed, but on grounds quite different from those relied upon by the Court of Appeals. In the instant case, the respondent Bank's exoneration cannot, contrary to the holding of the Court of Appeals, be based on or proceed from a characterization of the impugned contract as a contract of lease, but rather on the fact that no competent proof was presented to show that respondent Bank was aware of the agreement between the petitioner and the Pugaos to the effect that the certificates of title were withdrawable from the safety deposit box only upon both parties' joint signatures, and that no evidence was submitted to reveal that the loss of the certificates of title was due to the fraud or negligence of the respondent Bank. This in turn flows from this Court's determination that the contract involved was one of deposit. Since both the petitioner and the Pugaos agreed that each should have one (1) renter's key, it was obvious that either of them could ask the Bank for access to the safety deposit box and, with the use of such key and the Bank's own guard key, could open the said box, without the other renter being present.

Since, however, the petitioner cannot be blamed for the filing of the complaint and no bad faith on its part had been established, the trial court erred in condemning the petitioner to pay the respondent Bank attorney's fees. To this extent, the Decision (dispositive portion) of public respondent Court of Appeals must be modified.

WHEREFORE, the Petition for Review is partially GRANTED by deleting the award for attorney's fees from the 4 July 1989 Decision of the respondent Court of Appeals in CA-G.R. CV No. 15150. As modified, and subject to the pronouncement We made above on the nature of the relationship between the parties in a contract of lease of safety deposit boxes, the dispositive portion of the said Decision is hereby AFFIRMED and the instant Petition for Review is otherwise DENIED for lack of merit.

No pronouncement as to costs.

SO ORDERED.

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

Gutierrez, Jr., J., is on leave.

 

# Footnotes

3RD SET

.R. No. L-23307             June 30, 1967

DAMASO P. PEREZ and REPUBLIC BANK, ETC., ET AL., petitioners-appellants, vs.MONETARY BOARD, THE SUPERINTENDENT OF BANKS, CENTRAL BANK OF THE PHILIPPINES and SECRETARY OF JUSTICE, respondents-

appellees. AURORA R. RECTO, MIGUEL CANIZARES, LEON ANCHETA, PABLO ROMAN, VICTORIA B. ROMAN and NORBERTO J. QUISUMBING, intervenors-appellees.

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

BENGZON, J.P., J.:

Petitioner-appellant Damaso P. Perez, for himself and in a derivative capacity on behalf of the Republic Bank, instituted mandamus proceedings in the Court of First Instance of Manila on June 23, 1962, against the Monetary Board, the Superintendent of Banks, the Central Bank and the Secretary of Justice. His object was to compel these respondents to prosecute, among others, Pablo Roman and several other Republic Bank officials for violations of the General Banking Act (specifically secs. 76-78 and 83 thereof) and the Central Bank Act, and for falsification of public or commercial documents in connection with certain alleged anomalous loans amounting to P1,303,400.00 authorized by Roman and the other bank officials.

Respondents assailed, in their respective answers, the propriety of mandamus. The Secretary of Justice claimed that it was not their specific duty to prosecute the persons denounced by Perez. The Central Bank and its respondent officials, on the other hand, averred that they had already done their duty under the law by referring to the special prosecutors of the Department of Justice for criminal investigation and prosecution those cases involving the alleged anomalous loans.1

On July 10, 1962, respondents moved for the dismissal of the petition for lack of cause of action. Petitioners opposed. The lower court denied the motion.

Subsequently, herein intervenors-appellees, as the incumbent directors of the Board of the Republic Bank, filed motion to intervene in the proceedings. Petitioners opposed the motion but the lower court approved the same.

On January 20, 1964, the Monetary Board of the Central Bank passed Resolution No. 81 granting the request of Republic Bank for credit accommodations to cover the unusual withdrawal of deposits by its depositors in view of the fact that said Bank was under investigation then by the authorities. The grant, however, was conditioned upon the execution by the management and controlling stockholders of the Republic Bank of a voting trust agreement in favor of a Board of Trustees to be chosen by the latter with the approval of the Central Bank.

Pursuant to this resolution, Pablo Roman and his family, is the controlling stockholders of Republic Bank, executed a voting trust agreement in favor of a board of trustees composed of former Chief Justice Ricardo Paras, Hon. Miguel Cuaderno and Mr. Felix de la Costa. Subsequently, or on March 13, 1964, this agreement was superseded by another one with the Philippine National Bank as the trustee.2

In view of these developments, the intervenors-appellees filed a motion to dismiss before the lower court claiming that the ouster of Pablo Roman and his family from the management of the Republic Bank effected by the voting trust agreement rendered the mandamus case moot and academic. Respondents-appellees also filed motion to dismiss in which they again raised the impropriety of mandamus. Acting upon the two motions and the oppositions thereto filed by petitioners, the lower court granted the motions and dismissed the case. Hence, this appeal.

Appellants, contending that the ouster of Pablo Roman from Republic Bank's management and control has not altered or rendered moot the issues in the case, argue that the remedy of mandamus lies3 to compel respondents to prosecute the aforementioned Pablo Roman and company. Addressing Ourselves directly to this issue raised on the propriety of the petition for mandamus, We rule that petitioners cannot seek by mandamus to compel respondents to prosecute criminally those alleged violators of the banking laws. Although the Central Bank and its respondent officials may have the duty under the Central Bank Act and the General Banking Act to cause the prosecution of those alleged violators, yet We find nothing in said laws that imposes a clear, specific duty on the former to do the actual prosecution of the latter. The Central Bank is a government corporation created principally to administer the monetary and banking system of the Republic,4 not a prosecution agency5 like the fiscal's office. Being an artificial person, The Central Bank is limited to its statutory powers and the nearest power to which prosecution of violators of banking laws may be attributed is its power to sue and be sued.6 But this corporate power of litigation evidently refers to civil cases only.1äwphï1.ñët

The Central Bank and its respondent officials have already done all they could, within the confines of their powers, to cause the prosecution of those persons denounced by Perez. Annexes 5 to 7-C CBP of respondents' answer and even petitioners' opposition to the first motion to dismiss7 show that the cases of the alleged anomalous loans had already been referred by the Central Bank to the special prosecutors of the Department of Justice for criminal investigation and prosecution. For respondents to do the actual prosecuting themselves, as petitioners would have it, would be tantamount to an ultra vires act already.

As for the Secretary of Justice, while he may have the power to prosecute — through the office of the Solicitor General — criminal cases, yet it is settled rule that mandamus will not lie to compel a prosecuting officer to prosecute a criminal case in court.8

Moreover, it does not appear from the law that only the Central Bank or its respondent officials can cause the prosecution of alleged violations of banking laws. Said violations constitute a public offense, the prosecution of which is a matter of public interest and hence, anyone — even private individuals — can denounce such violations before the prosecuting authorities. Since Perez himself could cause the filing of criminal complaints against those allegedly involved in the anomalous loans, if any, then he has a plain, adequate and speedy remedy in the ordinary course of law, which makes mandamus against respondents improper.

But petitioners-appellants would insist that the impropriety of mandamus could no longer be raised before the lower court for the second time since it had already been invoked in previous motion to dismiss which was denied. This is untenable. The lower court was not estopped from changing its opinion while it was under its jurisdiction to do so and on the same ground of lack of cause of action raised before, because the former order was purely interlocutory and thus remained constantly subject to alteration, modification or reversal by it before the rendition of final judgment on its merits.9

Wherefore, the order of dismissal appealed from is, as it is hereby, affirmed. Costs against petitioner-appellant Perez. So ordered. 1äwphï1.ñët

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez and Castro JJ., concur.

Footnotes

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

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

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

CONCEPCION, C.J.:

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

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

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

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

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

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

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

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

CENTRAL BANK OF THE PHILIPPINES

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

I. BOOKS OF ORIGINAL ENTRY

(1) General Journal

(2) Columnar Journal or Cash Book

(a) Cash Receipts Journal or Cash Receipt Book

(b) Cash Disbursements Journal or Cash Disbursement Book

II. BOOKS OF FINAL ENTRY

(1) General Ledger

(2) Individual Deposits and Loans Ledgers

(3) Other Subsidiary Ledgers

III. OTHER ACCOUNTING RECORDS

(1) Application for Membership

(2) Signature Card

(3) Deposit Slip

(4) Passbook Slip

(5) Withdrawal Slip

(6) Tellers Daily Deposit Report

(7) Application for Loan Credit Statement

(8) Credit Report

(9) Solicitor's Report

(10) Promissory Note

(11) I n d o r s e m e n t

(12) Co-makers' Statements

(13) Chattel Mortgage Contracts

(14) Real Estate Mortgage Contracts

(15) Trial Balance

(16) Minutes Book — Board of Directors

IV. FINANCIAL STATEMENTS

(1) Income and Expenses Statements

(2) Balance Sheet or Statement of Assets and Liabilities

V. OTHERS

(1) Articles of Incorporation

(2) By-Laws

(3) Prospectus, Brochures Etc.

(4) And other documents and articles which are being used or intended to be used in unauthorized banking activities and operations contrary to law.

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

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

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

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

At the outset, it should be noted that the action taken by the Bank, in causing the aforementioned search to be made and the articles above listed to be seized, was predicated upon the theory that the Organization was illegally engaged in banking — by receiving money for deposit, disbursement, safekeeping or otherwise, or transacting the business of a savings and mortgage bank and/or building and loan association, — without first complying with the provisions of R.A. No. 337, and that the order complained of

assumes that the Organization had violated sections 2 and 6 of said Act.6 Yet respondent Judge found the searches and, seizures in question to be unreasonable, through the following process of reasoning: the deposition given in support of the application for a search warrant states that the deponent personally knows that the premises of the Organization, at No. 2745 Rizal Avenue, Manila,7 were being used unlawfully for banking and purposes. Respondent judge deduce, from this premise, that the deponent " knows specific banking transactions of the petitioner with specific persons," and, then concluded that said deponent ". . . could have, if he really knew of actual violation of the law, applied for a warrant to search and seize only books" or records:

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

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

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

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

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

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

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

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

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

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

Footnotes

[G.R. No. L-50031-32 : July 27, 1981.]

CENTRAL BANK OF THE PHILIPPINES, Petitioner, vs. HONORABLE COURT OF APPEALS, ISIDRO E. FERNANDEZ, and JESUS R. JAYME, Respondents.

 

D E C I S I O N

 

CONCEPCION, JR., J.:

 

Petition for Review on Certiorari of the judgment of the respondent appellate court which affirmed the decision of the Court of First Instance of Manila in Sp. Proc. No. 88415, entitled: “Isidro Fernandez, et al., Petitioners, versus Central Bank of the Philippines, et al., respondents;” and Sp. Proc. No. 89219, entitled: “In re: Liquidation of Provident Savings Bank, Central Bank of the Philippines, petitioner,” setting aside Resolution No. 1766 of the Monetary Board of the Philippines, dated September 15, 1972, which forbade the Provident Savings Bank from doing business in the Philippines.

It is not disputed that the Provident Savings Bank, hereinafter referred to as PROVIDENT, for short, was incorporated after the Central Bank had approved its establishment under Monetary Board Resolution No. 572, dated May 3, 1963. Its Articles of Incorporation was registered with the Securities and Exchange Commission on October 31, 1963. PROVIDENT was granted authority to operate by the Monetary Board on December 4, 1963 and started business on December 9, 1963 with principal office at Villalobos St., Quiapo, Manila. Within four cranad(4) years of operation, PROVIDENT had established six cranad(6) extension offices within the greater Manila area.

PROVIDENT has an authorized capital of P10 million, divided into 100,000 shares of common stock with a par value of P100.00 each. At the time of its incorporation, 25% of the stock was subscribed and paid for by its incorporators. There were subsequent subscriptions received so that by the end of 1967 the total paid up capital of the bank amounted to P6.7 million out of the aggregate P7.5 million subscribed shares of stock. The herein private respondents, Isidro E. Fernandez and Jesus R. Jayme, are the majority and controlling stockholders thereof, holding 41% and 22%, respectively, of the total subscribed capital stock of the bank.

A major portion of PROVIDENT’s loanable funds was granted to directors, officers and stockholders and their related interests and the bank was cautioned to avoid concentration of credits and to adopt a policy where loans would be granted to a larger number of borrowers who had no financial interest in the bank. 1

In September, 1968, a number of savings banks, PROVIDENT among others, experienced a bank run which was triggered off by adverse publicity in the newspapers, radio and television of investigations conducted by Congress that some banks were unable to pay deposit withdrawals. In view of the unusually heavy withdrawals, PROVIDENT had no recourse but to request emergency loans from the Central Bank to meet the demands of the depositors. The Monetary Board, however, denied these requests for emergency loans. PROVIDENT, therefore, had to borrow from other banks, foremost of which is the Banco Filipino Mortgage and Savings Bank which granted PROVIDENT advances up to P8 million, on the security of real estate properties and a pledge of P4.074 million worth of shares of stock representing about 60% of the outstanding shares of stock of PROVIDENT owned by Fernandez and Jayme. But, these loans were not enough to meet the demands of the depositors. As a result, PROVIDENT was forced to temporarily close its doors to the public on September 12, 1968.

Subsequently, however, the Central Bank extended emergency loans to PROVIDENT in order to stop the bank run and to prevent the bank run from eroding the confidence of the public in the banking system, thus enabling PROVIDENT to reopen on September 16, 1968. The Hon. Alfonso Calalang, then Governor of the Central Bank, together with other high officials of the Central Bank, visited the premises of

PROVIDENT soon after its reopening and assured the public that PROVIDENT was sound and had the full backing of the Central Bank.

Then followed a series of emergency releases. But, the assistance given to PROVIDENT was not sufficient to meet and service the unusually heavy withdrawals of deposits. Fernandez and Jayme appealed to the Central Bank for continued assistance. At one time, Fernandez and Jayme were summoned to the Central Bank for a conference with the Governor and Deputy Governor and were introduced to representatives of the Iglesia Ni Kristo cranad(INK) which had a sizeable deposit of P5.5 million with PROVIDENT and was having difficulty in withdrawing the same. Central Bank Deputy Governor Amado Briñas voiced the decision of the Central Bank that unless Fernandez and Jayme relinquished and turned over the management and control of PROVIDENT to the Iglesia Ni Kristo, the Central Bank would not further support and assist the distressed PROVIDENT. Governor Briñas, in turn, persuaded the representatives of the Iglesia Ni Kristo, headed by Rogelio Manalo, that the only way they could withdraw their deposit was to take control and management of PROVIDENT. Left with no other alternative, but to accede, and in order to protect their investment, Fernandez and Jayme reluctantly executed a Memorandum Agreement with the Eagle Broadcasting Corporation, a company identified with the Iglesia Ni Kristo, on December 6, 1968. The parties therein made the following commitments:

1. That the Iglesia Ni Kristo will convert its time deposit with the Bank in the amount of P5.5 million into voting preferred shares of stock;

2. That the stockholders will cause the amendment of the Articles of Incorporation to increase the capital stock by creating voting preferred shares of stock at a par value of P70.00 per share;

3. That the Iglesia Ni Kristo shall purchase from Fernandez and Jayme group 53,000 shares of stock within the period of six months;

4. That the Fernandez and Jayme group shall execute a voting trust agreement in favor of the Iglesia Ni Kristo group to subsist only until the amendment to the Articles of incorporation shall have been registered with the Securities and Exchange Commission; and

5. That the Iglesia Ni Kristo group shall not foreclose mortgages securing loans of various borrowers until after four years, provided that the schedule of payments on loans of the Fernandez and Jayme group shall be complied with. 2

Immediately thereafter, a special meeting of the stockholders of PROVIDENT was convened and the Articles of Incorporation of the bank was amended to comply with the terms and stipulations contained in the Memorandum Agreement. A Voting Trust Agreement was, likewise, executed in favor of the Eagle Broadcasting Corporation on certain shares of stock owned by Reynaldo Panopio, a stockholder identified with the Fernandez and Jayme group, after which Fernandez and Jayme withdrew from the management of PROVIDENT in favor of the Iglesia Ni Kristo group effective December 1, 1968.

Following the transfer of management of PROVIDENT to the Iglesia Ni Kristo, the Central Bank forthwith released additional loans to PROVIDENT at a much reduced rate of interest of 10% instead of the 12% interest charged on previous loans. PROVIDENT was further allowed to resume its lending activities. At the time of the transfer of the management to the Iglesia Ni Kristo the net worth of PROVIDENT was P7.2 million. 3

The Eagle Broadcasting Corporation, however, did not comply with its commitment to purchase 53,000 common shares of stock and to convert its deposits into equity. Instead, the new management of PROVIDENT caused the conversion of the deposits of Iglesia Ni Kristo into “bills payable” earning 12% interest, which were subsequently withdrawn. 4 PROVIDENT, under the new management, also failed to comply with the Monetary Board directives relative to the rehabilitation of the bank so that it restored the interest rate of 12% on outstanding loans. 5 Various irregularities detrimental to PROVIDENT were also perpetrated by the new management despite the presence of resident Central Bank examiners. 6 The Iglesia Ni Kristo likewise facilitated or caused the assignment and mortgage of PROVIDENT’s various assets, receivables, and interests in favor of the Eagle Broadcasting Corporation. 7

In view of the deteriorating financial condition of PROVIDENT, the Deputy Governor of the Central Bank separately met with the representatives of the Iglesia Ni Kristo and the majority stockholders of the bank to discuss with them the urgency of finding a solution to PROVIDENT’s financial difficulties. Both parties were requested to submit their proposals pertaining to the continued operation and management of the bank. In his letter dated October 15, 1971, Rogelio W. Manalo, President and Chairman of the Board of Directors of PROVIDENT submitted a set of proposals consisting of three cranad(3) courses of action, namely: conversion of the P4 million “bills payable” of the Iglesia Ni Kristo to equity; staggered payment to the Iglesia Ni Kristo of the balance of its deposits; and pre-payment of borrowings of majority stockholders at the rate of P300,000.00 monthly. But, these proposals were rejected by the Monetary Board on January 7, 1972 cranad(Res. No. 6). 8

On August 22, 1972, Rogelio W. Manalo resigned as Chairman and President of PROVIDENT, giving rise to large withdrawals from its big depositors which the bank could not readily meet. PROVIDENT had to seek assistance from other banks, the Savings Bankers Association of the Philippines, and other sources to prevent the recurrence of another bank run. 9 But, the financial condition of PROVIDENT continued to worsen, so that on September 15, 1972, the Monetary Board, after “considering further that the principal stockholders and/or the Iglesia Ni Kristo/Eagle Broadcasting Corporation group have not come up with concrete and substantial proposals towards the rehabilitation of the Provident Savings Bank, which proposals were required of them in the conference held in September of 1971; and in pursuance of Section 29 of Republic Act No. 265, decided as follows:

“‘a) To forbid the Provident Savings Bank to do business in the Philippines;

b) To instruct the Superintendent of Banks to take charge, in the name of the Monetary Board, of the assets of the Provident Savings Bank;

c) To instruct the Superintendent of Banks to take such further action as may be necessary pursuant to Section 29 of Republic Act No. 265; and

d) To refer the subject memoranda of the Superintendent of Banks and all pertinent reports of the examiners of the Department of Supervision and Examination to the Central Bank Legal Counsel for appropriate legal action(s).’“ 10

Pursuant thereto, the Central Bank instructed its Legal Counsel on September 25, 1972:

“1) To request the Solicitor General to file, pursuant to the last paragraph of Section 29 of Republic Act No. 265, a petition in the Court of First Instance reciting the proceedings which have been taken and praying the assistance and supervision of the court in the liquidation of the affairs of the Provident Savings Bank; and

2) To take such other action as may be appropriate and legal to safeguard the interests of the Bank’s creditors.” 11

Consequently, on September 28, 1972, Fernandez and Jayme filed a petition forcertiorari, prohibition and mandamus and/or specific performance, with preliminary injunction, against the Central Bank and Eagle Broadcasting Corporation, with the Court of First Instance of Manila, docketed therein as Sp. Proc. No. 88415, to annul and set aside the said Monetary Board Resolution No. 1766, dated September 15, 1972 and to restrain the Central Bank from liquidating PROVIDENT, and, instead, to order the Central Bank to comply with its commitments to the petitioners and reorganize and rehabilitate PROVIDENT in the manner it did to the Overseas Bank of Manila, as well as for damages and costs. 12

The Central Bank answered that PROVIDENT was insolvent and its condition warranted closure under Sec. 29 of Republic Act No. 265.

Eagle Broadcasting Corporation, upon the other hand, blames both the Central Bank and Fernandez and Jayme for the failure of PROVIDENT.

On December 11, 1972, the Central Bank filed a Petition for Assistance and Supervision in Liquidation of the Provident Savings Bank with the Court of First Instance of Manila, docketed therein as Sp. Proc. No. 89219, entitled: “In re: Liquidation of the Provident Savings Bank; Central Bank of the Philippines, petitioner.” 13

Upon motion, the two cases were heard jointly, 14 and on February 20, 1974, judgment was rendered, as follows:

WHEREFORE, the writs prayed for in the amended petition, except the writ of mandamus, are hereby granted, and Resolution No. 1766 dated September 15, 1972 of the Monetary Board of respondent Central Bank — as well as any and all resolutions issued in pursuance thereof, are hereby annulled and set aside; and said respondent Central Bank is ordered to desist from liquidating PROVIDENT and is ordered to specifically perform its obligation to reorganize and rehabilitate the Provident Savings Bank, following the precedent set in the case of the reorganization or rehabilitation of the Republic Bank and the course of action expected to be taken in the implementation of the final decision of the Supreme Court in the case of RAMOS vs. CENTRAL BANK, 41 SCRA 565, with respect to the Overseas Bank of Manila, within two cranad(2) years from finality of this decision.

“Respondent Central Bank and Eagle Broadcasting Corporation are hereby ordered to pay the petitioners, jointly and severally:

1. The amount of P600,000.00 as actual damages;

2. The amount of P50,000.00 as moral damages;

3. The amount of P25,000.00 as exemplary damages; and

4. The amount of P50,000.00 as attorney’s fees plus costs.” 15

The Central Bank and the Eagle Broadcasting Corporation appealed, 16 and after appropriate proceedings, the herein respondent Court of Appeals rendered the disputed decision on January 22, 1979, the dispositive portion of which reads, as follows:

“WHEREFORE, the decision appealed from is hereby affirmed, but modified to exclude the award of damages and attorney’s fees. Costs de oficio. 17

Hence, the present recourse.

1. The petitioner claims that the respondent Court of Appeals erred in not applying Presidential Decree No. 1007, dated September 22, 1976, which amended Section 29 of Republic Act No. 265 during the pendency of the appeal and should have dismissed the petition of Fernandez and Jayme in view of the findings of the said appellate court that there is no clear proof of gross and evident bad faith on the part of the petitioner and the Eagle Broadcasting Corporation. In support of its contention, the petitioner invokes the case of Lucas Ramirez vs. The Hon. Court of Appeals, et al. 18

Indeed, the appellate court, in reviewing a judgment on appeal, should dispose of a question according to the law prevailing at the time of such disposition and not according to the law prevailing at the time of the rendition of the appealed judgment. Accordingly, Section 29 of Republic Act No. 265, as amended by Presidential Decree No. 1007, should be applied.

Under this section, as amended, the action of the Monetary Board in ordering the closure and liquidation of an insolvent bank is final and executory and can be set aside only if there is convincing proof that the action is plainly arbitrary and made in bad faith.

The petition filed, however, should not be dismissed for while there may not be gross and evident bad faith on the part of the Central Bank and Eagle Broadcasting Corporation to sustain the award of damages to Fernandez and Jayme, as ordered by the trial court, the action of the Monetary Board in forbidding PROVIDENT from doing business in the Philippines and ordering its liquidation is clearly arbitrary and was made in bad faith.

The arbitrariness and bad faith of the petitioner is evident from the fact that it pressured Fernandez and Jayme into relinquishing the management and control of PROVIDENT to the Iglesia Ni Kristo cranad(INK) which did not have any intention of restoring the bank into its former sound financial condition but whose interest was merely to recover its deposits from PROVIDENT, and, thereafter, allowing the Iglesia Ni Kristo to mismanage PROVIDENT until the bank’s financial deterioration and subsequent closure. As the trial court said:

“Having decided in 1968 that PROVIDENT was salvageable and could be permitted to continue in business with its support, provided there is change in management and introduction of reforms, the CB should have been vigilant in its overseeing of the faithful compliance by the parties of the terms of the Memorandum Agreement, as well as in supervising and controlling the operations of the bank under the management of EAGLE. The persuasive, nay, compulsory, powers of the CB to accomplish these cannot be doubted. The CB exercises such control of private banks under its broad powers that it can decree life or death of any bank by simply withholding from it the facilitates that it normally accords banks. It was in the exercise of these powers by the CB that the Fernandez/Jayme group was constrained to give up the management and control of PROVIDENT in 1968 because the CB threatened to discontinue support of the bank unless management is transferred to EAGLE.

“To recapitulate, the CB:

1. Failed to exact compliance by EAGLE of its obligations under the Memorandum Agreement.

2. Failed to exercise the necessary supervision over EAGLE’s management which could have checked EAGLE’s excuses or abuses.

3. Failed to enforce other reforms necessary to restore PROVIDENT to its former sound financial condition.

4. Failed to extend the support and assistance necessary to make reorganization and rehabilitation of PROVIDENT a reality.

“Illustrative of how PROVIDENT was being treated unfairly by the CB, one needs to take note only of the discrepancy in the interest rates on emergency loans being exacted by the CB. Under the Fernandez/Jayme management of PROVIDENT, it was 12% per annum. When management was transferred to EAGLE, the medium chosen by the CB for purposes of reorganization, interest was reduced to 10% per annum. When the conditions at PROVIDENT continued to deteriorate under EAGLE’s management interest rates were again raised to 12%. And yet, the CB proposed to extend to Banco Filipino, a solid and non-distressed bank which was a creditor of PROVIDENT, an emergency loan under Sec. 90 of the CB Act of up to P7,000.000.00 ‘if it so desires at an interest rate to be determined by Management but in no case lower than 4 per cent p.a.’ cralaw cranad(Par. a-1, p. 3, Exh. ‘9 CBP ‘), which is the Memorandum dated September 14, 1972 of Governor Gregorio Licaros to the Monetary Board.” 19

The trial court further said:

“The penalties paid by PROVIDENT in its deficiency plus the 12% interests in its emergency loan greatly contributed to the deterioration of PROVIDENT’s net worth. The CB is supposed to help a distressed bank, but in the case of PROVIDENT, the CB imposed an interest of 12% on its emergency loans. In so doing, the CB, instead of helping improve the situation of PROVIDENT, actually aggravated further its financial position. And what is most amazing, while this is being done to a bank in distress, the CB was willing to give loans to a well-off bank, the Banco Filipino, loans at an interest of only 4%.” 20

Besides, the Central Bank has already rehabilitated similarly distressed banks, the Republic Bank and the Overseas Bank of Manila, among several others, so that it would be unjust to PROVIDENT to be deprived of the Central Bank’s continued support.

2. The petitioner next claims that the Court of Appeals erred in not holding that there can be no estoppel against the petitioner in view of the latter’s valid exercise of police power by its lawful overseeing of Provident Savings Bank.

The contention is without merit. While the closure and liquidation of a bank may be considered an exercise of police power, the validity of such exercise of police power is subject to judicial inquiry and could be set aside if it is either capricious, discriminatory, whimsical, arbitrary, unjust, or a denial of the due process and equal protection clauses of the Constitution. In the cases under consideration, it is not disputed that the Central Bank had committed itself to support PROVIDENT and restore it to its former sound financial position provided that Fernandez and Jayme should relinquish and give up its control and management of the bank to the Iglesia Ni Kristo, and thereafter, whimsically withdrew such support to the detriment of PROVIDENT. In the case of Ramos vs. Central Bank, 21 where the Central Bank committed itself to the continued operation of, and rehabilitation of the Overseas Bank of Manila, and later on reneged on that promise, the Court therein ruled:

“Even in the absence of contract, the record plainly shows that the CB made express representations to petitioners herein that it would support the OBM, and avoid its liquidation if the petitioners would execute cranad(a) the Voting Trust Agreement turning over the management of OBM to the CB or its nominees, and cranad(b) mortgage or assign their properties to the Central Bank to cover the overdraft balance of OBM. The petitioners having complied with these conditions and parted with value to the profit of the CB cranad(which thus acquired additional security for its own advances), the CB may not now renege on its

representations and liquidate the OBM, to the detriment of its stockholders, depositors and other creditors, under the rule of promissory estoppel cranad(19 Am. Jur., pp. 657-658, 28 Am. Jur. 2d, 656-657; Ed. Note. 115 ALR, 157).

“The broad general rule to the effect that a promise to do or not to do something in the future does not work an estoppel must be qualified, since there are numerous cases in which an estoppel has been predicated on promises or assurances as to future contract. The doctrine of ‘promissory estoppel’ is by no means new, although the name has been adopted only in comparatively recent years. According to that doctrine, an estoppel may arise from the making of a promise, even though without consideration, if it was intended that the promise should be relied upon and in fact it was relied upon, and if a refusal to enforce it would be virtually to sanction the perpetration of fraud or would result in other injustice. In this respect, the reliance by the promisee is generally evidenced by action or forbearance on his part, and the idea has been expressed that such action of forbearance would reasonably have been expected by the promissor. Mere omission by the promisee to do whatever the promissor promised to do has been held insufficient ‘forbearance ‘ to give rise to a promissory estoppel.’ cralaw cranad(19 AM Jur. loc cit.).”

3. Finally, the petitioner claims that the Court of Appeals erred in not appreciating certain facts, mainly PROVIDENT’s anomalous grant of substantial loans to its own directors, officers, stockholders, and related interests, which caused its insolvency, thereby rendering the remedy of liquidation proper and rehabilitation improper.

The contention is without merit. We believe that the judgment complained of is based upon substantial evidence and that the trial court had not overlooked, nor misinterpreted certain facts and circumstances of weight in making its findings, so that the respondent appellate court did not commit any error in affirming the said judgment. Besides, the issue of whether or not certain alleged facts should be appreciated is a question of fact, not properly cognizable on appeal, since it involves an examination of the probative value of the evidence presented by the parties.

At any rate, the fact that the directors, officers, and stockholders of PROVIDENT had been extended loans by the bank which may have caused its insolvency, is of little importance since these loans were already known to and taken into consideration by the Central Bank when it decided in 1968 to allow PROVIDENT to continue in business. In the case of Ramos vs. Central Bank, 22 the Court said:

“The CB excuses itself by pleading that the OBM officers had resorted to non-recording of time deposits in the Bank’s books and diverting such deposits to accounts controlled by certain bank officials, and other irregularities. It is well to note, however, that these ‘unrecorded’ deposits were revealed to the CB as early as 25 September 1967 by the then President of the OBM, Mr. Martin Oliva, who had no hand in such irregularities and who informed the Superintendent of Banks that time deposits worth P43,188,099.29 had not been reported to the OBM directors. In fact, on 29 September 1967, the CB had already ordered its examiners to investigate the Bank’s records and determine the parties responsible. Notwithstanding knowledge of these irregularities, the CB did not withdraw its promised support, and insisted on the execution of the Voting Trust Agreement on 20 November 1967. Such attitude imports that, in its opinion, the irregularities disclosed were not to be blamed on the OBM itself or its depositors and creditors, but on the officials responsible; and further, that the OBM could still be saved by adequate aid and management reform, which was required by CB’s duty to maintain the stability of the banking system and the preservation of public confidence in it.”

WHEREFORE, the decision of the Court of Appeals is hereby AFFIRMED. Without pronouncement as to costs.

SO ORDERED.

Barredo cranad(Chairman), Fernandez *, Abad Santos and De Castro, JJ., concur.

 

Endnotes

G.R. No. 76118 March 30, 1993

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

Sycip, Salazar, Hernandez & Gatmaitan for petitioners.

Quisumbing, Torres & Evangelista for Triumph Savings Bank.

 

BELLOSILLO, J.:

May a Monetary Board resolution placing a private bank under receivership be annulled on the ground of lack of prior notice and hearing?

This petition seeks review of the decision of the Court of Appeals in CA G.R. S.P. No. 07867 entitled "The Central Bank of the Philippines and Ramon V. Tiaoqui vs. Hon. Jose C. de Guzman and Triumph Savings Bank," promulgated 26 September 1986, which affirmed the twin orders of the Regional Trial Court of Quezon City issued 11 November 1985 1 denying herein petitioners' motion to dismiss Civil Case No. Q-45139, and directing petitioner Ramon V. Tiaoqui to restore the private management of Triumph Savings Bank (TSB) to its elected board of directors and officers, subject to Central Bank comptrollership. 2

The antecedent facts: Based on examination reports submitted by the Supervision and Examination Sector (SES), Department II, of the Central Bank (CB) "that the financial condition of TSB is one of insolvency and its continuance in business would involve probable loss to its depositors and creditors," 3 the Monetary Board (MB) issued on 31 May 1985 Resolution No. 596 ordering the closure of TSB, forbidding it from doing business in the Philippines, placing it under receivership, and appointing Ramon V. Tiaoqui as receiver. Tiaoqui assumed office on 3 June 1985. 4

On 11 June 1985, TSB filed a complaint with the Regional Trial Court of Quezon City, docketed as Civil Case No. Q-45139, against Central Bank and Ramon V. Tiaoqui to annul MB Resolution No. 596, with prayer for injunction, challenging in the process the constitutionality of Sec. 29 of R.A. 269, otherwise known as "The Central Bank Act," as amended, insofar as it authorizes the Central Bank to take over a banking institution even if it is not charged with violation of any law or regulation, much less found guilty thereof. 5

On 1 July 1985, the trial court temporarily restrained petitioners from implementing MB Resolution No. 596 "until further orders", thus prompting them to move for the quashal of the restraining order (TRO) on the ground that it did not comply with said Sec. 29, i.e., that TSB

failed to show convincing proof of arbitrariness and bad faith on the part of petitioners;' and, that TSB failed to post the requisite bond in favor of Central Bank.

On 19 July 1985, acting on the motion to quash the restraining order, the trial court granted the relief sought and denied the application of TSB for injunction. Thereafter, Triumph Savings Bank filed with Us a petition for certiorariunder Rule 65 of the Rules of Court 6 dated 25 July 1985 seeking to enjoin the continued implementation of the questioned MB resolution.

Meanwhile, on 9 August 1985; Central Bank and Ramon Tiaoqui filed a motion to dismiss the complaint before the RTC for failure to state a cause of action, i.e., it did not allege ultimate facts showing that the action was plainly arbitrary and made in bad faith, which are the only grounds for the annulment of Monetary Board resolutions placing a bank under conservatorship, and that TSB was without legal capacity to sue except through its receiver.7

On 9 September 1985, TSB filed an urgent motion in the RTC to direct receiver Ramon V. Tiaoqui to restore TSB to its private management. On 11 November 1985, the RTC in separate orders denied petitioners' motion to dismiss and ordered receiver Tiaoqui to restore the management of TSB to its elected board of directors and officers, subject to CB comptrollership.

Since the orders of the trial court rendered moot the petition for certiorari then pending before this Court, Central Bank and Tiaoqui moved on 2 December 1985 for the dismissal of G.R. No. 71465 which We granted on 18 December 1985. 8

Instead of proceeding to trial, petitioners elevated the twin orders of the RTC to the Court of Appeals on a petition for certiorari and prohibition under Rule 65. 9 On 26 September 1986, the appellate court, upheld the orders of the trial court thus —

Petitioners' motion to dismiss was premised on two grounds, namely, that the complaint failed to state a cause of action and that the Triumph Savings Bank was without capacity to sue except through its appointed receiver.

Concerning the first ground, petitioners themselves admit that the Monetary Board resolution placing the Triumph Savings Bank under the receivership of the officials of the Central Bank was done without prior hearing, that is, without first hearing the side of the bank. They further admit that said resolution can be the subject of judicial review and may be set aside should it be found that the same was issued with arbitrariness and in bad faith.

The charge of lack of due process in the complaint may be taken as constitutive of allegations of arbitrariness and bad faith. This is not of course to be taken as meaning that there must be previous hearing before the Monetary Board may exercise its powers under Section 29 of its Charter. Rather, judicial review of such action not being foreclosed, it would be best should private respondent be given the chance to show and prove arbitrariness and bad faith in the issuance of the questioned resolution, especially so in the light of the statement of private respondent that neither the bank itself nor its officials were even informed of any charge of violating banking laws.

In regard to lack of capacity to sue on the part of Triumph Savings Bank, we view such argument as being specious, for if we get the drift of petitioners' argument, they mean to convey the impression that only the CB appointed receiver himself may question the CB resolution appointing him as such. This may be asking for the impossible, for it cannot be expected that the master, the CB, will allow the receiver it has appointed to question that very appointment. Should the argument of petitioners be given circulation, then judicial review of actions of the CB would be effectively checked and foreclosed to the very bank officials who may feel, as in the case at bar, that the CB action ousting them from the bank deserves to be set aside.

xxx xxx xxx

On the questioned restoration order, this Court must say that it finds nothing whimsical, despotic, capricious, or arbitrary in its issuance, said action only being in line and congruent to the action of the Supreme Court in the Banco Filipino Case (G.R. No. 70054) where management of the bank was restored to its duly elected directors and officers, but subject to the Central Bank comptrollership. 10

On 15 October 1986, Central Bank and its appointed receiver, Ramon V. Tiaoqui, filed this petition under Rule 45 of the Rules of Court praying that the decision of the Court of Appeals in CA-G.R. SP No. 07867 be set aside, and that the civil case pending before the RTC of Quezon City, Civil Case No.Q-45139, be dismissed. Petitioners allege that the Court of Appeals erred —

(1) in affirming that an insolvent bank that had been summarily closed by the Monetary Board should be restored to its private management supposedly because such summary closure was "arbitrary and in bad faith" and a denial of "due process";

(2) in holding that the "charge of lack of due process" for "want of prior hearing" in a complaint to annul a Monetary Board receivership resolution under Sec. 29 of R.A. 265 "may be taken as . . allegations of arbitrariness and bad faith"; and

(3) in holding that the owners and former officers of an insolvent bank may still act or sue in the name and corporate capacity of such bank, even after it had been ordered closed and placed under receivership. 11

The respondents, on the other hand, allege inter alia that in the Banco Filipino case, 12 We held that CB violated the rule on administrative due process laid down in Ang Tibay vs. CIR (69 Phil. 635) and Eastern Telecom Corp. vs. Dans, Jr. (137 SCRA 628) which requires that prior notice and hearing be afforded to all parties in administrative proceedings. Since MB Resolution No. 596 was adopted without TSB being previously notified and heard, according to respondents, the same is void for want of due process; consequently, the bank's management should be restored to its board of directors and officers. 13

Petitioners claim that it is the essence of Sec. 29 of R.A. 265 that prior notice and hearing in cases involving bank closures should not be required since in all probability a hearing would not only cause unnecessary delay but also provide bank "insiders" and stockholders the opportunity to further dissipate the bank's resources, create liabilities for the bank up to the insured amount of P40,000.00, and even destroy evidence of fraud or irregularity in the

bank's operations to the prejudice of its depositors and creditors. 14 Petitioners further argue that the legislative intent of Sec. 29 is to repose in the Monetary Board exclusive power to determine the existence of statutory grounds for the closure and liquidation of banks, having the required expertise and specialized competence to do so.

The first issue raised before Us is whether absence of prior notice and hearing may be considered acts of arbitrariness and bad faith sufficient to annul a Monetary Board resolution enjoining a bank from doing business and placing it under receivership. Otherwise stated, is absence of prior notice and hearing constitutive of acts of arbitrariness and bad faith?

Under Sec. 29 of R.A. 265, 15 the Central Bank, through the Monetary Board, is vested with exclusive authority to assess, evaluate and determine the condition of any bank, and finding such condition to be one of insolvency, or that its continuance in business would involve probable loss to its depositors or creditors, forbid the bank or non-bank financial institution to do business in the Philippines; and shall designate an official of the CB or other competent person as receiver to immediately take charge of its assets and liabilities. The fourth paragraph, 16which was then in effect at the time the action was commenced, allows the filing of a case to set aside the actions of the Monetary Board which are tainted with arbitrariness and bad faith.

Contrary to the notion of private respondent, Sec. 29 does not contemplate prior notice and hearing before a bank may be directed to stop operations and placed under receivership. When par. 4 (now par. 5, as amended by E.O. 289) provides for the filing of a case within ten (10) days after the receiver takes charge of the assets of the bank, it is unmistakable that the assailed actions should precede the filing of the case. Plainly, the legislature could not have intended to authorize "no prior notice and hearing" in the closure of the bank and at the same time allow a suit to annul it on the basis of absence thereof.

In the early case of Rural Bank of Lucena, Inc. v. Arca [1965], 17 We held that a previous hearing is nowhere required in Sec. 29 nor does the constitutional requirement of due process demand that the correctness of the Monetary Board's resolution to stop operation and proceed to liquidation be first adjudged before making the resolution effective. It is enough that a subsequent judicial review be provided.

Even in Banco Filipino, 18 We reiterated that Sec. 29 of R.A. 265 does not require a previous hearing before the Monetary Board can implement its resolution closing a bank, since its action is subject to judicial scrutiny as provided by law.

It may be emphasized that Sec. 29 does not altogether divest a bank or a non-bank financial institution placed under receivership of the opportunity to be heard and present evidence on arbitrariness and bad faith because within ten (10) days from the date the receiver takes charge of the assets of the bank, resort to judicial review may be had by filing an appropriate pleading with the court. Respondent TSB did in fact avail of this remedy by filing a complaint with the RTC of Quezon City on the 8th day following the takeover by the receiver of the bank's assets on 3 June 1985.

This "close now and hear later" scheme is grounded on practical and legal considerations to prevent unwarranted dissipation of the bank's assets and as a valid exercise of police power to protect the depositors, creditors, stockholders and the general public.

In Rural Bank of Buhi, Inc. v. Court of Appeals, 19 We stated that —

. . . due process does not necessarily require a prior hearing; a hearing or an opportunity to be heard may be subsequent to the closure. One can just imagine the dire consequences of a prior hearing: bank runs would be the order of the day, resulting in panic and hysteria. In the process, fortunes may be wiped out and disillusionment will run the gamut of the entire banking community.

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

. . . the banking business is properly subject to reasonable regulation under the police power of the state because of its nature and relation to the fiscal affairs of the people and the revenues of the state (9 CJS 32). Banks are affected with public interest because they receive funds from the general public in the form of deposits. Due to the nature of their transactions and functions, a fiduciary relationship is created between the banking institutions and their depositors. Therefore, banks are under the obligation to treat with meticulous care and utmost fidelity the accounts of those who have reposed their trust and confidence in them (Simex International [Manila], Inc., v. Court of Appeals, 183 SCRA 360 [1990]).

It is then the Government's responsibility to see to it that the financial interests of those who deal with the banks and banking institutions, as depositors or otherwise, are protected. In this country, that task is delegated to the Central Bank which, pursuant to its Charter (R.A. 265, as amended), is authorized to administer the monetary, banking and credit system of the Philippines. Under both the 1973 and 1987 Constitutions, the Central Bank is tasked with providing policy direction in the areas of money, banking and credit; corollarily, it shall have supervision over the operations of banks (Sec. 14, Art. XV, 1973 Constitution, and Sec. 20, Art. XII, 1987 Constitution). Under its charter, the CB is further authorized to take the necessary steps against any banking institution if its continued operation would cause prejudice to its depositors, creditors and the general public as well. This power has been expressly recognized by this Court. In Philippine Veterans Bank Employees Union-NUBE v. Philippine Veterans Banks (189 SCRA 14 [1990], this Court held that:

. . . [u]nless adequate and determined efforts are taken by the government against distressed and mismanaged banks, public faith in the banking system is certain to deteriorate to the prejudice of the national economy itself, not to mention the losses suffered by the bank depositors, creditors, and stockholders, who all deserve the protection of the government. The government cannot simply cross its arms while the assets of a bank are being depleted through mismanagement or irregularities. It is the duty of the Central Bank in such an event to step in and salvage the remaining resources of the bank so that they may not continue to be dissipated or plundered by those entrusted with their management.

Section 29 of R.A. 265 should be viewed in this light; otherwise, We would be subscribing to a situation where the procedural rights invoked by private respondent would take

precedence over the substantive interests of depositors, creditors and stockholders over the assets of the bank.

Admittedly, the mere filing of a case for receivership by the Central Bank can trigger a bank run and drain its assets in days or even hours leading to insolvency even if the bank be actually solvent. The procedure prescribed in Sec. 29 is truly designed to protect the interest of all concerned, i.e., the depositors, creditors and stockholders, the bank itself, and the general public, and the summary closure pales in comparison to the protection afforded public interest. At any rate, the bank is given full opportunity to prove arbitrariness and bad faith in placing the bank under receivership, in which event, the resolution may be properly nullified and the receivership lifted as the trial court may determine.

The heavy reliance of respondents on the Banco Filipino case is misplaced in view of factual circumstances therein which are not attendant in the present case. We ruled in Banco Filipino that the closure of the bank was arbitrary and attendant with grave abuse of discretion, not because of the absence of prior notice and hearing, but that the Monetary Board had no sufficient basis to arrive at a sound conclusion of insolvency to justify the closure. In other words, the arbitrariness, bad faith and abuse of discretion were determined only after the bank was placed under conservatorship and evidence thereon was received by the trial court. As this Court found in that case, the Valenzuela, Aurellano and Tiaoqui Reports contained unfounded assumptions and deductions which did not reflect the true financial condition of the bank. For instance, the subtraction of an uncertain amount as valuation reserve from the assets of the bank would merely result in its net worth or the unimpaired capital and surplus; it did not reflect the total financial condition of Banco Filipino.

Furthermore, the same reports showed that the total assets of Banco Filipino far exceeded its total liabilities. Consequently, on the basis thereof, the Monetary Board had no valid reason to liquidate the bank; perhaps it could have merely ordered its reorganization or rehabilitation, if need be. Clearly, there was in that case a manifest arbitrariness, abuse of discretion and bad faith in the closure of Banco Filipino by the Monetary Board. But, this is not the case before Us. For here, what is being raised as arbitrary by private respondent is the denial of prior notice and hearing by the Monetary Board, a matter long settled in this jurisdiction, and not the arbitrariness which the conclusions of the Supervision and Examination Sector (SES), Department II, of the Central Bank were reached.

Once again We refer to Rural Bank of Buhi, Inc. v. Court of Appeals, 21 and reiterate Our pronouncement therein that —

. . . the law is explicit as to the conditions prerequisite to the action of the Monetary Board to forbid the institution to do business in the Philippines and to appoint a receiver to immediately take charge of the bank's assets and liabilities. They are: (a) an examination made by the examining department of the Central Bank; (b) report by said department to the Monetary Board; and (c) prima facieshowing that its continuance in business would involve probable loss to its depositors or creditors.

In sum, appeal to procedural due process cannot just outweigh the evil sought to be prevented; hence, We rule that Sec. 29 of R.A. 265 is a sound legislation promulgated in accordance with the Constitution in the exercise of police power of the state. Consequently, the absence of notice and hearing is not a valid ground to annul a Monetary Board resolution placing a bank under receivership. The absence of prior notice and hearing cannot be deemed acts of arbitrariness and bad faith. Thus, an MB resolution placing a bank under

receivership, or conservatorship for that matter, may only be annulled after a determination has been made by the trial court that its issuance was tainted with arbitrariness and bad faith. Until such determination is made, the status quo shall be maintained, i.e., the bank shall continue to be under receivership.

As regards the second ground, to rule that only the receiver may bring suit in behalf of the bank is, to echo the respondent appellate court, "asking for the impossible, for it cannot be expected that the master, the CB, will allow the receiver it has appointed to question that very appointment." Consequently, only stockholders of a bank could file an action for annulment of a Monetary Board resolution placing the bank under receivership and prohibiting it from continuing operations. 22 In Central Bank v. Court of Appeals, 23 We explained the purpose of the law —

. . . in requiring that only the stockholders of record representing the majority of the capital stock may bring the action to set aside a resolution to place a bank under conservatorship is to ensure that it be not frustrated or defeated by the incumbent Board of Directors or officers who may immediately resort to court action to prevent its implementation or enforcement. It is presumed that such a resolution is directed principally against acts of said Directors and officers which place the bank in a state of continuing inability to maintain a condition of liquidity adequate to protect the interest of depositors and creditors. Indirectly, it is likewise intended to protect and safeguard the rights and interests of the stockholders. Common sense and public policy dictate then that the authority to decide on whether to contest the resolution should be lodged with the stockholders owning a majority of the shares for they are expected to be more objective in determining whether the resolution is plainly arbitrary and issued in bad faith.

It is observed that the complaint in this case was filed on 11 June 1985 or two (2) years prior to 25 July 1987 when E.O. 289 was issued, to be effective sixty (60) days after its approval (Sec. 5). The implication is that before E.O

. 289, any party in interest could institute court proceedings to question a Monetary Board resolution placing a bank under receivership. Consequently, since the instant complaint was filed by parties representing themselves to be officers of respondent Bank (Officer-in-Charge and Vice President), the case before the trial court should now take its natural course. However, after the effectivity of E.O. 289, the procedure stated therein should be followed and observed.

PREMISES considered, the Decision of the Court of Appeals in CA-G.R. SP No. 07867 is AFFIRMED, except insofar as it upholds the Order of the trial court of 11 November 1985 directing petitioner RAMON V. TIAOQUI to restore the management of TRIUMPH SAVINGS BANK to its elected Board of Directors and Officers, which is hereby SET ASIDE.

Let this case be remanded to the Regional Trial Court of Quezon City for further proceedings to determine whether the issuance of Resolution No. 596 of the Monetary Board was tainted with arbitrariness and bad faith and to decide the case accordingly.

SO ORDERED.

Narvasa, C.J., Cruz, Padilla, Bidin, Griño-Aquino, Regalado, Davide, Jr., Romero, Nocon, Campos, Jr. and Quiason, JJ., concur.

Feliciano and Melo, JJ., took no part.

 

# Footnotes

G.R. No. 114870 May 26, 1995

MIGUELA R. VILLANUEVA, RICHARD R. VILLANUEVA, and MERCEDITA VILLANUEVA-TIRADOS, petitioners, vs.COURT OF APPEALS, CENTRAL BANK OF THE PHILIPPINES, ILDEFONSO C. ONG, and PHILIPPINE VETERANS BANK, respondents.

 

DAVIDE, JR., J.:

Do petitioners have a better right than private respondent Ildefonso Ong to purchase from the Philippine Veterans Bank (PVB) the two parcels of land described as Lot No. 210-D-1 and Lot No. 210-D-2 situated at Muntinglupa, Metro Manila, containing an area of 529 and 300 square meters, respectively? This is the principal legal issue raised in this petition.

In its decision of 27 January 1994 in CA-G.R. CV No. 35890, 1 the Court of Appeals held for Ong, while the trial court, Branch 39 of the Regional Trial Court (RTC) of Manila, ruled for the petitioners in its joint decision of 31 October 1991 in Civil Case No. 87-42550 2 and Sp. Proc. No. 85-32311. 3

The operative antecedent facts are set forth in the challenged decision as follows:

The disputed lots were originally owned by the spouses Celestino Villanueva and Miguela Villanueva, acquired by the latter during her husband's sojourn in the United States since 1968. Sometime in 1975, Miguela Villanueva sought the help of one Jose Viudez, the then Officer-in-Charge of the PVB branch in Makati if she could obtain a loan from said bank. Jose Viudez told Miguela Villanueva to surrender the titles of said lots as collaterals. And to further facilitate a bigger loan, Viudez, in connivance with one Andres Sebastian, swayed Miguela Villanueva to execute a deed of sale covering the two (2) disputed lots, which she did but without the signature of her husband Celestino. Miguela Villanueva, however, never got the loan she was expecting. Subsequent attempts to contact Jose Viudez proved futile, until Miguela Villanueva thereafter found out that new titles over the two (2) lots were already issued in the name of the PVB. It appeared upon inquiry from the Registry of Deeds that the original titles of these lots were canceled and new ones were issued to Jose Viudez, which in turn were again canceled and new titles issued in favor of Andres Sebastian, until finally new titles were issued in the name of PNB [should be PVB] after the lots were foreclosed for failure to pay the loan granted in the name of Andres Sebastian.

Miguela Villanueva sought to repurchase the lots from the PVB after being informed that the lots were about to be sold at auction. The PVB told her that

she can redeem the lots for the price of P110,416.00. Negotiations for the repurchase of the lots nevertheless were stalled by the filing of liquidation proceedings against the PVB on August of 1985.

Plaintiff-appellant [Ong] on the other hand expounds on his claim over the disputed lots in this manner:

In October 1984, plaintiff-appellant offered to purchase two pieces of Land that had been acquired by PVB through foreclosure. To back-up plaintiff-appellant's offer he deposited the sum of P10,000.00.

In 23 November 1984, while appellant was still abroad, PVB approved his subject offer under Board Resolution No. 10901-84. Among the conditions imposed by PVB is that: "The purchase price shall be P110,000.00 (Less deposit of P10,000.00) payable in cash within fifteen (15) days from receipt of approval of the offer."

In mid-April 1985, appellant returned to the country. He immediately verified the status of his offer with the PVB, now under the control of CB, where he was informed that the same had already been approved. On 16 April 1985, appellant formally informed CB of his desire to pay the subject balance provided the bank should execute in his favor the corresponding deed of conveyance. The letter was not answered.

Plaintiff-appellant sent follow-up Letters that went unheeded, the last of which was on 21 May 1987. On 26 May 1987, appellant's payment for the balance of the subject properties were accepted by CB under Official Receipt #0816.

On 17 September 1987, plaintiff-appellant through his counsel, sent a letter to CB demanding for the latter to execute the corresponding deed of conveyance in favor of appellant. CB did not bother to answer the same. Hence, the instant case.

While appellant's action for specific performance against CB was pending, Miguela Villanueva and her children filed their claims with the Liquidation court. (Appellant's Brief, pp. 3-4). 4

From the pleadings, the following additional or amplificatory facts are established:

The efforts of Miguela Villanueva to reacquire the property began on 8 June 1983 when she offered to purchase the lots for P60,000.00 with a 20% downpayment and the balance payable in five years on a quarterly amortization basis. 5

Her offer not having been accepted, 6 Miguela Villanueva increased her bid to P70,000.00. It was only at this time that she disclosed to the bank her private transactions with Jose Viudez. 7

After this and her subsequent offers were rejected, 8 Miguela sent her sealed bid of P110,417.00 pursuant to the written advice of the vice president of the PVB. 9

The PVB was placed under receivership pursuant to Monetary Board (MB) Resolution No. 334 dated 3 April 1985 and later, under liquidation pursuant to MB Resolution No. 612 dated 7 June 1985. Afterwards, a petition for liquidation was filed with the RTC of Manila, which was docketed as Sp. Proc. No. 85-32311 and assigned to Branch 39 of the said court.

On 26 May 1987, Ong tendered the sum of P100,000.00 representing the balance of the purchase price of the litigated lots. 10 An employee of the PVB received the amount conditioned upon approval by the Central Bank liquidator. 11 Ong's demand for a deed of conveyance having gone unheeded, he filed on 23 October 1987 with the RTC of Manila an action for specific performance against the Central Bank. 12 It was raffled to Branch 47 thereof. Upon learning that the PVB had been placed under liquidation, the presiding judge of Branch 47 ordered the transfer of the case to Branch 39, the liquidation court. 13

On 15 June 1989, then Presiding Judge Enrique B. Inting issued an order allowing the purchase of the two lots at the price of P150,000.00. 14 The Central Bank liquidator of the PVB moved for the reconsideration of the order asserting that it is contrary to law as the disposal of the lots should be made through public auction. 15

On 26 July 1989, Miguela Villanueva filed her claim with the liquidation court. She averred, among others, that she is the lawful and registered owner of the subject lots which were mortgaged in favor of the PVB thru the falsification committed by Jose Viudez, the manager of the PVB Makati Branch, in collusion with Andres Sebastian; that upon discovering this fraudulent transaction, she offered to purchase the property from the bank; and that she reported the matter to the PC/INP Criminal Investigation Service Command, Camp Crame, and after investigation, the CIS officer recommended the filing of a complaint for estafa through falsification of public documents against Jose Viudez and Andres Sebastian. She then asked that the lots be excluded from the assets of the PVB and be conveyed back to her. 16 Later, in view of the death of her husband, she amended her claim to include her children, herein petitioners Mercedita Villanueva-Tirados and Richard Villanueva. 17

On 31 October 1991, the trial court rendered judgment 18 holding that while the board resolution approving Ong's offer may have created in his favor a vested right which may be enforced against the PVB at the time or against the liquidator after the bank was placed under liquidation proceedings, the said right was no longer enforceable, as he failed to exercise it within the prescribed 15-day period. As to Miguela's claim, the court ruled that the principle of estoppel bars her from questioning the transaction with Viudez and the subsequent transactions because she was a co-participant thereto, though only with respect to her undivided one-half (1/2) conjugal share in the disputed lots and her one-third (1/3) hereditary share in the estate of her husband.

Nevertheless, the trial court allowed her to purchase the lots if only to restore their status as conjugal properties. It further held that by reason of estoppel, the transactions having been perpetrated by a responsible officer of the PVB, and for reasons of equity, the PVB should not be allowed to charge interest on the price of the lots; hence, the purchase price should be the PVB's claim as of 29 August 1984 when it considered the sealed bids, i.e., P110,416.20, which should be borne by Miguela Villanueva alone.

The dispositive portion of the decision of the trial court reads as follows:

WHEREFORE, judgment is hereby rendered as follows:

1. Setting aside the order of this court issued on June 15, 1989 under the caption Civil Case No. 87-42550 entitled "Ildefonso Ong vs. Central Bank of the Phils., et al.;

2. Dismissing the claim of Ildefonso Ong over the two parcels of land originally covered by TCT No. 438073 and 366364 in the names of Miguela Villanueva and Celestino Villanueva, respectively which are now covered by TCT No. 115631 and 115632 in the name of the PVB;

3. Declaring the Deed of Absolute Sale bearing the signature of Miguela Villanueva and the falsified signature of Celestino [sic] Viudez under date May 6, 1975 and all transactions and related documents executed thereafter referring to the two lots covered by the above stated titles as null and void;

4. Ordering the Register of Deeds of Makati which has jurisdiction over the two parcels of land in question to re-instate in his land records, TCT No. 438073 in the name of Miguela Villanueva and TCT No. 366364 in the name of Celestino Villanueva who were the registered owners thereof, and to cancel all subsequent titles emanating therefrom; and

5. Ordering the Liquidator to reconvey the two lots described in TCT No. 115631 and 115632 and executing the corresponding deed of conveyance of the said lots upon the payment of One Hundred Ten Thousand Four Hundred Sixteen and 20/100 (P110,416.20) Pesos without interest and less the amount deposited by the claimant, Miguela Villanueva in connection with the bidding where she had participated and conducted by the PVB on August 29, 1984.

Cost against Ildefonso Ong and the PVB.

SO ORDERED. 19

Only Ong appealed the decision to the Court of Appeals. The appeal was docketed as CA-G.R. CV No. 35890. In its decision of 27 January 1994, the Court of Appeals reversed the decision of the trial court and ruled as follows:

WHEREFORE, premises considered, the assailed decision is hereby REVERSED and SET ASIDE, and a new one entered ordering the disputed-lots be awarded in favor of plaintiff-appellant Ildefonso Ong upon defendant-appellee Central Bank's execution of the corresponding deed of sale in his favor. 20

In support thereof, the Court of Appeals declared that Ong's failure to pay the balance within the prescribed period was excusable because the PVB neither notified him of the approval of his bid nor answered his letters manifesting his readiness to pay the balance, for which reason he could not have known when to reckon the 15-day period prescribed under its resolution. It went further to suggest that the Central Bank was in estoppel because it accepted Ong's late-payment of the balance. As to the petitioners' claim, the Court of Appeals stated:

The conclusion reached by the lower court favorable to Miguela Villanueva is, as aptly pointed out by plaintiff-appellant, indeed confusing. While the lower court's decision declared Miguela Villanueva as estopped from recovering her proportionate share and interest in the two (2) disputed lots for being a "co-participant" in the fraudulent scheme perpetrated by Jose Viudez and Andres Sebastian — a factual finding which We conform to and which Miguela Villanueva does not controvert in this appeal by not filing her appellee's brief, yet it ordered the reconveyance of the disputed lots to Miguela Villanueva as the victorious party upon her payment of P110,416.20. Would not estoppel defeat the claim of the party estopped? If so, which in fact must be so, would it not then be absurd or even defiant for the lower court to finally entitle Miguela Villanueva to the disputed lots after having been precluded from assailing their subsequent conveyance in favor of Jose Viudez by reason of her own negligence and/or complicity therein? The intended punitive effect of estoppel would merely be a dud if this Court leaves the lower court's conclusion unrectified. 21

Their motion for reconsideration 22 having been denied, 23 the petitioners filed this petition for review on certiorari.24

Subsequently, the respondent Central Bank apprised this Court that the PVB was no longer under receivership or liquidation and that the PVB has been back in operation since 3 August 1992. It then prayed that it be dropped from this case or at least be substituted by the PVB, which is the real party in interest. 25

In its Manifestation and Entry of Appearance, the PVB declared that it submits to the jurisdiction of this Court and that it has no objection to its inclusion as a party respondent in this case in lieu of the Central Bank. 26 The petitioners did not object to the substitution. 27

Later, in its Comment dated 10 October 1994, the PVB stated that it "submits to and shall abide by whatever judgment this Honorable Supreme Tribunal may announce as to whom said lands may be awarded without any touch of preference in favor of one or the other party litigant in the instant case." 28

In support of their contention that the Court of Appeals gravely erred in holding that Ong is better entitled to purchase the disputed lots, the petitioners maintain that Ong is a disqualified bidder, his bid of P110,000.00 being lower than the starting price of P110,417.00 and his deposit of P10,000.00 being less than the required 10% of the bid price; that Ong failed to pay the balance of the price within the 15-day period from notice of the approval of

his bid; and that his offer of payment is ineffective since it was conditioned on PVB's execution of the deed of absolute sale in his favor.

On the other hand, Ong submits that his offer, though lower than Miguela ViIlanueva's bid by P417.00, is much better, as the same is payable in cash, while Villanueva's bid is payable in installment; that his payment could not be said to have been made after the expiration of the 15-day period because this period has not even started to run, there being no notice yet of the approval of his offer; and that he has a legal right to compel the PVB or its liquidator to execute the corresponding deed of conveyance.

There is no doubt that the approval of Ong's offer constitutes an acceptance, the effect of which is to perfect the contract of sale upon notice thereof to Ong. 29 The peculiar circumstances in this case, however, pose a legal obstacle to his claim of a better right and deny support to the conclusion of the Court of Appeals.

Ong did not receive any notice of the approval of his offer. It was only sometime in mid-April 1985 when he returned from the United States and inquired about the status of his bid that he came to know of the approval.

It must be recalled that the PVB was placed under receivership pursuant to the MB Resolution of 3 April 1985 after a finding that it was insolvent, illiquid, and could not operate profitably, and that its continuance in business would involve probable loss to its depositors and creditors. The PVB was then prohibited from doing business in the Philippines, and the receiver appointed was directed to "immediately take charge of its assets and liabilities, as expeditiously as possible collect and gather all the assets and administer the same for the benefit of its creditors, exercising all the powers necessary for these purposes."

Under Article 1323 of the Civil Code, an offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party before acceptance is conveyed. The reason for this is that:

[T]he contract is not perfected except by the concurrence of two wills which exist and continue until the moment that they occur. The contract is not yet perfected at any time before acceptance is conveyed; hence, the disappearance of either party or his loss of capacity before perfection prevents the contractual tie from being formed. 30

It has been said that where upon the insolvency of a bank a receiver therefor is appointed, the assets of the bank pass beyond its control into the possession and control of the receiver whose duty it is to administer the assets for the benefit of the creditors of the bank. 31 Thus, the appointment of a receiver operates to suspend the authority of the bank and of its directors and officers over its property and effects, such authority being reposed in the receiver, and in this respect, the receivership is equivalent to an injunction to restrain the bank officers from intermeddling with the property of the bank in any way. 32

Section 29 of the Central Bank Act, as amended, provides thus:

Sec. 29. Proceedings upon insolvency. — Whenever, upon examination by the head of the appropriate supervising or examining department or his examiners or agents into the condition of any bank or non-bank financial intermediary performing quasi-banking functions, it shall be disclosed that the condition of the same is one of insolvency, or that its continuance in business

would involve probable loss to its depositors or creditors, shall be the duty of the department head concerned forthwith, in writing, to inform the Monetary Board of the facts. The Board may, upon finding the statements of the department head to be true, forbid the institution to do business in the Philippines and designate an official of the Central Bank or a person of recognized competence in banking or finance as receiver to immediately take charge of its assets and liabilities, as expeditiously as possible collect and gather all the assets and administer the same for the benefit of its creditors . . . exercising all the powers necessary for these purposes. . . .

xxx xxx xxx

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

In a nutshell, the insolvency of a bank and the consequent appointment of a receiver restrict the bank's capacity to act, especially in relation to its property, Applying Article 1323 of the Civil Code, Ong's offer to purchase the subject lots became ineffective because the PVB became insolvent before the bank's acceptance of the offer came to his knowledge. Hence, the purported contract of sale between them did not reach the stage of perfection. Corollarily, he cannot invoke the resolution of the bank approving his bid as basis for his alleged right to buy the disputed properties.

Nor may the acceptance by an employee of the PVB of Ong's payment of P100,000.00 benefit him since the receipt of the payment was made subject to the approval by the Central Bank liquidator of the PVB thus:

Payment for the purchase price of the former property of Andres Sebastian per approved BR No. 10902-84 dated 11/13/84, subject to the approval of CB liquidator. 33

This payment was disapproved on the ground that the subject property was already in custodia legis, and hence, disposable only by public auction and subject to the approval of the liquidation court. 34

The Court of Appeals therefore erred when it held that Ong had a better right than the petitioners to the purchase of the disputed lots.

Considering then that only Ong appealed the decision of the trial court, the PVB and the Central Bank, as well as the petitioners, are deemed to have fully and unqualifiedly accepted the judgment, which thus became final as to them for their failure to appeal.

WHEREFORE, the instant petition is GRANTED and the challenged decision of the Court of Appeals of 27 January 1994 in CA-G.R. CV No. 35890 is hereby SET ASIDE. The decision of Branch 39 of the Regional Trial Court of Manila of 31 October 1991 in Civil Case No. 87-42550 and Sp. Proc. No. 85-32311 is hereby REINSTATED.

Respondent Philippine Veterans Bank is further directed to return to private respondent Ildefonso C. Ong the amount of P100,000.00.

No pronouncement as to costs.

SO ORDERED.

Padilla, Bellosillo and Kapunan, JJ., concur.

Quiason, J., is on leave.

 

Footnotes

.R. No. 73884 September 24, 1987

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

 

PARAS, J.:

This is a petition for review on certiorari of the August 30, 1985 Order of the Regional Trial Court of Pasig denying petitioners' Motion to Lift Stay of Execution in Civil Case No. 50802.

During the period from 1982 to January, 1984, herein petitioners opened and maintained both time and savings deposits with the herein respondent Development Bank of Rizal all in the aggregate amount of P939,737.32. When some of the Time Deposit Certificates matured, petitioners were not able to cash them but instead were issued a manager's check which was dishonored upon presentment. Demands for the payment of both time and savings deposits having failed, on March 14, 1984, petitioners filed with the Regional Trial Court of Pasig a Complaint With Prayer For Issuance of a Writ of Preliminary Attachment for collection of a sum of money with damages, docketed therein as Civil Case No. 50802 (Record, pp. 3-11).

Respondent Judge, in an Order dated March 19, 1984 (Ibid., p. 19-21), ordered the issuance of a writ of attachment, and pursuant thereto, a writ of attachment dated March 20, 1984 was issued in favor of the petitioners (Ibid., p. 33).

On June 27, 1984, respondent bank filed its Answer (Ibid., p. 58-61).

On July 23, 1984, petitioners filed a Motion For Judgment on the Pleadings (Ibid., pp. 68-73), opposed by respondent bank (Ibid., pp. 74-76), but respondent judge, in a Decision dated November 13, 1984, rendered judgment in favor of petitioners. The dispositive portion of the said Decision, reads:

IN VIEW OF ALL THE FOREGOING, the Court renders judgment in favor of the plaintiffs, ordering the defendant to pay the total sum of P939,737.32 plus stipulated interest; the sum equivalent to 15% of the amount due as attorney's fees; and costs of suit.

The counterclaim is dismissed, for lack of merit.

Meanwhile, on August 10, 1984, the Monetary Board, in its Resolution No. 1009, finding that the condition of respondent bank was one of insolvency and that its continuance in business would result in probable loss to its depositors and creditors, decided to place it under receivership (Rollo, p. 84).

On December 7, 1984, petitioners filed a Motion for Execution Pending Appeal (Rcd., pp. 91-93), which was opposed by respondent bank (Ibid., p. 94-96). On December 27, 1984, petitioners filed their Reply to the opposition (Ibid., pp. 98-101), to which respondent bank filed its Rejoinder on January 1, 1985 (Ibid., pp. 102-105).

In an order dated January 29, 1985, respondent judge ordered the issuance of a writ of execution (Ibid., p. 106).

On February 11, 1985, respondent bank filed a Motion for Reconsideration of order dated January 29, 1985 and to Stay Writ of Execution (Ibid., pp. 109-110), opposed by petitioners (Ibid., p. 111) but in an Order dated March 6, 1985, respondent judge stayed the execution (Ibid., p. 113).

On August 7, 1985, petitioners filed a Motion to Lift Stay of Execution (Ibid., pp. 119-122), opposed by respondent bank (Ibid., pp. 123-127), and in an Order dated August 30, 1985, respondent judge denied the said motion (Ibid., p. 130). Hence, the instant petition (Rollo, pp. 8-17).

The Second Division of the Court, in a resolution dated May 5, 1986, resolved to require the respondent to comment (Ibid., p. 52). In compliance therewith, respondent bank filed its Comment on June 9, 1986 (Ibid., pp. 53-58).

The petition was given due course in a resolution dated August 11, 1986, and the parties were required to file their respective memoranda (Ibid., p. 61). In compliance therewith, petitioners filed their Memorandum on September 19, 1986 (Ibid., p. 63-75), while respondent bank filed its Memorandum on September 25, 1986 (Ibid., pp. 76-83), and the case was considered submitted for deliberation in the Resolution dated October 8, 1986 (Ibid., p. 88)

Petitioners raised the following issues:

1. Respondent judge cannot legally stay execution of judgement that has already become final and executory;

2. The placing under receivership by the Central Bank of the respondent bank, long after the complaint was filed removed it from the application of the doctrine in Re: Central Bank vs. Morfe (63 SCRA 113);

3. The filing of the complaint for a sum of money With damages against respondent bank and the subsequent attachment of its property in Pasig, Metro Manila long before the receivership took place render inapplicable the doctrine laid down by this Honorable Supreme Court in the said Morfe case;

4. The indefinite stay of execution without a ruling as to how long it will last, amounts to deprivation of petitioners of their property without due process of law.

The instant petition is without merit.

I.

The main issue in this case is whether or not respondent judge could legally stay execution of judgment that has already become final and executory.

The answer is in the affirmative.

The rule that once a decision becomes final and executory, it is the ministerial duty of the court to order its execution, admits of certain exceptions as in cases of special and exceptional nature where it becomes imperative in the higher interest of justice to direct the suspension of its execution (Vecine vs. Geronimo, 59 O.G. 579); whenever it is necessary to accomplish the aims of justice (Pascual vs. Tan, 85 Phil. 164); or when certain facts and circumstances transpired after the judgment became final which could render the execution of the judgment unjust (Cabrias vs. Adil, 135 SCRA 354).

In the instant case, the stay of the execution of judgment is warranted by the fact that respondent bank was placed under receivership. To execute the judgment would unduly deplete the assets of respondent bank to the obvious prejudice of other depositors and creditors, since, as aptly stated in Central Bank of the Philippines vs. Morfe (63 SCRA 114), after the Monetary Board has declared that a bank is insolvent and has ordered it to cease operations, the Board becomes the trustee of its assets for the equal benefit of all the creditors, including depositors. The assets of the insolvent banking institution are held in trust for the equal benefit of all creditors, and after its insolvency, one cannot obtain an advantage or a preference over another by an attachment, execution or otherwise.

Moreover, it will be noted that respondent bank was placed under receivership on August 10, 1984, and the Decision of respondent judge is dated November 13, 1984. Accordingly, in line with the ruling in the aforesaid Morfe case, which reads:

The circumstance that the Fidelity Savings Bank, having stopped operations since February 19, 1969, was forbidden to do business (and that ban would include the payment of time deposits) implies that suits for the payment of such deposits were prohibited. What was directly prohibited should not be encompassed indirectly. ...

petitioners 'complaint should have been dismissed.

II.

It is the contention of petitioners, however, that the placing under receivership of respondent bank long after the filing of the complaint removed it from the doctrine in the said Morfe case.

This contention is untenable. The time of the filing of the complaint is immaterial. It is the execution that win obviously prejudice the other depositors and creditors. Moreover, as

stated in the said Morfe case, the effect of the judgment is only to fix the amount of the debt, and not give priority over other depositors and creditors.

III.

Anent the contention of petitioners that the attachment of one of the properties of respondent bank was erased by virtue of the delayed receivership is to expand the power of the Central Bank, Suffice it to say that in the case ofCentral Bank of the Philippines, et al. vs. Court of Appeals, et al. (Resolution of this Court dated September 17, 1984 in G.R. No. 33302), wherein the original plaintiff Algue Inc. was able to obtain a writ of preliminary attachment against the original defendant Island Savings Bank, this Court refused to recognize any preference resulting from such attachment and ruled that after a declaration of insolvency, the remedy of the depositors is to intervene in the liquidation proceedings.

IV.

It is also contended by the petitioners that the indefinite stay of execution without ruling as to how long it will last, amounts to a deprivation of their property without due process of law.

Said contention, likewise, is devoid of merit. Apart from the fact that the stay of execution is not only in accordance with law but is also supported by jurisprudence, such staying of execution is not without a time limit. In fact, the Monetary Board, in its resolution No. 4-33 approved the liquidation of respondent bank on April 26, 1985 and ordered, among others, the filing of a petition in the Regional Trial Court praying for assistance of said court in the liquidation of the bank. (Rollo, p. 81). The staying of the writ of execution will be lifted after approval by the liquidation court of the project of distribution, and the liquidator or his deputy will authorize payments to all claimants concerned in accordance with the approved project of distribution.

PREMISES CONSIDERED, the instant petition is hereby DISMISSED.

SO ORDERED.