G.R. No.

L-30751 May 24, 1988

PHILIPPINE
NATIONAL
BANK, petitioner,
vs.
GENERAL ACCEPTANCE AND FINANCE CORPORATION, PHILIPPINE AMERICAN GENERAL INSURANCE CO.,
INC., HON. COURT OF APPEALS, and MACARIO OFILADA, as Sheriff of Manila, respondents.
Conrado E. Medina for petitioner.
Diosdado P. Peralta for respondents.

NARVASA, J.:
What is sought by the petition for review on certiorari in this case is the setting aside of the judgment of the Court of
Appeals in CA-G.R. No. 36757-R 1 and the affirmance instead, of the decision of the Court of First Instance of Manila in
Civil Case No. 51458. 2
The facts are set forth in the Appellate Court's decision. 3 The Philippine National Bank, hereafter simply PNB, approved
on February 28, 1962 an application for an import letter of credit in favor of a Hong Kong company 4 in the amount of US
$50,000.00, to cover importation of a defibering machine. The application was presented by Francisco Santos-doing
business under the name of FRASAN Coconut Industries, and was embodied in a document entitled "Application and
Agreement for Commercial Letter of Credit," dated February 1, 1962. 5 That "Application and Agreement," signed in due
course by PNB and FRASAN, contained an undertaking by FRASAN and/or Francisco Santos to the following effect:
... Absolute, security for the payment and performance of any and all our obligations and or liabilities to
you, direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising,
each of us hereby pledges to you and/or gives you a general lien upon and/or right of set-off of all rights,
title and interest of each of us in and to the balance of every deposit account now or at any time hereafter
existing. ...
Consequent on the PNB's approval of the application, and Pursuant to Circular No. 133 of the Central Bank, F. Santos
gave the PNB two (2) checks to constitute a special deposit denominated, "25% Special Time Deposit." The first check
was for P14,990.75, the other for P30,000.00; but only the second was good, the first having been later dishonored.
Circular No. 133 above mentioned was amended shortly afterwards by CB Circular No. 139 dated March 2,
19626 providing for the release of subsisting special deposits on "essential Consumer goods, essential Producer goods,
and decontrolled items." It is not disputed, by the way, that the defibering machine subject of the letter of credit, falls under
the category of "essential producer goods." Thereafter, PNB opened for FRASAN Coconut Industries, in favor of the Hong
Kong company, Letter of Credit No. 620301-DC for $50,000.00, to expire on May 31, 1962. 7
On March 16,1962, General Acceptance & Finance Corporation, hereafter, simply GAFC wrote to PNB informing it that
FRASAN's special time deposit of P30,000.00 had been assigned to it (attaching the corresponding deed dated March 2,
1962) and asking that the same be delivered to it in as much as the deposit, was deemed released in accordance with CB
Circular No. 139.
Four days later, however," 8 that same deposit was garnished by Sheriff of Manila in execution of a judgment of Manila
Court of First Instance in Civil Case No. 44704 obtained against Francisco Santos by the Philippine American General
Insurance Co., Inc., hereafter referred to simply as PHILAMGEN. But the garnishment was lifted on March 26, 1962, for
some reason. or other not precisely ascertainable from the record, although it is otherwise clear that GAFC had nothing to
do with the lifting.
PNB referred GAFC's request for delivery to it of the assigned deposit of P30,000.00 to its legal department for opinion,
advising GAFC thereof by letter dated March 27, 1962. FRASAN then wrote to PNB authorizing the release of the deposit
to GAFC but PNB wrote back on April 18,1962 refusing to release the deposit because it considered it as an addittional
guaranty for another obligation of Francisco Santos owing to the Development Bank of the Philippines.

On April 30, 1962 and again on May 25, 1962, the same special time deposit was once more garnished by the Manila
Sheriff. PNB informed the sheriff that the deposit had been previously assigned to GAFC, but this notwithstanding, the
sheriff served on PNB on July 18, 1962, and again on August 14,1962 a Notice of Delivery of Money. PNB informed GAFC
of these developments on August 2, 1962.
Evidently, PNB was already willing at this time to release FRASAN's deposit of P30,000.00 but its problem was, it did not
know to whom delivery should rightfully be made. To resolve the problem, it decided to file an action of interpleader
against the claimants thereof; GAFC and PHILAMGEN. This it did on September 1, 1962.
Answers and other pleadings were in due course filed, and trial was had, after which judgment was rendered on July 19,
1965. The Court inter alia declared
1) as without merit, PHILAMGEN's "claim that it has a better and superior right over the deposit, x x since, among other
reasons, Philamgen's lien was created on 30 April 1962 when the attachment was served on the plaintiff anew after it was
lifted on 16 April 1962, whereas defendant General Acceptance's right to the sum in plaintiffs hands arose as early as 2
March 1962;' and
2) deductions from the deposit, in the total amount of P8,331.13, had been correctly made by PNB since it had been
"authorized to apply the deposit x x to letter of credit No. 620301-DC and other accounts of Frasan Coconut Industries
pursuant to the 'Application and Agreement for Commercial Letter of Credit ... and by express authority of the depositor x
"' The judgment thus disposed of the case as follows:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered, as follows:
l. Ordering the plaintiff (PNB) to deliver to defendant General Acceptance the sum of P 21,668.87, with
interests at the legal rate from the date of this decision;
2. Declaring as legal and proper the deductions made by the Plaintiff on the original deposit of
P30,000.00;
3. Dismissing both defendants' counterclaims against the plaintiff;
4. Dismissing cross-plaintiff General Acceptance's cross-claim against ... Philamgen;
5. Dismissing plaintiffs counterclaim against defendant General Acceptane; and
6. Without pronouncement as to comes'
Both GAFC and PHILAMGEN appealed to the Court of Appeals. That Court, in its decision promulgated on December 24,
1968, expressed agreement with the Trial Court's conclusions except only with respect to the deductions made by PNB
from the deposit. On this point, the Appellate Court said:
... (W)e cannot agree with the conclusion ... that appellee bank was authorized to deduct from the said
deposit various charges and accounts due the bank from the Frasan Coconut Industries in the total
amount of P8,331.13. Appellants General Acceptance and Philamgen correctly contend that special
deposits, as in the case at bar, are deliveries of money or other property to a bank for safe-keeping and
return in kind (the same kind). Title to the thing deposited remains in the depositor, and the bank becomes
his agent, bailee, or trustee. There is no relation of debtor and creditor between the bank in which the
deposit is made and its special depositor, their status or relation being that of agent and
principal, bailee and bailor, or trustee and cestui que trust, or a combination of such relationships (C.J.S.,
pp. 562-563). This being the case, a bank impliedly binds itself, by accepting the special deposit, not to
set off against such deposit a debt due it from the depositor (7 Jur., p. 461). As a matter of fact, even
appellee bank admits this proposition in the case of special deposits x x. Of course, the bank argues that
the deposit in question is 8L general deposit and therefore the Same is governed by the rules on simple
loan. But, as we have stated earlier, the receipt clearly reveals the contrary, to say nothing of the Judicial
admission of the bank contained in its own complaint.
Likewise we cannot agree with the finding of the lower court that appellee was authorized to apply the
deposit ... to the charges and accounts due it under the letter of credit ... pursuant to the Application and

Agreement for Commercial Letter of Credit ...and by express authority of the depositor ..., the same
having no legal significance respecting special deposits. . .
The Appellate Court's judgment consequently modified that of the Lower Court in the following manner:
WHEREFORE, judgmnent is hereby rendered modifying the decision of the lower court in the following manner, to wit:
1. Ordering appellee ... (PNB) to deliver the sum of P 21,668.87 and the further sum of P8,331.13
representing the deducted charges and accounts, or a total of P30,000.00, to appellant .. (GAFC) and, by
way of compensatory damages, to pay said appellant interest at the legal rate from March 16,1962, on
said amount of P 30,000.00;
2. Ordering appellee ... (PNB) to pay appellant ... (GAFC) the sum of P 5,000.00 as exemplary or
corrective damages and the further sum of P 3,000.00 for attorney's fees and expenses of litigation;
3. Dismissing appellant ... (GAFC's) cross-claim against appellant Philamgen;
4. Costs against appellee ... (PNB).
Thus modified, the decision appealed from is affirmed in all other respects.
PNB appealed, as aforestated, and in its petition it contends that the Court of Appeals erred in holding
1) that the relationship between ... (it) and its depositor, FRASAN ..., on the controverted deposit of P30,000.00 is that of
agent and principal, bailee and bailor, or trustee and cestui que trust, and not as debtor and creditor;
2) that the Application and Agreement for Commercial Letter of Credit ... and the Letters- Authority ... have no legal
significance respecting special deposit, hence, the deductions made by petitioner bank, on the aforesaid deposit, are not
legal and proper; and
3) that petitioner bank is liable for compensatory and exemplary damages as well as attorney's fees and expenses of
litigations.
Whether or not the "25% special time deposit" made pursuant to CB Circular No. 133 in connection with the opening of a
foreign letter of credit so "freezes" or isolates the deposit that it may not be used except in relation to said letter of credit,
and no part of it may be applied for any other purpose, such as the payment of any other obligation of the party opening
the letter of credit, is the first and chief issue raised by the petitioner the Appellate Court's view being that the "deposit was
made in compliance with said Circular No. 133;" hence, "(t)itle to the thing deposited remains in the depositor, and the
bank becomes his agent, bailee, or trustee;" and the PNB impliedly bound itself, "by accepting the special deposit, not to
set off against such deposit a debt due it from the depositor. 9
Resolution of the issue in the affirmative, or in the manner of the appealed judgment, is however precluded by CB Circular
No. 139 dated March 2, 1962, 10 which as already pointed out, released "subsist time deposits on Essential ... Producer
goods," among others. In other words, while the deposit in connection with the projected importation of an "Essential
Producer" machine-was admittedly tied down to a specific purpose when made, in accordance with CB Circular No. 133,
and therefore could not be applied by either the PNB or FRASAN to any other purpose, it was subsequently released from
this restriction by CB Circular No. 139.
Moreover, under the "Application and Agreement," signed by PNB and FRASAN on February 1, 1962, Francisco Santos
and/ or FRASAN had pledged or given to the PNB "a general hen upon and/or right of set-off of all rights, title and
interest ... to the balance of every deposit account now or at any time hereafter existing," "(a)s security for the payment
and performance of any and all ..." (their) obligations and or liabilities ... , direct or indirect, absolute or contingent, due or
to become due, ... then existing or (t)hereafter arising ... ." Parenthentically, it may be pointed out that among the
"obligations thereafter arising" were the deposits required to be made by FRASAN on other letters of credit, Numbered
620424-DC and 620551-DC in the amounts of $110 and $220, respectively, which FRASAN, by letters dated March 13,
and March 19, 1962, had authorized PNB to deduct from the deposit in question. 11
Thus, when FRASAN assigned his "rights, title and interest ... (in) has fixed deposit" in favor of GAFC by deed dated
March 2, 1962, the latter acquired the same subject to (1) CB Circular No. 133, as amended by CB Circular No. 139, as

well as to (2) the general lien and/or right of set-off constituted in PNB's favor over the deposit by the assignor, FRASAN.
Evidently, the act of assignment could not have, without more, operated to erase hens or restrictions burdening the right
assigned. The assignee cannot, after all, acquire a greater right than that pertaining to the assignor.
The PNB was therefore acting well within its rights in making deductions on FRASAN's special time deposit in satisfaction
of its credits against the latter relative to transactions other than the original letter of credit. The correctness of the amount
of those deductions has not, incidentally, been impugned. This being the case, its refusing to deliver to GAFC the entire
deposit in the the sum of P30,000.00, in the face of the latter's insistence that no deductions should be made therefrom
and this was the correct amount to be delivered to it, coupled with the conflicting claim made on the same deposit by a
third party, was not of so reckless, oppressive or malevolent, a character as would give rise to liability for exemplary or
corrective damages, 12 or for attorney's fees. 13
WHEREFORE, the judgment of the Court of Appeals promulgated on December 24,1968 (in CARMEN G.R. No. 36575-R)
is REVERSED, and that rendered on July 19, 1965 by the Trial Court (in Civil Case No. 51458), REINSTATED AND
AFFIRMED.
Cruz, Gancayco, Grio-Aquino, and Medialdea, JJ., concur.
G.R. No. 73271 May 29, 1987
SPOUSES
TIRSO
I.
VINTOLA
and
LORETO
vs.
INSULAR BANK OF ASIA AND AMERICA, plaintiff-appellee.

DY

VINTOLA, defendants-appellants,

MELENCIO-HERRERA, J.:
This case was appealed to the Intermediate Appellate Court which, however, certified the same to this Court, the issue
involved being purely legal.
The facts are not disputed.
On August 20, 1975 the spouses Tirso and Loreta Vintola (the VINTOLAS, for short), doing business under the name and
style "Dax Kin International," engaged in the manufacture of raw sea shells into finished products, applied for and were
granted a domestic letter of credit by the Insular Bank of Asia and America (IBAA), Cebu City. 1 in the amount of
P40,000.00. The Letter of Credit authorized the bank to negotiate for their account drafts drawn by their supplier, one
Stalin Tan, on Dax Kin International for the purchase of puka and olive seashells. In consideration thereof, the VINTOLAS,
jointly and severally, agreed to pay the bank "at maturity, in Philippine currency, the equivalent, of the aforementioned
amount or such portion thereof as may be drawn or paid, upon the faith of the said credit together with the usual charges."
On the same day, August 20, 1975, having received from Stalin Tan the puka and olive shells worth P40,000.00, the
VINTOLAS executed a Trust Receipt agreement with IBAA, Cebu City. Under that Agreement, the VINTOLAS agreed to
hold the goods in trust for IBAA as the "latter's property with liberty to sell the same for its account, " and "in case of sale"
to turn over the proceeds as soon as received to (IBAA) the due date indicated in the document was October 19, 1975.
Having defaulted on their obligation, IBAA demanded payment from the VINTOLAS in a letter dated January 1, 1976. The
VINTOLAS, who were unable to dispose of the shells, responded by offering to return the goods. IBAA refused to accept
the merchandise, and due to the continued refusal of the VINTOLAS to make good their undertaking, IBAA charged them
with Estafa for having misappropriated, misapplied and converted for their own personal use and benefit the aforesaid
goods. During the trial of the criminal case the VINTOLAS turned over the seashells to the custody of the Trial Court.
On April 12, 1982, the then Court of First Instance of Cebu, Branch VII, acquitted the VINTOLAS of the crime charged,
after finding that the element of misappropriation or conversion was inexistent. Concluded the Court:
Finally, it should be mentioned that under the trust receipt, in the event of default and/or non-fulfillment on
the part of the accused of their undertaking, the bank is entitled to take possession of the goods or to
recover its equivalent value together with the usual charges. In either case, the remedy of the Bank is civil
and not criminal in nature. ... 2

Shortly thereafter, IBAA commenced the present civil action to recover the value of the goods before the Regional Trial
Court of Cebu, Branch XVI.
Holding that the complaint was barred by the judgment of acquittal in the criminal case, said Court dismissed the
complaint. However, on IBAA's motion, the Court granted reconsideration and:
1. Order(ed)defendants jointly and severally to pay the plaintiff the sum of Seventy Two Thousand Nine
Hundred Eighty Two and 27/100 (P72,982.27), Philippine Currency, plus interest of 14% per annum and
service charge of one (1%) per cent per annum computed from judicial demand and until the obligation is
fully paid;
2. Ordered defendants jointly and severally to pay attorney's fees to the plaintiff in the sum of Four
Thousand (P4,000.00) pesos, Philippine Currency, plus costs of the suit. 3
The VINTOLAS rest their present appeal on the principal allegation that their acquittal in the Estafa case bars IBAA's filing
of the civil action because IBAA had not reserved in the criminal case its right to enforce separately their civil liability. They
maintain that by intervening actively in the prosecution of the criminal case through a private prosecutor, IBAA had chosen
to file the civil action impliedly with the criminal action, pursuant to Section 1, Rule 111 of the 1985 Rules on Criminal
Procedure, reading:
Section 1. Institution of criminal and civil action. When a criminal action is instituted, the civil action for
the recovery of civil liability arising from the offense charged is impliedly instituted with the criminal action,
unless the offended party expressly waives the civil action or reserves his right to institute it separately. ...
and that since the judgment in the criminal case had made a declaration that the facts from which the civil action might
arise did not exist, the filing of the civil action arising from the offense is now barred, as provided by Section 3-b of Rule
111 of the same Rules providing:
(b) Extinction of the penal action does not carry with it extinction of the civil, unless the extinction
proceeds from a declaration in a final judgment that the fact from which the civil might arise did not exist.
In other cases, the person entitled to the civil action may institute it in the jurisdiction in the manner
provided by law against the person who may be liable for restitution of the thing and reparation or
indemnity for the damage suffered.
Further, the VINTOLAS take the position that their obligation to IBAA has been extinguished inasmuch as, through no fault
of their own, they were unable to dispose of the seashells, and that they have relinguished possession thereof to the
IBAA, as owner of the goods, by depositing them with the Court.
The foregoing submission overlooks the nature and mercantile usage of the transaction involved. A letter of credit-trust
receipt arrangement is endowed with its own distinctive features and characteristics. Under that set-up, a bank extends a
loan covered by the Letter of Credit, with the trust receipt as a security for the loan. In other words, the transaction
involves a loan feature represented by the letter of credit, and a security feature which is in the covering trust receipt.
Thus, Section 4 of P.D. No. 115 defines a trust receipt transaction as:
... any transaction by and between a person referred to in this Decree as the entruster, and another
person referred to in this Decree as the entrustee, whereby the entruster, who owns or holds absolute title
or security interests over certain specified goods, documents or instruments, releases the same to the
possession of the entrustee upon the latter's execution and delivery to the entruster of a signed document
called a "trust receipt" wherein the entrustee binds himself to hold the designated goods, documents or
instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or
instrument thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or
the goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in
accordance with the terms and conditions specified in the trust receipt, or for other purposes substantially
equivalent to any one of the following:
1. In the case of goods or documents, (a) to sell the goods or procure their sale, ...

A trust receipt, therefore, is a security agreement, pursuant to which a bank acquires a "security interest" in the goods. "It
secures an indebtedness and there can be no such thing as security interest that secures no obligation." 4 As defined in
our laws:
(h) "Security Interest"means a property interest in goods, documents or instruments to secure
performance of some obligations of the entrustee or of some third persons to the entruster and includes
title, whether or not expressed to be absolute, whenever such title is in substance taken or retained for
security only. 5
As elucidated in Samo vs. People 6 "a trust receipt is considered as a security transaction intended to aid in financing
importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of
merchandise, and who may not be able to acquire credit except through utilization, as collateral of the merchandise
imported or purchased."
Contrary to the allegation of the VINTOLAS, IBAA did not become the real owner of the goods. It was merely the holder of
a security title for the advances it had made to the VINTOLAS The goods the VINTOLAS had purchased through IBAA
financing remain their own property and they hold it at their own risk. The trust receipt arrangement did not convert the
IBAA into an investor; the latter remained a lender and creditor.
... for the bank has previously extended a loan which the L/C represents to the importer, and by that loan,
the importer should be the real owner of the goods. If under the trust receipt, the bank is made to appear
as the owner, it was but an artificial expedient, more of a legal fiction than fact, for if it were so, it could
dispose of the goods in any manner it wants, which it cannot do, just to give consistency with the purpose
of the trust receipt of giving a stronger security for the loan obtained by the importer. To consider the bank
as the true owner from the inception of the transaction would be to disregard the loan feature thereof. ... 7
Since the IBAA is not the factual owner of the goods, the VINTOLAS cannot justifiably claim that because they have
surrendered the goods to IBAA and subsequently deposited them in the custody of the court, they are absolutely relieved
of their obligation to pay their loan because of their inability to dispose of the goods. The fact that they were unable to sell
the seashells in question does not affect IBAA's right to recover the advances it had made under the Letter of Credit. In so
arguing, the VINTOLAS conveniently close their eyes to their application for a Letter of Credit wherein they expressly
obligated themselves in these terms:
IN CONSIDERATION THEREOF, I/we promise and agree to pay you at maturity in Philippine Currency
the equivalent of the above amount or such portion thereof as may be drawn or paid upon the faith of said
credit together with the usual charges. ... (Exhibit "A")
They further agreed that their marginal deposit of P8,000.00, later increased to P11,000.00
be applied, without further proceedings or formalities to pay or reduce our obligation under this letter of
credit or its corresponding Trust Receipt. (Emphasis supplied) 8
The foregoing premises considered, it follows that the acquittal of the VINTOLAS in the Estafa case is no bar to the
institution of a civil action for collection. It is inaccurate for the VINTOLAS to claim that the judgment in the estafa case
had declared that the facts from which the civil action might arise, did not exist, for, it will be recalled that the decision of
acquittal expressly declared that "the remedy of the Bank is civil and not criminal in nature." This amounts to a reservation
of the civil action in IBAA's favor, for the Court would not have dwelt on a civil liability that it had intended to extinguish by
the same decision. 9 The VINTOLAS are liable ex contractu for breach of the Letter of Credit Trust Receipt, whether
they did or they did not "misappropriate, misapply or convert" the merchandise as charged in the criminal case. 10 Their
civil liability does not arise ex delicto, the action for the recovery of which would have been deemed instituted with the
criminal-action (unless waived or reserved) and where acquittal based on a judicial declaration that the criminal acts
charged do not exist would have extinguished the civil action. 11 Rather, the civil suit instituted by IBAA is based ex
contractu and as such is distinct and independent from any criminal proceedings and may proceed regardless of the result
of the latter. Under the situational circumstances of the parties, they are governed by Article 31 of the Civil Code, explicitly
providing:
Art. 31. When the civil action is based on an obligation not arising from the act or omission complained of
as a felony, such civil action may proceed independently of the criminal proceedings and regardless of the
result of the latter.

WHEREFORE, finding no reversible error in the judgment appealed from, the same is hereby AFFIRMED. No costs.
SO ORDERED.

G.R. No. L-42735 January 22, 1990

RAMON
L.
ABAD, petitioner,
vs.
HON. COURT OF APPEALS & THE PHILIPPINE COMMERCIAL AND INDUSTRIAL BANK, respondents.
Manuel T. De Guia for petitioner.
San Juan, Africa, Gonzales & San Agustin Law Offices for private respondent.

GRINO-AQUINO, J.:
The bone of contention in this petition for review of the decision dated November 21, 1975 of the Court of Appeals in C.A.
G.R. No. 51649-R entitled, "Philippine Commercial and Industrial Bank vs. TOMCO, Inc., Oregon Industries, Inc., and
Ramon L. Abad" is whether the debtor (or its surety) is entitled to deduct the debtor's cash marginal deposit from the
principal obligation under a letter of credit and to have the interest charges computed only on the balance of the said
obligation.
On October 31, 1963, TOMCO, Inc., now known as Southeast Timber Co. (Phils.), Inc., applied for, and was granted by
the Philippine Commercial and Industrial Bank (hereafter called "PCIB"), a domestic letter of credit for P 80,000 in favor of
its supplier, Oregon Industries, Inc., to pay for one Skagit Yarder with accessories. PCIB paid to Oregon Industries the
cost of the machinery against a bill of exchange for P 80,000, with recourse, presentment and notice of dishonor waived,
and with date of maturity on January 4, 1964.
After making the required marginal deposit of P28,000 on November 5, 1963, TOMCO, Inc. signed and delivered to the
bank a trust receipt acknowledging receipt of the merchandise in trust for the bank, with the obligation "to hold the same in
storage" as property of PCIB, with a right to sell the same for cash provided that the entire proceeds thereof are turned
over to the bank, to be applied against acceptance(s) and any other indebtedness of TOMCO, Inc.
In consideration of the release to TOMCO, Inc. by PCIB of the machinery covered by the trust receipt, petitioner Ramon
Abad signed an undertaking entitled, "Deed of Continuing Guaranty" appearing on the back of the trust receipt, whereby
he promised to pay the obligation jointly and severally with TOMCO, Inc.
Except for TOMCO's P28,000 marginal deposit in the bank, no payment has been made to PCIB by either TOMCO, Inc.
or its surety, Abad, on the P80,000 letter of credit.
Consequently, the bank sued TOMCO, Inc. and Abad in Civil Case No. 75767-CFI Manila entitled, "Philippine Commercial
and Industrial Bank vs. TOMCO, Inc. and Ramon Abad." PCIB presented in evidence a "Statement of Draft Drawn"
showing that TOMCO was obligated to it in the total sum of P125,766.13 as of August 26, 1970.
TOMCO did not deny its liability to PCIB under the letter of credit but it alleged that inasmuch as it made a marginal
deposit of P28,000, this amount should have been deducted from its principal obligation, leaving a balance of P52,000
only, on which the bank should have computed the interest, bank charges, and attorney's fees.

On February 5, 1972, the trial court rendered judgment in favor of PCIB ordering TOMCO, Inc. and Abad to pay jointly and
severally to the bank the sum of P125,766.13 as of August 26, 1970, with interest and other charges until complete
payment is made, plus attorney's fees and costs.
Abad appealed to the Court of Appeals which, in a decision dated November 21, 1975, affirmed in toto the decision of the
trial court.
Abad filed this petition for review raising the issue of whether TOMCO's marginal deposit of P28,000 in the possession of
the bank should first be deducted from its principal indebtedness before computing the interest and other charges due.
Petitioner alleges that by not deducting the marginal deposit from TOMCO's indebtedness, the bank unjustly enriched
itself at the expense of the debtor (TOMCO) and its surety (Abad).
The petition is impressed with merit.
The nature and mercantile usage of a trust receipt was explained in the case of PNB vs. General Acceptance & Finance
Corporation, et al., G.R. No. L-30751, 24 May 1988 and Vintola vs. Insular Bank of Asia and America, 150 SCRA 578, as
follows:
. . . . A trust receipt is considered as a security transaction intended to aid in financing importers and retail
dealers who do not have sufficient funds or resources to finance the importation or purchase of
merchandise, and who may not be able to acquire credit except through utilization, as collateral of the
merchandise imported or purchased, ... . The bank does not become the real owner of the goods. It is
merely the holder of a security title for the advances it had made to the importer. The goods the importer
had purchased through the bank financing, remain the importer's property and he holds it at his own risk.
The trust receipt arrangement does not convert the bank into an investor; it remains a lender and creditor.
This is so because the bank had previously extended a loan which the letter of credit represents to the
importer, and by that loan, the importer should be the real owner of the goods. If under the trust receipt,
the bank is made to appear as the owner, it was but an artificial expedient, more of a legal fiction than
fact, for if it were so, it could dispose of the goods in any manner it wants, which it cannot do, just to give
consistency with the purpose of the trust receipt of giving a stronger security for the loan obtained by the
importer. To consider the bank as the true owner from the inception of the transaction would be to
disregard the loan feature involved.
. . . . A letter of credit-trust receipt arrangement is endowed with its own distinctive features and
characteristics. Under that set-up, a bank extends a loan covered by the letter of credit, with the trust
receipt as a security for the loan. In other words, the transaction involves a loan feature represented by
the letter of credit, and a security feature which is in the covering trust receipt. . . . .
A trust receipt, therefore, is a security agreement, pursuant to which a bank acquires a "security interest"
in the goods. It secures an indebtedness and there can be no such thing as security interest that secures
no obligation.
The marginal deposit requirement is a Central Bank measure to cut off excess currency liquidity which would create
inflationary pressure. It is a collateral security given by the debtor, and is supposed to be returned to him upon his
compliance with his secured obligation. Consequently, the bank pays no interest on the marginal deposit, unlike an
ordinary bank deposit which earns interest in the bank. As a matter of fact, the marginal deposit requirement for letters of
credit has been discontinued, except in those cases where the applicant for a letter of credit is not known to the bank or
does not maintain a good credit standing therein (Bankers Associations of the Philippines Policy, Rules 6 and 7).
It is only fair then that the importer's marginal deposit (if one was made, as in this case), should be set off against his debt,
for while the importer earns no interest on his marginal deposit, the bank, apart from being able to use said deposit for its
own purposes, also earns interest on the money it loaned to the importer. It would be onerous to compute interest and
other charges on the face value of the letter of credit which the bank issued, without first crediting or setting off the
marginal deposit which the importer paid to the bank. Compensation is proper and should take effect by operation of law
because the requisites in Article 1279 of the Civil Code are present and should extinguish both debts to the concurrent
amount (Art. 1290, Civil Code). Although Abad is only a surety, he may set up compensation as regards what the creditor
owes the principal debtor, TOMCO (Art. 1280, Civil Code).
It is not farfetched to assume that the bank used TOMCO's marginal deposit to partially fund the P80,000 letter of credit it
issued to TOMCO, hence, the interests and other charges on said letter of credit should be levied only on the balance of

P52,000 which was the portion that was actually funded or loaned by the bank from its own funds. Requiring the importer
to pay interest on the entire letter of credit without deducting first him marginal deposit, would be a clear case of unjust
enrichment by the bank.
WHEREFORE, the petition for review is granted. The decision of the Court of Appeals is modified by deducting TOMCO's
marginal deposit of P28,000 from the principal amount of P80,000 covered by its letter of credit. The interests and other
charges of the bank should be computed on the outstanding loan balance of P52,000 only. The decision is affirmed in
other respects, with costs against the respondent Philippine Commercial and Industrial Bank.
SO ORDERED.

G.R. No. 81559-60 April 6, 1992

PEOPLE OF THE PHILIPPINES, (public petitioner) and ALLIED BANKING CORPORATION (private petitioner),
vs.
HON. JUDGE DAVID G. NITAFAN (public respondent) and BETTY SIA ANG (private respondent).

GUTIERREZ, JR., J.:

This petition for certiorari involves an issue that has been raised before this Court several times in the past. The petitioner,
in effect, is asking for a re-examination of our decisions on the issue of whether or not an entrustee in a trust receipt
agreement who fails to deliver the proceeds of the sale or to return the goods if not sold to the entruster-bank is liable for
the crime of estafa.
Petitioner Allied Banking Corporation charged Betty Sia Ang with estafa in Criminal Case No. 87-53501 in an information
which alleged:
That on or about July 18, 1980, in the City of Manila, Philippines, the said accused, being then the
proprietress of Eckart Enterprises, a business entity located at 756 Norberto Amoranto Avenue, Quezon
City, did then and there wilfully, unlawfully and feloniously defraud the Allied Banking Corporation, a
banking institution, represented by its Account Officer, Raymund S. Li, in the following manner, to wit: the
said accused received in trust from the aforesaid bank Gordon Plastics, plastic sheeting and Hook
Chromed, in the total amount of P398,000.00, specified in a trust receipt and covered by Domestic Letter
of Credit No. DLC-002-801254, under the express obligation on the part of said accused to sell the same
and account for the proceeds of the sale thereof, if sold, or to return said merchandise, if not sold, on or
before October 16, 1980, or upon demand, but the said accused, once in possession of the said articles,
far from complying with the aforesaid obligation, notwithstanding repeated demands made upon her to
that effect, paid only the amount of P283,115.78, thereby leaving unaccounted for the amount of
P114,884.22 which, once in her possession, with intent to defraud, she misappropriated, misapplied and
converted to her own personal use and benefit, to the damage and prejudice of said Allied Banking
Corporation in the aforesaid sum of P114,884.22, Philippine Currency. (Rollo, pp. 13-14)
The accused filed a motion to quash the information on the ground that the facts charged do not constitute an offense.
On January 7, 1988, the respondent judge granted the motion to quash. The order was anchored on the premise that a
trust receipt transaction is an evidence of a loan being secured so that there is, as between the parties to it, a creditordebtor relationship. The court ruled that the penal clause of Presidential Decree No. 15 on the Trust Receipts Law is
inoperative because it does not actually punish an offense mala prohibita. The law only refers to the relevant estafa
provision in the Revised Penal Code. The Court relied on the judicial pronouncements in People v. Cuevo, 104 SCRA 312
[1981] where, for lack of the required number of votes, this Court upheld the dismissal of a charge for estafa for a violation
of a trust receipt agreement; and in Sia v. People, 121 SCRA 655 [1983] where we held that the violation merely gives rise
to a civil obligation. At the time the order to quash was issued or on January 7, 1988, these two decisions were the only
most recent ones. Hence, this petition.
The private respondent adopted practically the same stance of the lower court. She likewise asserts that P.D. 115 is
unconstitutional as it violates the constitutional prohibition against imprisonment for non-payment of a debt. She argues
that where no malice exists in a breach of a purely commercial undertaking, P.D. 115 imputes it.
This Court notes that the petitioner bank brought a similar case before this Court in G.R. No. 82495, entitled Allied
Banking Corporation v. Hon. Secretary Sedfrey Ordoez and Alfredo Ching which we decided on December 10, 1990
(192 SCRA 246). In that case, the petitioner additionally questioned, and we accordingly reversed, the pronouncement of
the Secretary of Justice limiting the application of the penal provision of P.D. 115 only to goods intended to be sold to the
exclusion of those still to be manufactured.
As in G.R. No. 82495, we resolve the instant petition in the light of the Court's ruling in Lee v. Rodil, 175 SCRA 100 [1989]
and Sia v. Court of Appeals, 166 SCRA 263 [1988]. We have held in the latter cases that acts involving the violation of
trust receipt agreements occurring after 29 January 1973 (date of enactment of P.D. 115) would make the accused
criminally liable for estafa under paragraph 1 (b), Article 315 of the Revised Penal Code (RPC) pursuant to the explicit
provision in Section 13 of P.D. 115.
The relevant penal provision of P.D. 115 provides:
Sec. 13 of P.D. No. 115 provides:
. . . Penalty clause. The failure of an entrustee to turn over the proceeds of the sale of the goods,
documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or
as appears in the trust receipt or to return said goods, documents or instruments if they were not sold or

disposed of in accordance with the terms of the trust receipt shall constitute the crime of estafa,
punishable under the provisions of Article Three Hundred and Fifteen, paragraph one (b) of Act Numbered
Three Thousand Eight Hundred and Fifteen, as amended, otherwise known as the Revised Penal Code.
If the violation or offense is committed by a corporation, partnership, association or other juridical entities,
the penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other
officials or persons therein responsible for the offense, without prejudice to the civil liabilities arising from
the criminal offense.
Section 1 (b), Article 315 of the RPC under which the violation is made to fall, states:
. . . Swindling (estafa). Any person who shall defraud another by any of the means mentioned herein
below . . . :
xxx xxx xxx
b. By misappropriating or converting, to the prejudice of another, money, goods, or any other personal
property received by the offender in trust or on commission, or for administration, or under any other
obligation involving the duty to make delivery of or to return the same, even though such obligation be
totally or partially guaranteed by a bond; or by denying having received such money, good, or other
property.
The factual circumstances in the present case show that the alleged violation was committed sometime in 1980 or during
the effectivity of P.D. 115. The failure, therefore, to account for the P114,884.22 balance is what makes the accusedrespondent criminally liable for estafa. The Court reiterates its definitive ruling that, in the Cuevo and Sia(1983) cases
relied upon by the accused, P.D. 115 was not applied because the questioned acts were committed before its effectivity.
(Lee v. Rodil, supra, p. 108) At the time those cases were decided, the failure to comply with the obligations under the
trust receipt was susceptible to two interpretations. The Court in Sia adopted the view that a violation gives rise only to a
civil liability as the more feasible view "before the promulgation of P.D. 115," notwithstanding prior decisions where we
ruled that a breach also gives rise to a liability for estafa. (People v. Yu Chai Ho, 53 Phil. 874 [1929]; Samo v. People, 115
Phil. 346 [1962]; Philippine National Bank v. Arrozal, 103 Phil. 213 [1958]; Philippine National Bank v. Viuda e Hijos de
Angel Jose, 63 Phil. 814 [1936]).
Contrary to the reasoning of the respondent court and the accused, a trust receipt arrangement does not involve a simple
loan transaction between a creditor and debtor-importer. Apart from a loan feature, the trust receipt arrangement has a
security feature that is covered by the trust receipt itself. (Vintola v. Insular Bank of Asia and America, 151 SCRA 578
[1987]) That second feature is what provides the much needed financial assistance to our traders in the importation or
purchase of goods or merchandise through the use of those goods or merchandise as collateral for the advancements
made by a bank. (Samo v. People, supra). The title of the bank to the security is the one sought to be protected and not
the loan which is a separate and distinct agreement.
The Trust Receipts Law punishes the dishonesty and abuse of confidence in the handling of money or goods to the
prejudice of another regardless of whether the latter is the owner or not. The law does not seek to enforce payment of the
loan. Thus, there can be no violation of a right against imprisonment for non-payment of a debt.
Trust receipts are indispensable contracts in international and domestic business transactions. The prevalent use of trust
receipts, the danger of their misuse and/or misappropriation of the goods or proceeds realized from the sale of goods,
documents or instruments held in trust for entruster-banks, and the need for regulation of trust receipt transactions to
safeguard the rights and enforce the obligations of the parties involved are the main thrusts of P.D. 115. As correctly
observed by the Solicitor General, P.D. 115, like Batas Pambansa Blg. 22, punishes the act "not as an offense against
property, but as an offense against public order. . . ." The misuse of trust receipts therefore should be deterred to prevent
any possible havoc in trade circles and the banking community (citing Lozano v. Martinez, 146 SCRA 323 [1986]; Rollo, p.
57) It is in the context of upholding public interest that the law now specifically designates a breach of a trust receipt
agreement to be an act that "shall" make one liable for estafa.
The offense is punished as a malum prohibitum regardless of the existence of intent or malice. A mere failure to deliver
the proceeds of the sale or the goods if not sold, constitutes a criminal offense that causes prejudice not only to another,
but more to the public interest.

We are continually re-evaluating the opposite view which insists that the violation of a trust receipt agreement should
result only in a civil action for collection. The respondent contends that there is no malice involved. She cites the dissent of
the late Chief Justice Claudio Teehankee in Ong v. Court of Appeals, (124 SCRA 578 [1983]) to wit:
The old capitalist orientation of putting importers in jail for supposed estafa or swindling for non-payment
of the price of the imported goods released to them under trust receipts (a purely commercial transaction)
under the fiction of the trust receipt device, should no longer be permitted in this day and age.
As earlier stated, however, the law punishes the dishonesty and abuse of confidence in the handling of money or goods to
the prejudice of the bank.
The Court reiterates that the enactment of P.D. 115 is a valid exercise of the police power of the State and is, thus,
constitutional. (Lee v. Rodil, supra; Lozano v. Martinez, supra) The arguments of the respondent are appropriate for a
repeal or modification of the law and should be directed to Congress. But until the law is repealed, we are constrained to
apply it.
WHEREFORE, the petition is hereby GRANTED. The Order of the respondent Regional Trial Court of Manila, Branch 52
dated January 7, 1988 is SET ASIDE. Let this case be remanded to the said court for disposition in accordance with this
decision.
SO ORDERED.

DEVELOPMENT BANK OF G.R. No. 143772

THE PHILIPPINES,
Petitioner,
Present:
PANGANIBAN, J., Chairman,
SANDOVAL-GUTIERREZ,
- v e r s u s - CORONA,
CARPIO MORALES and
GARCIA, JJ.
PRUDENTIAL BANK,
Respondent. Promulgated:
November 22, 2005
x-------------------------------------------x
DECISION
CORONA, J.:
Development Bank of the Philippines (DBP) assails in this petition for review on certiorari under Rule 45 of the
Rules of Court the December 14, 1999 decision [1] and the June 8, 2000 resolution of the Court of Appeals in CA-G.R. CV
No. 45783. The challenged decision dismissed DBPs appeal and affirmed the February 12, 1991 decision of the Regional
Trial Court of Makati, Branch 137 in Civil Case No. 88-931 in toto, while the impugned resolution denied DBPs motion for
reconsideration for being pro forma.
In 1973, Lirag Textile Mills, Inc. (Litex) opened an irrevocable commercial letter of credit with respondent Prudential Bank
for US$498,000. This was in connection with its importation of 5,000 spindles for spinning machinery with drawing frame,
simplex fly frame, ring spinning frame and various accessories, spare parts and tool gauge. These were released to Litex
under covering trust receipts it executed in favor of Prudential Bank. Litex installed and used the items in its textile mill
located in Montalban, Rizal.

On October 10, 1980, DBP granted a foreign currency loan in the amount of US$4,807,551 to Litex. To secure the
loan, Litex executed real estate and chattel mortgages on its plant site in Montalban, Rizal, including the buildings and
other improvements, machineries and equipments there. Among the machineries and equipments mortgaged in favor of
DBP were the articles covered by the trust receipts.
Sometime in June 1982, Prudential Bank learned about DBPs plan for the overall rehabilitation of Litex. In a July
14, 1982 letter, Prudential Bank notified DBP of its claim over the various items covered by the trust receipts which had
been installed and used by Litex in the textile mill. Prudential Bank informed DBP that it was the absolute and juridical
owner of the said items and they were thus not part of the mortgaged assets that could be legally ceded to DBP.
For the failure of Litex to pay its obligation, DBP extra-judicially foreclosed on the real estate and chattel
mortgages, including the articles claimed by Prudential Bank. During the foreclosure sale held on April 19, 1983, DBP
acquired the foreclosed properties as the highest bidder.
Subsequently, DBP caused to be published in the September 2, 1984 issue of the Times Journal an invitation to
bid in the public sale to be held on September 10, 1984. It called on interested parties to submit bids for the sale of the
textile mill formerly owned by Litex, the land on which it was built, as well as the machineries and equipments therein.
Learning of the intended public auction, Prudential Bank wrote a letter dated September 6, 1984 to DBP reasserting its
claim over the items covered by trust receipts in its name and advising DBP not to include them in the auction. It also
demanded the turn-over of the articles or alternatively, the payment of their value.
An exchange of correspondences ensued between Prudential Bank and DBP. In reply to Prudential Banks
September 6, 1984 letter, DBP requested documents to enable it to evaluate Prudential Banks claim. On September 28,
1994, Prudential Bank provided DBP the requested documents. Two months later, Prudential Bank followed up the status
of its claim. In a letter dated December 3, 1984, DBP informed Prudential Bank that its claim had been referred to DBPs
legal department and instructed Prudential Bank to get in touch with its chief legal counsel. There being no concrete
action on DBPs part, Prudential Bank, in a letter dated July 30, 1985, made a final demand on DBP for the turn-over of the
contested articles or the payment of their value. Without the knowledge of Prudential Bank, however, DBP sold the Litex
textile mill, as well as the machineries and equipments therein, to Lyon Textile Mills, Inc. (Lyon) on June 8, 1987.
Since its demands remained unheeded, Prudential Bank filed a complaint for a sum of money with damages
against DBP with the Regional Trial Court of Makati, Branch 137, on May 24, 1988. The complaint was docketed as Civil
Case No. 88-931.
On February 12, 1991, the trial court decided [2] in favor of Prudential Bank. Applying the provisions of PD 115,
otherwise known as the Trust Receipts Law, it ruled:
When PRUDENTIAL BANK released possession of the subject properties, over which it holds
absolute title to LITEX upon the latters execution of the trust receipts, the latter was bound to hold said
properties in trust for the former, and (a) to sell or otherwise dispose of the same and to turn over to
PRUDENTIAL BANK the amount still owing; or (b) to return the goods if unsold. Since LITEX was allowed
to sell the properties being claimed by PRUDENTIAL BANK, all the more was it authorized to mortgage
the same, provided of course LITEX turns over to PRUDENTIAL BANK all amounts owing. When DBP,
well aware of the status of the properties, acquired the same in the public auction, it was bound by the
terms of the trust receipts of which LITEX was the entrustee. Simply stated, DBP held no better right than
LITEX, and is thus bound to turn over whatever amount was due PRUDENTIAL BANK. Being a trustee ex
maleficio of PRUDENTIAL BANK, DBP is necessarily liable therefor. In fact, DBP may well be considered
as an agent of LITEX when the former sold the properties being claimed by PRUDENTIAL BANK, with the
corresponding responsibility to turn over the proceeds of the same to PRUDENTIAL BANK. [3] (Citations
omitted)
The dispositive portion of the decision read:
WHEREFORE, judgment is hereby rendered ordering defendant DEVELOPMENT BANK OF THE
PHILIPPINES to pay plaintiff PRUDENTIAL BANK:
a)

P3,261,834.00, as actual damages, with interest thereon computed from 10 August 1985
until the entire amount shall have been fully paid;

b)

P50,000.00 as exemplary damages; and

c)

10% of the total amount due as and for attorneys fees.

SO ORDERED.
Aggrieved, DBP filed an appeal with the Court of Appeals. However, the appellate court dismissed the appeal and
affirmed the decision of the trial court in toto. It applied the provisions of PD 115 and held that ownership over the
contested articles belonged to Prudential Bank as entrustor, not to Litex. Consequently, even if Litex mortgaged the items
to DBP and the latter foreclosed on such mortgage, DBP was duty-bound to turn over the proceeds to Prudential Bank,
being the party that advanced the payment for them.
On DBPs argument that the disputed articles were not proper objects of a trust receipt agreement, the Court of
Appeals ruled that the items were part of the trust agreement entered into by and between Prudential Bank and Litex.
Since the agreement was not contrary to law, morals, public policy, customs and good order, it was binding on the parties.
Moreover, the appellate court found that DBP was not a mortgagee in good faith. It also upheld the finding of the
trial court that DBP was a trustee ex maleficio of Prudential Bank over the articles covered by the trust receipts.
DBP filed a motion for reconsideration but the appellate court denied it for being pro forma. Hence, this petition.
Trust receipt transactions are governed by the provisions of PD 115 which defines such a transaction as follows:
Section 4. What constitutes a trust receipt transaction. A trust receipt transaction, within the meaning of
this Decree, is any transaction by and between a person referred to in this Decree as the entruster, and
another person referred to in this Decree as entrustee, whereby the entruster, who owns or holds
absolute title or security interests over certain specified goods, documents or instruments, releases the
same to the possession of the entrustee upon the latters execution and delivery to the entruster of a
signed document called a trust receipt wherein the entrustee binds himself to hold the designated goods,
documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods,
documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the
extent of the amount owing to the entruster or as appears in the trust receipt or the goods, documents or
instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and
conditions specified in the trust receipt, or for other purposes substantially equivalent to any of the
following:
1. In the case of goods or documents, (a) to sell the goods or procure their sale; or (b) to
manufacture or process the goods with the purpose of ultimate sale: Provided, That, in the case
of goods delivered under trust receipt for the purpose of manufacturing or processing before its
ultimate sale, the entruster shall retain its title over the goods whether in its original or processed
form until the entrustee has complied fully with his obligation under the trust receipt; or (c) to load,
unload, ship or tranship or otherwise deal with them in a manner preliminary or necessary to their
sale; or
2. In the case of instruments, (a) to sell or procure their sale or exchange; or (b) to deliver them to
a principal; or (c) to effect the consummation of some transactions involving delivery to a
depository or register; or (d) to effect their presentation, collection or renewal.
xxxxxxxxx
In a trust receipt transaction, the goods are released by the entruster (who owns or holds absolute title or security
interests over the said goods) to the entrustee on the latters execution and delivery to the entruster of a trust receipt. The
trust receipt evidences the absolute title or security interest of the entruster over the goods. As a consequence of the
release of the goods and the execution of the trust receipt, a two-fold obligation is imposed on the entrustee, namely: (1)
to hold the designated goods, documents or instruments in trust for the purpose of selling or otherwise disposing of them
and (2) to turn over to the entruster either the proceeds thereof to the extent of the amount owing to the entruster or as
appears in the trust receipt, or the goods, documents or instruments themselves if they are unsold or not otherwise
disposed of, in accordance with the terms and conditions specified in the trust receipt. In the case of goods, they may also
be released for other purposes substantially equivalent to (a) their sale or the procurement of their sale; or (b) their
manufacture or processing with the purpose of ultimate sale, in which case the entruster retains his title over the said
goods whether in their original or processed form until the entrustee has complied fully with his obligation under the trust
receipt; or (c) the loading, unloading, shipment or transshipment or otherwise dealing with them in a manner preliminary or
necessary to their sale.[4] Thus, in a trust receipt transaction, the release of the goods to the entrustee, on his execution of
a trust receipt, is essentially for the purpose of their sale or is necessarily connected with their ultimate or subsequent
sale.
Here, Litex was not engaged in the business of selling spinning machinery, its accessories and spare parts but in
manufacturing and producing textile and various kinds of fabric. The articles were not released to Litex to be sold. Nor was
the transfer of possession intended to be a preliminary step for the said goods to be ultimately or subsequently sold.

Instead, the contemporaneous and subsequent acts of both Litex and Prudential Bank showed that the imported articles
were released to Litex to be installed in its textile mill and used in its business. DBP itself was aware of this. To support its
assertion that the contested articles were excluded from goods that could be covered by a trust receipt, it contended:
First. That the chattels in controversy were procured by DBPs mortgagor Lirag Textile Mills
(LITEX) for the exclusive use of its textile mills. They were not procured (a) to sell or otherwise procure their sale;
(b) to manufacture or process the goods with the
purpose of ultimate sale.[5] (emphasis supplied)
Hence, the transactions between Litex and Prudential Bank were allegedly not trust receipt transactions within the
meaning of PD 115. It follows that, contrary to the decisions of the trial court and the appellate court, the transactions were
not governed by the Trust Receipts Law.
We disagree.
The various agreements between Prudential Bank and Litex commonly denominated as trust receipts were valid. As the
Court of Appeals correctly ruled, their provisions did not contravene the law, morals, good customs, public order or public
policy.
The agreements uniformly provided:
Received, upon the Trust hereinafter mentioned from the PRUDENTIAL BANK (hereinafter
referred to as BANK) the following goods and merchandise, the property of said BANK specified in the
bill of lading as follows:
Amount of Bill Description of Security

Marks & Nos.

Vessel

and in consideration thereof, I/We hereby agree to hold said goods in trust for the BANK and as its
property with liberty to sell the same for its account but without authority to make any other disposition
whatsoever of the said goods or any part thereof (or the proceeds thereof) either by way of conditional
sale, pledge, or otherwise.
x x x x x x x x x[6] (Emphasis supplied)
The articles were owned by Prudential Bank and they were only held by Litex in trust. While it was allowed to sell
the items, Litex had no authority to dispose of them or any part thereof or their proceeds through conditional sale, pledge
or any other means.
Article 2085 (2) of the Civil Code requires that, in a contract of pledge or mortgage, it is essential that the pledgor or
mortgagor should be the absolute owner of the thing pledged or mortgaged. Article 2085 (3) further mandates that the
person constituting the pledge or mortgage must have the free disposal of his property, and in the absence thereof, that
he be legally authorized for the purpose.
Litex had neither absolute ownership, free disposal nor the authority to freely dispose of the articles. Litex could not have
subjected them to a chattel mortgage. Their inclusion in the mortgage was void [7] and had no legal effect.[8] There being no
valid mortgage, there could also be no valid foreclosure or valid auction sale. [9] Thus, DBP could not be considered either
as a mortgagee or as a purchaser in good faith.[10]
No one can transfer a right to another greater than what he himself has. [11] Nemo dat quod non habet. Hence, Litex could
not transfer a right that it did not have over the disputed items. Corollarily, DBP could not acquire a right greater than what
its predecessor-in-interest had. The spring cannot rise higher than its source. [12] DBP merely stepped into the shoes of
Litex as trustee of the imported articles with an obligation to pay their value or to return them on Prudential Banks
demand. By its failure to pay or return them despite Prudential Banks repeated demands and by selling them to Lyon
without Prudential Banks knowledge and conformity, DBP became a trustee ex maleficio.

On the matter of actual damages adjudged by the trial court and affirmed by the Court of Appeals, DBP wants this Court to
review the evidence presented during the trial and to reverse the factual findings of the trial court. This Court is, however,
not a trier of facts and it is not its function to analyze or weigh evidence anew. [13] The rule is that factual findings of the trial
court, when adopted and confirmed by the CA, are binding and conclusive on this Court and generally will not be reviewed
on appeal.[14] While there are recognized exceptions to this rule, none of the established exceptions finds application here.
With regard to the imposition of exemplary damages, the appellate court agreed with the trial court that the
requirements for the award thereof had been sufficiently established. Prudential Banks entitlement to compensatory
damages was likewise amply proven. It was also shown that DBP was aware of Prudential Banks claim as early as July,
1982. However, it ignored the latters demand, included the disputed articles in the mortgage foreclosure and caused their
sale in a public auction held on April 19, 1983 where it was declared as the highest bidder. Thereafter, in the series of
communications between them, DBP gave Prudential Bank the false impression that its claim was still being evaluated.
Without acting on Prudential Banks plea, DBP included the contested articles among the properties it sold to Lyon in June,
1987. The trial court found that this chain of events showed DBPs fraudulent attempt to prevent Prudential Bank from
asserting its rights. It smacked of bad faith, if not deceit. Thus, the award of exemplary damages was in order. Due to the
award of exemplary damages, the grant of attorneys fees was proper.[15]
DBPs assertion that both the trial and appellate courts failed to address the issue of prescription is of no moment.
Its claim that, under Article 1146 (1) of the Civil Code, Prudential Banks cause of action had prescribed as it should be
reckoned from October 10, 1980, the day the mortgage was registered, is not correct. The written extra-judicial demand
by the creditor interrupted the prescription of action. [16] Hence, the four-year prescriptive period which DBP insists should
be counted from the registration of the mortgage was interrupted when Prudential Bank wrote the extra-judicial demands
for the turn over of the articles or their value. In particular, the last demand letter sent by Prudential Bank was dated July
30, 1988 and this was received by DBP the following day. Thus, contrary to DBPs claim, Prudential Banks right to enforce
its action had not yet prescribed when it filed the complaint on May 24, 1988.
WHEREFORE, the petition is hereby DENIED. The December 14, 1999 decision and June 8, 2000 resolution of
the Court of Appeals in CA-G.R. CV No. 45783 are AFFIRMED.
Costs against the petitioner.
SO ORDERED.

G.R. No. L-18343

September 30, 1965

PHILIPPINE NATIONAL BANK and EDUARDO Z. ROMUALDEZ, in his capacity as President of the Philippine
National
Bank, plaintiffs-appellants,
vs.
EMILIO A. GANCAYCO and FLORENTINO FLOR, Special Prosecutors of the Dept. of Justice, defendants-appellees.

Ramon
B.
de
los
Reyes
Villamor & Gancayco for defendants-appellees.

and

Zoilo

P.

Perlas

for

plaintiffs-appellants.

REGALA, J.:
The principal question presented in this case is whether a bank can be compelled to disclose the records of accounts of a
depositor who is under investigation for unexplained wealth.
This question arose when defendants Emilio A. Gancayco and Florentino Flor, as special prosecutors of the Department
of Justice, required the plaintiff Philippine National Bank to produce at a hearing to be held at 10 a.m. on February 20,
1961 the records of the bank deposits of Ernesto T. Jimenez, former administrator of the Agricultural Credit and
Cooperative Administration, who was then under investigation for unexplained wealth. In declining to reveal its records,
the plaintiff bank invoked Republic Act No. 1405 which provides:
SEC. 2. All deposits of whatever nature with banks or banking institutions in the Philippines including investments
in bonds issued by the Government of the Philippines, its political subdivisions and its instrumentalities, are
hereby considered as of an absolutely confidential nature and may not be examined, inquired or looked into by
any person, government official, bureau or office, except upon written permission of the depositor, or in cases of
impeachment, or upon order of a competent court in cases of bribery or dereliction of duty of public officials, or in
cases where the money deposited or invested is the subject matter of the litigation.
The plaintiff bank also called attention to the penal provision of the law which reads:
SEC. 5. Any violation of this law will subject the offender upon conviction, to an imprisonment of not more than
five years or a fine of not more than twenty thousand pesos or both, in the discretion of the court.
On the other hand, the defendants cited the Anti-Graft and Corrupt Practices Act (Republic Act No. 3019) in support of
their claim of authority and demanded anew that plaintiff Eduardo Z. Romualdez, as bank president, produce the records
or he would be prosecuted for contempt. The law invoked by the defendant states:
SEC. 8. Dismissal due to unexplained wealth. If in accordance with the provisions of Republic Act Numbered
One thousand three hundred seventy-nine, a public official has been found to have acquired during his
incumbency, whether in his name or in the name of other persons, an amount of property and/or money
manifestly out of proportion to his salary and to his other lawful income, that fact shall be a ground for dismissal or
removal. Properties in the name of the spouse and unmarried children of such public official may be taken into
consideration, when their acquisition through legitimate means cannot be satisfactorily shown. Bank deposits shall
be taken into consideration in the enforcement of this section, notwithstanding any provision of law to the contrary.
Because of the threat of prosecution, plaintiffs filed an action for declaratory judgment in the Manila Court of First
Instance. After trial, during which Senator Arturo M. Tolentino, author of the Anti-Graft and Corrupt Practices Act testified,
the court rendered judgment, sustaining the power of the defendants to compel the disclosure of bank accounts of ACCFA
Administrator Jimenez. The court said that, by enacting section 8 of, the Anti-Graft and Corrupt Practices Act, Congress
clearly intended to provide an additional ground for the examination of bank deposits. Without such provision, the court
added prosecutors would be hampered if not altogether frustrated in the prosecution of those charged with having
acquired unexplained wealth while in public office.1awphl.nt
From that judgment, plaintiffs appealed to this Court. In brief, plaintiffs' position is that section 8 of the Anti-Graft Law
"simply means that such bank deposits may be included or added to the assets of the Government official or employee for
the purpose of computing his unexplained wealth if and when the same are discovered or revealed in the manner
authorized by Section 2 of Republic Act 1405, which are (1) Upon written permission of the depositor; (2) In cases of
impeachment; (3) Upon order of a competent court in cases of bribery or dereliction of duty of public officials; and (4) In
cases where the money deposited or invested is the subject matter of the litigation."
In support of their position, plaintiffs contend, first, that the Anti-Graft Law (which took effect on August 17, 1960) is a
general law which cannot be deemed to have impliedly repealed section 2 of Republic Act No. 1405 (which took effect on
Sept. 9, 1955), because of the rule that repeals by implication are not favored. Second, they argue that to construe
section 8 of the Anti-Graft Law as allowing inquiry into bank deposits would be to negate the policy expressed in section 1
of Republic Act No. 1405 which is "to give encouragement to the people to deposit their money in banking institutions and

to discourage private hoarding so that the same may be utilized by banks in authorized loans to assist in the economic
development of the country."
Contrary to their claim that their position effects a reconciliation of the provisions of the two laws, plaintiffs are actually
making the provisions of Republic Act No. 1405 prevail over those of the Anti-Graft Law, because even without the latter
law the balance standing to the depositor's credit can be considered provided its disclosure is made in any of the cases
provided in Republic Act No. 1405.
The truth is that these laws are so repugnant to each other than no reconciliation is possible. Thus, while Republic Act No.
1405 provides that bank deposits are "absolutely confidential ... and [therefore] may not be examined, inquired or looked
into," except in those cases enumerated therein, the Anti-Graft Law directs in mandatory terms that bank deposits "shall
be taken into consideration in the enforcement of this section, notwithstanding any provision of law to the contrary." The
only conclusion possible is that section 8 of the Anti-Graft Law is intended to amend section 2 of Republic Act No. 1405 by
providing additional exception to the rule against the disclosure of bank deposits.
Indeed, it is said that if the new law is inconsistent with or repugnant to the old law, the presumption against the intent to
repeal by implication is overthrown because the inconsistency or repugnancy reveals an intent to repeal the existing law.
And whether a statute, either in its entirety or in part, has been repealed by implication is ultimately a matter of legislative
intent. (Crawford, The Construction of Statutes, Secs. 309-310. Cf. Iloilo Palay and Corn Planters Ass'n v. Feliciano, G.R.
No. L-24022, March 3, 1965).
The recent case of People v. De Venecia, G.R. No. L-20808, July 31, 1965 invites comparison with this case. There it was
held:
The result is that although sec. 54 [Rev. Election Code] prohibits a classified civil service employee from aiding
any candidate, sec. 29 [Civil Service Act of 1959] allows such classified employee to express his views on current
political problems or issues, or to mention the name of his candidate for public office, even if such expression of
views or mention of names may result in aiding one particular candidate. In other words, the last paragraph of
sec. 29 is an exception to sec. 54; at most, an amendment to sec. 54.
With regard to the claim that disclosure would be contrary to the policy making bank deposits confidential, it is enough to
point out that while section 2 of Republic Act 1405 declares bank deposits to be "absolutely confidential," it nevertheless
allows such disclosure in the following instances: (1) Upon written permission of the depositor; (2) In cases of
impeachment; (3) Upon order of a competent court in cases of bribery or dereliction of duty of public officials; (4) In cases
where the money deposited is the subject matter of the litigation. Cases of unexplained wealth are similar to cases of
bribery or dereliction of duty and no reason is seen why these two classes of cases cannot be excepted from the rule
making bank deposits confidential. The policy as to one cannot be different from the policy as to the other. This policy
express the motion that a public office is a public trust and any person who enters upon its discharge does so with the full
knowledge that his life, so far as relevant to his duty, is open to public scrutiny.
WHEREFORE, the decision appealed from is affirmed, without pronouncement as to costs.

LOURDES T. MARQUEZ, in her capacity as Branch Manager, Union Bank of the Philippines, petitioners, vs. HON.
ANIANO A. DESIERTO, (in his capacity as OMBUDSMAN, Evaluation and Preliminary Investigation
Bureau, Office of the Ombudsman, ANGEL C. MAYOR-ALGO, JR., MARY ANN CORPUZ-MANALAC and
JOSE T. DE JESUS, JR., in their capacities as Chairman and Members of the Panel,
respectively, respondents.
DECISION
PARDO, J.:
In the petition at bar, petitioner seeks to-a. Annul and set aside, for having been issued without or in excess of jurisdiction or with grave abuse of discretion
amounting to lack of jurisdiction, respondents order dated September 7, 1998 in OMB-0-97-0411, In Re: Motion to
Cite Lourdes T. Marquez for indirect contempt, received by counsel of September 9, 1998, and their order dated
October 14, 1998, denying Marquezs motion for reconsideration dated September 10, 1998, received by counsel on
October 20, 1998.
b. Prohibit respondents from implementing their order dated October 14, 1998, in proceeding with the hearing of the
motion to cite Marquez for indirect contempt, through the issuance by this Court of a temporary restraining order
and/or preliminary injunction.[1]
The antecedent facts are as follows:
Sometime in May 1998, petitioner Marquez received an Order from the Ombudsman Aniano A. Desierto dated April
29, 1998, to produce several bank documents for purposes of inspection in camerarelative to various accounts
maintained at Union Bank of the Philippines, Julia Vargas Branch, where petitioner is the branch manager. The accounts
to be inspected are Account Nos. 011-37270, 240-020718, 245-30317-3 and 245-30318-1, involved in a case pending

with the Ombudsman entitled, Fact-Finding and Intelligence Bureau (FFIB) v. Amado Lagdameo, et. al. The order further
states:
It is worth mentioning that the power of the Ombudsman to investigate and to require the production and inspection of
records and documents is sanctioned by the 1987 Philippine Constitution, Republic Act No. 6770, otherwise known as the
Ombudsman Act of 1989 and under existing jurisprudence on the matter. It must be noted that R. A. 6770 especially
Section 15 thereof provides, among others, the following powers, functions and duties of the Ombudsman, to wit:
xxx
(8) Administer oaths, issue subpoena and subpoena duces tecum and take testimony in any investigation or inquiry,
including the power to examine and have access to bank accounts and records;
(9) Punish for contempt in accordance with the Rules of Court and under the same procedure and with the same penalties
provided therein.
Clearly, the specific provision of R.A. 6770, a later legislation, modifies the law on the Secrecy of Bank Deposits (R.A.
1405) and places the office of the Ombudsman in the same footing as the courts of law in this regard. [2]
The basis of the Ombudsman in ordering an in camera inspection of the accounts is a trail of managers checks
purchased by one George Trivinio, a respondent in OMB-0-97-0411, pending with the office of the Ombudsman.
It would appear that Mr. George Trivinio, purchased fifty one (51) Managers Checks (MCs) for a total amount of
P272.1 Million at Traders Royal Bank, United Nations Avenue branch, on May 2 and 3, 1995. Out of the 51 MCs, eleven
(11) MCs
in the amount of P70.6 million, were deposited and credited to an account maintained at the Union Bank, Julia
Vargas Branch.[3]
On May 26, 1998, the FFIB panel met in conference with petitioner Lourdes T. Marquez and Atty. Fe B. Macalino at
the banks main office, Ayala Avenue, Makati City. The meeting was for the purpose of allowing petitioner and Atty.
Macalino to view the checks furnished by Traders Royal Bank. After convincing themselves of the veracity of the checks,
Atty. Macalino advised Ms. Marquez to comply with the order of the Ombudsman. Petitioner agreed to an in
camera inspection set on June 3, 1998.[4]
However, on June 4, 1998, petitioner wrote the Ombudsman explaining to him that the accounts in question cannot
readily be identified and asked for time to respond to the order. The reason forwarded by petitioner was that despite
diligent efforts and from the account numbers presented, we can not identify these accounts since the checks are issued
in cash or bearer. We surmised that these accounts have long been dormant, hence are not covered by the new account
number generated by the Union Bank system. We therefore have to verify from the Interbank records archives for the
whereabouts of these accounts.[5]
The Ombudsman, responding to the request of the petitioner for time to comply with the order, stated: firstly, it must
be emphasized that Union Bank, Julia Vargas Branch was the depositary bank of the subject Traders Royal Bank
Managers Checks (MCs), as shown at its dorsal portion and as cleared by the Philippine Clearing House, not the
International Corporate Bank.
Notwithstanding the fact that the checks were payable to cash or bearer, nonetheless, the name of the depositor(s)
could easily be identified since the account numbers x x x where said checks were deposited are identified in the order.
Even assuming that the accounts xxx were already classified as dormant accounts, the bank is still required to
preserve the records pertaining to the accounts within a certain period of time as required by existing banking rules and
regulations.
And finally, the in camera inspection was already extended twice from May 13, 1998 to June 3, 1998, thereby giving
the bank enough time within which to sufficiently comply with the order.[6]
Thus, on June 16, 1998, the Ombudsman issued an order directing petitioner to produce the bank documents
relative to the accounts in issue. The order states:
Viewed from the foregoing, your persistent refusal to comply with Ombudsmans order is unjustified, and is merely
intended to delay the investigation of the case. Your act constitutes disobedience of or resistance to a lawful order issued
by this office and is punishable as Indirect Contempt under Section 3(b) of R.A. 6770. The same may also constitute
obstruction in the lawful exercise of the functions of the Ombudsman which is punishable under Section 36 of R.A. 6770. [7]

On July 10, 1998, petitioner together with Union Bank of the Philippines, filed a petition for declaratory relief,
prohibition and injunction[8] with the Regional Trial Court, Makati City, against the Ombudsman.
The petition was intended to clear the rights and duties of petitioner. Thus, petitioner sought a declaration of her
rights from the court due to the clear conflict between R. A. No. 6770, Section 15 and R. A. No. 1405, Sections 2 and 3.
Petitioner prayed for a temporary restraining order (TRO) because the Ombudsman and other persons acting under
his authority were continuously harassing her to produce the bank documents relative to the accounts in question.
Moreover, on June 16, 1998, the Ombudsman issued another order stating that unless petitioner appeared before the
FFIB with the documents requested, petitioner manager would be charged with indirect contempt and obstruction of
justice.
In the meantime,[9] on July 14, 1998, the lower court denied petitioners prayer for a temporary restraining order and
stated thus:
After hearing the arguments of the parties, the court finds the application for a Temporary Restraining Order to be without
merit.
Since the application prays for the restraint of the respondent, in the exercise of his contempt powers under Section 15 (9)
in relation to paragraph (8) of R.A. 6770, known as The Ombudsman Act of 1989, there is no great or irreparable injury
from which petitioners may suffer, if respondent is not so restrained. Respondent should he decide to exercise his
contempt powers would still have to apply with the court. x x x Anyone who, without lawful excuse x x x refuses to produce
documents for inspection, when thereunto lawfully required shall be subject to discipline as in case of contempt of Court
and upon application of the individual or body exercising the power in question shall be dealt with by the Judge of the First
Instance (now RTC) having jurisdiction of the case in a manner provided by law (section 580 of the Revised Administrative
Code). Under the present Constitution only judges may issue warrants, hence, respondent should apply with the Court for
the issuance of the warrant needed for the enforcement of his contempt orders. It is in these proceedings where
petitioners may question the propriety of respondents exercise of his contempt powers. Petitioners are not therefore left
without any adequate remedy.
The questioned orders were issued with the investigation of the case of Fact-Finding and Intelligence Bureau vs. Amado
Lagdameo, et. el., OMB-0-97-0411, for violation of R.A. 3019. Since petitioner failed to show prima facie evidence that the
subject matter of the investigation is outside the jurisdiction of the Office of the Ombudsman, no writ of injunction may be
issued by this Court to delay this investigation pursuant to Section 14 of the Ombudsman Act of 1989. [10]
On July 20, 1998, petitioner filed a motion for reconsideration based on the following grounds:
a. Petitioners application for Temporary Restraining Order is not only to restrain the Ombudsman from
exercising his contempt powers, but to stop him from implementing his Orders dated April 29,1998 and June
16,1998; and
b. The subject matter of the investigation being conducted by the Ombudsman at petitioners premises is outside
his jurisdiction.[11]
On July 23, 1998, the Ombudsman filed a motion to dismiss the petition for declaratory relief [12] on the ground that the
Regional Trial Court has no jurisdiction to hear a petition for relief from the findings and orders of the Ombudsman, citing
R. A. No. 6770, Sections 14 and 27. On August 7, 1998, the Ombudsman filed an opposition to petitioners motion for
reconsideration dated July 20, 1998.[13]
On August 19, 1998, the lower court denied petitioners motion for reconsideration, [14] and also the Ombudsmans
motion to dismiss.[15]
On August 21, 1998, petitioner received a copy of the motion to cite her for contempt, filed with the Office of the
Ombudsman by Agapito B. Rosales, Director, Fact Finding and Intelligence Bureau (FFIB). [16]
On August 31, 1998, petitioner filed with the Ombudsman an opposition to the motion to cite her in contempt on the
ground that the filing thereof was premature due to the petition pending in the lower court. [17] Petitioner likewise reiterated
that she had no intention to disobey the orders of the Ombudsman. However, she wanted to be clarified as to how she
would comply with the orders without her breaking any law, particularly R. A. No. 1405. [18]
Respondent Ombudsman panel set the incident for hearing on September 7, 1998. [19] After hearing, the panel issued
an order dated September 7, 1998, ordering petitioner and counsel to appear for a continuation of the hearing of the
contempt charges against her.[20]

On September 10, 1998, petitioner filed with the Ombudsman a motion for reconsideration of the above order. [21] Her
motion was premised on the fact that there was a pending case with the Regional Trial Court, Makati City, [22] which would
determine whether obeying the orders of the Ombudsman to produce bank documents would not violate any law.
The FFIB opposed the motion,[23] and on October 14, 1998, the Ombudsman denied the motion by order the
dispositive portion of which reads:
Wherefore, respondent Lourdes T. Marquezs motion for reconsideration is hereby DENIED, for lack of merit. Let the
hearing of the motion of the Fact Finding Intelligence Bureau (FFIB) to cite her for indirect contempt be intransferrably set
to 29 October 1998 at 2:00 oclock p.m. at which date and time she should appear personally to submit her additional
evidence. Failure to do so shall be deemed a waiver thereof. [24]
Hence, the present petition.[25]
The issue is whether petitioner may be cited for indirect contempt for her failure to produce the documents requested
by the Ombudsman. And whether the order of the Ombudsman to have an in camerainspection of the questioned account
is allowed as an exception to the law on secrecy of bank deposits (R. A. No. 1405).
An examination of the secrecy of bank deposits law (R. A. No. 1405) would reveal the following exceptions:
1. Where the depositor consents in writing;
2. Impeachment case;
3. By court order in bribery or dereliction of duty cases against public officials;
4. Deposit is subject of litigation;
5. Sec. 8, R. A. No. 3019, in cases of unexplained wealth as held in the case of PNB vs. Gancayco [26]
The order of the Ombudsman to produce for in camera inspection the subject accounts with the Union Bank of the
Philippines, Julia Vargas Branch, is based on a pending investigation at the Office of the Ombudsman against Amado
Lagdameo, et. al. for violation of R. A. No. 3019, Sec. 3 (e) and (g) relative to the Joint Venture Agreement between the
Public Estates Authority and AMARI.
We rule that before an in camera inspection may be allowed, there must be a pending case before a court of
competent jurisdiction. Further, the account must be clearly identified, the inspection limited to the subject matter of the
pending case before the court of competent jurisdiction. The bank personnel and the account holder must be notified to be
present during the inspection, and such inspection may cover only the account identified in the pending case.
In Union Bank of the Philippines v. Court of Appeals, we held that Section 2 of the Law on Secrecy of Bank
Deposits, as amended, declares bank deposits to be absolutely confidential except:
(1) In an examination made in the course of a special or general examination of a bank that is specifically
authorized by the Monetary Board after being satisfied that there is reasonable ground to believe that a bank
fraud or serious irregularity has been or is being committed and that it is necessary to look into the deposit to
establish such fraud or irregularity,
(2) In an examination made by an independent auditor hired by the bank to conduct its regular audit provided
that the examination is for audit purposes only and the results thereof shall be for the exclusive use of the
bank,
(3) Upon written permission of the depositor,
(4) In cases of impeachment,
(5) Upon order of a competent court in cases of bribery or dereliction of duty of public officials, or
(6) In cases where the money deposited or invested is the subject matter of the litigation [27]
In the case at bar, there is yet no pending litigation before any court of competent authority. What is existing is an
investigation by the office of the Ombudsman. In short, what the Office of the Ombudsman would wish to do is to fish for
additional evidence to formally charge Amado Lagdameo, et. al., with the Sandiganbayan. Clearly, there was no pending
case in court which would warrant the opening of the bank account for inspection.
Zones of privacy are recognized and protected in our laws. The Civil Code provides that "[e]very person shall respect
the dignity, personality, privacy and peace of mind of his neighbors and other persons" and punishes as actionable torts
several acts for meddling and prying into the privacy of another. It also holds a public officer or employee or any private
individual liable for damages for any violation of the rights and liberties of another person, and recognizes the privacy of

letters and other private communications. The Revised Penal Code makes a crime of the violation of secrets by an officer,
the revelation of trade and industrial secrets, and trespass to dwelling. Invasion of privacy is an offense in special laws like
the Anti-Wiretapping Law, the Secrecy of Bank Deposits Act, and the Intellectual Property Code.[28]
IN VIEW WHEREOF, we GRANT the petition. We order the Ombudsman to cease and desist from requiring Union
Bank Manager Lourdes T. Marquez, or anyone in her place to comply with the order dated October 14, 1998, and similar
orders. No costs.
SO ORDERED.

OFFICE OF THE OMBUDSMAN, petitioner, vs. HON. FRANCISCO B. IBAY, in his capacity as Presiding Judge of
the Regional Trial Court, Makati City, Branch 135, UNION BANK OF THE PHILIPPINES, and LOURDES T.
MARQUEZ, in her capacity as Branch Manager of UBP Julia Vargas Branch, respondents.
RESOLUTION
QUISUMBING, J.:
This special civil action for certiorari seeks to annul the Orders of public respondent dated August 19, 1998 and
December 22, 1998, and to dismiss the proceedings in Civil Case No. 98-1585.
The factual antecedents of this case are as follows:
Sometime in 1998, petitioner conducted an investigation on the alleged scam on the Public Estates Authority-Amari
Coastal Bay Development Corporation. The case, entitled Fact-Finding and Intelligence Bureau vs. Amadeo Lagdameo,
et al., was docketed as OMB-0-97-0411. Initial result of the investigation revealed that the alleged anomaly was committed
through the issuance of checks which were subsequently deposited in several financial institutions. On April 29, 1998,
petitioner issued an Order directing private respondent Lourdes Marquez, branch manager of Union Bank of the
Philippines branch at Julia Vargas Avenue, Pasig City, to produce several bank documents for inspection relative to
Account Nos. 011-37270-5, 240-020718, 245-30317-3 and 245-30318-1, reportedly maintained in the said branch. The
documents referred to include bank account application forms, signature cards, transactions history, bank statements,
bank ledgers, debit and credit memos, deposit and withdrawal slips, application for purchase of managers checks, used
managers checks and check microfilms. The inspection would be done in camera wherein the bank records would be
examined without bringing the documents outside the bank premises. Its purpose was to identify the specific bank records
prior to the issuance of the required information not in any manner needed in or relevant to the investigation. [1]
Private respondent failed to comply with petitioners order. She explained that the subject accounts pertain to
International Corporate Bank (Interbank) which merged with Union Bank in 1994. She added that despite diligent efforts,
the bank could not identify these accounts since the checks were issued in cash or bearer forms. She informed petitioner
that she had to first verify from the Interbank records in its archives the whereabouts of said accounts. [2]
Petitioner found private respondents explanation unacceptable. Petitioner reminded private respondent that her acts
constitute disobedience or resistance to a lawful order and is punishable as indirect contempt under Section 3 (b), Rule 71
of the Revised Rules of Court, in relation to Section 15 (9) of R.A. 6770 (Ombudsman Act of 1989). The same might also
constitute willful obstruction of the lawful exercise of the functions of the Ombudsman, which is punishable under Section
36 of R.A. 6770. On June 16, 1998, petitioner issued an order to private respondent to produce the requested bank
documents for in camera inspection. In the event of her failure to comply as directed, private respondent was ordered to
show cause why she should not be cited for contempt and why she should not be charged for obstruction. [3]
Instead of complying with the order of petitioner, private respondent filed a petition for declaratory relief with an
application for temporary restraining order and/or preliminary injunction before the Regional Trial Court of Makati City,
Branch 135, presided by respondent Judge Francisco Ibay. The petition was docketed as Civil Case No. 98-1585. In her
petition, private respondent averred that under Sections 2 and 3 of R.A. 1405 (Law on Secrecy of Bank Deposits), she
had the legal obligation not to divulge any information relative to all deposits of whatever nature with banks in the
Philippines. But petitioners Order cited Section 15 (8) of R.A. 6770 stating that the Ombudsman had the power to examine
and have access to bank accounts and records. Private respondent, therefore, sought a definite ruling and/or guidelines
as regards her rights as well as petitioners power to inspect bank deposits under the cited provisions of law. Meanwhile,
private respondent filed with this Court a petition for certiorari and prohibition, assailing petitioners order to institute
indirect contempt proceedings against her.[4]
Petitioner moved to dismiss the aforesaid petition for declaratory relief on the ground that the RTC has no jurisdiction
over the subject matter thereof. In an order dated August 19, 1998, now being assailed, public respondent denied
petitioners motion to dismiss. Petitioner then filed an ex-parte motion for extended ruling. On December 22, 1998, public
respondent issued an order declaring that it has jurisdiction over the case since it is an action for declaratory relief under
Rule 63 of the Rules of Court.
Seasonably, petitioner filed before this Court the instant petition assailing the Orders dated August 19, 1998 and
December 22, 1998 of public respondent on the ground that public respondent assumed jurisdiction over the case and
issued orders with grave abuse of discretion and clear lack of jurisdiction. Petitioner sought the nullification of the
impugned orders, the immediate dismissal of Civil Case No. 98-1585, and the prohibition of public respondent from
exercising jurisdiction on the investigation being conducted by petitioner in the alleged PEA-AMARI land scam.

The only question raised by petitioner for resolution is whether or not public respondent acted without jurisdiction
and/or with grave abuse of discretion in entertaining the cited petition for declaratory relief.
Petitioner contends that the RTC of Makati City lacks jurisdiction over the petition for declaratory relief. It asserts that
respondent judge should have dismissed the petition outright in view of Section 14 of R.A. 6770.
Section 14 of R.A. 6770 provides:
Restrictions.- No writ of injunction shall be issued by any court to delay an investigation being conducted by the
Ombudsman under this Act, unless there is a prima facie evidence that the subject matter of the investigation is outside
the jurisdiction of the Office of the Ombudsman.
No court shall hear any appeal or application for remedy against the decision or findings of the Ombudsman, except
the Supreme Court, on pure question of law.
Petitioners invocation of the aforequoted statutory provision is misplaced. The special civil action of declaratory relief
falls under the exclusive jurisdiction of the Regional Trial Courts. [5] It is not among the actions within the original jurisdiction
of the Supreme Court even if only questions of law are involved. [6] Similarly, the Rules of Court is explicit that such action
shall be brought before the appropriate Regional Trial Court. Section 1, Rule 63 of the Rules of Court provides:
Section 1. Who may file petition.- Any person interested under a deed, will, contract or other written instrument, whose
rights are affected by a statute, executive order or regulation, ordinance, or any other governmental regulation may, before
breach or violation thereof, bring an action in the appropriate Regional Trial Court to determine any question of
construction or validity arising, and for a declaration of his rights or duties, thereunder.
xxx
The requisites of an action for declaratory relief are: (1) there must be a justiciable controversy; (2) the controversy
must be between persons whose interests are adverse; (3) that the party seeking the relief has a legal interest in the
controversy; and (4) that the issue is ripe for judicial determination. [7] In this case, the controversy concerns the extent of
the power of petitioner to examine bank accounts under Section 15 (8) of R.A. 6770 vis--vis the duty of banks under
Republic Act 1405 not to divulge any information relative to deposits of whatever nature. The interests of the parties are
adverse considering the antagonistic assertion of a legal right on one hand, that is the power of Ombudsman to examine
bank deposits, and on the other, the denial thereof apparently by private respondent who refused to allow petitioner to
inspect in camera certain bank accounts. The party seeking relief, private respondent herein, asserts a legal interest in the
controversy. The issue invoked is ripe for judicial determination as litigation is inevitable. Note that petitioner has
threatened private respondent with indirect contempt and obstruction charges should the latter not comply with its order.
Circumstances considered, we hold that public respondent has jurisdiction to take cognizance of the petition for
declaratory relief. Nor can it be said that public respondent gravely abused its discretion in doing so. We are thus
constrained to dismiss the instant petition for lack of merit.
In any event, the relief being sought by private respondent in her action for declaratory relief before the RTC of
Makati City has been squarely addressed by our decision in Marquez vs. Desierto.[8] In that case, we ruled that before
an in camera inspection of bank accounts may be allowed, there must be a pending case before a court of competent
jurisdiction. Further, the account must be clearly identified, and the inspection limited to the subject matter of the pending
case before the court of competent jurisdiction. The bank personnel and the account holder must be notified to be present
during the inspection, and such inspection may cover only the account identified in the pending case. In the present case,
since there is no pending litigation yet before a court of competent authority, but only an investigation by the Ombudsman
on the so-called scam, any order for the opening of the bank account for inspection is clearly premature and legally
unjustified.
WHEREFORE, the instant petition is DISMISSED.
SO ORDERED.

G.R. No. L-36142 March 31, 1973

JOSUE
JAVELLANA, petitioner,
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF NATIONAL DEFENSE, THE SECRETARY OF JUSTICE AND
THE SECRETARY OF FINANCE, respondents.
G.R. No. L-36164 March 31, 1973
VIDAL TAN, J. ANTONIO ARANETA, ALEJANDRO ROCES, MANUEL CRUDO, ANTONIO U. MIRANDA, EMILIO DE
PERALTA
AND
LORENZO
M.
TAADA, petitioners,
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE , THE SECRETARY OF JUSTICE, THE SECRETARY
OF LAND REFORM, THE SECRETARY OF NATIONAL DEFENSE, THE AUDITOR GENERAL, THE BUDGET
COMMISSIONER, THE CHAIRMAN OF PRESIDENTIAL COMMISSION ON REORGANIZATION, THE TREASURER
OF THE PHILIPPINES, THE COMMISSION ON ELECTIONS AND THE COMMISSIONER OF CIVIL
SERVICE, respondents.
G.R. No. L-36165 March 31, 1973.

GERARDO ROXAS, AMBROSIO PADILLA, JOVITO R. SALONGA, SALVADOR H. LAUREL, RAMON V. MITRA, JR.
and
EVA
ESTRADA-KALAW, petitioners,
vs.
ALEJANDRO MELCHOR, in his capacity as Executive Secretary; JUAN PONCE ENRILE, in his capacity as
Secretary of National Defense; General ROMEO ESPINO, in his capacity as Chief of Staff of the Armed Forces of
the Philippines; TANCIO E. CASTAEDA, in his capacity as Secretary General Services; Senator GIL J. PUYAT, in
his capacity as President of the Senate; and Senator JOSE ROY, his capacity, as President Pro Tempore of the of
the Senate, respondents.
G.R. No. L-36236 March 31, 1973
EDDIE B. MONTECLARO, [personally and in his capacity as President of the National Press Club of the
Philippines], petitioner,
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF PUBLIC INFORMATION, THE AUDITOR GENERAL, THE
BUDGET COMMISSIONER & THE NATIONAL TREASURER, respondents.
G.R. No. L-36283 March 31, 1973
NAPOLEON V. DILAG, ALFREDO SALAPANTAN, JR., LEONARDO ASODISEN, JR., and RAUL M.
GONZALEZ, petitioners,
vs.
THE HONORABLE EXECUTIVE SECRETARY, THE HONORABLE SECRETARY OF NATIONAL DEFENSE, THE
HONORABLE BUDGET COMMISSIONER, THE HONORABLE AUDITOR GENERAL, respondents.
Ramon A. Gonzales for petitioner Josue Javellana.
Lorenzo M. Taada and Associates for petitioners Vidal Tan, et al.
Taada, Salonga, Ordoez, Rodrigo, Sanidad, Roxas. Gonzales and Arroyo for petitioners Gerardo Roxas, et al.
Joker P. Arroyo and Rogelio B. Padilla for petitioner Eddie Monteclaro.
Raul M. Gonzales and Associates for petitioners Napoleon V. Dilag, et al.
Arturo M. Tolentino for respondents Gil J. Puyat and Jose Roy.
Office of the Solicitor General Estelito P. Mendoza, Solicitor Vicente V. Mendoza and Solicitor Reynato S. Puno for other
respondents.
RESOLUTION

CONCEPCION, C.J.:
The
above-entitled
five
(5)
cases
are
a
sequel
of
cases
G.R.
Nos.
L-35925,
L-35929,
L-35940,
L-35941,
L-35942,
L-35948,
L-35953,
L-35961,
L-35965
and
L-35979, decided on January 22, 1973, to which We will hereafter refer collectively as the plebiscite cases.
Background of the Plebiscite Cases.
The factual setting thereof is set forth in the decision therein rendered, from which We quote:
On March 16, 1967, Congress of the Philippines passed Resolution No. 2, which was amended by
Resolution No. 4 of said body, adopted on June 17, 1969, calling a Convention to propose amendments
to the Constitution of the Philippines. Said Resolution No. 2, as amended, was implemented by Republic
Act No. 6132, approved on August 24, 1970, pursuant to the provisions of which the election of delegates

to said Convention was held on November 10, 1970, and the 1971 Constitutional Convention began to
perform its functions on June 1, 1971. While the Convention was in session on September 21, 1972, the
President issued Proclamation No. 1081 placing the entire Philippines under Martial Law. On November
29, 1972, the Convention approved its Proposed Constitution of the Republic of the Philippines. The next
day, November 30, 1972, the President of the Philippines issued Presidential Decree No. 73, "submitting
to the Filipino people for ratification or rejection the Constitution of the Republic of the Philippines
proposed by the 1971 Constitutional Convention, and appropriating funds therefor," as well as setting the
plebiscite for said ratification or rejection of the Proposed Constitution on January 15, 1973.
Soon after, or on December 7, 1972, Charito Planas filed, with this Court, Case G.R. No. L-35925, against
the Commission on Elections, the Treasurer of the Philippines and the Auditor General, to enjoin said
"respondents or their agents from implementing Presidential Decree No. 73, in any manner, until further
orders of the Court," upon the grounds, inter alia, that said Presidential Decree "has no force and effect
as law because the calling ... of such plebiscite, the setting of guidelines for the conduct of the same, the
prescription of the ballots to be used and the question to be answered by the voters, and the
appropriation of public funds for the purpose, are, by the Constitution, lodged exclusively in Congress ...,"
and "there is no proper submission to the people of said Proposed Constitution set for January 15, 1973,
there being no freedom of speech, press and assembly, and there being no sufficient time to inform the
people of the contents thereof."
Substantially identical actions were filed, on December 8, 1972, by Pablo C. Sanidad against the
Commission on Elections (Case G.R. No. L- 35929) on December 11, 1972, by Gerardo Roxas, et al.,
against the Commission on Elections, the Director of Printing, the National Treasurer and the Auditor
General (Case G.R. L-35940), by Eddie B. Monteclaro against the Commission on Elections and the
Treasurer of the Philippines (Case G.R. No. L-35941), and by Sedfrey Ordoez, et al. against the
National Treasurer and the Commission on Elections (Case G.R. No. L-35942); on December 12, 1972,
by Vidal Tan, et al., against the Commission on Elections, the Treasurer of the Philippines, the Auditor
General and the Director of Printing (Case G.R. No. L-35948) and by Jose W. Diokno and Benigno S.
Aquino against the Commission on Elections (Case G.R. No. L-35953); on December 14, 1972, by
Jacinto Jimenez against the Commission on Elections, the Auditor General, the Treasurer of the
Philippines and the Director of the Bureau of Printing (Case G.R. No. L-35961), and by Raul M. Gonzales
against the Commission on Elections, the Budget Commissioner, the National Treasurer and the Auditor
General (Case G.R. No. L-35965); and on December 16, 1972, by Ernesto C. Hidalgo against the
Commission on Elections, the Secretary of Education, the National Treasurer and the Auditor General
(Case G.R. No. L-35979).
In all these cases, except the last (G.R. No. L-35979), the respondents were required to file their answers
"not later than 12:00 (o'clock) noon of Saturday, December 16, 1972." Said cases were, also, set for
hearing and partly heard on Monday, December 18, 1972, at 9:30 a.m. The hearing was continued on
December 19, 1972. By agreement of the parties, the aforementioned last case G.R. No. L-35979
was, also, heard, jointly with the others, on December 19, 1972. At the conclusion of the hearing, on that
date, the parties in all of the aforementioned cases were given a short period of time within which "to
submit their notes on the points they desire to stress." Said notes were filed on different dates, between
December 21, 1972, and January 4, 1973.
Meanwhile, or on December 17, 1972, the President had issued an order temporarily suspending the
effects of Proclamation No. 1081, for the purpose of free and open debate on the Proposed Constitution.
On December 23, the President announced the postponement of the plebiscite for the ratification or
rejection of the Proposed Constitution. No formal action to this effect was taken until January 7, 1973,
when General Order No. 20 was issued, directing "that the plebiscite scheduled to be held on January 15,
1978, be postponed until further notice." Said General Order No. 20, moreover, "suspended in the
meantime" the "order of December 17, 1972, temporarily suspending the effects of Proclamation No.
1081 for purposes of free and open debate on the proposed Constitution."
In view of these events relative to the postponement of the aforementioned plebiscite, the Court deemed
it fit to refrain, for the time being, from deciding the aforementioned cases, for neither the date nor the
conditions under which said plebiscite would be held were known or announced officially. Then, again,
Congress was, pursuant to the 1935 Constitution, scheduled to meet in regular session on January 22,
1973, and since the main objection to Presidential Decree No. 73 was that the President does not have
the legislative authority to call a plebiscite and appropriate funds therefor, which Congress unquestionably
could do, particularly in view of the formal postponement of the plebiscite by the President reportedly

after consultation with, among others, the leaders of Congress and the Commission on Elections the
Court deemed it more imperative to defer its final action on these cases.
"In
the
afternoon
of
January
12,
1973,
the
petitioners
in
Case
G.R.
No.
L-35948 filed an "urgent motion," praying that said case be decided "as soon as possible, preferably not
later than January 15, 1973." It was alleged in said motion, inter alia:
"6. That the President subsequently announced the issuance of Presidential Decree No. 86 organizing the
so-called Citizens Assemblies, to be consulted on certain public questions [Bulletin Today, January 1,
1973];
"7. That thereafter it was later announced that "the Assemblies will be asked if they favor or oppose
[1] The New Society;
[2] Reforms instituted under Martial Law;
[3] The holding of a plebiscite on the proposed new Constitution and when (the tentative
new dates given following the postponement of the plebiscite from the original date of
January 15 are February 19 and March 5);
[4] The opening of the regular session slated on January 22 in accordance with the
existing Constitution despite Martial Law." [Bulletin Today, January 3, 1973.]
"8. That it was later reported that the following are to be the forms of the questions to be asked to the
Citizens Assemblies:
[1] Do you approve of the New Society?
[2] Do you approve of the reform measures under martial law?
[3] Do you think that Congress should meet again in regular session?
[4] How soon would you like the plebiscite on the new Constitution to be held? [Bulletin
Today, January 5, 1973].
"9. That the voting by the so-called Citizens Assemblies was announced to take place during the period
from January 10 to January 15, 1973;
"10. That on January 10, 1973, it was reported that on more question would be added to the four (4)
question previously announced, and that the forms of the question would be as follows:
[1] Do you like the New Society?
[2] Do you like the reforms under martial law?
[3] Do you like Congress again to hold sessions?
[4] Do you like the plebiscite to be held later?
[5] Do you like the way President Marcos running the affairs of the government? [Bulletin
Today, January 10, 1973; emphasis an additional question.]
"11. That on January 11, 1973, it was reported that six (6) more questions would be submitted to the socalled Citizens Assemblies:
[1] Do you approve of the citizens assemblies as the base of popular government to
decide issues of national interests?

[2] Do you approve of the new Constitution?

[3] Do you want a plebiscite to be called to ratify the new Constitution?
[4] Do you want the elections to be held in November, 1973 in accordance with the
provisions of the 1935 Constitution?
[5] If the elections would not be held, when do you want the next elections to be called?
[6] Do you want martial law to continue? [Bulletin Today, January 11, 1973; emphasis
supplied]
"12. That according to reports, the returns with respect to the six (6) additional questions quoted above
will be on a form similar or identical to Annex "A" hereof;
"13. That attached to page 1 of Annex "A" is another page, which we marked as Annex "A-1", and which
reads:
COMMENTS ON
QUESTION No. 1
In order to broaden the base of citizens' participation in government.
QUESTION No. 2
But we do not want the Ad Interim Assembly to be convoked. Or if it is to be convened at
all, it should not be done so until after at least seven (7) years from the approval of the
New Constitution by the Citizens Assemblies.
QUESTION No. 3
The vote of the Citizens Assemblies should already be considered the plebiscite on the
New Constitution.
If the Citizens Assemblies approve of the New Constitution, then the new Constitution
should be deemed ratified.
QUESTION No. 4
We are sick and tired of too frequent elections. We are fed up with politics, of so many
debates and so much expenses.
QUESTION No. 5
Probably a period of at least seven (7) years moratorium on elections will be enough for
stability to be established in the country, for reforms to take root and normalcy to return.
QUESTION No. 6
We want President Marcos to continue with Martial Law. We want him to exercise his
powers with more authority. We want him to be strong and firm so that he can accomplish
all his reform programs and establish normalcy in the country. If all other measures fail,
we want President Marcos to declare a revolutionary government along the lines of the
new Constitution without the ad interim Assembly."
"Attention is respectfully invited to the comments on "Question No. 3," which reads:

QUESTION No. 3
The vote of the Citizens Assemblies should be considered the plebiscite on the New
Constitution.
If the Citizens Assemblies approve of the New Constitution, then the new Constitution
should be deemed ratified.
This, we are afraid, and therefore allege, is pregnant with ominous possibilities.
14. That, in the meantime, speaking on television and over the radio, on January 7, 1973, the President
announced that the limited freedom of debate on the proposed Constitution was being withdrawn and that
the proclamation of martial law and the orders and decrees issued thereunder would thenceforth strictly
be enforced [Daily Express, January 8, 1973];
15. That petitioners have reason to fear, and therefore state, that the question added in the last list of
questions to be asked to the Citizens Assemblies, namely:
Do you approve
Constitution?

of

the

New

in relation to the question following it:

Do you still want a plebiscite to be called to ratify the
new Constitution?"
would be an attempt to by-pass and short-circuit this Honorable Court before which the question of the
validity of the plebiscite on the proposed Constitution is now pending;
"16. That petitioners have reason to fear, and therefore allege, that if an affirmative answer to the two
questions just referred to will be reported then this Honorable Court and the entire nation will be
confronted with a fait accompli which has been attained in a highly unconstitutional and undemocratic
manner;
"17. That the fait accompli would consist in the supposed expression of the people approving the
proposed Constitution;
"18. That, if such event would happen, then the case before this Honorable Court could, to all intents and
purposes, become moot because, petitioners fear, and they therefore allege, that on the basis of such
supposed expression of the will of the people through the Citizens Assemblies, it would be announced
that the proposed Constitution, with all its defects, both congenital and otherwise, has been ratified;
"19. That, in such a situation the Philippines will be facing a real crisis and there is likelihood of confusion
if not chaos, because then, the people and their officials will not know which Constitution is in force.
"20. That the crisis mentioned above can only be avoided if this Honorable Court will immediately decide
and announce its decision on the present petition;
"21. That with the withdrawal by the President of the limited freedom of discussion on the proposed
Constitution which was given to the people pursuant to Sec. 3 of Presidential Decree No. 73, the
opposition of respondents to petitioners' prayer at the plebiscite be prohibited has now collapsed and that
a free plebiscite can no longer be held."
At about the same time, a similar prayer was made in a "manifestation" filed by the petitioners in L-35949,
"Gerardo Roxas, et al. v. Commission on Elections, et al.," and L-35942, "Sedfrey A. Ordoez, et al. v.
The National Treasurer, et al."

The next day, January 13, 1973, which was a Saturday, the Court issued a resolution requiring the
respondents in said three (3) cases to comment on said "urgent motion" and "manifestation," "not later
than Tuesday noon, January 16, 1973." Prior thereto, or on January 15, 1973, shortly before noon, the
petitioners in said Case G.R. No. L-35948 riled a "supplemental motion for issuance of restraining order
and inclusion of additional respondents," praying
"... that a restraining order be issued enjoining and restraining respondent Commission
on Elections, as well as the Department of Local Governments and its head, Secretary
Jose Roo; the Department of Agrarian Reforms and its head, Secretary Conrado
Estrella; the National Ratification Coordinating Committee and its Chairman, Guillermo de
Vega; their deputies, subordinates and substitutes, and all other officials and persons
who may be assigned such task, from collecting, certifying, and announcing and reporting
to the President or other officials concerned, the so-called Citizens' Assemblies
referendum results allegedly obtained when they were supposed to have met during the
period comprised between January 10 and January 15, 1973, on the two questions
quoted in paragraph 1 of this Supplemental Urgent Motion."
In support of this prayer, it was alleged
"3. That petitioners are now before this Honorable Court in order to ask further that this Honorable Court
issue a restraining order enjoining herein respondents, particularly respondent Commission on Elections
as well as the Department of Local Governments and its head, Secretary Jose Roo; the Department of
Agrarian Reforms and its head, Secretary Conrado Estrella; the National Ratification Coordinating
Committee and its Chairman, Guillermo de Vega; and their deputies, subordinates and/or substitutes,
from collecting, certifying, announcing and reporting to the President the supposed Citizens' Assemblies
referendum results allegedly obtained when they were supposed to have met during the period between
January 10 and January 15, 1973, particularly on the two questions quoted in paragraph 1 of this
Supplemental Urgent Motion;
"4. That the proceedings of the so-called Citizens' Assemblies are illegal, null and void particularly insofar
as such proceedings are being made the basis of a supposed consensus for the ratification of the
proposed Constitution because:
[a] The elections contemplated in the Constitution, Article XV, at which the proposed
constitutional amendments are to be submitted for ratification, are elections at which only
qualified and duly registered voters are permitted to vote, whereas, the so called Citizens'
Assemblies were participated in by persons 15 years of age and older, regardless of
qualifications or lack thereof, as prescribed in the Election Code;
[b] Elections or plebiscites for the ratification of constitutional amendments contemplated
in Article XV of the Constitution have provisions for the secrecy of choice and of vote,
which is one of the safeguards of freedom of action, but votes in the Citizens' Assemblies
were open and were cast by raising hands;
[c] The Election Code makes ample provisions for free, orderly and honest elections, and
such provisions are a minimum requirement for elections or plebiscites for the ratification
of constitutional amendments, but there were no similar provisions to guide and regulate
proceedings of the so called Citizens' Assemblies;
[d] It is seriously to be doubted that, for lack of material time, more than a handful of the
so called Citizens' Assemblies have been actually formed, because the mechanics of
their organization were still being discussed a day or so before the day they were
supposed to begin functioning:
"Provincial governors and city and municipal mayors had been meeting
with barrio captains and community leaders since last Monday [January
8, 1973) to thresh out the mechanics in the formation of the Citizens
Assemblies and the topics for discussion." [Bulletin Today, January 10,
1973]

"It should be recalled that the Citizens' Assemblies were ordered formed only at the beginning of the year
[Daily Express, January 1, 1973], and considering the lack of experience of the local organizers of said
assemblies, as well as the absence of sufficient guidelines for organization, it is too much to believe that
such assemblies could be organized at such a short notice.
"5. That for lack of material time, the appropriate amended petition to include the additional officials and
government agencies mentioned in paragraph 3 of this Supplemental Urgent Motion could not be
completed because, as noted in the Urgent Motion of January 12, 1973, the submission of the proposed
Constitution to the Citizens' Assemblies was not made known to the public until January 11, 1973. But be
that as it may, the said additional officials and agencies may be properly included in the petition at bar
because:
[a] The herein petitioners have prayed in their petition for the annulment not only of
Presidential Decree No. 73, but also of "any similar decree, proclamation, order or
instruction.
so that Presidential Decree No. 86, insofar at least as it attempts to submit the proposed Constitution to a
plebiscite by the so-called Citizens' Assemblies, is properly in issue in this case, and those who enforce,
implement, or carry out the said Presidential Decree No. 86. and the instructions incidental thereto clearly
fall within the scope of this petition;
[b] In their petition, petitioners sought the issuance of a writ of preliminary injunction
restraining not only the respondents named in the petition but also their "agents" from
implementing not only Presidential Decree No. 73, but also "any other similar decree,
order, instruction, or proclamation in relation to the holding of a plebiscite on January 15,
1973 for the purpose of submitting to the Filipino people for their ratification or rejection
the 1972 Draft or proposed Constitution approved by the Constitutional Convention on
November 30, 1972"; and finally,
[c] Petitioners prayed for such other relief which may be just and equitable. [p. 39,
Petition].
"Therefore, viewing the case from all angles, the officials and government agencies mentioned in
paragraph 3 of this Supplemental Urgent Motion, can lawfully be reached by the processes of this
Honorable Court by reason of this petition, considering, furthermore, that the Commission on Elections
has under our laws the power, among others, of:
(a) Direct and immediate supervision and control over national, provincial, city, municipal
and municipal district officials required by law to perform duties relative to the conduct of
elections on matters pertaining to the enforcement of the provisions of this Code ..."
[Election Code of 1971, Sec. 3].
"6. That unless the petition at bar is decided immediately and the Commission on Elections, together with
the officials and government agencies mentioned in paragraph 3 of this Supplemental Urgent Motion are
restrained or enjoined from collecting, certifying, reporting or announcing to the President the results of
the alleged voting of the so-called Citizens' Assemblies, irreparable damage will be caused to the
Republic of the Philippines, the Filipino people, the cause of freedom an democracy, and the petitioners
herein because:
[a] After the result of the supposed voting on the questions mentioned in paragraph 1
hereof shall have been announced, a conflict will arise between those who maintain that
the 1935 Constitution is still in force, on the one hand, and those who will maintain that it
has been superseded by the proposed Constitution, on the other, thereby creating
confusion, if not chaos;
[b] Even the jurisdiction of this Court will be subject to serious attack because the
advocates of the theory that the proposed Constitution has been ratified by reason of the
announcement of the results of the proceedings of the so-called Citizens' Assemblies will
argue that, General Order No. 3, which shall also be deemed ratified pursuant to the

Transitory Provisions of the proposed Constitution, has placed Presidential Decree Nos.
73 and 86 beyond the reach and jurisdiction of this Honorable Court."
On the same date January 15, 1973 the Court passed a resolution requiring the respondents in said
case G.R. No. L-35948 to file "file an answer to the said motion not later than 4 P.M., Tuesday, January
16, 1973," and setting the motion for hearing "on January 17, 1973, at 9:30 a.m." While the case was
being heard, on the date last mentioned, at noontime, the Secretary of Justice called on the writer of this
opinion and said that, upon instructions of the President, he (the Secretary of Justice) was delivering to
him (the writer) a copy of Proclamation No. 1102, which had just been signed by the President.
Thereupon, the writer returned to the Session Hall and announced to the Court, the parties in G.R. No. L35948 inasmuch as the hearing in connection therewith was still going on and the public there
present that the President had, according to information conveyed by the Secretary of Justice, signed
said Proclamation No. 1102, earlier that morning. Thereupon, the writer read Proclamation No. 1102
which is of the following tenor:
"BY THE PRESIDENT OF THE PHILIPPINES
"PROCLAMATION NO. 1102
"ANNOUNCING THE RATIFICATION BY THE FILIPINO PEOPLE OF THE CONSTITUTION PROPOSED
BY THE 1971 CONSTITUTIONAL CONVENTION.
"WHEREAS, the Constitution proposed by the nineteen hundred seventy-one Constitutional Convention
is subject to ratification by the Filipino people;
"WHEREAS, Citizens Assemblies were created in barrios, in municipalities and in districts/wards in
chartered cities pursuant to Presidential Decree No. 86, dated December 31, 1972, composed of all
persons who are residents of the barrio, district or ward for at least six months, fifteen years of age or
over, citizens of the Philippines and who are registered in the list of Citizen Assembly members kept by
the barrio, district or ward secretary;
"WHEREAS, the said Citizens Assemblies were established precisely to broaden the base of citizen
participation in the democratic process and to afford ample opportunity for the citizenry to express their
views on important national issues;
"WHEREAS, responding to the clamor of the people and pursuant to Presidential Decree No. 86-A, dated
January 5, 1973, the following questions were posed before the Citizens Assemblies or Barangays: Do
you approve of the New Constitution? Do you still want a plebiscite to be called to ratify the new
Constitution?
"WHEREAS, fourteen million nine hundred seventy-six thousand five hundred sixty-one (14,976,561)
members of all the Barangays (Citizens Assemblies) voted for the adoption of the proposed Constitution,
as against seven hundred forty-three thousand eight hundred sixty-nine (743,869) who voted for its
rejection; while on the question as to whether or not the people would still like a plebiscite to be called to
ratify the new Constitution, fourteen million two hundred ninety-eight thousand eight hundred fourteen
(14,298,814) answered that there was no need for a plebiscite and that the vote of the Barangays
(Citizens Assemblies) should be considered as a vote in a plebiscite;
"WHEREAS, since the referendum results show that more than ninety-five (95) per cent of the members
of the Barangays (Citizens Assemblies) are in favor of the new Constitution, the Katipunan ng Mga
Barangay has strongly recommended that the new Constitution should already be deemed ratified by the
Filipino people;
"NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers
in me vested by the Constitution, do hereby certify and proclaim that the Constitution proposed by the
nineteen hundred and seventy-one (1971) Constitutional Convention has been ratified by an
overwhelming majority of all of the votes cast by the members of all the Barangays (Citizens Assemblies)
throughout the Philippines, and has thereby come into effect.

"IN WITNESS WHEREOF, I have hereunto set my hand and caused the seal of the Republic of the
Philippines to be affixed.
"Done in the City of Manila, this 17th day of January, in the year of Our Lord, nineteen hundred and
seventy-three.
(Sgd.) FERDINAND E.
MARCOS
"President
of
the
Philippines
"By the President:
"ALEJANDRO
"Executive Secretary"

MELCHOR

Such is the background of the cases submitted determination. After admitting some of the allegations
made in the petition in L-35948 and denying the other allegations thereof, respondents therein alleged in
their answer thereto, by way affirmative defenses: 1) that the "questions raised" in said petition "are
political in character"; 2) that "the Constitutional Convention acted freely and had plenary authority to
propose not only amendments but a Constitution which would supersede the present Constitution"; 3) that
"the President's call for a plebiscite and the appropriation of funds for this purpose are valid"; 4) that
"there is not an improper submission" and "there can be a plebiscite under Martial Law"; and 5) that the
"argument that the Proposed Constitution is vague and incomplete, makes an unconstitutional delegation
of power, includes a referendum on the proclamation of Martial Law and purports to exercise judicial
power" is "not relevant and ... without merit." Identical defenses were set up in the other cases under
consideration.
Immediately after the hearing held on January 17, 1973, or since the afternoon of that date, the Members
of the Court have been deliberating on the aforementioned cases and, after extensive discussions on the
merits thereof, have deemed it best that each Member write his own views thereon and that thereafter the
Chief Justice should state the result or the votes thus cast on the points in issue. Hence, the individual
views of my brethren in the Court are set forth in the opinions attached hereto, except that, instead of
writing their separate opinions, some Members have preferred to merely concur in the opinion of one of
our colleagues.
Then the writer of said decision expressed his own opinion on the issues involved therein, after which he recapitulated the
views of the Members of the Court, as follows:
1. There is unanimity on the justiciable nature of the issue on the legality of Presidential Decree No. 73.
2. On the validity of the decree itself, Justices Makalintal, Castro, Fernando, Teehankee, Esguerra and
myself, or six (6) Members of the Court, are of the opinion that the issue has become moot and academic,
whereas Justices Barredo, Makasiar and Antonio voted to uphold the validity of said Decree.
3. On the authority of the 1971 Constitutional Convention to pass the proposed Constitution or to
incorporate therein the provisions contested by the petitioners in L-35948, Justices Makalintal, Castro,
Teehankee and Esguerra opine that the issue has become moot and academic. Justices Fernando,
Barredo, Makasiar, Antonio and myself have voted to uphold the authority of the Convention.
4. Justice Fernando, likewise, expressed the view that the 1971 Constitutional Convention had authority
to continue in the performance of its functions despite the proclamation of Martial Law. In effect, Justices
Barredo, Makasiar and Antonio hold the same view.
5. On the question whether the proclamation of Martial Law affected the proper submission of the
proposed Constitution to a plebiscite, insofar as the freedom essential therefor is concerned, Justice
Fernando is of the opinion that there is a repugnancy between the election contemplated under Art. XV of
the 1935 Constitution and the existence of Martial Law, and would, therefore, grant the petitions were they
not moot and academic. Justices Barredo, Antonio and Esguerra are of the opinion that issue involves

questions of fact which cannot be predetermined, and that Martial Law per se does not necessarily
preclude the factual possibility of adequate freedom, for the purposes contemplated.
6. On Presidential Proclamation No. 1102, the following views were expressed:
a. Justices Makalintal, Castro, Fernando, Teehankee, Makasiar, Esguerra and myself are
of the opinion that the question of validity of said Proclamation has not been properly
raised before the Court, which, accordingly, should not pass upon such question.
b. Justice Barredo holds that the issue on the constitutionality of Proclamation No. 1102
has been submitted to and should be determined by the Court, and that the "purported
ratification of the Proposed Constitution ... based on the referendum among Citizens'
Assemblies falls short of being in strict conformity with the requirements of Article XV of
the 1935 Constitution," but that such unfortunate drawback notwithstanding, "considering
all other related relevant circumstances, ... the new Constitution is legally recognizable
and should be recognized as legitimately in force."
c. Justice Zaldivar maintains unqualifiedly that the Proposed Constitution has not been
ratified in accordance with Article XV of the 1935 Constitution, and that, accordingly, it
has no force and effect whatsoever.
d. Justice Antonio feels "that the Court is not competent to act" on the issue whether the
Proposed Constitution has been ratified by the people or not, "in the absence of any
judicially discoverable and manageable standards," since the issue "poses a question of
fact.
7. On the question whether or not these cases should be dismissed, Justices Makalintal, Castro, Barredo,
Makasiar, Antonio and Esguerra voted in the affirmative, for the reasons set forth in their respective
opinions. Justices Fernando, Teehankee, and the writer similarly voted, except as regards Case No. L35948 as to which they voted to grant to the petitioners therein a reasonable period of time within which to
file appropriate pleadings should they wish to contest the legality of Presidential Proclamation No. 1102.
Justice Zaldivar favors the granting of said period to the petitioners in said Case No. L-35948 for the
aforementioned purpose, but he believes, in effect, that the Court should go farther and decide on the
merits everyone of the cases under consideration.
Accordingly, the Court acting in conformity with the position taken by six (6) of its members, 1 with three (3) members
dissenting, 2 with respect to G.R. No. L-35948, only and another member 3 dissenting, as regards all of the cases
dismissed the same, without special pronouncement as to costs.
The Present Cases
Prior thereto, or on January 20, 1973, Josue Javellana filed Case G.R. No. L-36142 against the Executive Secretary and
the Secretaries of National Defense, Justice and Finance, to restrain said respondents "and their subordinates or agents
from implementing any of the provisions of the propose Constitution not found in the present Constitution" referring to
that of 1935. The petition therein, filed by Josue Javellana, as a "Filipino citizen, and a qualified and registered voter" and
as "a class suit, for himself, and in behalf of all citizens and voters similarly situated," was amended on or about January
24, 1973. After reciting in substance the facts set forth in the decision in the plebiscite cases, Javellana alleged that the
President had announced "the immediate implementation of the New Constitution, thru his Cabinet, respondents
including," and that the latter "are acting without, or in excess of jurisdiction in implementing the said proposed
Constitution" upon the ground: "that the President, as Commander-in-Chief of the Armed Forces of the Philippines, is
without authority to create the Citizens Assemblies"; that the same "are without power to approve the proposed
Constitution ..."; "that the President is without power to proclaim the ratification by the Filipino people of the proposed
Constitution"; and "that the election held to ratify the proposed Constitution was not a free election, hence null and void."
Similar actions were filed, on January 23, 1973, by Vidal Tan, J. Antonio Araneta, Alejandro Roces, Manuel Crudo, Antonio
U. Miranda, Emilio de Peralta and Lorenzo M. Taada, against the Executive Secretary, the Secretaries of Finance,
Justice, Land Reform, and National Defense, the Auditor General, the Budget Commissioner, the Chairman of the
Presidential Commission on Reorganization, the Treasurer of the Philippines, the Commission on Elections and the
Commissioner of Civil Service 4 on February 3, 1973, by Eddie Monteclaro, personally and as President of the National
Press Club of the Philippines, against the Executive Secretary, the Secretary of Public Information, the Auditor General,

the Budget Commissioner and the National Treasurer 5 and on February 12, 1973, by Napoleon V. Dilag, Alfredo
Salapantan, Jr., Leonardo Asodisen, Jr. and Raul M. Gonzales, 6 against the Executive Secretary, the Secretary of
National Defense, the Budget Commissioner and the Auditor General.
Likewise, on January 23, 1973, Gerardo Roxas, Ambrosio Padilla, Jovito R. Salonga, Salvador H. Laurel, 7 Ramon V.
Mitra, Jr. and Eva Estrada-Kalaw, the first as "duly elected Senator and Minority Floor Leader of the Senate," and others
as "duly elected members" thereof, filed Case G.R. No. L-36165, against the Executive Secretary, the Secretary National
Defense, the Chief of Staff of the Armed Forces of the Philippines, the Secretary of General Services, the President and
the President Pro Tempore of the Senate. In their petition as amended on January 26, 1973 petitioners Gerardo
Roxas, et al. allege, inter alia, that the term of office of three of the aforementioned petitioners 8 would expire on December
31, 1975, and that of the others 9 on December 31, 1977; that pursuant to our 1935 Constitution, "which is still in force
Congress of the Philippines "must convene for its 8th Session on Monday, January 22, 1973, at 10:00 A.M., which is
regular customary hour of its opening session"; that "on said day, from 10:00 A.M. up to the afternoon," said petitioner
"along with their other colleagues, were unlawfully prevented from using the Senate Session Hall, the same having been
closed by the authorities in physical possession and control the Legislative Building"; that "(a)t about 5:00 to 6:00 P.M. the
said day, the premises of the entire Legislative Building were ordered cleared by the same authorities, and no one was
allowed to enter and have access to said premises"; that "(r)espondent Senate President Gil J. Puyat and, in his absence,
respondent President Pro Tempore Jose Roy we asked by petitioning Senators to perform their duties under the law and
the Rules of the Senate, but unlawfully refrained and continue to refrain from doing so"; that the petitioners ready and
willing to perform their duties as duly elected members of the Senate of the Philippines," but respondent Secretary of
National Defense, Executive Secretary and Chief of Staff, "through their agents and representatives, are preventing
petitioners from performing their duties as duly elected Senators of the Philippines"; that "the Senate premise in the
Congress of the Philippines Building ... are occupied by and are under the physical control of the elements military
organizations under the direction of said respondents"; that, as per "official reports, the Department of General Services ...
is now the civilian agency in custody of the premises of the Legislative Building"; that respondents "have unlawfully
excluded and prevented, and continue to so exclude and prevent" the petitioners "from the performance of their sworn
duties, invoking the alleged approval of the 1972 (1973) Constitution of the Philippines by action of the so-called Citizens'
Assemblies on January 10, 1973 to January 15, 1973, as stated in and by virtue of Proclamation No. 1102 signed and
issued by the President of the Philippines"; that "the alleged creation of the Citizens' Assemblies as instrumentalities for
the ratification of the Constitution of the Republic of the Philippines" is inherently illegal and palpably unconstitutional; that
respondents Senate President and Senate President Pro Tempore "have unlawfully refrained and continue to refrain from
and/or unlawfully neglected and continue to neglect the performance of their duties and functions as such officers under
the law and the Rules of the Senate" quoted in the petition; that because of events supervening the institution of the
plebiscite cases, to which reference has been made in the preceding pages, the Supreme Court dismissed said cases on
January 22, 1973, by a majority vote, upon the ground that the petitions therein had become moot and academic; that the
alleged ratification of the 1972 (1973) Constitution "is illegal, unconstitutional and void and ... can not have superseded
and revoked the 1935 Constitution," for the reasons specified in the petition as amended; that, by acting as they did, the
respondents and their "agents, representatives and subordinates ...have excluded the petitioners from an office to which"
they "are lawfully entitled"; that "respondents Gil J. Puyat and Jose Roy have unlawfully refrained from convening the
Senate for its 8th session, assuming general jurisdiction over the Session Hall and the premises of the Senate and ...
continue such inaction up to this time and ... a writ of mandamus is warranted in order to compel them to comply with the
duties and functions specifically enjoined by law"; and that "against the above mentioned unlawful acts of the
respondents, the petitioners have no appeal nor other speedy and adequate remedy in the ordinary course of law except
by invoking the equitable remedies of mandamus and prohibition with the provisional remedy of preliminary mandatory
injunction."
Premised upon the foregoing allegations, said petitioners prayed that, "pending hearing on the merits, a writ of preliminary
mandatory injunction be issued ordering respondents Executive Secretary, the Secretary of National Defense, the Chief of
Staff of the Armed Forces of the Philippines, and the ... Secretary of General Service, as well as all their agents,
representatives and subordinates to vacate the premises of the Senate of the Philippines and to deliver physical
possession of the same to the President of the Senate or his authorized representative"; and that hearing, judgment be
rendered declaring null and Proclamation No. 1102 ... and any order, decree, proclamation having the same import and
objective, issuing writs of prohibition and mandamus, as prayed for against above-mentioned respondents, and making
the writ injunction permanent; and that a writ of mandamusbe issued against the respondents Gil J. Puyat and Jose Roy
directing them to comply with their duties and functions as President and President Pro Tempore, respectively, of the
Senate of Philippines, as provided by law and the Rules of the Senate."
Required to comment on the above-mentioned petitions and/or amended petitions, respondents filed, with the leave Court
first had and obtained, a consolidated comment on said petitions and/or amended petitions, alleging that the same ought
to have been dismissed outright; controverting petitioners' allegations concerning the alleged lack impairment of the
freedom of the 1971 Constitution Convention to approve the proposed Constitution, its alleged lack of authority to

incorporate certain contested provisions thereof, the alleged lack of authority of the President to create and establish
Citizens' Assemblies "for the purpose submitting to them the matter of ratification of the new Constitution," the alleged
"improper or inadequate submiss of the proposed constitution," the "procedure for ratification adopted ... through the
Citizens Assemblies"; a maintaining that: 1) "(t)he Court is without jurisdiction to act on these petitions"; 2) the questions
raised therein are "political in character and therefore nonjusticiable"; 3) "there substantial compliance with Article XV of
the 1 Constitution"; 4) "(t)he Constitution was properly submitted the people in a free, orderly and honest election; 5)
"Proclamation No. 1102, certifying the results of the election, is conclusive upon the courts"; and 6) "(t)he amending
process outlined in Article XV of the 1935 Constitution is not exclusive of other modes of amendment."
Respondents Puyat and Roy, in said Case G.R. No. L-36165, filed their separate comment therein, alleging that "(t)he
subject matter" of said case "is a highly political question which, under the circumstances, this ...Court would not be in a
position to act upon judicially," and that, in view of the opinions expressed by three members of this Court in its decision in
the plebiscite cases, in effect upholding the validity of Proclamation No. 1102, "further proceedings in this case may only
be an academic exercise in futility."
On February 5, 1973, the Court issued a resolution requiring respondents in L-36236 to comment on the petition therein
not later than Saturday, February 10, 1973, and setting the case for hearing on February 12, 1973, at 9:30 a.m. By
resolution dated February 7, 1973, this Court resolved to consider the comments of the respondents in cases G.R. Nos. L36142, L-36164, and L-36165, as motions to dismiss the petitions therein, and to set said cases for hearing on the same
date and time as L-36236. On that date, the parties in G.R. No. L-36283 10 agreed that the same be, likewise, heard, as it
was, in fact, heard jointly with the aforementioned cases G.R. Nos. L-36142, L-36164, L-36165 and L-36236. The hearing,
which began on February 12, 1973, shortly after 9:30 a.m., was continued not only that afternoon, but, also, on February
13, 14, 15 and 16, morning and afternoon, after which the parties were granted up to February 24, 1973, noon, within
which to submit their notes of oral arguments and additional arguments, as well as the documents required of them or
whose presentation was reserved by them. The same resolution granted the parties until March 1, 1973, to reply to the
notes filed by their respective opponents. Counsel for the petitioners in G.R. Nos. L-36164 and L-36165 filed their
aforementioned notes on February 24, 1973, on which date the Solicitor General sought an extension of time up to March
3, 1973, within which to file his notes, which was granted, with the understanding that said notes shall include his reply to
the notes already filed by the petitioners in G.R. Nos. L-36164 a L-36165. Counsel for the petitioners, likewise, moved and
were granted an extension of time, to expire on March 10, 1973, within which to file, as they did, their notes in reply to
those submitted by the Solicitor General on March 3, 1973. On March 21, 1973, petitioners in L-36165 filed a
"Manifestation a Supplemental Rejoinder," whereas the Office of the Solicitor General submitted in all these cases a
"Rejoinder Petitioners' Replies."
After deliberating on these cases, the members of the Court agreed that each would write his own opinion and serve a
copy thereof on his colleagues, and this they did. Subsequently, the Court discussed said opinions and votes were cast
thereon. Such individual opinions are appended hereto.
Accordingly, the writer will first express his person opinion on the issues before the Court. After the exposition his
aforesaid opinion, the writer will make, concurrently with his colleagues in the Court, a resume of summary of the votes
cast by them in these cases.
Writer's Personal Opinion
I.
Alleged academic futility of further proceedings in G.R. L-36165.
This defense or theory, set up by counsel for respondents Gil J. Puyat and Jose Roy in G.R. No. L-36165, and, also, by
the Solicitor General, is predicated upon the fact that, in Our decision in the plebiscite cases, Mr. Justice Barredo had
expressed the view that the 1935 Constitution had "pro tanto passed into history" and "been legitimately supplanted by the
Constitution now in force by virtue of Proclamation No. 1102 ..."; that Mr. Justice Antonio did not feel "that this Court
competent to act" in said cases "in the absence of any judicially discoverable and manageable standards" and because
"the access to relevant information is insufficient to assure the correct determination of the issue," apart from the
circumstance that "the new constitution has been promulgated and great interests have already arisen under it" and that
the political organ of the Government has recognized its provisions; whereas, Mr. Justice Esguerra had postulated that
"(w)ithout any competent evidence ... about the circumstances attending the holding" of the "referendum or plebiscite" thru
the Citizens' Assemblies, he "cannot say that it was not lawfully held" and that, accordingly, he assumed "that what the
proclamation (No. 1102) says on its face is true and until overcome by satisfactory evidence" he could not "subscribe to

the claim that such plebiscite was not held accordingly"; and that he accepted "as a fait accompli that the Constitution
adopted (by the 1971 Constitutional Convention) on November 30, 1972, has been duly ratified.
Counsel for respondents Gil J. Puyat and Jose Roy goes on to say that, under these circumstances, "it seems remote or
improbable that the necessary eight (8) votes under the 1935 Constitution, and much less the ten (10) votes required by
the 1972 (1973) Constitution, can be obtained for the relief sought in the Amended Petition" in G.R. No.
L-36165.
I am unable to share this view. To begin with, Mr. Justice Barredo announced publicly, in open court, during the hearing of
these cases, that he was and is willing to be convinced that his aforementioned opinion in the plebiscite cases should be
reconsidered and changed. In effect, he thus declared that he had an open mind in connection with the cases at bar, and
that in deciding the same he would not necessarily adhere to said opinion if the petitioners herein succeeded in
convincing him that their view should be sustained.
Secondly, counsel for the aforesaid respondents had apparently assumed that, under the 1935 Constitution, eight (8)
votes are necessary to declare invalid the contested Proclamation No. 1102. I do not believe that this assumption is borne
out by any provision of said Constitution. Section 10 of Article VIII thereof reads:
All cases involving the constitutionality of a treaty or law shall be heard and decided by the Supreme
Court in banc, and no treaty or law may be declared unconstitutional without the concurrence of two thirds
of all the members of the Court.
Pursuant to this section, the concurrence of two-thirds of all the Members of the Supreme Court is required only to declare
"treaty or law" unconstitutional. Construing said provision, in a resolution dated September 16, 1949, then Chief Justice
Moran, voicing the unanimous view of the Members of this Court, postulated:
... There is nothing either in the Constitution or in the Judiciary Act requiring the vote of eight Justices to
nullify a rule or regulation or an executive order issued by the President. It is very significant that in the
previous drafts of section 10, Article VIII of the Constitution, "executive order" and "regulation" were
included among those that required for their nullification the vote of two-thirds of all the members of the
Court. But "executive order" and "regulation" were later deleted from the final draft (Aruego, The Framing
of the Philippine Constitution, Vol. I, pp. 495, 496), and thus a mere majority of six members of this Court
is enough to nullify them. 11
The distinction is not without reasonable foundation. The two thirds vote (eight [8] votes) requirement, indeed, was made
to apply only to treaty and law, because, in these cases, the participation of the two other departments of the government
the Executive and the Legislative is present, which circumstance is absent in the case of rules, regulations and
executive orders. Indeed, a law (statute) passed by Congress is subject to the approval or veto of the President, whose
disapproval cannot be overridden except by the vote of two-thirds (2/3) of all members of each House of Congress. 12 A
treaty is entered into by the President with the concurrence of the Senate, 13 which is not required in the case of rules,
regulations or executive orders which are exclusive acts of the President. Hence, to nullify the same, a lesser number of
votes is necessary in the Supreme Court than that required to invalidate a law or treaty.
Although the foregoing refers to rules, regulations and executive orders issued by the President, the dictum applies with
equal force to executive proclamation, like said Proclamation No. 1102, inasmuch as the authority to issue the same is
governed by section 63 of the Revised Administrative Code, which provides:
Administrative acts and commands of the (Governor-General) President of the Philippines touching the
organization or mode of operation of the Government or rearranging or readjusting any of the districts,
divisions, parts or ports of the (Philippine Islands) Philippines and all acts and commands governing the
general performance of duties by public employees or disposing of issues of general concern shall be
made effective in executive orders.
Executive orders fixing the dates when specific laws, resolutions, or orders are to have or cease to (have)
effect and any information concerning matters of public moment determined by law, resolution, or
executive orders, may be promulgated in an executive proclamation, with all the force of an executive
order. 14
In fact, while executive order embody administrative acts or commands of the President, executive proclamations are
mainly informative and declaratory in character, and so does counsel for respondents Gil J. Puyat and Jose Roy maintain

in
G.R.
No.
L-36165. 15 As consequence, an executive proclamation has no more than "the force of an executive order," so that, for
the Supreme Court to declare such proclamation unconstitutional, under the 1935 Constitution, the same number of votes
needed to invalidate an executive order, rule or regulation namely, six (6) votes would suffice.
As regards the applicability of the provisions of the proposed new Constitution, approved by the 1971 Constitutional
Convention, in the determination of the question whether or not it is now in force, it is obvious that such question depends
upon whether or not the said new Constitution has been ratified in accordance with the requirements of the 1935
Constitution, upon the authority of which said Constitutional Convention was called and approved the proposed
Constitution. It is well settled that the matter of ratification of an amendment to the Constitution should be settled
by applying the provisions of the Constitution in force at the time of the alleged ratification, or the old Constitution. 16
II
Does the issue on the validity of Proclamation No. 1102 partake of the nature of a political, and, hence, non-justiciable
question?
The Solicitor General maintains in his comment the affirmative view and this is his main defense. In support thereof, he
alleges that "petitioners would have this Court declare as invalid the New Constitution of the Republic" from which he
claims "this Court now derives its authority"; that "nearly 15 million of our body politic from the age of 15 years have
mandated this Constitution to be the New Constitution and the prospect of unsettling acts done in reliance on it caution
against interposition of the power of judicial review"; that "in the case of the New Constitution, the government has been
recognized in accordance with the New Constitution"; that "the country's foreign relations are now being conducted in
accordance with the new charter"; that "foreign governments have taken note of it"; that the "plebiscite cases" are "not
precedents for holding questions regarding proposal and ratification justiciable"; and that "to abstain from judgment on the
ultimate issue of constitutionality is not to abdicate duty."
At the outset, it is obvious to me that We are not being asked to "declare" the new Constitution invalid. What petitioners
dispute is the theory that it has been validly ratified by the people, especially that they have done so in accordance with
Article XV of the 1935 Constitution. The petitioners maintain that the conclusion reached by the Chief Executive in the
dispositive portion of Proclamation No. 1102 is not borne out by the whereases preceding the same, as the predicates
from which said conclusion was drawn; that the plebiscite or "election" required in said Article XV has not been held; that
the Chief Executive has no authority, under the 1935 Constitution, to dispense with said election or plebiscite; that the
proceedings before the Citizens' Assemblies did not constitute and may not be considered as such plebiscite; that the
facts of record abundantly show that the aforementioned Assemblies could not have been held throughout the Philippines
from January 10 to January 15, 1973; and that, in any event, the proceedings in said Assemblies are null and void as an
alleged ratification of the new Constitution proposed by the 1971 Constitutional Convention, not only because of the
circumstances under which said Assemblies had been created and held, but, also, because persons disqualified to vote
under Article V of the Constitution were allowed to participate therein, because the provisions of our Election Code were
not observed in said Assemblies, because the same were not held under the supervision of the Commission on Elections,
in violation of section 2 of Article X of the 1935 Constitution, and because the existence of Martial Law and General Order
No. 20, withdrawing or suspending the limited freedom to discuss the merits and demerits of said proposed Constitution,
impaired the people's freedom in voting thereon, particularly a viva voce, as it was done in many instances, as well as
their ability to have a reasonable knowledge of the contents of the document on which they were allegedly called upon to
express their views.
Referring now more specifically to the issue on whether the new Constitution proposed by the 1971 Constitutional
Convention has been ratified in accordance with the provisions of Article XV of the 1935 Constitution is a political question
or not, I do not hesitate to state that the answer must be in the negative. Indeed, such is the position taken by this Court,
17 in an endless line of decisions, too long to leave any room for possible doubt that said issue is inherently and
essentially justiciable. Such, also, has been the consistent position of the courts of the United States of America, whose
decisions have a persuasive effect in this jurisdiction, our constitutional system in the 1935 Constitution being patterned
after that of the United States. Besides, no plausible reason has, to my mind, been advanced to warrant a departure from
said position, consistently with the form of government established under said Constitution..
Thus, in the aforementioned plebiscite cases, 18 We rejected the theory of the respondents therein that the question
whether Presidential Decree No. 73 calling a plebiscite to be held on January 15, 1973, for the ratification or rejection of
the proposed new Constitution, was valid or not, was not a proper subject of judicial inquiry because, they claimed, it
partook of a political nature, and We unanimously declared that the issue was a justiciable one. With identical unanimity,
We overruled the respondents' contention in the 1971 habeas corpus cases, 19 questioning Our authority to determine the
constitutional sufficiency of the factual bases of the Presidential proclamation suspending the privilege of the writ

of habeas corpus on August 21, 1971, despite the opposite view taken by this Court in Barcelona v.
Baker 20 and Montenegro v. Castaeda, 21insofar as it adhered to the former case, which view We, accordingly,
abandoned and refused to apply. For the same reason, We did not apply and expressly modified, in Gonzales v.
Commission on Elections, 22 the political-question theory adopted in Mabanag v. Lopez Vito. 23 Hence, respondents herein
urge Us to reconsider the action thus taken by the Court and to revert to and follow the views expressed in Barcelon v.
Baker and Mabanag v. Lopez Vito. 24
The reasons adduced in support thereof are, however, substantially the same as those given in support of the politicalquestion theory advanced in said habeas corpus and plebiscite cases, which were carefully considered by this Court and
found by it to be legally unsound and constitutionally untenable. As a consequence, Our decision in the
aforementioned habeas corpus cases partakes of the nature and effect of a stare decisis, which gained added weight by
its virtual reiteration in the plebiscite cases.
The reason why the issue under consideration and other issues of similar character are justiciable, not political, is plain
and simple. One of the principal bases of the non-justiciability of so-called political questions is the principle of separation
of powers characteristic of the Presidential system of government the functions of which are classified or divided, by
reason of their nature, into three (3) categories, namely: 1) those involving the making of laws, which are allocated to the
legislative department; 2) those concerned mainly with the enforcement of such laws and of judicial decisions applying
and/or interpreting the same, which belong to the executive department; and 3) those dealing with the settlement of
disputes, controversies or conflicts involving rights, duties or prerogatives that are legally demandable and enforceable,
which are apportioned to courts of justice. Within its own sphere but only within such sphere each department is
supreme and independent of the others, and each is devoid of authority, not only to encroach upon the powers or field of
action assigned to any of the other departments, but, also, to inquire into or pass upon the advisability or wisdom of the
acts performed, measures taken or decisions made by the other departments provided that such acts, measures or
decisions are withinthe area allocated thereto by the Constitution. 25
This principle of separation of powers under the presidential system goes hand in hand with the system of checks and
balances, under which each department is vested by the Fundamental Law with some powers to forestall, restrain or
arrest a possible or actual misuse or abuse of powers by the other departments. Hence, the appointing power of the
Executive, his pardoning power, his veto power, his authority to call the Legislature or Congress to special sessions and
even to prescribe or limit the object or objects of legislation that may be taken up in such sessions, etc. Conversely,
Congress or an agency or arm thereof such as the commission on Appointments may approve or disapprove some
appointments made by the President. It, also, has the power of appropriation, to "define, prescribe, and apportion the
jurisdiction of the various courts," as well as that of impeachment. Upon the other hand, under the judicial power vested by
the Constitution, the "Supreme Court and ... such inferior courts as may be established by law," may settle or decide with
finality, not only justiciable controversies between private individuals or entities, but, also, disputes or conflicts between a
private individual or entity, on the one hand, and an officer or branch of the government, on the other, or between two (2)
officers or branches of service, when the latter officer or branch is charged with acting without jurisdiction or in excess
thereof or in violation of law. And so, when a power vested in said officer or branch of the government
is absolute orunqualified, the acts in the exercise of such power are said to be political in nature, and, consequently, nonjusticiable or beyond judicial review. Otherwise, courts of justice would be arrogating upon themselves a power conferred
by the Constitution upon another branch of the service to the exclusion of the others. Hence, in Taada v. Cuenco, 26 this
Court quoted with approval from In re McConaughy, 27 the following:
"At the threshold of the case we are met with the assertion that the questions involved are political, and
not judicial. If this is correct, the court has no jurisdiction as the certificate of the state canvassing board
would then be final, regardless of the actual vote upon the amendment. The question thus raised is a
fundamental one; but it has been so often decided contrary to the view contended for by the Attorney
General that it would seem to be finally settled.
xxx xxx xxx
"... What is generally meant, when it is said that a question is political, and not judicial, is that it is a matter
which is to be exercised by the people in their primary political capacity , or that it has been specifically
delegated to some other department or particular officer of the government, with discretionary power to
act. See State vs. Cunningham, 81 Wis. 497, N.W. 724, 15 L.R.A. 561; In re Gunn, 50 Kan. 155; 32 Pac.
470, 948, 19 L.R.A. 519; Green vs. Mills, 69 Fed. 852, 16 C.C.A. 516, 30 L.R.A. 90; Fletcher vs.
Tuttle 151 Ill. 41, 37 N.E. 683, 25 L.R.A. 143, 42 Am. St. Rep. 220. Thus the Legislature may in its
discretion determine whether it will pass law or submit a proposed constitutional amendment to the
people. The courts have no judicial control over such matters, not merely because they involve political
questions, but because they are matters which the people have by the Constitution delegated to the

Legislature. The Governor may exercise the powers delegated him, free from judicial control, so long as
he observes the laws act within the limits of the power conferred. His discretionary acts cannot be
controllable, not primarily because they are of a politics nature, but because the Constitution and laws
have placed the particular matter under his control.But every officer under constitutional government must
act accordingly to law and subject its restrictions, and every departure therefrom or disregard thereof
must subject him to that restraining and controlling power of the people, acting through the agency of the
judiciary; for it must be remembered that the people act through courts, as well as through the executive
or the Legislature. One department is just as representative as the other, and the judiciary is the
department which is charged with the special duty of determining the limitations which the law places
upon all official action. The recognition of this principle, unknown except in Great Britain and America, is
necessary, to "the end that the government may be one of laws and not of men" words which Webster
said were the greatest contained in any written constitutional document." (Emphasis supplied.)
and, in an attempt to describe the nature of a political question in terms, it was hoped, understandable to the laymen, We
added that "... the term "political question" connotes, in legal parlance, what it means in ordinary parlance, namely, a
question of policy" in matters concerning the government of a State, as a body politic. "In other words, in the language of
Corpus Juris Secundum (supra), it refers to "those questions which, under the Constitution, are to be decided by the
people in their sovereign capacity, or in regard to which full discretionary authority has been delegated to the Legislature
or executive branch of the government." It is concerned with issues dependent upon the wisdom, not legality, of a
particular measure."
Accordingly, when the grant of power is qualified, conditional or subject to limitations, the issue on whether or not the
prescribed qualifications or conditions have been met, or the limitations respected, is justiciable or non-political, the crux
of the problem being one of legality or validity of the contested act, not its wisdom. Otherwise, said qualifications,
conditions or limitations particularly those prescribed or imposed by the Constitution would be set at naught. What is
more, the judicial inquiry into such issue and the settlement thereof are the mainfunctions of courts of justice under the
Presidential form of government adopted in our 1935 Constitution, and the system of checks and balances, one of its
basic predicates. As a consequence, We have neither the authority nor the discretion to decline passing upon said issue,
but are under the ineluctable obligation made particularly more exacting and peremptory by our oath, as members of
the highest Court of the land, to support and defend the Constitution to settle it. This explains why, in Miller v.
Johnson, 28 it was held that courts have a "duty, rather than a power", to determine whether another branch of the
government has "kept within constitutional limits." Not satisfied with this postulate, the court went farther and stressed
that, if the Constitution provides how it may be amended as it is in our 1935 Constitution "then, unless the manner is
followed, the judiciary as the interpreter of that constitution, will declare the amendment invalid ." 29 In fact, this very Court
speaking through Justice Laurel, an outstanding authority on Philippine Constitutional Law, as well as one of the highly
respected and foremost leaders of the Convention that drafted the 1935 Constitution declared, as early as July 15,
1936, that "(i)n times of social disquietude or political excitement, the great landmarks of the Constitution are apt to be
forgotten or marred, if not entirely obliterated. In cases of conflict, thejudicial department is the only constitutional
organ which can be called upon to determine the proper allocation of powers between the several departments" of the
government. 30
The Solicitor General has invoked Luther v. Borden 31 in support of his stand that the issue under consideration is nonjusticiable in nature. Neither the factual background of that case nor the action taken therein by the Federal Supreme
Court has any similarity with or bearing on the cases under consideration.
Luther v. Borden was an action for trespass filed by Luther with the Circuit Court of the United States against Borden and
others for having forcibly entered into Luther's house, in Rhode Island, sometime in 1842. The defendants who were in the
military service of said former colony of England, alleged in their defense that they had acted in obedience to the
commands of a superior officer, because Luther and others were engaged in a conspiracy to overthrow the government by
force and the state had been placed by competent authority under Martial Law. Such authority was the charter
government of Rhode Island at the time of the Declaration of Independence, for unlike other states which adopted a
new Constitution upon secession from England Rhode Island retained its form of government under a British Charter,
making only such alterations, by acts of the Legislature, as were necessary to adapt it to its subsequent condition as an
independent state. It was under this form of government when Rhode Island joined other American states in the
Declaration of Independence and, by subsequently ratifying the Constitution of the United States, became a member of
the Union. In 1843, it adopted a new Constitution.
Prior thereto, however, many citizens had become dissatisfied with the charter government. Memorials addressed by
them to the Legislature having failed to bring about the desired effect, meetings were held and associations formed by
those who belonged to this segment of the population which eventually resulted in a convention called for the drafting
of a new Constitution to be submitted to the people for their adoption or rejection. The convention was not authorized by

any law of the existing government. The delegates to such convention framed a new Constitution which was submitted to
the people. Upon the return of the votes cast by them, the convention declared that said Constitution had been adopted
and ratified by a majority of the people and became the paramount law and Constitution of Rhode Island.
The charter government, which was supported by a large number of citizens of the state, contested, however, the validity
of said proceedings. This notwithstanding, one Thomas W. Dorr, who had been elected governor under the new
Constitution of the rebels, prepared to assert authority by force of arms, and many citizens assembled to support him.
Thereupon, the charter government passed an Act declaring the state under Martial Law and adopted measures to repel
the threatened attack and subdue the rebels. This was the state of affairs when the defendants, who were in the military
service of the charter government and were to arrest Luther, for engaging in the support of the rebel government which
was never able to exercise any authority in the state broke into his house.
Meanwhile, the charter government had taken measures to call its own convention to revise the existing form of
government. Eventually, a new constitution was drafted by a convention held under the authority of the charter
government, and thereafter was adopted and ratified by the people. "(T)he times and places at which the votes were to be
given, the persons who were to receive and return them, and the qualifications of the voters having all been previously
authorized and provided for by law passed by the charter government," the latter formally surrendered all of its powers to
the new government, established under its authority, in May 1843, which had been in operation uninterruptedly since then.
About a year before, or in May 1842, Dorr, at the head of a military force, had made an unsuccessful attempt to take
possession of the state arsenal in Providence, but he was repulsed, and, after an "assemblage of some hundreds of
armed men under his command at Chepatchet in the June following, which dispersed upon approach of the troops of the
old government, no further effort was made to establish" his government. "... until the Constitution of 1843" adopted
under the auspices of the charter government "went into operation, the charter government continued to assert its
authority and exercise its powers and to enforce obedience throughout the state ... ."
Having offered to introduce evidence to prove that the constitution of the rebels had been ratified by the majority of the
people, which the Circuit Court rejected, apart from rendering judgment for the defendants, the plaintiff took the case for
review to the Federal Supreme Court which affirmed the action of the Circuit Court, stating:
It is worthy of remark, however, when we are referring to the authority of State decisions, that the trial of
Thomas W. Dorr took place after the constitution of 1843 went into operation. The judges who decided
that case held their authority under that constitution and it is admitted on all hands that it was adopted by
the people of the State, and is the lawful and established government. It is the decision, therefore, of a
State court, whose judicial authority to decide upon the constitution and laws of Rhode Island is not
questioned by either party to this controversy, although the government under which it acted was framed
and adopted under the sanction and laws of the charter government.
The point, then, raised here has been already decided by the courts of Rhode Island . The question
relates, altogether, to the constitution and laws of that State, and the well settled rule in this court is, that
the courts of the United States adopt and follow the decisions of the State courts in questions which
concern merely the constitution and laws of the State.
Upon what ground could the Circuit Court of the United States which tried this case have departed from
this rule, and disregarded and overruled the decisions of the courts of Rhode Island?Undoubtedly the
courts of the United States have certain powers under the Constitution and laws of the United States
which do not belong to the State courts. But the power of determining that a State government has been
lawfully established, which the courts of the State disown and repudiate, is not one of them. Upon such a
question the courts of the United States are bound to follow the decisions of the State tribunals , and must
therefore regard the charter government as the lawful and established government during the time of this
contest. 32
It is thus apparent that the context within which the case of Luther v. Borden was decided is basically and fundamentally
different from that of the cases at bar. To begin with, the case did not involve a federal question, but one purely municipal
in nature. Hence, the Federal Supreme Court was "bound to follow the decisions of the State tribunals" of Rhode Island
upholding the constitution adopted under the authority of the charter government. Whatever else was said in that case
constitutes, therefore, an obiter dictum. Besides, no decision analogous to that rendered by the State Court of Rhode
Island exists in the cases at bar. Secondly, the states of the Union have a measure of internal sovereignty upon which the
Federal Government may not encroach, whereas ours is a unitary form of government, under which our local

governments derive their authority from the national government. Again, unlike our 1935 Constitution, the charter or
organic law of Rhode Island contained noprovision on the manner, procedure or conditions for its amendment.
Then, too, the case of Luther v. Borden hinged more on the question of recognition of government, than on recognition
of constitution, and there is a fundamental difference between these two (2) types of recognition, the first being generally
conceded to be a political question, whereas the nature of the latter depends upon a number of factors, one of them being
whether the new Constitution has been adopted in the manner prescribed in the Constitution in force at the time of the
purported ratification of the former, which is essentially a justiciablequestion. There was, in Luther v. Borden, a conflict
between two (2) rival governments, antagonistic to each other, which is absent in the present cases. Here, the
Government established under the 1935 Constitution is the very same government whose Executive Department has
urged the adoption of the new or revised Constitution proposed by the 1971 Constitutional Convention and now alleges
that it has been ratified by the people.
In short, the views expressed by the Federal Supreme Court in Luther v. Borden, decided in 1849, on mattersother than
those referring to its power to review decisions of a state court concerning the constitution and government of that state,
not the Federal Constitution or Government, are manifestly neither, controlling, nor even persuasive in the present cases,
having as the Federal Supreme Court admitted no authority whatsoever to pass upon such matters or to review
decisions of said state court thereon. In fact, referring to that case, the Supreme Court of Minnessota had the following to
say:
Luther v. Borden, 7 How. 1, 12 L. Ed. 581, is always cited by those who assert that the courts have no
power to determine questions of a political character. It is interesting historically, but it has not the
slightest application to the case at bar. When carefully analyzed, it appears that it merely determines that
the federal courts will accept as final and controlling a decision of the highest court of a state upon a
question of the construction of the Constitution of the state. ... . 33
Baker v. Carr, 34 cited by respondents, involved an action to annul a Tennessee statute apportioning the seats in the
General Assembly among the counties of the State, upon the theory that the legislation violated the equal protection
clause. A district court dismissed the case upon the ground, among others, that the issue was a political one, but, after a
painstaking review of the jurisprudence on the matter, the Federal Supreme Court reversed the appealed decision and
held that said issue was justiciable and non-political, inasmuch as:"... (d)eciding whether a matter has in any measure
been committed by the Constitution to another branch of government, or whether the action of that
branch exceeds whatever authority has been committed, is itself a delicate exercise in constitutional interpretation, and is
a responsibility of this Court as ultimate interpreter of the Constitution ... ."
Similarly, in Powell v. McCormack, 35 the same Court, speaking through then Chief Justice Warren, reversed a decision of
the Court of Appeals of New York affirming that of a Federal District Court, dismissing Powell's action for a declaratory
judgment declaring thereunder that he whose qualifications were uncontested had been unlawfully excluded from
the 90th Congress of the U.S. Said dismissal was predicated upon the ground, inter alia, that the issue was political, but
the Federal Supreme Court held that it was clearly a justiciable one.
The Supreme Court of Minnessota undertook a careful review of American jurisprudence on the matter. Owing to the
lucidity of its appraisal thereof, We append the same to this opinion as Annex A thereof.
After an, exhaustive analysis of the cases on this subject, the Court concluded:
The authorities are thus practically uniform in holding that whether a constitutional amendment has been
properly adopted according to the requirements of an existing Constitution is a judicial question. There
can be little doubt that the consensus of judicial opinion is to the effect that it is the absolute duty of the
judiciary to determine whether the Constitution has been amended in the manner required by the
Constitution, unless a special tribunal has been created to determine the question; and even then many of
the courts hold that the tribunal cannot be permitted to illegally amend the organic law. ... . 36
In the light of the foregoing, and considering that Art. XV of our 1935 Constitution prescribes the method or procedure for
its amendment, it is clear to my mind that the question whether or not the revised Constitution drafted by the 1971
Constitutional Convention has been ratified in accordance with said Art. XV is a justiciable one and non-political in nature,
and that it is not only subject to judicial inquiry, but, also, that it is the Court's boundenduty to decide such question.

The Supreme Court of the United States has meaningfully postulated that "the courts cannot reject as 'no law suit' "
because it allegedly involves a political question "a bona fide controversy as to whether some action denominated
"political" exceeds constitutional authority." 37
III
Has the proposed new or revised Constitution been ratified conformably to said Art. XV of the 1935 Constitution?
Petitioners in L-36142 maintain the negative view, upon ground: 1) that the President "is without authority to create the
Citizens' Assemblies" through which, respondents maintain, the proposed new Constitution has been ratified; that said
Assemblies "are without power to approve the proposed Constitution"; 3) that the President "is without power to proclaim
the ratification by the Filipino people of the proposed Constitution"; and 4) that "the election held (in the Citizens'
Assemblies) to ratify the proposed Constitution was not a free election, hence null and void."
Apart from substantially reiterating these grounds support of said negative view, the petitioners in L-36164 contend: 1) that
the President "has no power to call a plebiscite for the ratification or rejection" of the proposed new Constitution or "to
appropriate funds for the holding of the said plebiscite"; 2) that the proposed new or revised Constitution "is vague and
incomplete," as well as "contains provisions which are beyond the powers of the 1971 Convention to enact," thereby
rendering it "unfit for ... submission the people;" 3) that "(t)he period of time between November 1972 when the 1972 draft
was approved and January 11-15, 1973," when the Citizens' Assemblies supposedly ratified said draft, "was too short,
worse still, there was practically no time for the Citizens' Assemblies to discuss the merits of the Constitution which the
majority of them have not read a which they never knew would be submitted to them ratification until they were asked the
question "do you approve of the New Constitution?" during the said days of the voting"; and that "(t)here was altogether
no freedom discussion and no opportunity to concentrate on the matter submitted to them when the 1972 draft was
supposedly submitted to the Citizens' Assemblies for ratification."
Petitioner in L-36236 added, as arguments in support of the negative view, that : 1) "(w)ith a government-controlled press,
there can never be a fair and proper submission of the proposed Constitution to the people"; and 2) Proclamation No.
1102 is null and void "(i)nasmuch as the ratification process" prescribed "in the 1935 Constitution was not followed."
Besides adopting substantially some of the grounds relied upon by the petitioners in the above-mentioned cases, the
petitioners in L-36283 argue that "(t)he creation of the Citizens' Assemblies as the vehicle for the ratification of the
Constitution was a deception upon the people since the President announced the postponement of the January 15, 1973
plebiscite to either February 19 or March 5, 1973." 38
The reasons adduced by the petitioners in L-36165 in favor of the negative view have already been set forth earlier in this
opinion. Hence, it is unnecessary to reproduce them here. So it is, with respect to the positions taken in L-36165 by
counsel for therein respondents Gil J. Puyat and Jose Roy although more will be said later about them and by the
Solicitor General, on behalf of the other respondents in that case and the respondents in the other cases.
1. What is the procedure prescribed by the 1935 Constitution for its amendment?
Under section 1 of Art. XV of said Constitution, three (3) steps are essential, namely:
1. That the amendments to the Constitution be proposed either by Congress or by a convention called for that purpose,
"by a vote of three-fourths of all the Members of the Senate and the House of Representatives voting separately," but "in
joint session assembled";
2. That such amendments be "submitted to the people for their ratification" at an "election"; and
3. That such amendments be "approved by a majority of the votes cast" in said election.
Compliance with the first requirement is virtually conceded, although the petitioners in L-36164 question the authority of
the 1971 Constitutional Convention to incorporate certain provisions into the draft of the new or revised Constitution. The
main issue in these five (5) cases hinges, therefore, on whether or not the last two (2) requirements have been complied
with.
2. Has the contested draft of the new or revised Constitution been submitted to the people for their ratification
conformably to Art. XV of the Constitution?

In this connection, other provisions of the 1935 Constitution concerning "elections" must, also, be taken into account,
namely, section I of Art. V and Art. X of said Constitution. The former reads:
Section 1. Suffrage may be exercised by male citizens of the Philippines not otherwise disqualified by law,
who are twenty-one years of age or over and are able to read and write, and who shall have resided in
the Philippines for one year and in the municipality wherein they propose to vote for at least six months
preceding the election. The National Assembly shall extend the right of suffrage to women, if in a
plebiscite which shall be held for that purpose within two years after the adoption of this Constitution, not
less than three hundred thousand women possessing the necessary qualifications shall vote affirmatively
on the question.
Sections 1 and 2 of Art. X of the Constitution ordain in part:
Section 1. There shall be an independent Commission on Elections composed of a Chairman and two
other Members to be appointed by the President with the consent of the Commission on Appointments,
who shall hold office for a term of nine years and may not be reappointed. ...
xxx xxx xxx
Sec. 2. The Commission on Elections shall have exclusive charge of the enforcement and administration
of all laws relative to the conduct of elections and shall exercise all other functions which may be
conferred upon it by law. It shall decide, save those involving the right to vote, alladministrative questions,
affecting elections, including the determination of the number and location of polling places, and the
appointment of election inspectors and of other election officials. All law enforcement agencies and
instrumentalities of the Government, when so required by the Commission, shall act as its deputies for the
purpose of insuring fee, orderly, and honest elections. The decisions, orders, and rulings of the
Commission shall be subject to review by the Supreme Court.
xxx xxx xxx 39
a. Who may vote in a plebiscite under Art. V of the Constitution?
Petitioners maintain that section 1 of Art. V of the Constitution is a limitation upon the exercise of the right of suffrage.
They claim that no other persons than "citizens of the Philippines not otherwise disqualified by law, who are twenty-one
years of age or over and are able to read and write, and who shall have resided in the Philippines for one year and in the
municipality wherein they propose to vote for at least six months preceding the election," may exercise the right of
suffrage in the Philippines. Upon the other hand, the Solicitor General contends that said provision merely guarantees the
right of suffrage to persons possessing the aforementioned qualifications and none of the disqualifications, prescribed by
law, and that said right may be vested by competent authorities in persons lacking some or all of the aforementioned
qualifications, and possessing some of the aforesaid disqualifications. In support of this view, he invokes the permissive
nature of the language "(s)uffrage may be exercised" used in section 1 of Art. V of the Constitution, and the
provisions of the Revised Barrio Charter, Republic Act No. 3590, particularly sections 4 and 6 thereof, providing that
citizens of the Philippines "eighteen years of age or over," who are registered in the list of barrio assembly members, shall
be members thereof and may participate as such in the plebiscites prescribed in said Act.
I cannot accept the Solicitor General's theory. Art. V of the Constitution declares who may exercise the right of suffrage, so
that those lacking the qualifications therein prescribed may not exercise such right. This view is borne out by the records
of the Constitutional Convention that drafted the 1935 Constitution. Indeed, section 1 of Art. V of the 1935 Constitution
was largely based on the report of the committee on suffrage of the Convention that drafted said Constitution which report
was, in turn, "strongly influenced by the election laws then in force in the Philippines ... ." 40 " Said committee had
recommended: 1) "That the right of suffrage should exercised only by male citizens of the Philippines." 2) "That should
be limited to those who could read and write." 3) "That the duty to vote should be made obligatory." It appears that the first
recommendation was discussed extensively in the Convention, and that, by way of compromise, it was eventually agreed
to include, in section 1 of Art. V of the Constitution, the second sentence thereof imposing upon the National Assembly
established by the original Constitution instead of the bicameral Congress subsequently created by amendment said
Constitution the duty to "extend the right of suffrage women, if in a plebiscite to, be held for that purpose within two
years after the adoption of this Constitution, not less than three hundred thousand women possessing the necessary
qualifications shall vote affirmatively on the question." 41

The third recommendation on "compulsory" voting was, also debated upon rather extensively, after which it was rejected
by the Convention. 42 This accounts, in my opinion, for the permissive language used in the first sentence of said Art. V.
Despite some debates on the age qualification amendment having been proposed to reduce the same to 18 or 20,
which were rejected, and the residence qualification, as well as the disqualifications to the exercise of the right of suffrage
the second recommendation limiting the right of suffrage to those who could "read and write" was in the language of
Dr. Jose M. Aruego, one of the Delegates to said Convention "readily approved in the Convention without any
dissenting vote," although there was some debate on whether the Fundamental Law should specify the language or
dialect that the voter could read and write, which was decided in the negative. 43
What is relevant to the issue before Us is the fact that the constitutional provision under consideration was meant to be
and is a grant or conferment of a right to persons possessing the qualifications and none of the disqualifications therein
mentioned, which in turn, constitute a limitation of or restriction to said right, and cannot, accordingly, be dispensed with,
except by constitutional amendment. Obviously, every such constitutional grant or conferment of a right is necessarily a
negation of the authority of Congress or of any other branch of the Government to deny said right to the subject of the
grant and, in this sense only, may the same partake of the nature of a guarantee. But, this does not imply not even
remotely, that the Fundamental Law allows Congress or anybody else to vest in those lacking the qualifications and
having the disqualifications mentioned in the Constitution the right of suffrage.
At this juncture, it is noteworthy that the committee on suffrage responsible for the adoption of section 1 of Art. V of the
Constitution was "strongly influenced by the election laws then in force in the Philippines." Our first Election Law was Act
1582, passed on January 9, 1907, which was partly amended by Acts 1669, 1709, 1726 and 1768, and incorporated into
the Administrative Code of 1916 Act 2657 as chapter 20 thereof, and then in the Administrative Code of 1917 Act
2711 as chapter 18 thereof, which, in turn, was amended by Act 3387, approved on December 3, 1927. Sections 431
and 432 of said Code of 1917, prescribing, respectively, the qualifications for and disqualifications from voting, are quoted
below. 44 In all of these legislative acts, the provisions concerning the qualifications of voters partook of the nature of
a grant or recognition of the right of suffrage, and, hence, of adenial thereof to those who lacked the requisite qualification
and possessed any of the statutory disqualifications. In short, the history of section 1, Art. V of the Constitution, shows
beyond doubt than the same conferred not guaranteed the authority to persons having the qualifications prescribed
therein and none of disqualifications to be specified in ordinary laws and, necessary implication, denied such right to those
lacking any said qualifications, or having any of the aforementioned disqualifications.
This view is further bolstered by the fact that the 1971 Constitutional Convention sought the submission to a plebiscite of a
"partial amendment" to said section 1 of Art. V of the 1935 Constitution, by reducing the voting age from twenty-one (21)
years to eighteen (18) years, which, however, did not materialize on account of the decision of this Court in Tolentino v.
Commission on Elections, 45 granting the writs, of prohibition and injunction therein applied for, upon the ground that,
under the Constitution, all of the amendments adopted by the Convention should be submitted in "an election" or a single
election, not separately or in several or distinct elections, and that the proposed amendment sought to be submitted to a
plebiscite was not even a complete amendment, but a "partial amendment" of said section 1, which could be amended
further, after its ratification, had the same taken place, so that the aforementioned partial amendment was, for legal
purposes, no more than a provisional or temporary amendment. Said partial amendment was predicated upon the
generally accepted contemporary construction that, under the 1935 Constitution, persons below twenty-one (21) years of
age could not exercise the right of suffrage, without a previous amendment of the Constitution.
Upon the other hand, the question, whether 18-year-old members of barrio assemblies may vote in barrio assembly
plebiscites is, to say the least, a debatable one. Indeed, there seems to be a conflict between the last paragraph of said
section 6 of Rep. Act No. 3590, 46 pursuant to which the "majority vote of all the barrio assemblymembers" (which include
all barrio residents 18 years of age or over, duly registered in the list of barrio assembly members) is necessary for the
approval, in an assembly plebiscite, of "any budgetary, supplemental appropriations or special tax ordinances," whereas,
according to the paragraph preceding the penultimate one of said section, 47 "(a)ll duly registered barrio assembly
members qualified to vote" who, pursuant to section 10 of the same Act, must be citizens "of the Philippines, twentyone years of age or over, able to read and write," and residents the barrio "during the six months immediately preceding
election, duly registered in the list of voters" and " otherwise disqualified ..." just like the provisions of present and past
election codes of the Philippines and Art. V of the 1935 Constitution "may vote in the plebiscite."
I believe, however, that the apparent conflict should resolved in favor of the 21-year-old members of the assembly, not
only because this interpretation is in accord with Art. V the Constitution, but, also, because provisions of a Constitution
particularly of a written and rigid one, like ours generally accorded a mandatory status unless the intention to the
contrary is manifest, which is not so as regards said Art. V for otherwise they would not have been considered
sufficiently important to be included in the Fundamental Law of the land. 48Besides, it would be illogical, if not absurd,
believe that Republic Act No. 3590 requires, for the most important measures for which it demands in addition to

favorable action of the barrio council the approval of barrio assembly through aplebiscite, lesser qualifications than
those prescribed in dealing with ordinary measures for which such plebiscite need not be held.
It is similarly inconceivable that those who drafted the 1935 Constitution intended section 1 of Art. V thereof to
apply only to elections of public officers, not to plebiscites for the ratification of amendments to the Fundamental Law or
revision thereof, or of an entirely new Constitution, and permit the legislature to require lesser qualifications for such
ratification, notwithstanding the fact that the object thereof much more important if not fundamental, such as the basic
changes introduced in the draft of the revised Constitution adopted by the 1971 Constitutional Convention, which a
intended to be in force permanently, or, at least, for many decades, and to affect the way of life of the nation and,
accordingly, demands greater experience and maturity on the part of the electorate than that required for the election of
public officers, 49 whose average term ranges from 2 to 6 years.
It is admitted that persons 15 years of age or over, but below 21 years, regardless of whether or not they possessed the
other qualifications laid down in both the Constitution and the present Election Code, 50 and of whether or not they are
disqualified under the provisions of said Constitution and Code, 51 or those of Republic Act No. 3590, 52 have participated
and voted in the Citizens' Assemblies that have allegedly ratified the new or revised Constitution drafted by the 1971
Constitutional Convention.
In fact, according to the latest official data, the total number of registered voters 21 years of age or over in the entire
Philippines, available in January 1973, was less than 12 million. Yet, Proclamation No. 1102 states that 14,976,56
"members of all the Barangays (Citizens Assemblies) voted for the adoption of the proposed Constitution, as against ...
743,869 who voted for its rejection," whereas, on the question whether or not the people still wanted a plebiscite to be
called to ratify the new Constitution, "... 14,298,814 answered that there was no need for a plebiscite and that the vote of
the Barangays (Citizens Assemblies) should be considered as a vote in a plebiscite." In other words, it is conceded that
the number of people who allegedly voted at the Citizens' Assemblies for exceeded the number of registered voters under
the Election Code in force in January 1973.
It is thus clear that the proceedings held in such Citizens' Assemblies and We have more to say on this point in
subsequent pages were fundamentally irregular, in that persons lacking the qualifications prescribed in section 1 of Art.
V of the Constitution were allowed to vote in said Assemblies. And, since there is no means by which the invalid votes of
those less than 21 years of age can be separated or segregated from those of the qualified voters, the proceedings in the
Citizens' Assemblies must be considered null and void. 53
It has been held that "(t)he power to reject an entire poll ... should be exercised ... in a case where it is impossibleto
ascertain with reasonable certainty the true vote," as where "it is impossible to separate the legal votes from the illegal or
spurious ... ." 54
In Usman v. Commission on Elections, et al., 55 We held:
Several circumstances, defying exact description and dependent mainly on the factual milieu of the
particular controversy, have the effect of destroying the integrity and authenticity of disputed election
returns and of avoiding their prima facie value and character. If satisfactorily proven, although in a
summary proceeding, such circumstances as alleged by the affected or interested parties, stamp the
election returns with the indelible mark of falsity and irregularity, and, consequently, of unreliability, and
justify their exclusion from the canvass.
Then, too, the 1935 Constitution requires "a majority of the votes cast" for a proposed amendment to the Fundamental
Law to be "valid" as part thereof, and the term "votes cast" has a well-settled meaning.
The term "votes cast" ... was held in Smith v. Renville County Commissioners, 65 N.W. 956, 64 Minn. 16,
to have been used as an equivalent of "ballots cast." 56
The word "cast" is defined as "to deposit formally or officially."

57

It seems to us that a vote is cast when a ballot is deposited indicating a "choice." ... The word "cast"
means "deposit (a ballot) formally or officially ... .
... In simple words, we would define a "vote cast" as the exercise on a ballot of the choice of the voter on
the measure proposed. 58

In short, said Art. XV envisages with the term "votes cast" choices made on ballots not orally or by raising by
the persons taking part in plebiscites. This is but natural and logical, for, since the early years of the American regime, we
had adopted the Australian Ballot System, with its major characteristics, namely, uniform official ballots prepared and
furnished by the Government and secrecy in the voting, with the advantage of keeping records that permit judicial inquiry,
when necessary, into the accuracy of the election returns. And the 1935 Constitution has been consistently interpreted
in all plebiscites for the ratification rejection of proposed amendments thereto, from 1935 to 1967. Hence, the viva
voce voting in the Citizens' Assemblies was and is null and void ab initio.
b. How should the plebiscite be held? (COMELEC supervision indispensable; essential requisites)
Just as essential as compliance with said Art. V of the 19 Constitution is that of Art. X thereof, particularly its sections 1
and 2. Indeed, section 1 provides that "(t)here shall be an independent Commission on Elections ... ." The point to be
stressed here is the term "independent." Indeed, why was the term used?
In the absence of said constitutional provision as to the independence of the Commission, would it have been depends
upon either Congress or the Judiciary? The answer must be the negative, because the functions of the Commission
"enforcement and administration" of election laws are neither legislative nor judicial in nature, and, hence, beyond the
field allocated to either Congress or courts of justice. Said functions are by their nature essentially executive, for which
reason, the Commission would be under the "control" of the President, pursuant to section 10, paragraph (1) of Art. VII of
the Constitution, if Art. X thereof did not explicitly declare that it (the Commission) is an "independent" body. In other
words, in amending the original 1935 Constitution, by inserting therein said Art. X, on the Commission on Elections, the
purpose was to make said Commission independent principally of the Chief Executive.
And the reason therefor is, also, obvious. Prior to the creation of the Commission on Elections as a constitutional organ,
election laws in the Philippines were enforced by the then Department of the Interior, through its Executive Bureau, one of
the offices under the supervision and control of said Department. The same like other departments of the Executive
Branch of the Government was, in turn, under the control of the Chief Executive, before the adoption of the 1935
Constitution, and had been until the abolition of said Department, sometime ago under the control of the President
of the Philippines, since the effectivity of said Fundamental Law. Under the provisions thereof, the Executive could so use
his power of control over the Department of the Interior and its Executive Bureau as to place the minority party at such a
great, if not decisive, disadvantage, as to deprive it, in effect, of the opportunity to defeat the political party in power, and,
hence, to enable the same to perpetuate itself therein. To forestall this possibility, the original 1935 Constitution was
amended by the establishment of the Commission on Elections as a constitutional body independent primarily of the
President of the Philippines.
The independence of the Commission was sought to be strengthened by the long term of office of its members nine (9)
years, except those first appointed 59 the longest under the Constitution, second only to that of the Auditor General 60;
by providing that they may not be removed from office except by impeachment, placing them, in this respect, on the same
plane as the President, the Vice-President, the Justices of the Supreme Court and the Auditor General; that they may not
be reappointed; that their salaries, "shall be neither increased nor diminished during their term of office"; that the decisions
the Commission "shall be subject to review by the Supreme Court" only 61; that "(n)o pardon, parole, or suspension
sentence for the violation of any election law may be granted without the favorable recommendation of the
Commission" 62; and, that its chairman and members "shall not, during the continuance in office, engage in the practice of
any profession or intervene, directly or indirectly, in the management or control of any private enterprise which in anyway
may affected by the functions of their office; nor shall they, directly or indirectly, be financially interested in any contract
with the Government or any subdivision or instrumentality thereof." 63 Thus, the framers of the amendment to the original
Constitution of 1935 endeavored to do everything possible protect and insure the independence of each member of the
Commission.
With respect to the functions thereof as a body, section 2 of said Art. X ordains that "(t)he Commission on Elections shall
have exclusive charge of the enforcement and administration all laws relative to the conduct of elections," apart from such
other "functions which may be conferred upon it by law." It further provides that the Commission "shall decide, save those
involving the right to vote, all administrative question affecting elections, including the determination of the number and
location of polling places, and the appointment of election inspectors and of other election officials." And, to forests
possible conflicts or frictions between the Commission, on one hand, and the other offices or agencies of the executive
department, on the other, said section 2 postulates that "(a)ll law enforcement agencies and instrumentalities of the
Government, when so required by the Commission, shall act as its deputies for the purpose of insuring free, orderly, and
honest elections." Not satisfied with this, it declares, in effect, that "(t)he decisions, orders, and ruling of the Commission"
shall not be subject to review, except by the Supreme Court.

In accordance with the letter and spirit of said Art. X of the Constitution, Rep. Act No. 6388, otherwise known as the
Election Code of 1971, implements the constitutional powers of the Commission on Elections and grants additional
powers thereto, some of which are enumerated in sections 5 and 6 of said Act, quoted below. 64Moreover, said Act
contains, inter alia, detailed provisions regulating contributions and other (corrupt) practices; the establishment of election
precincts; the designation and arrangement of polling places, including voting booths, to protect the secrecy of the ballot;
formation of lists of voters, the identification and registration of voters, the proceedings therefor, as well as for the
inclusion in, or exclusion or cancellation from said list and the publication thereof; the establishment of municipal,
provincial and files of registered voters; the composition and appointment of board of election inspectors; the particulars of
the official ballots to be used and the precautions to be taken to insure authenticity thereof; the procedure for the casting
of votes; the counting of votes by boards of inspectors; the rules for the appreciation of ballots and the preparation and
disposition of election returns; the constitution and operation of municipal, provincials and national boards of canvassers;
the presentation of the political parties and/or their candidates in each election precinct; the proclamation of the results,
including, in the case of election of public officers, election contests; and the jurisdiction of courts of justice in cases of
violation of the provisions of said Election Code and the penalties for such violations.
Few laws may be found with such meticulous and elaborate set of provisions aimed at "insuring free, orderly, and honest
election," as envisaged in section 2 of Art. X of the Constitution. Yet, none of the foregoing constitutional and statutory
provisions was followed by the so-called Barangays or Citizens' Assemblies. And no reasons have been given, or
even sought to be given therefor. In many, if not most, instances, the election were held a viva voce, thus depriving the
electorate of the right to vote secretly one of the most, fundamental and critical features of our election laws from time
immemorial particularly at a time when the same was of utmostimportance, owing to the existence of Martial Law.
In Glen v. Gnau, 65 involving the casting of many votes, openly, without complying with the requirements of the law
pertinent thereto, it was held that the "election officers" involved "cannot be too strongly condemned" therefor and that if
they "could legally dispense with such requirement ... they could with equal propriety dispense with all of them, including
the
one
that
the
vote
shall
be
by
secret
ballot,
or
even
by
ballot
at all ... ."
Moreover, upon the formal presentation to the Executive of the proposed Constitution drafted by the 1971 Constitutional
Convention, or on December 1, 1972, Presidential Decree No. 73 (on the validity of which which was contested in the
plebiscite cases, as well as in the 1972 habeas corpus cases 66 We need not, in the case of bar, express any opinion)
was issued, calling a plebiscite, to be held on January 15, 1973, at which the proposed Constitution would be submitted to
the people for ratification or rejection; directing the publication of said proposed Constitution; and declaring, inter alia, that
"(t)he provision of the Election Code of 1971, insofar as they are not inconsistent" with said decree excepting those
"regarding right and obligations of political parties and candidates" "shall apply to the conduct of the plebiscite." Indeed,
section 2 of said Election Code of 1971 provides that "(a)ll elections of public officers except barrio officials and
plebiscites shall be conducted in the manner provided by this Code." General Order No. 20, dated January 7, 1973,
postponing until further notice, "the plebiscite scheduled to be held on January 15, 1973," said nothing about the
procedure to be followed in plebiscite to take place at such notice, and no other order or decree has been brought to Our
attention, expressly or impliedly repealing the provisions of Presidential Decree 73, insofar as said procedure is
concerned.
Upon the other hand, said General Order No. 20 expressly suspended "the provisions of Section 3 of Presidential Decree
No. 73 insofar as they allow free public discussion of proposed Constitution ... temporarily suspending effects of
Proclamation No. 1081 for the purposes of free open dabate on the proposed Constitution ... ." This specific mention of
the portions of the decrees or orders or instructions suspended by General Order No. 20 necessarily implies that all other
portions of said decrees, orders or instructions and, hence, the provisions of Presidential Decree No. 73 outlining the
procedure to be followed in the plebiscite for ratification or rejection of the proposed Constitution remained in force,
assuming that said Decree is valid.
It is claimed that by virtue of Presidential Decree No. 86-A the text of which is quoted below 67 the Executive
declared, inter alia, that the collective views expressed in the Citizens' Assemblies "shall be considered in the formulation
of national policies or programs and, wherever practicable, shall be translated into concrete and specific decision"; that
such Citizens' Assemblies "shall consider vital national issues ... like the holding of the plebiscite on the new
Constitution ... and others in the future, which shall serve as guide or basis for action or decision by the national
government"; and that the Citizens' Assemblies "shall conduct between January 10 and 15, 1973, a referendum on
important national issues, including those specified in paragraph 2 hereof, and submit the results thereof to the
Department of Local Governments and Community Development immediately thereafter, ... ." As in Presidential Decree
No. 86, this Decree No. 86-A does not and cannot exclude the exercise of the constitutional supervisory power of the
Commission on Elections or its participation in the proceedings in said Assemblies, if the same had been intended to
constitute the "election" or Plebiscite required Art. V of the 1935 Constitution. The provision of Decree No. 86-A directing

the immediate submission of the result thereof to the Department of Local Governments Community Development is not
necessarily inconsistent with, and must be subordinate to the constitutional power of the Commission on Elections to
exercise its "exclusive authority over the enforcement and administration of all laws to the conduct of elections," if the
proceedings in the Assemblies would partake of the nature of an "election" or plebiscite for the ratification or rejection of
the proposed Constitution.
We are told that Presidential Decree No. 86 was further amended by Presidential Decree No. 86-B, dated 1973, ordering
"that important national issues shall from time to time; be referred to the Barangays (Citizens Assemblies) for resolution in
accordance with Presidential Decree No. 86-A dated January 5, 1973 and that the initial referendum include the matter of
ratification of the Constitution by the 1971 Constitutional Convention" and that "(t)he Secretary of the Department of Local
Governments and Community Development shall insure the implementation of this order." As in the case of Presidential
Decrees Nos. 86 and 86-A, the foregoing directives do not necessarily exclude exercise of the powers vested by the 1935
Constitution in the Commission on Elections, even if the Executive had the authority to repeal Art. X of our Fundamental
Law which he does not possess. Copy of Presidential Decree No. 86-B is appended hereto as Annex B hereof.
The point is that, such of the Barrio Assemblies as were held took place without the intervention of the Commission on
Elections, and without complying with the provisions of the Election Code of 1971 or even of those of Presidential Decree
No. 73. What is more, they were held under the supervision of the very officers and agencies of the Executive Department
sought to be excluded therefrom by Art. X of the 1935 Constitution. Worse still, said officers and agencies of the 1935
Constitution would be favored thereby, owing to the practical indefinite extension of their respective terms of office in
consequence of section 9 of the Transitory Provisions, found in Art. XVII of the proposed Constitution, without any
elections therefor. And the procedure therein mostly followed is such that there is no reasonable means of checking the
accuracy of the returns files by the officers who conducted said plebiscites. This is another patent violation of Art. of the
Constitution which can hardly be sanctioned. And, since the provisions of this article form part of the fundamental scheme
set forth in the 1935 Constitution, as amended, to insure the "free, orderly, and honest" expression of the people's will, the
aforementioned violation thereof renders null and void the contested proceedings or alleged plebiscite in the Citizens'
Assemblies, insofar as the same are claimed to have ratified the revised Constitution proposed by the 1971 Constitutional
Convention. "... (a)ll the authorities agree that the legal definition of an election, as well as that which is usually and
ordinarily understood by the term, is a choosing or as election by those having a right to participate (in the selection) of
those who shall fill the offices, or of the adoption or rejection of any public measure affecting the territory involved . 15 Cyc.
279; Lewis v. Boynton, 25 Colo. 486, 55 Pac. 732; Saunders v. Haynes, 13 Cal. 145; Seaman v. Baughman, 82 Iowa 216,
47 N.W. 1091, 11 L.R.A. 354; State v. Hirsh, 125 Ind. 207, 24 N.E. 1062, 9 L.R.A. 170; Bouvier's Law Dictionary. 68
IV
Has
the
been
approved
Citizens'
throughout the Philippines?

by

proposed
a
Assemblies

majority

Constitution
of
the
allegedly

aforementioned
people
in
held

Respondents maintain the affirmative, relying upon Proclamation No. 1102, the validity of which is precisely being
contested by petitioners herein. Respondents claim that said proclamation is "conclusive" upon this Court, or is, at least,
entitled to full faith and credence, as an enrolled bill; that the proposed Constitution has been, in fact, ratified, approved or
adopted by the "overwhelming" majority of the people; that Art. XV of the 1935 Constitution has thus been "substancially"
complied with; and that the Court refrain from passing upon the validity of Proclamation No. 1102, not only because such
question is political in nature, but, also, because should the Court invalidate the proclamation, the former would, in effect,
veto the action of the people in whom sovereignty resides and from its power are derived.
The major flaw in this process of rationalization is that it assumes, as a fact, the very premise on which it is predicated,
and which, moreover, is contested by the petitioners. As the Supreme Court of Minnessota has aptly put it
... every officer under a constitutional government must act according to law and subject to its restrictions,
and every departure therefrom or disregard thereof must subject him to the restraining and controlling of
the people, acting through the agency of the judiciary; for it must be remembered that the people act
through courts, as well as through the executive or the Legislature. One department is just as
representative as the other, and the judiciary is the department which is charged with the special duty of
determining the limitations which the law places upon all official action. ... .
Accordingly, the issue boils downs to whether or not the Executive acted within the limits of his authority when he certified
in Proclamation No. 1102 "that the Constitution proposed by the nineteen hundred and seventy-one (1971) Constitutional

Convention has been ratified by an overwhelming majority of all of the votes cast by the members of all the Barangays
(Citizens Assemblies) throughout the Philippines and has thereby come into effect."
In this connection, it is not claimed that the Chief Executive had personal knowledge of the data he certified in said
proclamation. Moreover, Art. X of the 1935 Constitution was precisely inserted to place beyond the Executive the power to
supervise or even exercise any authority whatsoever over "all laws relative to the conduct of elections," and, hence,
whether the elections are for the choice or selection of public officers or for the ratification or rejection of any proposed
amendment, or revision of the Fundamental Law, since the proceedings for the latter are, also, referred to in said Art. XV
as "elections".
The Solicitor General stated, in his argument before this Court, that he had been informed that there was in each
municipality a municipal association of presidents of the citizens' assemblies for each barrio of the municipality; that the
president of each such municipal association formed part of a provincial or city association of presidents of such municipal
associations; that the president of each one of these provincial or city associations in turn formed part of a National
Association or Federation of Presidents of such Provincial or City Associations; and that one Francisco Cruz from Pasig,
Rizal, as President of said National Association or Federation, reported to the President of the Philippines, in the morning
of January 17, 1973, the total result of the voting in the citizens' assemblies all over the country from January 10 to
January 15, 1973. The Solicitor General further intimated that the said municipal associations had reported the results of
the citizens' assemblies in their respective municipalities to the corresponding Provincial Association, which, in turn,
transmitted the results of the voting in the to the Department of Local Governments and Community Development, which
tabulated the results of the voting in the citizens' assemblies throughout the Philippines and then turned them over to Mr.
Franciso Cruz, as President or acting President of the National Association or Federation, whereupon Mr. Cruz, acting in a
ceremonial capacity, reported said results (tabulated by the Department of Governments and Community Development) to
the Chief Executive, who, accordingly, issued Proclamation No. 1102.
The record shows, however, that Mr. Cruz was not even a member of any barrio council since 1972, so that he could
possibly have been a member on January 17, 1973, of a municipal association of presidents of barrio or ward citizens'
assemblies, much less of a Provincial, City or National Association or Federation of Presidents of any such provincial or
city associations.
Secondly, at the conclusion of the hearing of these cases February 16, 1973, and in the resolution of this Court of same
date, the Solicitor General was asked to submit, together with his notes on his oral argument, a true copy of
aforementioned report of Mr. Cruz to the President and of "(p)roclamation, decree, instruction, order, regulation or circular,
if any, creating or directing or authorizing creation, establishment or organization" of said municipal, provincial and
national associations, but neither a copy of alleged report to the President, nor a copy of any "(p)roclamation, decree,
instruction, order, regulation or circular," has been submitted to this Court. In the absence of said report, "(p)roclamation,
decree, instruction," etc., Proclamation No. 1102 is devoid of any factual and legalfoundation. Hence, the conclusion set
forth in the dispositive portion of said Proclamation No. 1102, to the effect that the proposed new or revised Constitution
had been ratified by majority of the votes cast by the people, can not possibly have any legal effect or value.
The theory that said proclamation is "conclusive upon Court is clearly untenable. If it were, acts of the Executive and those
of Congress could not possibly be annulled or invalidated by courts of justice. Yet, such is not the case. In fact, even a
resolution of Congress declaring that a given person has been elected President or Vice-President of the Philippines as
provided in the Constitution, 69 is not conclusive upon the courts. It is no more than prima facieevidence of what is attested
to by said resolution. 70 If assailed directly in appropriate proceedings, such as an election protest, if and when authorized
by law, as it is in the Philippines, the Court may receive evidence and declare, in accordance therewith, who was duly
elected to the office involved. 71 If prior to the creation of the Presidential Electoral Tribunal, no such protest could be filed,
it was not because the resolution of Congress declaring who had been elected President or Vice-President
was conclusive upon courts of justice, but because there was no law permitting the filing of such protest and
declaring what court or body would hear and decide the same. So, too, a declaration to the effect that a given amendment
to the Constitution or revised or new Constitution has been ratified by a majority of the votes cast therefor, may be duly
assailed in court and be the object of judicial inquiry, in direct proceedings therefor such as the cases at bar and the
issue raised therein may and should be decided in accordance with the evidence presented.
The case of In re McConaughy 72 is squarely in point. "As the Constitution stood from the organization of the state" of
Minnessota "all taxes were required to be raised under the system known as the 'general property tax.' Dissatisfaction
with the results of this method and the development of more scientific and satisfactory methods of raising revenue
induced the Legislature to submit to the people an amendment to the Constitution which provided merely that taxes shall
be uniform upon the same class of subjects. This proposed amendment was submitted at the general election held in
November, 1906, and in due time it was certified by the state canvassing board and proclaimed by the Governor as
having been legally adopted. Acting upon the assumption that the amendment had become a part of the Constitution, the

Legislature enacted statutes providing for a State Tax Commission and a mortgage registry tax, and the latter statute,
upon the same theory, was held constitutional" by said Court. "The district court found that the amendment had no in fact
been adopted, and on this appeal" the Supreme Court was "required to determine the correctness of that conclusion."
Referring to the effect of the certification of the State Board of Canvassers created by the Legislature and of
theproclamation made by the Governor based thereon, the Court held: "It will be noted that this board does no more than
tabulate the reports received from the various county board and add up and certify the results. State v. Mason, 45 Wash.
234, 88 Pac. 126, 9 L.R.A. (U.S.) 1221. It is settled law that the decisions of election officers, and canvassing boards
are not conclusive and that the final decision must rest with the courts, unless the law declares that the decisions of the
board shall be final" and there is no such law in the cases at bar. "... The correctness of the conclusion of the state
board rests upon the correctness of the returns made by the county boards and it is inconceivable that it was intended
that this statement of result should be final and conclusive regardless of the actual facts. The proclamation of the
Governor adds nothing in the way of conclusiveness to the legal effect of the action of the canvassing board. Its purpose
is to formally notify the people of the state of the result of the voting as found by the canvassing board. James on Const.
Conv. (4th Ed.) sec. 523."
In Bott v. Wartz, 73 the Court reviewed the statement of results of the election made by the canvassing board, in order that
the true results could be judicially determined. And so did the court in Rice v. Palmer. 74
Inasmuch as Art. X of the 1935 Constitution places under the "exclusive" charge of the Commission on Elections, "the
enforcement and administration of all laws relative to the conduct of elections," independently of the Executive, and there
is not even a certification by the Commission in support of the alleged results of the citizens' assemblies relied upon in
Proclamation No. 1102 apart from the fact that on January 17, 1973 neither the alleged president of the Federation of
Provincial or City Barangays nor the Department of Local Governments had certified to the President the alleged result of
the citizens' assemblies all over the Philippines it follows necessarily that, from a constitutional and legal viewpoint,
Proclamation No. 1102 is not even prima facieevidence of the alleged ratification of the proposed Constitution.
Referring particularly to the cases before Us, it will be noted that, as pointed out in the discussion of the preceding topic,
the new or revised Constitution proposed by the 1971 Constitutional Convention was not ratified in accordance with the
provisions of the 1935 Constitution. In fact, it has not even been, ratified in accordance with said proposed Constitution,
the minimum age requirement therein for the exercise of the right of suffrage beingeighteen (18) years, apart from the fact
that Art. VI of the proposed Constitution requires "secret" voting, which was not observed in many, if not most, Citizens'
Assemblies. Besides, both the 1935 Constitution and the proposed Constitution require a "majority of the votes cast" in an
election or plebiscite called for the ratification of an amendment or revision of the first Constitution or the effectivity of the
proposed Constitution, and the phrase "votes cast" has been construed to mean "votes made in writing not orally, as it
was in many Citizens' Assemblies.75
Even counsel for Gil J. Puyat and Jose Roy, as respondents in L-36165, asserts openly that Art. XV of the Constitution
has not been complied with, and since the alleged substantial compliance with the requirements thereof partakes of the
nature of a defense set up by the other respondents in these cases, the burden of proving such defense which, if true,
should be within their peculiar knowledge is clearly on such respondents. Accordingly, if despite the extensive notes
and documents submitted by the parties herein, the members of the Court do not know or are not prepared to say whether
or not the majority of the people or of those who took part in the Citizens' Assemblies have assented to the proposed
Constitution, the logical step would be to give due course to these cases, require the respondents to file their answers,
and the plaintiffs their reply, and, thereafter, to receive the pertinent evidence and then proceed to the determination of the
issues raised thereby. Otherwise, we would be placing upon the petitioners the burden of disproving a defense set up by
the respondents, who have not so far established the truth of such defense.
Even more important, and decisive, than the foregoing is the circumstance that there is ample reason to believe that
many, if not most, of the people did not know that the Citizens' Assemblies were, at the time they were held, plebiscites for
the ratification or rejection of the proposed Constitution. Hence, in Our decision in the plebiscite cases, We said, inter alia:
Meanwhile, or on December 17, 1972, the President had issued an order temporarily suspending the
effects of Proclamation No. 1081, for the purpose of free and open debate on the Proposed Constitution.
On December 23, the President announced the postponement of the plebiscite for the ratification or
rejection of the Proposed Constitution. No formal action to this effect was taken until January 7, 1973,
when General Order No. 20 was issued, directing "that the plebiscite scheduled to be held on January 15,
1973, be postponed until further notice." Said General Order No. 20, moreover, "suspended in the
meantime" the "order of December 17, 1972, temporarily suspending the effects of Proclamation No.
1081 for purposes of free and open debate on the proposed Constitution.

In view of these events relative to the postponement of the aforementioned plebiscite, the Court deemed
it fit to refrain, for the time being, from deciding the aforementioned cases, for neither the date nor the
conditions under which said plebiscite would be held were known or announced officially. Then again,
Congress was, pursuant to the 1935 Constitution, scheduled to meet in regular session on January 22,
1973, and since the main objection to Presidential Decree No. 73 was that the President does not have
the legislative authority to call a plebiscite and appropriate funds therefor, which Congress unquestionably
could do, particularly in view of the formal postponement of the plebiscite by the President reportedly
after consultation with, among others, the leaders of Congress and the Commission on Elections the
Court deemed it more imperative to defer its final action on these cases.
And, apparently, the parties in said cases entertained the same belief, for, on December 23, 1972 four (4) days after
the last hearing of said cases 76 the President announced the postponement of the plebiscite scheduled by Presidential
Decree No. 73 to be held on January 15, 1973, after consultation with the Commission on Elections and the leaders of
Congress, owing to doubts on the sufficiency of the time available to translate the proposed Constitution into some local
dialects and to comply with some pre-electoral requirements, as well as to afford the people a reasonable opportunity to
be posted on the contents and implications of said transcendental document. On January 7, 1973, General Order No. 20
was issued formally, postponing said plebiscite "until further notice." How can said postponement be reconciled with the
theory that the proceedings in the Citizens' Assemblies scheduled to be held from January 10 to January 15, 1973, were
"plebiscites," in effect, accelerated, according to the theory of the Solicitor General, for the ratification of the proposed
Constitution? If said Assemblies were meant to be the plebiscites or elections envisaged in Art. XV of the Constitution,
what, then, was the "plebiscite" postponed by General Order No. 20? Under these circumstances, it was only reasonable
for the people who attended such assemblies to believe that the same were not an "election" or plebiscite for the
ratification or adoption of said proposed Constitution.
And, this belief is further bolstered up by the questions propounded in the Citizens' Assemblies, namely:
[1] Do you like the New Society?
[2] Do you like the reforms under martial law?
[3] Do you like Congress again to hold sessions?
[4] Do you like the plebiscite to be held later?
[5] Do you like the way President Marcos is running the affairs of the government? [Bulletin Today,
January 10, 1973; emphasis an additional question.]
[6] Do you approve of the citizens assemblies as the base of popular government to decide issues of
national interests?
[7] Do you approve of the new Constitution?
[8] Do you want a plebiscite to be called to ratify the new Constitution?
[9] Do you want the elections to be held in November, 1973 in accordance with the provisions of the 1935
Constitution?
[10] If the elections would not be held, when do you want the next elections to be called?
[11] Do you want martial law to continue? [Bulletin Today, January 11, 1973]
To begin with, questions nos. 1, 2, 3, 4, 5, 6, 9, 10 and 11 are not proper in a plebiscite for the ratification of a proposed
Constitution or of a proposed amendment thereto. Secondly, neither is the language of question No. 7 "Do you approve
the new Constitution?" One approves "of" the act of another which does not need such approval for the effectivity of said
act, which the first person, however, finds to be good, wise satisfactory. The approval of the majority of the votes cast in
plebiscite is, however, essential for an amendment to the Constitution to be valid as part thereof. Thirdly, if the
proceedings in the Citizens' Assemblies constituted a plebiscite question No. 8 would have been unnecessary and
improper, regardless of whether question No. 7 were answered affirmatively or negatively. If the majority of the answers to
question No. 7 were in the affirmative, the proposed Constitution would have become effective and no other plebiscite

could be held thereafter in connection therewith, even if the majority of the answers to question No. 8 were, also, in the
affirmative. If the majority of the answers to question No. 7 were in the negative, neither may another plebiscite be held,
even if the majority of the answers to question No. 8 were in the affirmative. In either case, not more than one plebiscite
could be held for the ratification or rejection of the proposed Constitution. In short, the insertion of said two (2) questions
apart from the other questions adverted to above indicates strongly that the proceedings therein did not partake of
the nature of a plebiscite or election for the ratification or rejection of the proposed Constitution.
Indeed, I can not, in good conscience, declare that the proposed Constitution has been approved or adopted by the
people in the citizens' assemblies all over the Philippines, when it is, to my mind, a matter of judicial knowledge that there
have been no such citizens' assemblies in many parts of Manila and suburbs, not to say, also, in other parts of the
Philippines. In a letter of Governor Efren B. Pascual of Bataan, dated January 15, 1973, to the Chief Executive, the former
reported:
... This report includes a resumee (sic) of the activities we undertook in effecting the referendum on the
eleven questions you wanted our people consulted on and the Summary of Results thereof for each
municipality and for the whole province.
xxx xxx xxx
... Our initial plans and preparations, however, dealt only on the original five questions. Consequently,
when we received an instruction on January 10 to change the questions, we urgently suspended all
scheduled Citizens Assembly meetings on that day and called all Mayors, Chiefs of Offices and other
government officials to another conference to discuss with them the new set of guidelines and materials
to be used.
On January 11, ... another instruction from the top was received to include the original five questions
among those to be discussed and asked in the Citizens' Assembly meetings. With this latest order,we
again had to make modifications in our instructions to all those managing and supervising the holding of
the Citizens' Assembly meetings throughout the province. ... Aside from the coordinators we had from the
Office of the Governor, the splendid cooperation and support extended by almost all government officials
and employees in the province, particularly of the Department of Education, PC and PACD personnel,
provided us with enough hands to trouble shoot and implement sudden changes in the instructions
anytime and anywhere needed. ...
... As to our people, in general, their enthusiastic participation showed their preference and readiness to
accept this new method of government to people consultation in shaping up government policies.
Thus, as late as January 10, 1973, the Bataan officials had to suspend "all scheduled Citizens' Assembly meetings ..." and
call all available officials "... to discuss with them the new set of guidelines and materials to be used ... ." Then, "on
January 11 ... another instruction from the top was received to include the original five questions among those
be discussed and asked in the Citizens' Assembly meetings. With this latest order, we again had to make modifications in
our instructions to all those managing and supervising holding of the Citizens' Assembly meetings throughout province. ...
As to our people, in general, their enthusiastic participation showed their preference and readiness to accept the new
method of government to people consultation in shaping upgovernment policies."
This communication manifestly shows: 1) that, as late a January 11, 1973, the Bataan officials had still to discuss not
put into operation means and ways to carry out the changing instructions from the top on how to organize the citizens'
assemblies, what to do therein and even what questions or topics to propound or touch in said assemblies; 2) that the
assemblies would involve no more than consultations or dialogues between people and government not decisions be
made by the people; and 3) that said consultations were aimed only at "shaping up government policies" and, hence could
not, and did not, partake of the nature of a plebiscite for the ratification or rejection of a proposed amendment of a new or
revised Constitution for the latter does not entail the formulation of a policy of the Government, but the making of decision
by the people on the new way of life, as a nation, they wish to have, once the proposed Constitution shall have been
ratified.
If this was the situation in Bataan one of the provinces nearest to Manila as late as January 11, 1973, one can easily
imagine the predicament of the local officials and people in the remote barrios in northern and southern Luzon, in the Bicol
region, in the Visayan Islands and Mindanao. In fact, several members of the Court, including those of their immediate
families and their household, although duly registered voters in the area of Greater Manila, were not even notified that
citizens' assemblies would be held in the places where their respective residences were located. In the Prohibition and

Amendment case, 77 attention was called to the "duty cast upon the court of taking judicial cognizance of anything
affecting
the
existence
and
validity
of
any
law
or
portion
of
the
Constitution ... ." In line with its own pronouncement in another case, the Federal Supreme Court of the United States
stressed, in Baker v. Carr, 78 that "a court is not at liberty to shut its eyes to an obvious mistake, when the validity of the
law depends upon the truth of what is declared."
In the light of the foregoing, I cannot see how the question under consideration can be answered or resolved otherwise
than in the negative.
V
Have the people acquiesced in the proposed Constitution?
It is urged that the present Government of the Philippines is now and has been run, since January 17, 1971, under the
Constitution drafted by the 1971 Constitutional Convention; that the political department of the Government has
recognized said revised Constitution; that our foreign relations are being conducted under such new or revised
Constitution; that the Legislative Department has recognized the same; and that the people, in general, have, by their acts
or omissions, indicated their conformity thereto.
As regards the so-called political organs of the Government, gather that respondents refer mainly to the offices under the
Executive Department. In a sense, the latter performs some functions which, from a constitutional viewpoint, are politics in
nature, such as in recognizing a new state or government, in accepting diplomatic representatives accredited to our
Government, and even in devising administrative means and ways to better carry into effect. Acts of Congress which
define the goals or objectives thereof, but are either imprecise or silent on the particular measures to be resorted to in
order to achieve the said goals or delegate the power to do so, expressly or impliedly, to the Executive. This,
notwithstanding, the political organ of a government that purports to be republican is essentially the Congress or
Legislative Department. Whatever may be the functions allocated to the Executive Department specially under a
written, rigid Constitution with a republican system of Government like ours the role of that Department is inherently,
basically and fundamentally executive in nature to "take care that the laws be faithfully executed," in the language of
our 1935 Constitution. 79
Consequently, I am not prepared to concede that the acts the officers and offices of the Executive Department, in line with
Proclamation No. 1102, connote a recognition thereof o an acquiescence thereto. Whether they recognized the proposed
Constitution or acquiesce thereto or not is something that cannot legally, much less necessarily or even normally, be
deduced from their acts in accordance therewith, because the are bound to obey and act in conformity with the orders of
the President, under whose "control" they are, pursuant to the 1935 Constitution. They have absolutely no other choice,
specially in view of Proclamation No. 1081 placing the Philippines under Martial Law. Besides, by virtue of the very
decrees, orders and instructions issued by the President thereafter, he had assumed all powers of Government
although some question his authority to do so and, consequently, there is hardly anything he has done since the
issuance of Proclamation No. 1102, on January 17, 1973 declaring that the Constitution proposed by the 1971
Constitutional Convention has been ratified by the overwhelming majority of the people that he could not do under the
authority he claimed to have under Martial Law, since September 21, 1972, except the power of supervision over inferior
courts and its personnel, which said proposed Constitution would place under the Supreme Court, and which the
President has not ostensibly exercised, except as to some minor routine matters, which the Department of Justice has
continued to handle, this Court having preferred to maintain the status quo in connection therewith pending final
determination of these cases, in which the effectivity of the aforementioned Constitution is disputed.
Then, again, a given department of the Government cannot generally be said to have "recognized" its own acts.
Recognition normally connotes the acknowledgment by a party of the acts of another. Accordingly, when a subordinate
officer or office of the Government complies with the commands of a superior officer or office, under whose supervision
and control he or it is, the former merely obeys the latter. Strictly speaking, and from a legal and constitutional viewpoint,
there is no act of recognition involved therein. Indeed, the lower officer or office, if he or it acted otherwise, would just be
guilty of insubordination.
Thus, for instance, the case of Taylor v. Commonwealth 80 cited by respondents herein in support of the theory of the
people's acquiescence involved a constitution ordained in 1902 and "proclaimed by a convention duly called by a direct
vote of the people of the state to revise and amend the Constitution of 1869. The result of the work of that Convention has
been recognized, accepted and acted upon as the only valid Constitution of the State" by
1. The "Governor of the State in swearing fidelity to it and proclaiming it, as directed thereby";

2. The "Legislature in its formal official act adopting a joint resolution, July 15, 1902, recognizing the Constitution ordained
by the Convention ...";
3. The "individual oaths of its members to support it, and by its having been engaged for nearly a year, in legislating under
it
and
putting
its
provisions
into
operation ...";
4. The "judiciary in taking the oath prescribed thereby to support it and by enforcing its provisions ..."; and
5. The "people in their primary capacity by peacefully accepting it and acquiescing in it, by registering as voters under it to
the extent of thousands throughout the State, and by voting, under its provisions, at a general election for their
representatives in the Congress of the United States."
Note that the New Constitution of Virginia, drafted by a convention whose members were elected directly by the people,
was not submitted to the people for ratification or rejection thereof. But, it was recognized, not by the convention itself, but
by other sectors of the Government, namely, the Governor; the Legislature not merely by individual acts of its
members, but by formal joint resolution of its two (2) chambers; by the judiciary; and by the people, in the various ways
specified above. What is more, there was no martial law. In the present cases, noneof the foregoing acts of acquiescence
was present. Worse still, there is martial law, the strict enforcement of which was announced shortly before the alleged
citizens' assemblies. To top it all, in the Taylor case, the effectivity of the contested amendment was not contested
judicially until about one (1) year after the amendment had been put into operation in all branches of the Government, and
complied with by the people who participated in the elections held pursuant to the provisions of the new Constitution. In
the cases under consideration, the legality of Presidential Decree No. 73 calling a plebiscite to be held on January 15,
1973, was impugned as early as December 7, 1972, or five (5) weeks before the scheduled plebiscite, whereas the
validity of Proclamation No. 1102 declaring on January 17, 1973, that the proposed Constitution had been ratified
despite General Order No. 20, issued on January 7, 1972, formally and officially suspending the plebiscite until further
notice was impugned as early as January 20, 1973, when L-36142 was filed, or three (3) days after the issuance of
Proclamation No. 1102.
It is further alleged that a majority of the members of our House of Representatives and Senate have acquiesced in the
new or revised Constitution, by filing written statements opting to serve in the Ad Interim Assembly established in the
Transitory Provisions of said Constitution. Individual acts of recognition by members of our legislature, as well as of other
collegiate bodies under the government, are invalid as acts of said legislature or bodies, unless its members have
performed said acts in session duly assembled, or unless the law provides otherwise, and there is no such law in the
Philippines. This is a well-established principle of Administrative Law and of the Law of Public Officers, and no plausible
reason has been adduced to warrant departure therefrom. 81
Indeed, if the members of Congress were generally agreeable to the proposed Constitution, why did it become necessary
to padlock its premises to prevent its meeting in session on January 22, 1973, and thereafter as provided in the 1935
Constitution? It is true that, theoretically, the members of Congress, if bent on discharging their functions under said
Constitution, could have met in any other place, the building in which they perform their duties being immaterial to the
legality of their official acts. The force of this argument is, however, offset or dissipated by the fact that, on or about
December 27, 1972, immediately after a conference between the Executive, on the one hand, and members of Congress,
on the other, some of whom expressed the wish to meet in session on January 22, 1973, as provided in the 1935
Constitution, a Daily Express columnist (Primitivo Mijares) attributed to Presidential Assistant Guillermo de Vega a
statement to the effect that "'certain members of the Senate appear to be missing the point in issue' when they
reportedly insisted on taking up first the question of convening Congress." The Daily Express of that date, 82 likewise,
headlined, on its front page, a "Senatorial PlotAgainst 'Martial Law Government' Disclosed". Then, in its issue of
December 29, 1972, the same paper imputed to the Executive an appeal "to diverse groups involved in a conspiracy to
undermine" his powers" under martial law to desist from provoking a constitutional crisis ... which may result in the
exercise by me of authority I have not exercised."
No matter how good the intention behind these statement may have been, the idea implied therein was too clear
an ominous for any member of Congress who thought of organizing, holding or taking part in a session of Congress, not
to get the impression that he could hardly do so without inviting or risking the application of Martial Law to him. Under
these conditions, I do not feel justified in holding that the failure of the members of Congress to meet since January 22,
1973, was due to their recognition, acquiescence in or conformity with the provisions of the aforementioned Constitution,
or its alleged ratification.

For the same reasons, especially because of Proclamation No. 1081, placing the entire Philippines under Martial Law,
neither am I prepared to declare that the people's inaction as regards Proclamation No. 1102, and their compliance with a
number of Presidential orders, decrees and/or instructions some or many of which have admittedly had salutary effects
issued subsequently thereto amounts, constitutes or attests to a ratification, adoption or approval of said Proclamation
No. 1102. In the words of the Chief Executive, "martial law connotespower of the gun, meant coercion by the military,
and compulsion and intimidation." 83 The failure to use the gun against those who comply with the orders of the party
wielding the weapon does not detract from the intimidation that Martial Law necessarily connotes. It may reflect the good,
reasonable and wholesome attitude of the person who has the gun, either pointed at others, without pulling the trigger, or
merely kept in its holster, but not without warning that he may or would use it if he deemed it necessary. Still, the
intimidation is there, and inaction or obedience of the people, under these conditions, is not necessarily an act of
conformity or acquiescence. This is specially so when we consider that the masses are, by and large, unfamiliar with the
parliamentary system, the new form of government introduced in the proposed Constitution, with the particularity that it
is not even identical to that existing in England and other parts of the world, and that even experienced lawyers and social
scientists find it difficult to grasp the full implications of some provisions incorporated therein.
As regards the applicability to these cases of the "enrolled bill" rule, it is well to remember that the same refers to a
document certified to the President for his action under the Constitution by the Senate President and the Speaker of
the House of Representatives, and attested to by the Secretary of the Senate and the Secretary of the House of
Representatives, concerning legislative measures approved by the two Houses of Congress. The argument of the Solicitor
General is, roughly, this: If the enrolled bill is entitled to full faith and credence and, to this extent, it is conclusive upon the
President and the judicial branch of the Government, why should Proclamation No. 1102 merit less consideration than in
enrolled bill?
Before answering this question, I would like to ask the following: If, instead of being certified by the aforementioned
officers of Congress, the so-called enrolled bill were certified by, say, the President of the Association of Sugar Planters
and/or Millers of the Philippines, and the measure in question were a proposed legislation concerning Sugar Plantations
and Mills sponsored by said Association, which even prepared the draft of said legislation, as well as lobbied actually for
its approval, for which reason the officers of the Association, particularly, its aforementioned president whose honesty
and integrity are unquestionable were present at the deliberations in Congress when the same approved the proposed
legislation, would the enrolled bill rule apply thereto? Surely, the answer would have to be in the negative. Why? Simply,
because said Association President has absolutely no official authority to perform in connection therewith, and, hence, his
certification is legally, as good as non-existent.
Similarly, a certification, if any, of the Secretary of the Department of Local Governments and Community Development
about the tabulated results of the voting in the Citizens Assemblies allegedly held all over the Philippines and the
records do not show that any such certification, to the President of the Philippines or to the President Federation or
National Association of presidents of Provincial Associations of presidents of municipal association presidents of barrio or
ward assemblies of citizens would not, legally and constitutionally, be worth the paper on which it is written. Why?
Because said Department Secretary is not the officer designated by law to superintend plebiscites or elections held for the
ratification or rejection of a proposed amendment or revision of the Constitution and, hence, to tabulate the results thereof.
Worse still, it is the department which, according to Article X of the Constitution, should not and must not be all participate
in said plebiscite if plebiscite there was.
After citing approvingly its ruling in United States v. Sandoval, 84 the Highest Court of the United States that courts "will not
stand impotent before an obvious instance of a manifestly unauthorized exercise of power." 85
I cannot honestly say, therefore, that the people impliedly or expressly indicated their conformity to the proposed
Constitution.
VI
Are the Parties entitled to any relief?
Before attempting to answer this question, a few words be said about the procedure followed in these five (5) cases. In
this connection, it should be noted that the Court has not decided whether or not to give due course to the petitions herein
or to require the respondents to answer thereto. Instead, it has required the respondents to comment on the respective
petitions with three (3) members of the voting to dismiss them outright and then considers comments thus submitted
by the respondents as motions to dismiss, as well as set the same for hearing. This was due to the transcendental nature
of the main issue raised, the necessity of deciding the same with utmost dispatch, and the main defense set up by
respondents herein, namely, the alleged political nature of said issue, placing the same, according to respondents, beyond

the ambit of judicial inquiry and determination. If this defense was sustained, the cases could readily be dismissed; but,
owing to the importance of the questions involved, a reasoned resolution was demanded by public interest. At the same
time, respondents had cautioned against a judicial inquiry into the merits of the issues posed on account of the magnitude
of the evil consequences, it was claimed, which would result from a decision thereon, if adverse to the Government.
As a matter of fact, some of those issues had been raised in the plebiscite cases, which were dismissed as moot and
academic, owing to the issuance of Proclamation No. 1102 subsequently to the filing of said cases, although before the
rendition of judgment therein. Still one of the members of the Court (Justice Zaldivar) was of the opinion that the
aforementioned issues should be settled in said cases, and he, accordingly, filed an opinion passing upon the merits
thereof. On the other hand, three (3) members of the Court Justices Barredo, Antonio and Esguerra filed separate
opinions favorable to the respondents in the plebiscite cases, Justice Barredo holding "that the 1935 Constitution has pro
tanto passed into history and has been legitimately supplanted by the Constitution in force by virtue of Proclamation
1102." 86 When the petitions at bar were filed, the same three (3) members of the Court, consequently, voted for the
dismissal of said petitions. The majority of the members of the Court did not share, however, either view, believing that the
main question that arose before the rendition of said judgment had not been sufficiently discussed and argued as the
nature and importance thereof demanded.
The parties in the cases at bar were accordingly given every possible opportunity to do so and to elucidate on and discuss
said question. Thus, apart from hearing the parties in oral argument for five (5) consecutive days morning and
afternoon, or a total of exactly 26 hours and 31 minutes the respective counsel filed extensive notes on their or
arguments, as well as on such additional arguments as they wished to submit, and reply notes or memoranda, in addition
to rejoinders thereto, aside from a sizeable number of document in support of their respective contentions, or as required
by the Court. The arguments, oral and written, submitted have been so extensive and exhaustive, and the documents filed
in support thereof so numerous and bulky, that, for all intents and purposes, the situation is as if disregarding forms
the petitions had been given due course and the cases had been submitted for decision.
Accordingly, the majority of the members of the Court believe that they should express their views on the aforementioned
issues as if the same were being decided on the merits, and they have done so in their individual opinion attached hereto.
Hence, the resume of the votes cast and the tenor of the resolution, in the last pages hereof, despite the fact that
technically the Court has not, as yet, formally given due course to the petitions herein.
And, now, here are my views on the reliefs sought by the parties.
In L-36165, it is clear that we should not issue the writ of mandamus prayed for against Gil J. Puyat and Jose Roy,
President and President Pro Tempore respectively of the Senate, it being settled in our jurisdiction, based upon the theory
of separation of powers, that the judiciary will not issue such writ to the head of a co-equal department, like the
aforementioned officers of the Senate.
In all other respects and with regard to the other respondent in said case, as well as in cases L-36142, L-36164, L-36236
and L-36283, my vote is that the petitions therein should be given due course, there being more than prima facie showing
that the proposed Constitution has not been ratified in accordance with Article XV of the 1935 Constitution, either strictly,
substantially, or has been acquiesced in by the people or majority thereof; that said proposed Constitution is not in
force and effect; and that the 1935 Constitution is still the Fundamental Law of the Land, without prejudice to the
submission of said proposed Constitution to the people at a plebiscite for its ratification or rejection in accordance with
Articles V, X and XV of the 1935 Constitution and the provisions of the Revised Election Code in force at the time of such
plebiscite.
Perhaps others would feel that my position in these cases overlooks what they might consider to be the demands of
"judicial statesmanship," whatever may be the meaning of such phrase. I am aware of this possibility, if not probability; but
"judicial statesmanship," though consistent with Rule of Law, cannot prevail over the latter. Among consistent ends or
consistent values, there always is a hierarchy, a rule of priority.
We must realize that the New Society has many achievements which would have been very difficult, if not impossible, to
accomplish under the old dispensation. But, in and for the judiciary, statesmanship should not prevail over the Rule of
Law. Indeed, the primacy of the law or of the Rule of Law and faithful adherence thereto are basic, fundamental and
essential parts of statesmanship itself.
Resume of the Votes Cast and the Court's Resolution

As earlier stated, after the submittal by the members of the Court of their individual opinions and/or concurrences as
appended hereto, the writer will now make, with the concurrence of his colleagues, a resume or summary of the votes
cast by each of them.
It should be stated that by virtue of the various approaches and views expressed during the deliberations, it was agreed to
synthesize the basic issues at bar in broad general terms in five questions for purposes of taking the votes. It was further
agreed of course that each member of the Court would expound in his individual opinion and/or concurrence his own
approach to the stated issues and deal with them and state (or not) his opinion thereon singly or jointly and with such
priority, qualifications and modifications as he may deem proper, as well as discuss thereon other related issues which he
may consider vital and relevant to the cases at bar.
The five questions thus agreed upon as reflecting the basic issues herein involved are the following:
1. Is the issue of the validity of Proclamation No. 1102 a justiciable, or political and therefore non-justiciable, question?
2. Has the Constitution proposed by the 1971 Constitutional Convention been ratified validly (with substantial, if not strict,
compliance) conformably to the applicable constitutional and statutory provisions?
3. Has the aforementioned proposed Constitution acquiesced in (with or without valid ratification) by the people?
4. Are petitioners entitled to relief? and
5. Is the aforementioned proposed Constitution in force?
The results of the voting, premised on the individual views expressed by the members of the Court in their respect
opinions and/or concurrences, are as follows:
1. On the first issue involving the political-question doctrine Justices Makalintal, Zaldivar, Castro, Fernando, Teehankee
and myself, or six (6) members of the Court, hold that the issue of the validity of Proclamation No. 1102 presents a
justiciable and non-political question. Justices Makalintal and Castro did not vote squarely on this question, but, only
inferentially, in their discussion of the second question. Justice Barredo qualified his vote, stating that "inasmuch as it is
claimed there has been approval by the people, the Court may inquire into the question of whether or not there has
actually been such an approval, and, in the affirmative, the Court should keep hands-off out of respect to the people's will,
but, in negative, the Court may determine from both factual and legal angles whether or not Article XV of the 1935
Constitution been complied with." Justices Makasiar, Antonio, Esguerra, or three (3) members of the Court hold that the
issue is political and "beyond the ambit of judicial inquiry."
2. On the second question of validity of the ratification, Justices Makalintal, Zaldivar, Castro, Fernando, Teehankee and
myself, or six (6) members of the Court also hold that the Constitution proposed by the 1971 Constitutional Convention
was not validly ratified in accordance with Article XV, section 1 of the 1935 Constitution, which provides only one way for
ratification, i.e., "in an election or plebiscite held in accordance with law and participated in only by qualified and duly
registered voters. 87
Justice Barredo qualified his vote, stating that "(A)s to whether or not the 1973 Constitution has been validly ratified
pursuant to Article XV, I still maintain that in the light of traditional concepts regarding the meaning and intent of said
Article, the referendum in the Citizens' Assemblies, specially in the manner the votes therein were cast, reported and
canvassed, falls short of the requirements thereof. In view, however, of the fact that I have no means of refusing to
recognize as a judge that factually there was voting and that the majority of the votes were for considering as approved
the 1973 Constitution without the necessity of the usual form of plebiscite followed in past ratifications, I am constrained to
hold that, in the political sense, if not in the orthodox legal sense, the people may be deemed to have cast their favorable
votes in the belief that in doing so they did the part required of them by Article XV, hence, it may be said that in its political
aspect, which is what counts most, after all, said Article has been substantially complied with, and, in effect, the 1973
Constitution has been constitutionally ratified."
Justices Makasiar, Antonio and Esguerra, or three (3) members of the Court hold that under their view there has been in
effect substantial compliance with the constitutional requirements for valid ratification.
3. On the third question of acquiescence by the Filipino people in the aforementioned proposed Constitution, no majority
vote has been reached by the Court.

Four (4) of its members, namely, Justices Barredo, Makasiar, Antonio and Esguerra hold that "the people have already
accepted the 1973 Constitution."
Two (2) members of the Court, namely, Justice Zaldivar and myself hold that there can be no free expression, and there
has even been no expression, by the people qualified to vote all over the Philippines, of their acceptance or repudiation of
the proposed Constitution under Martial Law. Justice Fernando states that "(I)f it is conceded that the doctrine stated in
some American decisions to the effect that independently of the validity of the ratification, a new Constitution once
accepted acquiesced in by the people must be accorded recognition by the Court, I am not at this stage prepared to state
that such doctrine calls for application in view of the shortness of time that has elapsed and the difficulty of ascertaining
what is the mind of the people in the absence of the freedom of debate that is a concomitant feature of martial law." 88
Three (3) members of the Court express their lack of knowledge and/or competence to rule on the question. Justices
Makalintal and Castro are joined by Justice Teehankee in their statement that "Under a regime of martial law, with the free
expression of opinions through the usual media vehicle restricted, (they) have no means of knowing, to the point of judicial
certainty, whether the people have accepted the Constitution." 89
4. On the fourth question of relief, six (6) members of the Court, namely, Justices Makalintal, Castro, Barredo, Makasiar,
Antonio and Esguerra voted to DISMISS the petition. Justice Makalintal and Castro so voted on the strength of their view
that "(T)he effectivity of the said Constitution, in the final analysis, is the basic and ultimate question posed by these cases
to resolve which considerations other than judicial, an therefore beyond the competence of this Court, 90 are relevant and
unavoidable." 91
Four (4) members of the Court, namely, Justices Zaldivar, Fernando, Teehankee and myself voted to deny respondents'
motion to dismiss and to give due course to the petitions.
5. On the fifth question of whether the new Constitution of 1973 is in force:
Four (4) members of the Court, namely, Justices Barredo, Makasiar, Antonio and Esguerra hold that it is
in force by virtue of the people's acceptance thereof;
Four (4) members of the Court, namely, Justices Makalintal, Castro, Fernando and Teehankee cast no
vote thereon on the premise stated in their votes on the third question that they could not state with
judicial certainty whether the people have accepted or not accepted the Constitution; and
Two (2) members of the Court, namely, Justice Zaldivar and myself voted that the Constitution proposed
by the 1971 Constitutional Convention is not in force;
with the result that there are not enough votes to declare that the new Constitution is not in force.
ACCORDINGLY, by virtue of the majority of six (6) votes of Justices Makalintal, Castro, Barredo, Makasiar, Antonio and
Esguerra with the four (4) dissenting votes of the Chief Justice and Justices Zaldivar, Fernando and Teehankee, all the
aforementioned cases are hereby dismissed. This being the vote of the majority, there is no further judicial obstacle to the
new Constitution being considered in force and effect.
It is so ordered.

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

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

MAKALINTAL, J.:
The only issue in this petition for certiorari to review the orders dated March 4, 1972 and March 27, 1972, respectively, of
the Court of First Instance of Manila in its Civil Case No. 75138, is whether or not a banking institution may validly refuse
to comply with a court process garnishing the bank deposit of a judgment debtor, by invoking the provisions of Republic
Act No. 1405. *
On December 17, 1968 Vicente Acaban filed a complaint in the court a quo against Bautista Logging Co., Inc., B & B
Forest Development Corporation and Marino Bautista for the collection of a sum of money. Upon motion of the plaintiff the
trial court declared the defendants in default for failure to answer within the reglementary period, and authorized the
Branch Clerk of Court and/or Deputy Clerk to receive the plaintiff's evidence. On January 20, 1970 judgment by default
was rendered against the defendants.
To satisfy the judgment, the plaintiff sought the garnishment of the bank deposit of the defendant B & B Forest
Development Corporation with the China Banking Corporation. Accordingly, a notice of garnishment was issued by the
Deputy Sheriff of the trial court and served on said bank through its cashier, Tan Kim Liong. In reply, the bank' cashier
invited the attention of the Deputy Sheriff to the provisions of Republic Act No. 1405 which, it was alleged, prohibit the
disclosure of any information relative to bank deposits. Thereupon the plaintiff filed a motion to cite Tan Kim Liong for
contempt of court.
In an order dated March 4, 1972 the trial court denied the plaintiff's motion. However, Tan Kim Liong was ordered "to
inform the Court within five days from receipt of this order whether or not there is a deposit in the China Banking
Corporation of defendant B & B Forest Development Corporation, and if there is any deposit, to hold the same intact and
not allow any withdrawal until further order from this Court." Tan Kim Liong moved to reconsider but was turned down by
order of March 27, 1972. In the same order he was directed "to comply with the order of this Court dated March 4, 1972
within ten (10) days from the receipt of copy of this order, otherwise his arrest and confinement will be ordered by the
Court." Resisting the two orders, the China Banking Corporation and Tan Kim Liong instituted the instant petition.

The pertinent provisions of Republic Act No. 1405 relied upon by the petitioners reads:
Sec. 2. All deposits of whatever nature with banks or banking institutions in the Philippines including
investments in bonds issued by the Government of the Philippines, its political subdivisions and its
instrumentalities, are hereby considered as of absolutely confidential nature and may not be examined,
inquired or looked into by any person, government official, bureau or office, except upon written
permission of the depositor, or in cases of impeachment, or upon order of a competent court in cases of
bribery or dereliction of duty of public officials, or in cases where the money deposited or invested is the
subject matter of the litigation.
Sec 3. It shall be unlawful for any official or employee of a banking institution to disclose to any person
other than those mentioned in Section two hereof any information concerning said deposits.
Sec. 5. Any violation of this law will subject offender upon conviction, to an imprisonment of not more than
five years or a fine of not more than twenty thousand pesos or both, in the discretion of the court.
The petitioners argue that the disclosure of the information required by the court does not fall within any of the four (4)
exceptions enumerated in Section 2, and that if the questioned orders are complied with Tan Kim Liong may be criminally
liable under Section 5 and the bank exposed to a possible damage suit by B & B Forest Development Corporation.
Specifically referring to this case, the position of the petitioners is that the bank deposit of judgment debtor B & B Forest
Development Corporation cannot be subject to garnishment to satisfy a final judgment against it in view of the aforequoted
provisions of law.
We do not view the situation in that light. The lower court did not order an examination of or inquiry into the deposit of B &
B Forest Development Corporation, as contemplated in the law. It merely required Tan Kim Liong to inform the court
whether or not the defendant B & B Forest Development Corporation had a deposit in the China Banking Corporation only
for purposes of the garnishment issued by it, so that the bank would hold the same intact and not allow any withdrawal
until further order. It will be noted from the discussion of the conference committee report on Senate Bill No. 351 and
House Bill No. 3977, which later became Republic Act 1405, that it was not the intention of the lawmakers to place bank
deposits beyond the reach of execution to satisfy a final judgment. Thus:
Mr. MARCOS. Now, for purposes of the record, I should like the Chairman of the Committee on Ways and
Means to clarify this further. Suppose an individual has a tax case. He is being held liable by the Bureau
of Internal Revenue for, say, P1,000.00 worth of tax liability, and because of this the deposit of this
individual is attached by the Bureau of Internal Revenue.
Mr. RAMOS. The attachment will only apply after the court has pronounced sentence declaring the liability
of such person. But where the primary aim is to determine whether he has a bank deposit in order to bring
about a proper assessment by the Bureau of Internal Revenue, such inquiry is not authorized by this
proposed law.
Mr. MARCOS. But under our rules of procedure and under the Civil Code, the attachment or garnishment
of money deposited is allowed. Let us assume, for instance, that there is a preliminary attachment which
is for garnishment or for holding liable all moneys deposited belonging to a certain individual, but such
attachment or garnishment will bring out into the open the value of such deposit. Is that prohibited by this
amendment or by this law?
Mr. RAMOS. It is only prohibited to the extent that the inquiry is limited, or rather, the inquiry is made only
for the purpose of satisfying a tax liability already declared for the protection of the right in favor of the
government; but when the object is merely to inquire whether he has a deposit or not for purposes of
taxation, then this is fully covered by the law.
Mr. MARCOS. And it protects the depositor, does it not?
Mr. RAMOS. Yes, it protects the depositor.
Mr. MARCOS. The law prohibits a mere investigation into the existence and the amount of the deposit.
Mr. RAMOS. Into the very nature of such deposit.

Mr. MARCOS. So I come to my original question. Therefore, preliminary garnishment or attachment of the
deposit is not allowed?
Mr. RAMOS. No, without judicial authorization.
Mr. MARCOS. I am glad that is clarified. So that the established rule of procedure as well as the
substantive law on the matter is amended?
Mr. RAMOS. Yes. That is the effect.
Mr. MARCOS. I see. Suppose there has been a decision, definitely establishing the liability of an
individual for taxation purposes and this judgment is sought to be executed ... in the execution of that
judgment, does this bill, or this proposed law, if approved, allow the investigation or scrutiny of the bank
deposit in order to execute the judgment?
Mr. RAMOS. To satisfy a judgment which has become executory.
Mr. MARCOS. Yes, but, as I said before, suppose the tax liability is P1,000,000 and the deposit is half a
million, will this bill allow scrutiny into the deposit in order that the judgment may be executed?
Mr. RAMOS. Merely to determine the amount of such money to satisfy that obligation to the Government,
but not to determine whether a deposit has been made in evasion of taxes.
xxx xxx xxx
Mr. MACAPAGAL. But let us suppose that in an ordinary civil action for the recovery of a sum of money
the plaintiff wishes to attach the properties of the defendant to insure the satisfaction of the judgment.
Once the judgment is rendered, does the gentleman mean that the plaintiff cannot attach the bank deposit
of the defendant?
Mr. RAMOS. That was the question raised by the gentleman from Pangasinan to which I replied that
outside the very purpose of this law it could be reached by attachment.
Mr. MACAPAGAL. Therefore, in such ordinary civil cases it can be attached?
Mr. RAMOS. That is so.
(Vol. II, Congressional Record, House of Representatives, No. 12, pp. 3839-3840, July 27, 1955).
It is sufficiently clear from the foregoing discussion of the conference committee report of the two houses of Congress that
the prohibition against examination of or inquiry into a bank deposit under Republic Act 1405 does not preclude its being
garnished to insure satisfaction of a judgment. Indeed there is no real inquiry in such a case, and if the existence of the
deposit is disclosed the disclosure is purely incidental to the execution process. It is hard to conceive that it was ever
within the intention of Congress to enable debtors to evade payment of their just debts, even if ordered by the Court,
through the expedient of converting their assets into cash and depositing the same in a bank.
WHEREFORE, the orders of the lower court dated March 4 and 27, 1972, respectively, are hereby affirmed, with costs
against the petitioners-appellants.

[G.R. No. 134699. December 23, 1999]

UNION

BANK OF THE PHILIPPINES, petitioner,

CORPORATION, respondents.

vs. COURT

OF

APPEALS

and

ALLIED

BANK

DECISION
KAPUNAN, J.:
Section 2 of the Law on Secrecy of Bank Deposits, [1] as amended, declares bank deposits to be absolutely
confidential except:
(1) In an examination made in the course of a special or general examination of a bank that is specifically authorized
by the Monetary Board after being satisfied that there is reasonable ground to believe that a bank fraud or serious
irregularity has been or is being committed and that it is necessary to look into the deposit to establish such fraud or
irregularity,
(2) In an examination made by an independent auditor hired by the bank to conduct its regular audit provided that the
examination is for audit purposes only and the results thereof shall be for the exclusive use of the bank,
(3) Upon written permission of the depositor,
(4) In cases of impeachment,
(5) Upon order of a competent court in cases of bribery or dereliction of duty of public officials, or
(6) In cases where the money deposited or invested in the subject matter of the litigation.
Whether or not the case at bar falls under the last exception is the issue in the instant petition.
The facts are not disputed.
On March 21, 1990, a check (Check No. 11669677) dated March 31, 1990 in the amount of One Million Pesos
(P1,000,000.00) was drawn against Account No. 0111-01854-8 with private respondent Allied Bank payable to the order of
one Jose Ch. Alvarez. The payee deposited the check with petitioner Union Bank who credited the P1,000,000.00 to the
account of Mr. Alvarez. On May 21, 1990, petitioner sent the check for clearing through the Philippine Clearing House
Corporation (PCHC). When the check was presented for payment, a clearing discrepancy was committed by Union Banks
clearing staff when the amount of One Million Pesos (P1,000,000.00) was erroneously under-encoded to One Thousand
Pesos (P1,000.00) only.
Petitioner only discovered the under-encoding almost a year later. Thus, on May 7, 1991, Union Bank Notified Allied
Bank of the discrepancy by way of a charge slip for Nine Hundred Ninety-Nine Thousand Pesos (P999,000.00) for
automatic debiting against the account of Allied Bank. The latter, however, refused to accept the charge slip since [the]
transaction was completed per your [Union Banks] original instruction and clients account is now insufficiently funded.
Subsequently, Union Bank filed a complaint against Allied Bank before the PCHC Arbitration Committee (Arbicom),
praying that:
judgment be rendered in favor of plaintiff against defendant sentencing it to pay plaintiff:
1. The sum of NINE HUNDRED NINETY-NINE THOUSAND PESOS (P999,000.00);
2. The sum of THREE HUNDRED SIXTY-ONE AND FOUR HUNDRED EIGHTY AND 20/XX P361,480.20 as of October 9,
1991 representing reimbursements for opportunity losses and interest at the rate of 24% per annum arising from actual
losses sustained by plaintiff as of May 21, 1990;
3. The amount for attorneys fees at the rate of 25% of any and all sums due;
4. Penalty Charges at the rate of 1/8 of 1% of P999,000.00 from May 22, 1990 until payment thereof.
5. Exemplary and punitive damages against the defendant in such amounts as may be awarded by this Tribunal in order
to serve a lesson to all member-Banks under the PCHC umbrella to striclty comply with the provisions thereof;
6. The costs of suit which includes filing fee in addition to litigation expenses which shall be proven in the course of
arbitration.
7. Such other damages thay may be awarded by this Tribunal.[2]

Thereafter, Union Bank filed in the Regional Trial court (RTC) of Makati a petition for the examination of Account No.
111-01854-8. Judgment on the arbitration case was held in abeyance pending the resolution of said petition.
Upon motion of private respondent, the RTC dismissed Union Banks petition. The RTC held that:
The case of the herein petitioner does not fall under any of the foregoing exceptions to warrant a disclosure of or inquiry
into the ledgers/books of account of Allied Checking Account No. 111-01854-8.Needless to say, the complaint filed by
herein petitioner against Allied Banking Corporation before the Philippine Clearing House Corporation (PCHC) Arbitration
Committee and docketed therein as Arb[i]com Case No. 91-068 (Annex A, petition) is not one for bribery or dereliction of
duty of public officials much less is there any showing that the subject matter thereof is the money deposited in the
account in question. Petitioners complaint primarily hing[e]s on the alleged deliberate violation by Allied Bank Corporation
of the provisions of the PCHC Rule Book, Sec. 25[.]3, and as principal reliefs, it seeks for [sic] the recovery of amounts of
money as a consequence of an alleged under-coding of check amount to P1,000,000.00 and damage[s] by way of loss of
interest income.[3]
The Court of Appeals affirmed the dismissal of the petition, ruling that the case was not one where the money
deposited is the subject matter of the litigation.
Petitioner collecting bank itself in its complaint filed before the PCHC, Arbicom Case No. 91-068, clearly stated that its
cause of action against defendant arose from defendants deliberate violation of the provisions of the PCHC Rule Book,
Sec. 25.3, specifically on Under-Encoding of check amouting to P1,000,000.00 drawn upon defendants Tondo Branch
which was deposited with plaintiff herein on May 20, 1990, xxx which was erroneously encoded at P1,000.00 which
defendant as the receiving bank thereof, never called nor notified the plaintiff of the error committed thus causing actual
losses to plaintiff in the principal amount of P999,000.00 exclusive of opportunity losses and interest.
Furthermore, a reading of petitioner collecting banks complaint in the Arbicom case shows that its thrust is directed
against respondent drawee banks alleged failure to inform the former of the under-encoding when Sec. 25.3 of the PCHC
Rule Book is clear that it is receiving banks (respondent drawee bank herein) duty and obligation to notify the erring bank
(petitioner collecting bank herein) of any such under-encoding of any check amount submitted for clearing within the
member banks of the PCHC not later than 10:00 a.m. of the following clearing day and prays that respondent drawee
bank be held liable to petitioner collecting bank for penalties in view of the latters violation of the notification requirement.
Prescinding from the above, we see no cogent reason to depart from the time-honored general banking rule that all
deposits of whatever nature with banks are considered of absolutely confidential nature and may not be examined,
inquired or looked into by any person, government official, bureau or office and corollarily, that it is unlawful for any official
or employee of a bank to disclose to any person any information concerning deposits.
Nowhere in petitioner collecting banks complaint filed before the PCHC does it mention of the amount it seeks to recover
from Account No. 0111-018548 itself, but speaks of P999,000.00 only as an incident of its alleged opportunity losses and
interest as a result of its own employees admitted error in encoding the check.
The money depositied in Account No. 0111-018548 is not the subject matter of the litigation in the Arbicom case for as
clearly stated by petitioner itself, it is the alleged violation by respondent of the rules and regulations of the PCHC. [4]
Union Bank is now before this Court insisting that the money deposited in Account No. 0111-01854-8 is the subject
matter of the litigation Petitioner cites the case of Mathay vs. Consolidated Bank and Trust Company,[5] where we defined
subject matter of the action, thus:
xxx By the phrase subject matter of the action is meant the physical facts, the things real or personal, the money, lands,
chattels, and the like, in relation to which the suit is prosecuted, and not the delict or wrong committed by the defendant.
Petitioner contends that the Court of Appeals confuses the cause of action with the subject of the action. In Yusingco vs.
Ong Hing Lian,[6] petitioner points out, this Court distinguished the two concepts.
xxx The cause of action is the legal wrong threatened or committed, while the object of the action is to prevent or redress
the wrong by obtaining some legal relief; but the subject of the action is neither of these since it is not the wrong or the
relief demanded, the subject of the action is the matter or thing with respect to which the controversy has arisen,
concerning which the wrong has been done, and this ordinarily is the property, or the contract and its subject matter, or the
thing in dispute.

The argument is well taken. We note with approval the difference between the subject of the action from the cause of
action. We also find petitioners definition of the phrase subject matter of the action is consistent with the term subject
matter of the litigation, as the latter is used in the Bank Deposits Secrecy Act.
In Mellon Bank, N.A. vs. Magsino,[7] where the petitioner bank inadvertently caused the transfer of the amount of
US$1,000,000.00 instead of only US$1,000.00, the Court sanctioned the examination of the bank accounts where part of
the money was subsequently caused to be deposited:
Section 2 of [Republic Act No. 1405] allows the disclosure of bank deposits in cases where the money deposited is the
subject matter of the litigation. Inasmuch as Civil Case No. 26899 is aimed at recovering the amount converted by the
Javiers for their own benefit, necessarily, an inquiry into the wherabouts of the illegally acquired amount extends to
whatever is concealed by being held or recorded in the name of persons other than the one responsible for the illegal
acquisition.
Clearly, Mellon Bank involved a case where the money deposited was the subject matter of the litigation since the
money so deposited was the very thing in dispute. This, however, is not the case here.
Petitioners theory is that private respondent Allied Bank should have informed petitioner of the under-encoding
pursuant to the provisions of Section 25.3.1 of the PCHC Handbook, which states:
25.3.1. The Receiving Bank should inform the erring Bank about the under-encoding of amount not later than 10:00 A.M.
of the following clearing day.
Failing in that duty, petitioner holds private respondent directly liable for the P999,000.00 and other damages. It does not
appear that petitioner is seeking reimbursement from the account of the drawer. This much is evident in petitioners
complaint before the Arbicom.
xxx plaintiffs cause of action against defendant arose from defendants deliberate violation of the provisions of the PCHC
Rule Book, Sec. 25.3, specifically on Under-Encoding of check amounting to P1,000,000.00 drawn upon defendants
Tondo Branch which was deposited with plaintiff herein sometime on May 20, 1990. From the check amount of
P1,000,000.00, it was instead erroneously encoded at P1,000.00 which defendant as the receiving bank thereof, never
called nor notified the plaintiff of the error committed thus causing actual losses to plaintiff in the principal amount of
P999,000.00 exclusive of opportunity losses and interest thereon whatsoever. xxx[8]
Petitioner even requested private respondents Branch Manager for reimbursement from private respondents
account through the automatic debiting system.
2.7. On May 6, 1991, plaintiffs Senior Vice-President, Ms. ERLINDA V. VALENTON wrote defendants Tondo Branch
Manager, Mr. RODOLFO JOSE on the incident and requested assistance in facilitating correction of the erroneous
coding with request for reimbursement thru the industrys automatic debiting of defendants account.[9]
Further, petitioner rejected private respondents proposal that the drawer issue postdated checks in favor of petitioner
since the identity and credit standing of the depositor were unknown to petitioner.
2.9. On May 23, 1991, defendants Branch Manager, the same Mr. Rodolfo Jose wrote plaintiffs Ms. Erlinda Valenton again
insisting on the execution of the Quitclaim and Release in favor of defendant as the Branch has endeavored to negotiate
with its client for the collection of such amount. Upon a reading of the terms of the Quitclaim and Release being proposed
by defendant, the unmistakable fact lies that again defendant attempts for the second time to take advantage of plaintiffs
plight by indicating that the terms of the payment of the principal amount of P999,000.00 is by way of several personal
postdated checks up to March 21, 1992 from a person whose identity is not even disclosed to plaintiff.
To an ordinary person aggrieved already by having been taken advantage of for 620 days more or less, the proposal of
defendant could not be acceptable for the reason that aside from the interest lost already for the use of its money by
another party, no assurance is made as to the actual collection thereof from a party whose credit standing, the recipient is
not at all aware of.[10]
Petitioner also believed that it had no privity with the depositor:
2.12. Plaintiff then replied to defendants letter by requesting that in lieu of the post-dated checks from defendants client
with whom plaintiff has no privity whatsoever, if the defendant could tender the full payment of the amount of P999,000.00

in defendants own Managers check and that plaintiff is willing to forego its further claims for interest and losses for a
period of 620 days, more or less.[11]
The following argument adduced by petitioner in the Arbicom case leaves no doubt that petitioner is holding private
respondent itself liable for the discrepancy:
Defendant by its acceptance thru the clearing exchange of the check deposit from its client cannot be said to be free from
any liability for the unpaid portion of the check amount considering that defendant as the drawee bank, is remiss in its duty
of verifying possible technicalities on the face of the check.
Since the provisions of the PCHC Rule Book has so imposed upon the defendant being the Receiving Bank of a
discrepant check item to give that timely notification and defendant failing to comply with such requirement, then it can be
said that defendant is guilty of negligence. He who is guilty of negligence in the performance of its [sic] duty is liable for
damages. (Art. 1170, New Civil Code.)
Art. 1172 of the Civil Code provides that:
Responsibility arising from negligence in the performance of every kind of obligation is also demandable, but such liability
may be regulated by the courts, according to the circumstances.[] [12]
Petitioner points to its prayer in its complaint to show that it sought reimbursement from the drawers account. The
prayer, however, does not specifically state that it was seeking recovery of the amount from the depositors
account. Petitioner merely asked that judgment be rendered in favor of plaintiff against defendant sentencing it to pay
plaintiff: 1. The sum of NINE HUNDRED NINETY-NINE THOUSAND PESOS (P999,000.00). [13]
On the other hand, the petition before this court reveals that the true purpose for the examination is to aid petitioner
in proving the extent of Allied Banks liability:
Hence, the amount actually debited from the subject account becomes very material and germane to petitioners claim for
reimbursement as it is only upon examination of subject account can it be proved that indeed a discrepancy in the amount
credited to petitioner was committed, thereby, rendering respondent Allied Bank liable to petitioner for the deficiency. The
money deposited in aforesaid account is undeniably the subject matter of the litigation since the issue in the Arbicom case
is whether respondent Bank should be held liable to petitioner for reimbursement of the amount of money constituting the
difference between the amount of the check and the amount credited to petitioner, that is, P999,000.00, which has
remained deposited in aforesaid account.
On top of the allegations in the complaint, which can be verified only by examining the subject bank account, the defense
of respondent Allied Bank that the reimbursement cannot be made since clients account is not sufficiently funded at the
time petitioner sent its Charge Slip, bolsters petitioners contention that the money in subject account is the very subject
matter of the pending Arbicom case.
Indeed, to prove the allegations in its Complaint before the PCHC Arbitration Committee, and to rebut private respondents
defense on the matter, petitioner needs to determine:
1. how long respondent Allied Bank had willfully or negligently allowed the difference of P999,000.00 to be maintained in
the subject account without remitting the same to petitioner;
2. whether indeed the subject account was no longer sufficiently funded when petitioner sent its charge slip for
reimbursement to respondent bank on May 7, 1991; and
3. whether or not respondent Allied Banks actuations in refusing to immediately reimburse the discrepancy was attended
by good or bad faith.
In other words, only a disclosure of the pertinent details and information relating to the transactions involving subject
account will enable petitioner to prove its allegations in the pending Arbicom case.xxx [14]
In short, petitioner is fishing for information so it can determine the culpability of private respondent and the amount
of damages it can recover from the latter. It does not seek recovery of the very money contained in the deposit. The
subject matter of the dispute may be the amount of P999,000.00 that petitioner seeks from private respondent as a result

of the latters alleged failure to inform the former of the discrepancy; but it is not the P999,000.00 deposited in the drawers
account. By the terms of R.A. No. 1405, the money deposited itself should be the subject matter of the litigation.
That petitioner feels a need for such information in order to establish its case against private respondent does not, by
itself, warrant the examination of the bank deposits. The necessity of the inquiry, or the lack thereof, is immaterial since
the case does not come under any of the exceptions allowed by the Bank Deposits Secrecy Act.
WHEREFORE, the petition is DENIED.
SO ORDERED.
PHILIPPINE DEPOSIT
INSURANCE CORPORATION
(PDIC),
Petitioner,

G.R. No. 176438

Present:
CARPIO, J., Chairperson,
NACHURA,
PERALTA,
ABAD, and
MENDOZA, JJ.

- versus -

PHILIPPINE COUNTRYSIDE
RURAL BANK, INC., RURAL
BANK OF CARMEN (CEBU),
INC.,
BANK
OF EAST
ASIA(MINGLANILLA, CEBU), INC.,
and PILIPINO RURAL BANK (CEBU), INC.,
Promulgated:
Respondents.
January 24, 2011
x ----------------------------------------------------------------------------------------x
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by the Philippine Deposit Insurance
Corporation (PDIC) assailing the September 18, 2006 Decision of the Court of Appeals-Cebu (CA-Cebu), which granted
the petition for injunction filed by respondents Philippine Countryside Rural Bank, Inc. (PCRBI), Rural Bank of Carmen
(Cebu), Inc. (RBCI), Bank of East Asia (Minglanilla, Cebu), Inc. (BEAI), and Pilipino Rural Bank (Cebu), Inc. (PRBI), all
collectively referred to as Banks. The dispositive portion of the CA-Cebu decision reads:
WHEREFORE, in view of all the foregoing premises, the petition for injunction is
hereby GRANTED. The respondent PDIC is restrained from further conducting investigations or
examination on petitioners-banks without the requisite approval from the Monetary Board.
SO ORDERED.[1]
In a resolution dated January 25, 2007, the CA-Cebu denied petitioners motion for reconsideration for lack of merit. [2]
THE FACTS
On March 9, 2005, the Board of Directors of the PDIC (PDIC Board) adopted Resolution No. 2005-03-032[3] approving the
conduct of an investigation, in accordance with Section 9(b-1) of Republic Act (R.A.) No. 3591, as amended, on the basis
of the Reports of Examination of the Bangko Sentral ng Pilipinas (BSP) on ten (10) banks, four (4) of which are
respondents in this petition for review. The said resolution also created a Special Investigation Team to conduct the said
investigation, with the authority to administer oaths, to examine, take and preserve testimony of any person relating to the
subject of the investigation, and to examine pertinent bank records.

On May 25, 2005, the PDIC Board adopted another resolution, Resolution No. 2005-05-056, [4] approving the
conduct of an investigation on PCRBI based on a Complaint-Affidavit filed by a corporate depositor, the Philippine School
of Entrepreneurship and Management (PSEMI) through its president, Jacinto L. Jamero.
On June 3, 2005, in accordance with the two PDIC Board resolutions, then PDIC President and Chief Executive Officer
Ricardo M. Tan issued the Notice of Investigation[5] to the President or The Highest Ranking Officer of PCRBI.
On June 7, 2005, the PDIC Investigation Team personally served the Notice of Investigation on PCRBI at its Head Office
in Pajo, Lapu-Lapu City.[6]
According to PDIC, in the course of its investigation, PCRBI was found to have granted loans to certain individuals, which
were settled by way of dacion of properties. These properties, however, had already been previously foreclosed and
consolidated under the names of PRBI, BEAI and RBCI. [7]
On June 15, 2005, PDIC issued similar notices of investigation to PRBI [8] and BEAI.[9]

The notices stated that the investigation was to be conducted pursuant to Section 9 (b-1) of the PDIC Charter and upon
authority of PDIC Board Resolution No. 2005-03-032 authorizing the twelve (12) named representatives of PDIC to
conduct the investigation.[10]
The investigation was sought because the Banks were found to be among the ten (10) banks collectively known as
Legacy Banks. The Reports of General and Special Examinations of the BSP as of June 30, 2004, disclosed, among
others, that the Legacy Banks were commonly owned and/or controlled by Legacy Plans Inc. (now Legacy Consolidated
Plans, Inc.), and Celso Gancayco delos Angles, Jr. and his family.[11]
The notice of investigation was served on PRBI the next day, June 16, 2005.[12]
On June 25, 2005, a separate notice of investigation [13] was served on RBCI. The latter provided the PDIC Investigation
Team with certified copies of the loan documents they had requested, until its president received an order directing him
not to allow the investigation.[14]
Subsequently, PRBI and BEAI refused entry to their bank premises and access to their records and documents by the
PDIC Investigation Team, upon advice of their respective counsels. [15]

On June 16 and 17, 2005, Atty. Victoria G. Noel (Atty. Noel) of the Tiongson & Antenor Cruz Law Office sent letters to the
PDIC[16] informing it of her legal advice to PCRBI and BEAI not to submit to PDIC investigation on the ground that its
investigatory power pursuant to Section 9(b-1) of R.A. No. 3591, as amended (An Act Establishing The Philippine Deposit
Insurance Corporation, Defining Its Powers And Duties And For Other Purposes), cannot be differentiated from the
examination powers accorded to PDIC under Section 8, paragraph 8 of the same law, under which, prior approval from
the Monetary Board is required.
On June 17, 2005, PDIC General Counsel Romeo M. Mendoza sent a reply to Atty. Noel stating that PDICs investigation
power, as distinguished from the examination power of the PDIC under Section 8 of the same law, does not need prior
approval of the Monetary Board. [17] PDIC then urged PRBI and BEAI not to impede the conduct of PDICs investigation as
the same constitutes a violation of the PDIC Charter for which PRBI and BEAI may be held criminally and/or
administratively liable.[18]
On June 27 and 28, 2005, the Banks, through counsel, sought further clarification from PDIC on its source of authority to
conduct the impending investigations and requested that PDIC refrain from proceeding with the investigations. [19]

Simultaneously, the Banks wrote to the Monetary Board requesting a clarification on the parameters of PDICs power of
investigation/examination over the Banks and for an issuance of a directive to PDIC not to pursue the investigations
pending the requested clarification.[20]
On June 28, 2005, PRBI and BEAI again received letters from PDIC, dated June 24, 2005, which appeared to be final
demands on them to allow its investigation. [21] PRBI and BEAI replied that letters of clarification had been sent to PDIC
and the Monetary Board.[22] Pending action on such requests, PDIC was requested to refrain from proceeding with the
investigation.[23]
Notwithstanding, on July 11, 2005, the Banks received a letter, dated July 8, 2005, from the PDIC General Counsel
reiterating its position that prior Monetary Board approval was not a pre-requisite to PDICs exercise of its investigative
power.[24]
Not in conformity, on July 28, 2005, the Banks filed a Petition for Declaratory Relief with a Prayer for the Issuance of a
TRO and/or Writ of Preliminary Injunction (RTC Petition) before the Regional Trial Court of Makati (RTC-Makati) which
was docketed as Civil Case No. 05-697.[25]
In the RTC Petition, the Banks prayed for a judgment interpreting Section 9(b-1) of the PDIC Charter, as amended, to
require prior Monetary Board approval before PDIC could exercise its investigation/examination power over the Banks. [26]
PDIC filed a motion to dismiss alleging that the RTC had no jurisdiction over the said petition since a breach had already
been committed by the Banks when they received the notices of investigation, and because PDIC need not secure prior
Monetary Board approval since examination and investigation are two different terms. [27]
Later, the Banks withdrew their application for a temporary restraining order (TRO) reasoning that lower courts cannot
issue injunctions against PDIC. Thus, the Banks instituted a petition for injunction with application for TRO and/or
Preliminary Injunction (CA-Manila petition) before the Court of Appeals-Manila (CA-Manila). The case was docketed as
CA-G.R. SP No. 91038.[28]
Even before the CA-Manila could rule on the application for a TRO and/or writ of preliminary injunction, the RTC-Makati
dismissed the petition on the ground that there already existed a breach of law that isolated the case from the jurisdiction
of the trial court.[29]
The Banks filed a motion for reconsideration but it was denied by the RTC for lack of merit. [30] On February 10, 2006, the
Banks filed a notice of appeal[31] which they later withdrew on February 28, 2006.[32]

In view of the dismissal of the RTC-Makati petition, the CA-Manila dismissed the petition for injunction for being moot and
academic. In its Decision, dated February 1, 2006,[33] the CA-Manila wrote:
What remained for the petitioners to do was to litigate over the breach or violation by ordinary action, as
the circumstances ensuing from the breach or violation warrant. The ordinary action may either be in the
same case, if the RTC permitted the conversion, in which event the RTC may allow the parties to file such
pleadings as may be necessary or proper, pursuant to Sec. 5, Rule 63; or the petitioners may file another
action in the proper court (e.g. including the Court of Appeals, should injunction be among the reliefs to be
sought) upon some cause of action that has arisen from the breach or violation. [34]
Thereafter, on March 14, 2006, the Banks filed their Petition for Injunction with Prayer for Preliminary
Injunction[35] (CA-Cebu Petition) with the CA-Cebu (CA-Cebu).
On March 15, 2006, the CA-Cebu issued a resolution granting the Banks application for a TRO. This enjoined the
PDIC, its representatives or agents or any other persons or agency assisting them or acting for and in their behalf from
conducting examinations/investigations on the Banks head and branch offices without securing the requisite approval from
the Monetary Board of BSP.[36]
During the pendency of the CA-Cebu petition, PDIC filed with this Court a Petition for Certiorari, Prohibition and
Mandamus with Prayer for Issuance of Temporary Restraining Order and/or Writ of Preliminary Injunction under Rule 65
docketed as G.R. No. 173370.[37] It alleged that the CA-Cebu committed grave abuse of discretion amounting to lack or
excess of jurisdiction in taking cognizance of the Banks petition, and in issuing a TRO and a writ of preliminary injunction.
[38]

On July 31, 2006, this Court issued a resolution dismissing the petition for certiorari in G.R. No. 173370. The
Resolution reads:
Considering the allegations, issues and arguments adduced in the petition for certiorari, prohibition and
mandamus with prayer for preliminary injunction and/or restraining order dated 19 July 2006, the Court
resolves to DISMISS the petition for failure to sufficiently show that the questioned resolution of the Court
of Appeals is tainted with grave abuse of discretion. Moreover, the petition failed to conform with Rule 65
and other related provisions of the 1997 Rules of Civil Procedure, as amended, governing petitions for
certiorari, prohibition and mandamus filed with the Supreme Court, since petitioner failed to submit a
verified statement of material date of receipt of the assailed resolution dated 16 May 2006 in accordance
with Section 4, Rule 65 in relation to the second paragraph of Section 3, Rule 46. In any event, the
petition is premature since no motion for reconsideration of the questioned resolution of the Court
of Appeals was filed prior to the availment of this special civil action and there are no sufficient allegations
to bring the case within the recognized exceptions to this rule. [39]
On September 18, 2006, after both parties had submitted their respective memoranda, the CA-Cebu rendered a
decision granting the writ of preliminary injuction,[40]pertinent portions of which read:
[A]fter undergoing a series of amendments, the controlling law with respect to PDICs power to conduct
examination of banks is-prior approval of the Monetary Board is a condition sine qua non for PDIC to
exercise its power of examination. To rule otherwise would disregard the amendatory law of the PDICs
charter.
The Court is not also swayed by the contention of respondent that what it seeks to conduct is an
investigation and not an examination of petitioners transactions, hence prior approval of the Monetary
Board is a mere surplusage.
The ordinary definition of the words examination and investigation would lead one to conclude that both
pertain to the same thing and there seems to be no fine line differentiating one from the other. Blacks Law
Dictionary defines the word investigate as to examine and inquire into with care and accuracy; to find out
by careful inquisition; examination and the word examination as an investigation. In Collins Dictionary of
Banking and Finance, the word investigation is defined as an examination to find out what is wrong.
In the case of Anti-Graft League of the Philippines, Inc. vs. Hon. Ortega, et al., [41] the Supreme Court
using Ballentines Law Dictionary defines an investigation as an inquiry, judicial or otherwise, for the
discovery or collection of facts concerning the matter or matters involved. Such common definitions would
show that there is really nothing to distinguish between these two (2) terms as to support the PDIC view
differentiating Section 9 (b-1) from paragraph 8, Section 8 of the PDIC Charter.
In the realm of the PDIC rules, specifically under Section 3 of PDIC Regulatory Issuance No. 220502[42] investigation is defined as: Investigation shall refer to fact-findingexamination, study, inquiry, for
determining whether the allegations in a complaint or findings in a final report of examination may
properly be the subject of an administrative, criminal or civil action.
From the foregoing definition alone, it can be easily deduced that investigation and examination
are synonymous terms. Simply stated, investigation encompasses a fact-finding examination. Thus, it is
inconsistent with the rules if respondent PDIC be (sic) allowed to conduct an investigation without the
approval of the Monetary Board.
Moreover, the Court sees that the rationale of the law in requiring a (sic) prior approval from the
Monetary Board whenever an examination or in this case an investigation needs to be conducted by the
PDIC is obviously to ensure that there is no overlapping of efforts, duplication of functions and more
importantly to provide a check and balance to the otherwise unrestricted power of respondent PDIC to
conduct investigations on banks insured by it.
With the foregoing premises, this Court rules that a prior approval from the Monetary Board is
necessary before respondent PDIC can proceed with its investigations on petitioners-banks. [43]

PDIC moved for reconsideration but it was denied in a resolution dated January 25, 2007.[44]
Hence, this petition.
THE ISSUES
I.
WHETHER RESPONDENT BANKS VIOLATED THE RULE AGAINST FORUM SHOPPING WHEN
THEY FILED THE PETITION FOR INJUNCTION BEFORE THE COURT OF APPEALS-CEBU.
II.
WHETHER THE PRONOUNCEMENT OF THE REGIONAL TRIAL COURT OF MAKATI IN THE
PETITION FOR DECLARATORY RELIEF CONSTITUTES RES JUDICATA TO THE PETITION FOR
INJUNCTION IN THE COURT OF APPEALS-CEBU.
III.
WHETHER PETITIONER WAS DEPRIVED OF ITS OPPORTUNITY TO BE HEARD WHEN THE
COURT OF APPEALS-CEBU ISSUED THE WRIT OF INJUNCTION.
IV.
WHETHER THE ISSUES RAISED BY PETITIONERS ARE THE SAME ISSUES RAISED IN G.R. NO.
173370 WHICH WAS EARLIER DISMISSED BY THIS COURT.
V.
WHETHER THE COURT OF APPEALS ERRED IN FINDING THAT PRIOR APPROVAL OF THE
MONETARY BOARD OF THE BANGKO SENTRAL NG PILIPINAS IS NECESSARY BEFORE THE
PDIC MAY CONDUCT AN INVESTIGATION OF RESPONDENT BANKS.

THE COURTS RULING

I - Whether respondent banks violated the rule against forum
shopping when they filed the petition for injunction before the Court
of Appeals-Cebu.
II - Whether the pronouncement of the Regional Trial Court of
Makati in the petition for declaratory relief constitutes res judicata to
thepetition for injunction in the Court of Appeals-Cebu.
In the recent case of Sameer Oversees Placement Agency, Inc. v. Mildred R. Santos,[45] the Court discussed the matter of
forum shopping:
Forum shopping is defined as an act of a party, against whom an adverse judgment or order has been
rendered in one forum, of seeking and possibly getting a favorable opinion in another forum, other than by
appeal or special civil action for certiorari. It may also be the institution of two or more actions or
proceedings grounded on the same cause on the supposition that one or the other court would make a
favorable disposition. There is forum shopping where the elements of litis pendentia are present, namely:
(a) there is identity of parties, or at least such parties as represent the same interest in both actions; (b)
there is identity of rights asserted and relief prayed for, the relief being founded on the same set of facts;
and (c) the identity of the two preceding particulars is such that any judgment rendered in the pending

case, regardless of which party is successful, would amount to res judicata in the other. It is expressly
prohibited by this Court because it trifles with and abuses court processes, degrades the

administration of justice, and congests court dockets. A willful and deliberate violation of the rule against
forum shopping is a ground for summary dismissal of the case, and may also constitute direct contempt.
[46]

Juxtaposing the RTC-Makati, CA-Manila and CA-Cebu petitions, what must be determined here, is whether the
elements of litis pendentia are present between and among these petitions, i.e. whether (a) there is identity of parties, or
at least such parties as represent the same interest in both actions; (b) there is identity of rights asserted and relief prayed
for, the relief being founded on the same set of facts; and (c) the identity of the two preceding particulars is such that any
judgment rendered in the pending case, regardless of which party is successful, would amount to res judicata in the other.
The first element is clearly present as between the RTC-Makati petition and the CA-Cebu petition. Both involved
the Banks on one hand, and the PDIC on the other.
The second and third elements of litis pendentia, however, are patently wanting. The rights asserted and reliefs
prayed for were different, though founded on the same set of facts. The RTC-Makati Petition was one for declaratory relief
while the CA-Manila Petition was one for injunction with a prayer for preliminary injunction.
A petition for declaratory relief is filed by any person interested under a deed, will, contract or other written
instrument, or whose rights are affected by a statute, executive order or regulation, ordinance, or any other governmental
regulation, before breach or violation, thereof, to determine any question of construction or validity arising, and for a
declaration of his rights or duties thereunder.[47]
Injunction, on the other hand, is a judicial writ, process or proceeding whereby a party is directed either to do a
particular act, in which case it is called a mandatory injunction, or to refrain from doing a particular act, in which case it is
called a prohibitory injunction. As a main action, injunction seeks to permanently enjoin the defendant through a final
injunction issued by the court and contained in the judgment. [48]
Clearly, there is a marked difference between the reliefs sought under an action for declaratory relief and an
action for injunction. While an action for declaratory relief seeks a declaration of rights or duties, or the determination of
any question or validity arising under a statute, executive order or regulation, ordinance, or any other governmental
regulation, or under a deed, will, contract or other written instrument, under which his rights are affected, and before
breach or violation, an action for injunction ultimately seeks to enjoin or to compel a party to perform certain acts.
Moreover, as stated in the RTC-Makati Decision, because the Banks had already breached the provisions of law
on which declaratory judgment was being sought, it was without jurisdiction to take cognizance of the same. Any judgment
rendered in the RTC-Makati petition would not amount to res judicata in the CA-Manila Petition. Thus, the RTC was
correct in dismissing the case, having been bereft of jurisdiction to take cognizance of the action for declaratory judgment.

As between the CA-Manila and the CA-Cebu petitions, the second and third elements of litis pendentia are
absent. The rights asserted and reliefs prayed for were different, although founded on the same set of facts.
The CA-Manila Petition is a petition for injunction wherein the Banks prayed that:
1) Immediately upon filing of this Petition, a Writ of Preliminary Injunction and/or Temporary
Restraining Order be issued commanding the respondent and all its officers, employees and agents to
cease and desist from proceeding with the investigations sought to be conducted on the petitioners head
and branch offices while the Petition for Declaratory Relief before Branch 58 of the Makati Regional Trial
Court is pending.
2) After due proceedings, judgment be rendered declaring as permanent the Writ of Preliminary
Injunction and/or Temporary Restraining Order prayed for above.
Other equitable reliefs are likewise prayed for.[49]
[Underscoring supplied]
The CA-Cebu Petition, on the other hand, is denominated as a Petition for Injunction With Prayer for Writ of
Preliminary Injunction and/or Restraining Order. The Banks prayed therein that:

1) Upon filing of this Petition, a Writ of Preliminary Injunction and/or Temporary Restraining Order be
issued forthwith, enjoining Respondent PDIC and all its officers, employees and agents to cease and
desist from conducting examinations/investigations on Petitioner Banks head and branch offices without
securing the requisite approval from the Monetary Board of the Bangko Sentral ng Pilipinas, as required
by Sec. 8, Paragraph 8 of the PDIC Charter, as amended;
2) After due proceedings, judgment be rendered declaring as permanent the Writ of Preliminary Injunction
and/or Temporary Restraining Order prayed for above.
Other equitable reliefs are likewise prayed for.[50]

As can be gleaned from the above-cited portions of the CA-Manila and CA-Cebu petitions, the petitions seek
different reliefs.
Therefore, as between and among the RTC Makati, and the CA-Manila and CA-Cebu petitions, there is no forum
shopping.
III - Whether petitioner was deprived of its opportunity to be heard
when the Court of Appeals-Cebu issued the writ of injunction.
PDIC alleges that the CA-Cebu, in issuing the TRO in its March 15, 2006 Resolution, and subsequently, the preliminary
injunction in its May 16, 2006 Resolution, violated the fundamental rule that courts should avoid issuing injunctive relief
which would in effect dispose of the main case without trial. [51] PDIC argues that a TRO is intended only as a restraint until
the propriety of granting a temporary injunction can be determined, and it goes no further than to preserve
the status until that determination.[52] Moreover, its purpose is merely to suspend proceedings until such time when there
may be an opportunity to inquire whether any injunction should be granted, and it is not intended to operate as an
injunction pendente lite, and should not, in effect, determine the issues involved before the parties can have their day in
court, or give an advantage to either party by proceeding in the acquisition or alteration of the property the right to which is
disputed while the hands of the other party are tied. [53]

On the other hand, the Banks claim that PDIC was given every opportunity to present its arguments against the
issuance of the injunction.[54] Its active participation in the proceedings negates its assertion that it was denied procedural
due process in the issuance of the writ of injunction. [55] Citing Salonga v. Court of Appeals,[56] the Banks state that the
essence of due process is the reasonable opportunity to be heard and to submit evidence one may have in support of
ones defense,[57] and PDIC was able to do so.
On March 15, 2006, the CA-Cebu issued a resolution granting their prayer for a 60-day TRO, and requiring PDIC
to file its comment.[58] The latter thereafter filed itsComment ad Cautelam dated March 30, 2006.[59] [Underscoring ours]
On May 16, 2006, the CA-Cebu issued another resolution, this time granting the prayer for a preliminary injunction
and requiring the parties to file their respective memoranda. PDIC thereafter filed its memorandum dated July 31, 2006.[60]
On September 18, 2006, the CA-Cebu promulgated its Decision granting the Petition for Injunction. [61] PDIC filed a
motion for reconsideration dated October 10, 2006, [62] which was subsequently denied.

The essence of procedural due process is found in the reasonable opportunity to be heard and submit ones
evidence in support of his defense.[63] The Court finds that procedural due process was observed by the CA-Cebu. The
parties were afforded equal opportunity to present their arguments. In the absence of any indication to the contrary, the
CA-Cebu must be accorded the presumption of regularity in the performance of their functions. However, as discussed
herein, the matter of whether it erred in its conclusion and issuance of the TRO, preliminary injunction and final injunction
is another matter altogether.

IV Whether the issues raised by petitioner are the same issues

raised in G.R. No. 173370 which was earlier dismissed by this
Court.
In G.R. 173370, a petition for certiorari under Rule 65 of the Rules of Court, PDIC alleged that the CA-Cebu
committed grave abuse of discretion amounting to lack or excess of jurisdiction in taking cognizance of the Banks petition,
and in issuing a TRO and a writ of preliminary injunction. [64]
In the case at bench, a petition for review under Rule 45, PDICs core contention is that the CA-Cebu erred in
finding that prior approval of the

Monetary Board of the BSP is necessary before it may conduct an investigation of the Banks.
Clearly then, the two petitions were of different nature raising different issues.
G.R. 173370 challenged the CA-Cebus having taken cognizance of the Banks petition and interlocutory orders on
the issuance of a TRO and a writ of preliminary injunction. This case, however, strikes at the core of the final decision on
the merits of the CA-Cebu, and not merely the interlocutory orders. While both G.R. 173370 and the present case may
have been anchored on the same set of facts, that is, the refusal of the Banks to allow PDIC to conduct an investigation
without the prior consent of the Monetary Board, the issues raised in the two petitions are not identical. Moreover, the
disposal of the first case does not amount to res judicata in this case.
V Whether the Court of Appeals-Cebu erred in finding that prior
approval of the Monetary Board of the Bangko Sentral ng Pilipinas
is necessary before the PDIC may conduct an investigation of
respondent banks.
PDIC is of the position that in order for it to exercise its power of investigation, the law requires that:
(a) The investigation is based on a complaint of a depositor or any other government agency, or on the
report of examination of [the] Bangko Sentral ng Pilipinas (BSP) and/or PDIC; and,

(b) The complaint alleges, or the BSP and/or PDIC Report of Examination contains adverse findings of,
fraud, irregularities or anomalies committed by the Bank and/or its directors, officers, employees or
agents; and,
(c) The investigation is upon the authority of the PDIC Board of Directors. [65]
It argues that when it commenced its investigation on the Banks, all of the aforementioned requirements were met. PDIC
stresses that its power of examination is different from its power of investigation, in such that the former requires prior
approval of the Monetary Board while the latter requires merely the approval of the PDIC Board. [66] It further claims that
the power of examination cannot be exercised within twelve (12) months from the last examination conducted, whereas
the power of investigation is without limitation as to the frequency of its conduct. It states that the purpose of the PDICs
power of examination is merely to look into the condition of the bank, whereas the power of investigation aims to address
fraud, irregularities and anomalies based on complaints from depositors and other government agencies or upon reports
of examinations conducted by the PDIC itself or by the BSP.[67]
The Banks, on the other hand, are of the opinion that a holistic reading of the PDIC charter shows that petitioners power
of examination is synonymous with its power of investigation. [68] They cite, as bases, the law

dictionary definitions, Section 8, Eighth paragraph [69] and Section 9(b-1)[70] of the PDIC Charter, and Rule 1, Section 3(1) of
PDIC Regulatory Issuance No. 2005-02, which defines investigation as follows:
(l) Investigation shall refer to fact-finding examination, study or inquiry for determining whether the
allegations in a complaint or findings in a final report of examination may properly be the subject of an
administrative, criminal or civil action.

The Banks further cite Section X658 of the Manual of Regulations for Banks, which states:
Sec. X658 - Examination by the BSP. The term examination shall, henceforth, refer to an investigation of
an institution under the supervisory authority of the BSP to determine compliance with laws and
regulations. It shall include determination that the institution is conducting its business on a safe and
sound basis. Examination requires full and comprehensive looking into the operations and books of
institutions, and shall include, but need not be limited to the following:
a. Determination of the banks solvency and liquidity position;
b. Evaluation of asset quality as well as determination of sufficiency of valuation
reserves on loans and other risk assets;
c. Review of all aspects of bank operations;
d. Assessment of risk management system, including the evaluation of the
effectiveness of the bank managements oversight functions, policies, procedures, internal
control and audit;
e. Appraisal of overall management of the bank;
f. Review of compliance and applicable laws, rules and regulations; and any
other activities relevant to the above.
After an evaluation of the respective positions of the parties, the Court is of the view that the Monetary Board approval
is not required for PDIC to conduct an investigation on the Banks.
The disagreement stems from the interpretation of these two key provisions of the PDIC Charter. The confusion can be
attributed to the fact that although investigation and examination are two separate and

distinct procedures under the charter of the PDIC and the BSP, the words seem to be used loosely and interchangeably.
It does not help that indeed these terms are very closely related in a generic sense. However, while examination connotes
a mere generic perusal or inspection, investigation refers to a more intensive scrutiny for a more specific fact-finding
purpose. The latter term is also usually associated with proceedings conducted prior to criminal prosecution.
The PDIC was created by R.A. No. 3591 on June 22, 1963 as an insurer of deposits in all banks entitled to the benefits of
insurance under the PDIC Charter to promote and safeguard the interests of the depositing public by way of providing
permanent and continuing insurance coverage of all insured deposits. It is a government instrumentality that operates
under the Department of Finance. Its primary purpose is to act as deposit insurer, as a co-regulator of banks, and as
receiver and liquidator of closed banks.[71]
Section 1 of the PDIC Charter states:
SECTION 1. There is hereby created a Philippine Deposit Insurance Corporation hereinafter referred to
as the Corporation which shall insure, as herein provided, the deposits of all banks which are entitled to
the benefits of insurance under this Act, and which shall have the powers hereinafter granted.
The Corporation shall, as a basic policy, promote and safeguard the interests of the depositing public by
way of providing permanent and continuing insurance coverage on all insured deposits.
Section 1 of R.A. No. 9576 further provides: An Act Increasing the Maximum Deposit Insurance Coverage, and in
connection therewith, to Strengthen the Regulatory and Administrative Authority, and Financial Capability of the Philippine
Deposit Insurance Corporation (PDIC), amending for this purpose R.A. No. 3591, as Amended, otherwise known as the
PDIC Charter.
SECTION 1. Statement of State Policy and Objectives. - It is hereby declared to be the policy of the
State to strengthen the mandatory deposit insurance coverage system to generate, preserve, maintain
faith and confidence in the countrys banking system, and protect it from illegal schemes and
machinations.
Towards this end, the government must extend all means and mechanisms necessary for the Philippine
Deposit Insurance Corporation to effectively fulfill its vital task of promoting and safeguarding the interests
of the depositing public by way of providing permanent and continuing insurance coverage on all insured
deposits, and in helping develop a sound and stable banking system at all times.
Under its charter, the PDIC is empowered to conduct examination of banks with prior approval of the Monetary
Board:
Eighth To conduct examination of banks with prior approval of the Monetary Board: Provided, That no
examination can be conducted within twelve (12) months from the lastexamination date: Provided,
however, That the Corporation may, in coordination with the Bangko Sentral, conduct a special
examination as the Board of Directors, by an affirmative vote of a majority of all its members, if there is a
threatened or impending closure of a bank; Provided, further, That, notwithstanding the provisions of
Republic Act No. 1405, as amended, Republic Act No. 6426, as amended, Republic Act No. 8791, and
other laws, the Corporation and/or the Bangko Sentral, may inquire into or examine deposit accounts and
all information related thereto in case there is a finding of unsafe or unsound banking practice; Provided,
That to avoid overlapping of efforts, the examination shall maximize the efficient use of the relevant
reports, information, and findings of the Bangko Sentral, which it shall make available to the
Corporation; (As amended by R.A. 9302, 12 August 2004, R.A. 9576, 1 June 2009)
xxx. [Underlining supplied]

Section 9(b-1) of the PDIC Charter further provides that the PDIC Board shall have the power to:
POWERS AND RESPONSIBILITIES AND PROHIBITIONS
SECTION 9. xxx

(b) The Board of Directors shall appoint examiners who shall have power, on behalf of the Corporation to
examine any insured bank. Each such examiner shall have the power to make a thorough examination of
all the affairs of the bank and in doing so, he shall have the power to administer oaths, to examine and
take and preserve the testimony of any of the officers and agents thereof, and, to compel the presentation
of books, documents, papers, or records necessary in his judgment to ascertain the facts relative to the
condition of the bank; and shall make a full and detailed report of the condition of the bank to the
Corporation. The Board of Directors in like manner shall appoint claim agents who shall have the power to
investigate and examine all claims for insured deposits and transferred deposits. Each claim agent shall
have the power to administer oaths and to examine under oath and take and preserve testimony of any
person relating to such claim. (As amended by E.O. 890, 08 April 1983; R.A. 7400, 13 April 1992)
(b-1) The investigators appointed by the Board of Directors shall have the power on behalf of the
Corporation to conduct investigations on frauds, irregularities and anomalies committed in banks, based
on reports of examination conducted by the Corporation and Bangko Sentral ng Pilipinas or complaints
from depositors or from other government agency. Each such investigator shall have the power to
administer oaths, and to examine and take and preserve the testimony of any person relating to the
subject of investigation. (As added by R.A. 9302, 12 August 2004)
xxx. [Underscoring supplied]
As stated above, the charter empowers the PDIC to conduct an investigation of a bank and to appoint examiners
who shall have the power to examine any insured bank.Such investigators are authorized to conduct investigations on
frauds, irregularities and anomalies committed in banks, based on an examination conducted by the PDIC and the BSP or
on complaints from depositors or from other government agencies.
The distinction between the power to investigate and the power to examine is emphasized by the existence of two
separate sets of rules governing the procedure in the conduct of investigation and examination. Regulatory
Issuance (RI) No. 2005-02 or the PDIC Rules on Fact-Finding Investigation of Fraud, Irregularities and Anomalies
Committed in Banks covers the procedural requirements of the exercise of the PDICs power of investigation. On the other
hand, RI No. 2009-05 sets forth the guidelines for the conduct of the power of examination.
The definitions provided under the two aforementioned regulatory issuances elucidate on the distinction between
the power of examination and the power of investigation.
Section 2 of RI No. 2005-02 states that its coverage shall be applicable to all fact-finding investigations on fraud,
irregularities and/or anomalies committed in banks that are conducted by PDIC based on: [a] complaints from depositors
or other government agencies; and/or [b] final reports of examinations of banks conducted by the Bangko Sentral ng
Pilipinas and/or PDIC.
The same issuance states that the Final Report of Examination [72] is one of the three pre-requisites to the conduct
of an investigation, in addition to the authorization of the PDIC Board [73] and a complaint.[74] Juxtaposing this provision with
Section 9(b-1) of the PDIC Charter, since an examination is explicitly made the basis of a fact-finding examination, then
clearly examination and investigation are two different proceedings. It would obviously defy logic to make the result of an
investigation the basis of the same proceeding. Thus, RI No. 2005-02 defines an investigation as a fact-finding
examination, study or inquiry for determining whether the allegations in a complaint or findings in a final report of
examination may properly be the subject of an administrative, criminal or civil action. [75]
The Banks cite the dictionary definitions of examination and investigation to justify their conclusion that these
terms refer to one and the same proceeding. It is tempting to use these two terms interchangeably, which practice may be
perfectly justified in a purely literary sense. Indeed, a reading of the PDIC Charter shows that the two terms have been
used interchangeably at some point. However, based on the provisions aforecited, the intention of the laws is clearly to
differentiate between the process of investigation and that of examination.
In 2009, to clarify procedural matters, PDIC released RI No. 2009-05 or the Rules and Regulations on
Examination of Banks. Section 2 thereof differentiated between the two types of examination as follows:
Section 2. Types of Examination
a. Regular Examination - An examination conducted independently or jointly with the BSP. It requires
the prior approval of the PDIC Board of Directors and the Monetary Board (MB). It may be conducted only
after an interval of at least twelve (12) months from the closing date of the last Regular Examination.

b. Special Examination An examination conducted at any time in coordination with the BSP, by an
affirmative vote of a majority of all the members of the PDIC Board of Directors, without need of prior MB
approval, if there is a threatened or impending bank closure as determined by the PDIC Board of
Directors. [Underscoring supplied]
Section 3 of RI No. 2009-05 provides for the general scope of the PDIC examination:
Section 3. Scope of Examination
The examination shall include, but need not be limited to, the following:
a. Determination of the banks solvency and liquidity position;
b. Evaluation of asset quality as well as determination of sufficiency of valuation reserves
on loans and other risk assets;
c.

Review of all aspects of bank operations;

d. Assessment of risk management system, including the evaluation of the

effectiveness of the bank managements oversight functions, policies, procedures, internal
control and audit;
e. Appraisal of overall management of the bank;
f. Review of compliance with applicable banking laws, and rules and regulations,
including PDIC issuances;
g. Follow-through of specific exceptions/ violations noted during a previous
examination; and
h.

Any other activity relevant to the above.

Rule 2, Section 1 of PDIC RI No. 2005-02 or the PDIC Rules on Fact-Finding Investigation of Fraud, Irregularities
and Anomalies Committed in Banks provides for the scope of fact-finding investigations as follows:
SECTION 1. Scope of the Investigation.
Fact-finding Investigations shall be limited to the particular acts or omissions subject of a
complaint or a Final Report of Examination.
From the above-cited provisions, it is clear that the process of examination covers a wider scope than that of
investigation.
Examination involves an evaluation of the current status of a bank and determines its compliance with the set
standards regarding solvency, liquidity, asset valuation, operations, systems, management, and compliance with banking
laws, rules and regulations.

Investigation, on the other hand, is conducted based on specific findings of certain acts or omissions which are
subject of a complaint or a Final Report of Examination.
Clearly, investigation does not involve a general evaluation of the status of a bank. An investigation zeroes in on
specific acts and omissions uncovered via an examination, or which are cited in a complaint.

An examination entails a review of essentially all the functions and facets of a bank and its operation. It
necessitates poring through voluminous documents, and requires a detailed evaluation thereof. Such a process then
involves an intrusion into a banks records.
In contrast, although it also involves a detailed evaluation, an investigation centers on specific acts of omissions
and, thus, requires a less invasive assessment.
The practical justification for not requiring the Monetary Board approval to conduct an investigation of banks is the
administrative hurdles and paperwork it entails, and the correspondent time to complete those additional steps or
requirements. As in other types of investigation, time is always of essence, and it is prudent to expedite the proceedings if
an accurate conclusion is to be arrived at, as an investigation is only as precise as the evidence on which it is based. The
promptness with which such evidence is gathered is always of utmost importance because evidence, documentary
evidence in particular, is remarkably fungible. A PDIC investigation is conducted to determine[e] whether the allegations in
a complaint or findings in a final report of examination may properly be the subject of an administrative, criminal or civil
action.[76] In other words, an investigation is based on reports of examination and an examination is conducted with prior
Monetary Board approval. Therefore, it would be unnecessary to secure a separate approval for the conduct of
an investigation. Such would merely prolong the process and provide unscrupulous individuals the opportunity to cover
their tracks.
Indeed, while in a literary sense, the two terms may be used interchangeably, under the PDIC Charter,
examination and investigation refer to two different processes. To reiterate, an examination of banks requires the prior
consent of the Monetary Board, whereas an investigation based on an examination report, does not.
WHEREFORE, the petition is GRANTED. The Decision and Resolution of the Court of Appeals in CA G.R. CEB
SP. No. 01550, dated September 18, 2006 and January 25, 2007 are REVERSED and SET ASIDE.
SO ORDERED.
G.R. No. 94723 August 21, 1997
KAREN E. SALVACION, minor, thru Federico N. Salvacion, Jr., father and Natural Guardian, and Spouses
FEDERICO
N.
SALVACION,
JR.,
and
EVELINA
E.
SALVACION, petitioners,
vs.
CENTRAL BANK OF THE PHILIPPINES, CHINA BANKING CORPORATION and GREG BARTELLI y
NORTHCOTT, respondents.

TORRES, JR., J.:

In our predisposition to discover the "original intent" of a statute, courts become the unfeeling pillars of the status quo.
Ligle do we realize that statutes or even constitutions are bundles of compromises thrown our way by their framers.
Unless we exercise vigilance, the statute may already be out of tune and irrelevant to our day.
The petition is for declaratory relief. It prays for the following reliefs:
a.) Immediately upon the filing of this petition, an Order be issued restraining the respondents from
applying and enforcing Section 113 of Central Bank Circular No. 960;
b.) After hearing, judgment be rendered:
1.) Declaring the respective rights and duties of petitioners and respondents;
2.) Adjudging Section 113 of Central Bank Circular No. 960 as contrary to the provisions of the
Constitution, hence void; because its provision that "Foreign currency deposits shall be exempt from
attachment, garnishment, or any other order or process of any court, legislative body, government agency
or any administrative body whatsoever

i.) has taken away the right of petitioners to have the bank deposit of defendant Greg
Bartelli y Northcott garnished to satisfy the judgment rendered in petitioners' favor in
violation of substantive due process guaranteed by the Constitution;
ii.) has given foreign currency depositors an undue favor or a class privilege in violation of
the equal protection clause of the Constitution;
iii.) has provided a safe haven for criminals like the herein respondent Greg Bartelli y
Northcott since criminals could escape civil liability for their wrongful acts by merely
converting their money to a foreign currency and depositing it in a foreign currency
deposit account with an authorized bank.
The antecedent facts:
On February 4, 1989, Greg Bartelli y Northcott, an American tourist, coaxed and lured petitioner Karen Salvacion, then 12
years old to go with him to his apartment. Therein, Greg Bartelli detained Karen Salvacion for four days, or up to February
7, 1989 and was able to rape the child once on February 4, and three times each day on February 5, 6, and 7, 1989. On
February 7, 1989, after policemen and people living nearby, rescued Karen, Greg Bartelli was arrested and detained at
the Makati Municipal Jail. The policemen recovered from Bartelli the following items: 1.) Dollar Check No. 368, Control No.
021000678-1166111303, US 3,903.20; 2.) COCOBANK Bank Book No. 104-108758-8 (Peso Acct.); 3.) Dollar Account
China Banking Corp., US$/A#54105028-2; 4.) ID-122-30-8877; 5.) Philippine Money (P234.00) cash; 6.) Door Keys 6
pieces; 7.) Stuffed Doll (Teddy Bear) used in seducing the complainant.
On February 16, 1989, Makati Investigating Fiscal Edwin G. Condaya filed against Greg Bartelli, Criminal Case No. 801
for Serious Illegal Detention and Criminal Cases Nos. 802, 803, 804, and 805 for four (4) counts of Rape. On the same
day, petitioners filed with the Regional Trial Court of Makati Civil Case No. 89-3214 for damages with preliminary
attachment against Greg Bartelli. On February 24, 1989, the day there was a scheduled hearing for Bartelli's petition for
bail the latter escaped from jail.
On February 28, 1989, the court granted the fiscal's Urgent Ex-Parte Motion for the Issuance of Warrant of Arrest and
Hold Departure Order. Pending the arrest of the accused Greg Bartelli y Northcott, the criminal cases were archived in an
Order dated February 28, 1989.
Meanwhile, in Civil Case No. 89-3214, the Judge issued an Order dated February 22, 1989 granting the application of
herein petitioners, for the issuance of the writ of preliminary attachment. After petitioners gave Bond No. JCL (4) 1981 by
FGU Insurance Corporation in the amount of P100,000.00, a Writ of Preliminary Attachment was issued by the trial court
on February 28, 1989.
On March 1, 1989, the Deputy Sheriff of Makati served a Notice of Garnishment on China Banking Corporation. In a letter
dated March 13, 1989 to the Deputy Sheriff of Makati, China Banking Corporation invoked Republic Act No. 1405 as its
answer to the notice of garnishment served on it. On March 15, 1989, Deputy Sheriff of Makati Armando de Guzman sent
his reply to China Banking Corporation saying that the garnishment did not violate the secrecy of bank deposits since the
disclosure is merely incidental to a garnishment properly and legally made by virtue of a court order which has placed the
subject deposits in custodia legis. In answer to this letter of the Deputy Sheriff of Makati, China Banking Corporation, in a
letter dated March 20, 1989, invoked Section 113 of Central Bank Circular No. 960 to the effect that the dollar deposits or
defendant Greg Bartelli are exempt from attachment, garnishment, or any other order or process of any court, legislative
body, government agency or any administrative body, whatsoever.
This prompted the counsel for petitioners to make an inquiry with the Central Bank in a letter dated April 25, 1989 on
whether Section 113 of CB Circular No. 960 has any exception or whether said section has been repealed or amended
since said section has rendered nugatory the substantive right of the plaintiff to have the claim sought to be enforced by
the civil action secured by way of the writ of preliminary attachment as granted to the plaintiff under Rule 57 of the
Revised Rules of Court. The Central Bank responded as follows:
May 26, 1989
Ms.
12
South
Paranaque, Metro Manila

Erlinda
Pres.

S.
Osmena
Admiral

Carolino
Avenue
Village

Dear Ms. Carolino:

This is in reply to your letter dated April 25, 1989 regarding your inquiry on Section 113, CB Circular No.
960 (1983).
The cited provision is absolute in application. It does not admit of any exception, nor has the same been
repealed nor amended.
The purpose of the law is to encourage dollar accounts within the country's banking system which would
help in the development of the economy. There is no intention to render futile the basic rights of a person
as was suggested in your subject letter. The law may be harsh as some perceive it, but it is still the law.
Compliance is, therefore, enjoined.
Very truly yours,
(SGD)
Director 1

AGAPITO

S.

FAJARDO

Meanwhile, on April 10, 1989, the trial court granted petitioners' motion for leave to serve summons by publication in the
Civil Case No. 89-3214 entitled "Karen Salvacion, et al. vs. Greg Bartelli y Northcott." Summons with the complaint was a
published in the Manila Times once a week for three consecutive weeks. Greg Bartelli failed to file his answer to the
complaint and was declared in default on August 7, 1989. After hearing the case ex-parte, the court rendered judgment in
favor of petitioners on March 29, 1990, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiffs and against defendant, ordering the
latter:
1. To pay plaintiff Karen E. Salvacion the amount of P500,000.00 as moral damages;
2. To pay her parents, plaintiffs spouses Federico N. Salvacion, Jr., and Evelina E. Salvacion the amount
of P150,000.00 each or a total of P300,000.00 for both of them;
3. To pay plaintiffs exemplary damages of P100,000.00; and
4. To pay attorney's fees in an amount equivalent to 25% of the total amount of damages herein awarded;
5. To pay litigation expenses of P10,000.00; plus
6. Costs of the suit.
SO ORDERED.
The heinous acts of respondent Greg Bartelli which gave rise to the award were related in graphic detail by the trial court
in its decision as follows:
The defendant in this case was originally detained in the municipal jail of Makati but was able to escape
therefrom on February 24, 1989 as per report of the Jail Warden of Makati to the Presiding Judge,
Honorable Manuel M. Cosico of the Regional Trial Court of Makati, Branch 136, where he was charged
with four counts of Rape and Serious Illegal Detention (Crim. Cases Nos. 802 to 805). Accordingly, upon
motion of plaintiffs, through counsel, summons was served upon defendant by publication in the Manila
Times, a newspaper of general circulation as attested by the Advertising Manager of the Metro Media
Times, Inc., the publisher of the said newspaper. Defendant, however, failed to file his answer to the
complaint despite the lapse of the period of sixty (60) days from the last publication; hence, upon motion
of the plaintiffs, through counsel, defendant was declared in default and plaintiffs were authorized to
present their evidence ex parte.

In support of the complaint, plaintiffs presented as witnesses the minor Karen E. Salvacion, her father,
Federico N. Salvacion, Jr., a certain Joseph Aguilar and a certain Liberato Madulio, who gave the
following testimony:
Karen took her first year high school in St. Mary's Academy in Pasay City but has recently transferred to
Arellano University for her second year.
In the afternoon of February 4, 1989, Karen was at the Plaza Fair Makati Cinema Square, with her friend
Edna Tangile whiling away her free time. At about 3:30 p.m. while she was finishing her snack on a
concrete bench in front of Plaza Fair, an American approached her. She was then alone because Edna
Tangile had already left, and she was about to go home. (TSN, Aug. 15, 1989, pp. 2 to 5)
The American asked her name and introduced himself as Greg Bartelli. He sat beside her when he talked
to her. He said he was a Math teacher and told her that he has a sister who is a nurse in New York. His
sister allegedly has a daughter who is about Karen's age and who was with him in his house along
Kalayaan Avenue. (TSN, Aug. 15, 1989, pp. 4-5)
The American asked Karen what was her favorite subject and she told him it's Pilipino. He then invited her
to go with him to his house where she could teach Pilipino to his niece. He even gave her a stuffed toy to
persuade her to teach his niece. (Id., pp. 5-6)
They walked from Plaza Fair along Pasong Tamo, turning right to reach the defendant's house along
Kalayaan Avenue. (Id., p. 6)
When they reached the apartment house, Karen noticed that defendant's alleged niece was not outside
the house but defendant told her maybe his niece was inside. When Karen did not see the alleged niece
inside the house, defendant told her maybe his niece was upstairs, and invited Karen to go upstairs. (Id.,
p. 7)
Upon entering the bedroom defendant suddenly locked the door. Karen became nervous because his
niece was not there. Defendant got a piece of cotton cord and tied Karen's hands with it, and then he
undressed her. Karen cried for help but defendant strangled her. He took a packing tape and he covered
her mouth with it and he circled it around her head. (Id., p. 7)
Then, defendant suddenly pushed Karen towards the bed which was just near the door. He tied her feet
and hands spread apart to the bed posts. He knelt in front of her and inserted his finger in her sex organ.
She felt severe pain. She tried to shout but no sound could come out because there were tapes on her
mouth. When defendant withdrew his finger it was full of blood and Karen felt more pain after the
withdrawal of the finger. (Id., p. 8)
He then got a Johnson's Baby Oil and he applied it to his sex organ as well as to her sex organ. After that
he forced his sex organ into her but he was not able to do so. While he was doing it, Karen found it
difficult to breathe and she perspired a lot while feeling severe pain. She merely presumed that he was
able to insert his sex organ a little, because she could not see. Karen could not recall how long the
defendant was in that position. (Id. pp. 8-9)
After that, he stood up and went to the bathroom to wash. He also told Karen to take a shower and he
untied her hands. Karen could only hear the sound of the water while the defendant, she presumed, was
in the bathroom washing his sex organ. When she took a shower more blood came out from her. In the
meantime, defendant changed the mattress because it was full of blood. After the shower, Karen was
allowed by defendant to sleep. She fell asleep because she got tired crying. The incident happened at
about 4:00 p.m. Karen had no way of determining the exact time because defendant removed her watch.
Defendant did not care to give her food before she went to sleep. Karen woke up at about 8:00 o'clock the
following morning. (Id., pp. 9-10)
The following day, February 5, 1989, a Sunday, after a breakfast of biscuit and coke at about 8:30 to 9:00
a.m. defendant raped Karen while she was still bleeding. For lunch, they also took biscuit and coke. She
was raped for the second time at about 12:00 to 2:00 p.m. In the evening, they had rice for dinner which
defendant had stored downstairs; it was he who cooked the rice that is why it looks like "lugaw". For the

third time, Karen was raped again during the night. During those three times defendant succeeded in
inserting his sex organ but she could not say whether the organ was inserted wholly.
Karen did not see any firearm or any bladed weapon. The defendant did not tie her hands and feet nor
put a tape on her mouth anymore but she did not cry for help for fear that she might be killed; besides, all
the windows and doors were closed. And even if she shouted for help, nobody would hear her. She was
so afraid that if somebody would hear her and would be able to call the police, it was still possible that as
she was still inside the house, defendant might kill her. Besides, the defendant did not leave that Sunday,
ruling out her chance to call for help. At nighttime he slept with her again. (TSN, Aug. 15, 1989, pp. 12-14)
On February 6, 1989, Monday, Karen was raped three times, once in the morning for thirty minutes after a
breakfast of biscuits; again in the afternoon; and again in the evening. At first, Karen did not know that
there was a window because everything was covered by a carpet, until defendant opened the window for
around fifteen minutes or less to let some air in, and she found that the window was covered by styrofoam
and plywood. After that, he again closed the window with a hammer and he put the styrofoam, plywood,
and carpet back. (Id., pp. 14-15)
That Monday evening, Karen had a chance to call for help, although defendant left but kept the door
closed. She went to the bathroom and saw a small window covered by styrofoam and she also spotted a
small hole. She stepped on the bowl and she cried for help through the hole. She cried: "Maawa no po
kayo so akin. Tulungan n'yo akong makalabas dito. Kinidnap ako!" Somebody heard her. It was a woman,
probably a neighbor, but she got angry and said she was "istorbo". Karen pleaded for help and the
woman told her to sleep and she will call the police. She finally fell asleep but no policeman came. (TSN,
Aug. 15, 1989, pp. 15-16)
She woke up at 6:00 o'clock the following morning, and she saw defendant in bed, this time sleeping. She
waited for him to wake up. When he woke up, he again got some food but he always kept the door
locked. As usual, she was merely fed with biscuit and coke. On that day, February 7, 1989, she was again
raped three times. The first at about 6:30 to 7:00 a.m., the second at about 8:30 9:00, and the third
was after lunch at 12:00 noon. After he had raped her for the second time he left but only for a short while.
Upon his return, he caught her shouting for help but he did not understand what she was shouting about.
After she was raped the third time, he left the house. (TSN, Aug. 15, 1989, pp. 16-17) She again went to
the bathroom and shouted for help. After shouting for about five minutes, she heard many voices. The
voices were asking for her name and she gave her name as Karen Salvacion. After a while, she heard a
voice of a woman saying they will just call the police. They were also telling her to change her clothes.
She went from the bathroom to the room but she did not change her clothes being afraid that should the
neighbors call for the police and the defendant see her in different clothes, he might kill her. At that time
she was wearing a T-shirt of the American because the latter washed her dress. (Id., p. 16)
Afterwards, defendant arrived and he opened the door. He asked her if she had asked for help because
there were many policemen outside and she denied it. He told her to change her clothes, and she did
change to the one she was wearing on Saturday. He instructed her to tell the police that she left home
and willingly; then he went downstairs but he locked the door. She could hear people conversing but she
could not understand what they were saying. (Id., p. 19)
When she heard the voices of many people who were conversing downstairs, she knocked repeatedly at
the door as hard as she could. She heard somebody going upstairs and when the door was opened, she
saw a policeman. The policeman asked her name and the reason why she was there. She told him she
was kidnapped. Downstairs, he saw about five policemen in uniform and the defendant was talking to
them. "Nakikipag-areglo po sa mga pulis," Karen added. "The policeman told him to just explain at the
precinct. (Id., p. 20)
They went out of the house and she saw some of her neighbors in front of the house. They rode the car of
a certain person she called Kuya Boy together with defendant, the policeman, and two of her neighbors
whom she called Kuya Bong Lacson and one Ate Nita. They were brought to Sub-Station I and there she
was investigated by a policeman. At about 2:00 a.m., her father arrived, followed by her mother together
with some of their neighbors. Then they were brought to the second floor of the police headquarters. (Id.,
p. 21)

At the headquarters, she was asked several questions by the investigator. The written statement she
gave to the police was marked as Exhibit A. Then they proceeded to the National Bureau of Investigation
together with the investigator and her parents. At the NBI, a doctor, a medico-legal officer, examined her
private parts. It was already 3:00 in the early morning of the following day when they reached the NBI.
(TSN, Aug. 15, 1989, p. 22) The findings of the medico-legal officer has been marked as Exhibit B.
She was studying at the St. Mary's Academy in Pasay City at the time of the incident but she
subsequently transferred to Apolinario Mabini, Arellano University, situated along Taft Avenue, because
she was ashamed to be the subject of conversation in the school. She first applied for transfer to Jose
Abad Santos, Arellano University along Taft Avenue near the Light Rail Transit Station but she was denied
admission after she told the school the true reason for her transfer. The reason for their denial was that
they might be implicated in the case. (TSN, Aug. 15, 1989, p. 46)
xxx xxx xxx
After the incident, Karen has changed a lot. She does not play with her brother and sister anymore, and
she is always in a state of shock; she has been absent-minded and is ashamed even to go out of the
house. (TSN, Sept. 12, 1989, p. 10) She appears to be restless or sad, ( Id., p. 11) The father prays for
P500,000.00 moral damages for Karen for this shocking experience which probably, she would always
recall until she reaches old age, and he is not sure if she could ever recover from this experience. (TSN,
Sept. 24, 1989, pp. 10-11)
Pursuant to an Order granting leave to publish notice of decision, said notice was published in the Manila Bulletin once a
week for three consecutive weeks. After the lapse of fifteen (15) days from the date of the last publication of the notice of
judgment and the decision of the trial court had become final, petitioners tried to execute on Bartelli's dollar deposit with
China Banking Corporation. Likewise, the bank invoked Section 113 of Central Bank Circular No. 960.
Thus, petitioners decided to seek relief from this Court.
The issues raised and the arguments articulated by the parties boil down to two:
May this Court entertain the instant petition despite the fact that original jurisdiction in petitions for declaratory relief rests
with the lower court? Should Section 113 of Central Bank Circular No. 960 and Section 8 of R.A. 6426, as amended by
P.D. 1246, otherwise known as the Foreign Currency Deposit Act be made applicable to a foreign transient?
Petitioners aver as heretofore stated that Section 113 of Central Bank Circular No. 960 providing that "Foreign currency
deposits shall be exempt from attachment, garnishment, or any other order or process of any court, legislative body,
government agency or any administrative body whatsoever." should be adjudged as unconstitutional on the grounds that:
1.) it has taken away the right of petitioners to have the bank deposit of defendant Greg Bartelli y Northcott garnished to
satisfy the judgment rendered in petitioners' favor in violation of substantive due process guaranteed by the Constitution;
2.) it has given foreign currency depositors an undue favor or a class privilege in violation of the equal protection clause of
the Constitution; 3.) it has provided a safe haven for criminals like the herein respondent Greg Bartelli y Northcott since
criminals could escape civil liability for their wrongful acts by merely converting their money to a foreign currency and
depositing it in a foreign currency deposit account with an authorized bank; and 4.) The Monetary Board, in issuing
Section 113 of Central Bank Circular No. 960 has exceeded its delegated quasi-legislative power when it took away: a.)
the plaintiffs substantive right to have the claim sought to be enforced by the civil action secured by way of the writ of
preliminary attachment as granted by Rule 57 of the Revised Rules of Court; b.) the plaintiffs substantive right to have the
judgment credit satisfied by way of the writ of execution out of the bank deposit of the judgment debtor as granted to the
judgment creditor by Rule 39 of the Revised Rules of Court, which is beyond its power to do so.
On the other hand, respondent Central Bank, in its Comment alleges that the Monetary Board in issuing Section 113 of
CB Circular No. 960 did not exceed its power or authority because the subject Section is copied verbatim from a portion of
R.A. No. 6426 as amended by P.D. 1246. Hence, it was not the Monetary Board that grants exemption from attachment or
garnishment to foreign currency deposits, but the law (R.A. 6426 as amended) itself; that it does not violate the
substantive due process guaranteed by the Constitution because a.) it was based on a law; b.) the law seems to be
reasonable; c.) it is enforced according to regular methods of procedure; and d.) it applies to all members of a class.
Expanding, the Central Bank said; that one reason for exempting the foreign currency deposits from attachment,
garnishment or any other order or process of any court, is to assure the development and speedy growth of the Foreign
Currency Deposit System and the Offshore Banking System in the Philippines; that another reason is to encourage the

inflow of foreign currency deposits into the banking institutions thereby placing such institutions more in a position to
properly channel the same to loans and investments in the Philippines, thus directly contributing to the economic
development of the country; that the subject section is being enforced according to the regular methods of procedure; and
that it applies to all foreign currency deposits made by any person and therefore does not violate the equal protection
clause of the Constitution.
Respondent Central Bank further avers that the questioned provision is needed to promote the public interest and the
general welfare; that the State cannot just stand idly by while a considerable segment of the society suffers from economic
distress; that the State had to take some measures to encourage economic development; and that in so doing persons
and property may be subjected to some kinds of restraints or burdens to secure the general welfare or public interest.
Respondent Central Bank also alleges that Rule 39 and Rule 57 of the Revised Rules of Court provide that some
properties are exempted from execution/attachment especially provided by law and R.A. No. 6426 as amended is such a
law, in that it specifically provides, among others, that foreign currency deposits shall be exempted from attachment,
garnishment, or any other order or process of any court, legislative body, government agency or any administrative body
whatsoever.
For its part, respondent China Banking Corporation, aside from giving reasons similar to that of respondent Central Bank,
also stated that respondent China Bank is not unmindful of the inhuman sufferings experienced by the minor Karen E.
Salvacion from the beastly hands of Greg Bartelli; that it is only too willing to release the dollar deposit of Bartelli which
may perhaps partly mitigate the sufferings petitioner has undergone; but it is restrained from doing so in view of R.A. No.
6426 and Section 113 of Central Bank Circular No. 960; and that despite the harsh effect of these laws on petitioners,
CBC has no other alternative but to follow the same.
This Court finds the petition to be partly meritorious.
Petitioner deserves to receive the damages awarded to her by the court. But this petition for declaratory relief can only be
entertained and treated as a petition for mandamus to require respondents to honor and comply with the writ of execution
in Civil Case No. 89-3214.
This Court has no original and exclusive jurisdiction over a petition for declaratory relief. 2 However, exceptions to this rule
have been recognized. Thus, where the petition has far-reaching implications and raises questions that should be
resolved, it may be treated as one for mandamus. 3
Here is a child, a 12-year old girl, who in her belief that all Americans are good and in her gesture of kindness by teaching
his alleged niece the Filipino language as requested by the American, trustingly went with said stranger to his apartment,
and there she was raped by said American tourist Greg Bartelli. Not once, but ten times. She was detained therein for four
(4) days. This American tourist was able to escape from the jail and avoid punishment. On the other hand, the child,
having received a favorable judgment in the Civil Case for damages in the amount of more than P1,000,000.00, which
amount could alleviate the humiliation, anxiety, and besmirched reputation she had suffered and may continue to suffer for
a long, long time; and knowing that this person who had wronged her has the money, could not, however get the award of
damages because of this unreasonable law. This questioned law, therefore makes futile the favorable judgment and
award of damages that she and her parents fully deserve. As stated by the trial court in its decision,
Indeed, after hearing the testimony of Karen, the Court believes that it was undoubtedly a shocking and
traumatic experience she had undergone which could haunt her mind for a long, long time, the mere
recall of which could make her feel so humiliated, as in fact she had been actually humiliated once when
she was refused admission at the Abad Santos High School, Arellano University, where she sought to
transfer from another school, simply because the school authorities of the said High School learned about
what happened to her and allegedly feared that they might be implicated in the case.
xxx xxx xxx
The reason for imposing exemplary or corrective damages is due to the wanton and bestial manner
defendant had committed the acts of rape during a period of serious illegal detention of his hapless victim,
the minor Karen Salvacion whose only fault was in her being so naive and credulous to believe easily that
defendant, an American national, could not have such a bestial desire on her nor capable of committing
such a heinous crime. Being only 12 years old when that unfortunate incident happened, she has never
heard
of
an
old
Filipino
adage
that
in
every
forest
there
is
a
snake, . . . . 4

If Karen's sad fate had happened to anybody's own kin, it would be difficult for him to fathom how the incentive for foreign
currency deposit could be more important than his child's rights to said award of damages; in this case, the victim's claim
for damages from this alien who had the gall to wrong a child of tender years of a country where he is a mere visitor. This
further illustrates the flaw in the questioned provisions.
It is worth mentioning that R.A. No. 6426 was enacted in 1983 or at a time when the country's economy was in a
shambles; when foreign investments were minimal and presumably, this was the reason why said statute was enacted.
But the realities of the present times show that the country has recovered economically; and even if not, the questioned
law still denies those entitled to due process of law for being unreasonable and oppressive. The intention of the
questioned law may be good when enacted. The law failed to anticipate the iniquitous effects producing outright injustice
and inequality such as the case before us.
It has thus been said that
But I also know, 5 that laws and institutions must go hand in hand with the progress of the human mind. As
that becomes more developed, more enlightened, as new discoveries are made, new truths are disclosed
and manners and opinions change with the change of circumstances, institutions must advance also, and
keep pace with the times. . . We might as well require a man to wear still the coat which fitted him when a
boy, as civilized society to remain ever under the regimen of their barbarous ancestors.
In his Comment, the Solicitor General correctly opined, thus:
The present petition has far-reaching implications on the right of a national to obtain redress for a wrong
committed by an alien who takes refuge under a law and regulation promulgated for a purpose which
does not contemplate the application thereof envisaged by the alien. More specifically, the petition raises
the question whether the protection against attachment, garnishment or other court process accorded to
foreign currency deposits by PD No. 1246 and CB Circular No. 960 applies when the deposit does not
come from a lender or investor but from a mere transient or tourist who is not expected to maintain the
deposit in the bank for long.
The resolution of this question is important for the protection of nationals who are victimized in the forum
by foreigners who are merely passing through.
xxx xxx xxx
. . . Respondents China Banking Corporation and Central Bank of the Philippines refused to honor the writ
of execution issued in Civil Case No. 89-3214 on the strength of the following provision of Central Bank
Circular No. 960:
Sec. 113. Exemption from attachment. Foreign currency deposits shall be exempt from
attachment, garnishment, or any other order or process of any court, legislative body,
government agency or any administrative body whatsoever.
Central Bank Circular No. 960 was issued pursuant to Section 7 of Republic Act No. 6426:
Sec. 7. Rules and Regulations. The Monetary Board of the Central Bank shall promulgate
such rules and regulations as may be necessary to carry out the provisions of this Act
which shall take effect after the publication of such rules and regulations in the Official
Gazette and in a newspaper of national circulation for at least once a week for three
consecutive weeks. In case the Central Bank promulgates new rules and regulations
decreasing the rights of depositors, the rules and regulations at the time the deposit was
made shall govern.
The aforecited Section 113 was copied from Section 8 of Republic Act NO. 6426, as amended by P.D.
1246, thus:
Sec. 8. Secrecy of Foreign Currency Deposits. All foreign currency deposits authorized
under this Act, as amended by Presidential Decree No. 1035, as well as foreign currency
deposits authorized under Presidential Decree No. 1034, are hereby declared as and

considered of an absolutely confidential nature and, except upon the written permission
of the depositor, in no instance shall such foreign currency deposits be examined,
inquired or looked into by any person, government official, bureau or office whether
judicial or administrative or legislative or any other entity whether public or
private: Provided, however, that said foreign currency deposits shall be exempt from
attachment, garnishment, or any other order or process of any court, legislative body,
government agency or any administrative body whatsoever.
The purpose of PD 1246 in according protection against attachment, garnishment and other court process
to foreign currency deposits is stated in its whereases, viz.:
WHEREAS, under Republic Act No. 6426, as amended by Presidential Decree No. 1035,
certain Philippine banking institutions and branches of foreign banks are authorized to
accept deposits in foreign currency;
WHEREAS, under the provisions of Presidential Decree No. 1034 authorizing the
establishment of an offshore banking system in the Philippines, offshore banking units
are also authorized to receive foreign currency deposits in certain cases;
WHEREAS, in order to assure the development and speedy growth of the Foreign
Currency Deposit System and the Offshore Banking System in the Philippines, certain
incentives were provided for under the two Systems such as confidentiality of deposits
subject to certain exceptions and tax exemptions on the interest income of depositors
who are nonresidents and are not engaged in trade or business in the Philippines;
WHEREAS, making absolute the protective cloak of confidentiality over such foreign
currency deposits, exempting such deposits from tax, and guaranteeing the vested rights
of depositors would better encourage the inflow of foreign currency deposits into the
banking institutions authorized to accept such deposits in the Philippines thereby placing
such institutions more in a position to properly channel the same to loans and
investments in the Philippines, thus directly contributing to the economic development of
the country;
Thus, one of the principal purposes of the protection accorded to foreign currency deposits is "to assure
the development and speedy growth of the Foreign Currency Deposit system and the Offshore Banking in
the Philippines" (3rd Whereas).
The Offshore Banking System was established by PD No. 1034. In turn, the purposes of PD No. 1034 are
as follows:
WHEREAS, conditions conducive to the establishment of an offshore banking system,
such as political stability, a growing economy and adequate communication facilities,
among others, exist in the Philippines;
WHEREAS, it is in the interest of developing countries to have as wide access as
possible to the sources of capital funds for economic development;
WHEREAS, an offshore banking system based in the Philippines will be advantageous
and beneficial to the country by increasing our links with foreign lenders, facilitating the
flow of desired investments into the Philippines, creating employment opportunities and
expertise in international finance, and contributing to the national development effort.
WHEREAS, the geographical location, physical and human resources, and other positive
factors provide the Philippines with the clear potential to develop as another financial
center in Asia;
On the other hand, the Foreign Currency Deposit system was created by PD. No. 1035. Its purposes are
as follows:

WHEREAS, the establishment of an offshore banking system in the Philippines has been
authorized under a separate decree;
WHEREAS, a number of local commercial banks, as depository bank under the Foreign
Currency Deposit Act (RA No. 6426), have the resources and managerial competence to
more actively engage in foreign exchange transactions and participate in the grant of
foreign currency loans to resident corporations and firms;
WHEREAS, it is timely to expand the foreign currency lending authority of the said
depository banks under RA 6426 and apply to their transactions the same taxes as would
be applicable to transaction of the proposed offshore banking units;
It is evident from the above [Whereas clauses] that the Offshore Banking System and the Foreign
Currency Deposit System were designed to draw deposits from foreign lenders and investors (Vide
second Whereas of PD No. 1034; third Whereas of PD No. 1035). It is these deposits that are induced by
the two laws and given protection and incentives by them.
Obviously, the foreign currency deposit made by a transient or a tourist is not the kind of deposit
encouraged by PD Nos. 1034 and 1035 and given incentives and protection by said laws because such
depositor stays only for a few days in the country and, therefore, will maintain his deposit in the bank only
for a short time.
Respondent Greg Bartelli, as stated, is just a tourist or a transient. He deposited his dollars with
respondent China Banking Corporation only for safekeeping during his temporary stay in the Philippines.
For the reasons stated above, the Solicitor General thus submits that the dollar deposit of respondent
Greg Bartelli is not entitled to the protection of Section 113 of Central Bank Circular No. 960 and PD No.
1246 against attachment, garnishment or other court processes. 6
In fine, the application of the law depends on the extent of its justice. Eventually, if we rule that the questioned Section 113
of Central Bank Circular No. 960 which exempts from attachment, garnishment, or any other order or process of any
court, legislative body, government agency or any administrative body whatsoever, is applicable to a foreign transient,
injustice would result especially to a citizen aggrieved by a foreign guest like accused Greg Bartelli. This would negate
Article 10 of the New Civil Code which provides that "in case of doubt in the interpretation or application of laws, it is
presumed that the lawmaking body intended right and justice to prevail. "Ninguno non deue enriquecerse tortizeramente
con dano de otro." Simply stated, when the statute is silent or ambiguous, this is one of those fundamental solutions that
would respond to the vehement urge of conscience. (Padilla vs. Padilla, 74 Phil. 377).
It would be unthinkable, that the questioned Section 113 of Central Bank No. 960 would be used as a device by accused
Greg Bartelli for wrongdoing, and in so doing, acquitting the guilty at the expense of the innocent.
Call it what it may but is there no conflict of legal policy here? Dollar against Peso? Upholding the final and executory
judgment of the lower court against the Central Bank Circular protecting the foreign depositor? Shielding or protecting the
dollar deposit of a transient alien depositor against injustice to a national and victim of a crime? This situation calls for
fairness against legal tyranny.
We definitely cannot have both ways and rest in the belief that we have served the ends of justice.
IN VIEW WHEREOF, the provisions of Section 113 of CB Circular No. 960 and PD No. 1246, insofar as it amends Section
8 of R.A. No. 6426 are hereby held to be INAPPLICABLE to this case because of its peculiar circumstances.
Respondents are hereby REQUIRED to COMPLY with the writ of execution issued in Civil Case No. 89-3214, "Karen
Salvacion, et al. vs. Greg Bartelli y Northcott, by Branch CXLIV, RTC Makati and to RELEASE to petitioners the dollar
deposit of respondent Greg Bartelli y Northcott in such amount as would satisfy the judgment.
SO ORDERED.
G.R. No. 106253 February 10, 1994

ALEXANDER VAN TWEST and THE HON. SALVADOR P. DE GUZMAN, in his capacity as Presiding Judge of the
Regional
Trial
Court
of
Makati,
Branch
142, petitioners,
vs.
THE HON. COURT OF APPEALS and GLORIA ANACLETO, respondents.
Martinez and Perez Law Offices for petitioner Alexander Van Twest.
Salonga, Hernandez & Allado for private respondent.

FELICIANO, J.:
On March 1990, petitioner Alexander Van Twest filed a complaint against private respondent Gloria Anacleto and
International Corporate Bank ("Interbank") for recovery of a sum of money with prayer for a writ of preliminary injunction,
before Branch 142 of the Regional Trial Court of Makati, where the action was docketed as Civil Case No.
90-659. 1
Petitioner alleged in his complaint that in 1989, he and private respondent opened a joint foreign currency savings
account with Interbank to hold funds which "belonged entirely and exclusively" to petitioner, to "facilitate the funding of
certain business undertakings" of both of them and which funds were to be "temporarily (held) in trust" by private
respondent, who "shall turnover the same to plaintiff upon demand." Petitioner further alleged that withdrawals from the
account were always made through their joint signatures; that when his business relationship with private respondent
turned sour, the latter unilaterally closed their joint account, withdrew the remaining balance of Deutschmark (DM)
269,777.37 and placed the money in her own personal account with the same bank. 2 Petitioner thus sought an injunctive
writ to prevent private respondent from withdrawing the money at any time and thereby defeat petitioner's main and
pending action in Civil Case No. 90-659. 3
After issuing a temporary restraining order upon the filing of the complaint, the trial court conducted hearings on four (4)
successive session dates on the application for a writ of preliminary injunction, examining petitioner and his two (2)
witnesses, as well as private respondent. The hearings culminated in the issuance of an order dated 28 March 1990,
enjoining private respondent and Interbank from effecting and allowing withdrawals from the foreign currency deposit
account until further orders from the trial court. 4
The preliminary injunction order of the Regional Trial Court was, however, annulled on petition for certiorari filed by private
respondent before the Court of Appeals in a Decision dated 19 July 1991. 5
Petitioner's motion for reconsideration having been denied by the Court of Appeals, he is now before this Court on Petition
for Review, seeking reinstatement of the writ of preliminary injunction issued by the trial court. 6
In a Resolution dated 12 August 1992, the Court motu proprio issued an indefinite temporary restraining order enjoining
the Court of Appeals from enforcing its questioned Decision and Resolution. 7 The parties subsequently complied with the
requirement of the Court to submit responsive pleadings in amplification of their respective positions regarding the
soundness of the Court of Appeals' Decision under review. 8 The Court then resolved to give due course to the Petition
and required the parties to submit their memoranda. The parties did. 9
Deliberating on the present Petition for Review, the Court considers that the Court of Appeals was in reversible
Deliberating on the present Petition for Review, the Court considers that the Court of Appeals was in reversible error in
annulling the writ of preliminary injunction issued in petitioner's favor by the Regional Trial Court.
In ruling that petitioner was not entitled to the provisional remedy of preliminary injunction during the pendency of Civil
Case No. 90-659, the Court of Appeals said:
Upon the facts of the complaint filed, we ruled that the writ of preliminary injunction issued by the lower
court is improper and without basis. It is clear from the complaint that the subject foreign currency was
deposited in a savings account under the name of private respondent (herein petitioner) "and/or" herein
petitioner (now private respondent). By virtue of this "and/or" agreement, petitioner is authorized to
withdraw from the account on the strength of her signature alone. The allegation of private respondent

that the said foreign currency solely belonged to him loses its meaning in the face of the fact that the
amount was deposited in a joint fund and had become, under the eyes of the law, property jointly owned
by petitioner and private respondent. Furthermore, by private respondent's own admission, said foreign
currency deposit was to be used to fund the business venture of private respondent and petitioner. The
evidence on record shows that petitioner was going to withdraw the subject foreign currency deposit so
that it may be used as collateral for peso loan, which, in turn, would be used to pay-off the obligations
incurred by both petitioner and private respondent in the course of their business venture. In fact, an
action to collect the amount of P2,998,500.00 representing the unpaid obligation of private respondent
and petitioner to one of their creditors, had been filed in the Regional Trial Court of Makati on 29 March
1990.
In short, private respondent had failed to show that he has a right to stop petitioner from withdrawing the
foreign currency deposit under their joint "and/or" account. And it was error for respondent Judge to have
issued the Order dated 29 injunction. 10 (Emphasis supplied)
Petitioner's principal contention is that the public respondent misappreciated the facts of the case; he did not seek
injunction to restrain private respondent from withdrawing the funds from their joint account, since private respondent
indeed enjoyed a semblance of right to do so and the withdrawal had already become a fait accompli. Rather, petitioner
seeks to restrain private respondent from effecting withdrawals from her personal account, into which she had transferred
the foreign currency, in order not to defeat his main action seeking recovery of said fund. 11
The Court must agree with petitioner. The Court of Appeals evidently misapprehended the facts of this case, a relatively
exceptional situation warranting the Court to rule of factual issues in a petition for review, preparatory to the resolution of
the legal issues posed in this proceeding. 12
It would be untenable for petitioner to try and restrain private respondent from withdrawing money from their joint account,
an accomplished fact which can no longer be enjoined. 13 Petitioner, and the trial court, correctly directed the writ applied
for against private respondent's personal savings account because the object of the writ is to preserve the status quo, the
last, actual, peaceable and uncontested status that preceded the pending controversy. 14 An injunctive writ would prevent
private respondent from withdrawing from her personal account at will, or at least without the prior knowledge and consent
of the trial court and petitioner, thereby approximating the situation obtaining when the money subject of the main action
was previously deposited in a joint savings account, as well as ensuring that the continuation of petitioner's main suit for
recovery of the sum of money would be worthwhile.
There is also a more fundamental reason why issuance of an injunctive writ was warranted in this case. The record of the
preliminary hearings conducted by the trial court on the application for a writ of injunction indicates that petitioner had
shown a clear legal right over the fund, notwithstanding the circumstance that the foreign currency was initially placed in a
joint savings account, such that petitioner's right must be protected from the prospective acts of the private respondent,
following
the
fund's
transfer
to
her
personal
account. 15
First, as found by the Court of Appeals, private respondent intended to use the Deutschmark as collateral for a peso loan
which
she
would
use
to
pay-off the debts incurred by her faltering joint venture with petitioner. It should be noted that private respondent's
declared object does not articulate a claim of ownership over the foreign exchange funds.
Second, although private respondent specifically denied in her answer petitioner's averment in his complaint that the
money is owned by him, 16 she did make an affirmative allegation in her answer that petitioner "agreed to finance the
project." 17 One cannot finance a project without owning the funds with which the financing is to be undertaken. She also
declared, in her testimony during the preliminary hearings on petitioner's application for a writ of preliminary injunction,
that petitioner undertook to remit his cash investment in her name and that she was the industrial partner in he joint
venture:
xxx xxx xxx
(Atty. Racela; private respondent's counsel)
Q: How about your finances, the proposed investment share of Mr. Alexander Van Twest?

A: We agreed that Alexander Van Twest would remit his cash investment in my nameand
that he will open an "and/or" savings account and placed (sic) there my name.
xxx xxx xxx
(Court:)
Q: Now, Madam witness, may we ask what was your agreement insofar as this plan of
yours with Mr. Alexander Van Twest to undertake (a) leather industry project?
A: As far as the professional services is concerned, I am the industrial partner of Mr.
Alexander Van Twest.
xxx xxx xxx 18
(Emphasis supplied)
Petitioner submitted, during the same hearings, documentary evidence indicating he had directed the transfer to the
Philippines of large amounts of Deutschmark, enough to account for the funds subject of this controversy, from foreign
banks to Interbank between November 1989 and February 1990. 19
And third, private respondent's own counsel admitted that the money subject of the inward remittances above-noted
belonged to petitioner:
xxx xxx xxx
Atty. Racela:
A: Insofar as the holdings (sic) of the plaintiff, under the custody of the NBI, your Honor,
those are matters extraneous to the proceedings. Now, insofar as the injunction is
concerned, your Honor, the evidence presented by the plaintiff clearly resolve only on the
issue of the savings account, your Honor, opened by the plaintiff and the defendant, your
Honor and there is no need for him to prove the ownership of the account. Insofar as we
are concerned, whether or not defendant can withdraw on the savings account which
they opened jointly, your Honor.
A: Will the defendant stipulate that all the inward remittances from abroad and the money
belong to the plaintiff?
Atty. Racela:
A: We are willing to stipulate, your Honor.
Atty. Racela: (counsel of petitioner)
A: May we make of record that the defense counsel the all the money (which) came in
the same savings account, subject of the complaint came from the plaintiff.
Atty. Racela:
A: Inward remittances came from abroad in pursuit of the joint agreement between
[plaintiff and] defendant, your Honor.
Atty. Racela:
A: He would also prove the agreement between the plaintiff and the defendant with
respect to the deposit and withdrawal of the same account, your Honor.

Court:
A: Is there a written agreement?
Atty. Reyes:
A: There is none, your Honor. The agreement was based on trust. We need to present
the plaintiff himself to testify on the trust agreement.
Atty. Racela:
A: We admit that the proceeds came from foreign sources, from the plaintiff, your Honor,
by way of investment in pursuit of a joint venture agreement with the defendant, your
Honor.
xxx xxx xxx 20
(Emphasis supplied)
To the mind of the Court, the evidence of record sufficiently rebut the perception of the Court of Appeals that the foreign
funds previously deposited in the joint savings account were in effect owned in common by the petitioner and private
respondent, such that petitioner could validly oppose private respondent's attempt to dispose of such funds by obtaining a
writ of preliminary injunction. It does not appear indubitable that private respondent was a co-owner of the funds who
could unilaterally control the application thereof in payment of partnership debts. Indeed, petitioner has affirmatively
shown that the Deutschmark originated from him alone and that he alone was owner thereof. By depositing those funds in
a joint 'and/or' account, petitioner did not convey ownership thereof to private respondent and private respondent could
not convert those funds to her personal and exclusive ownership and use.
We believe and so hold that the trial court did not act with grave abuse of discretion in issuing the injunctive writ and that
the Court of Appeals committed reversible error in concluding otherwise; private respondent was heard and had
exhaustively presented all her arguments in opposition to the writ of preliminary injunction. 21
In a bid to buttress the Decision of the Court of Appeals, private respondent contends for the first time in this proceeding
that the personal foreign currency deposit account she is maintaining is exempt from processes issued by the courts,
pursuant to Section 8 of R.A. 6426 as amended by P. D. 1246, the statute in force on 26 February 1990, the date she
withdrew the foreign exchange fund from her joint account with petitioner and transferred the same to her personal
account. 22 Private respondent adds that the Court has plenary authority to disregard the procedural defect attending
private respondent's new contention; since this case cannot be resolved adequately without a ruling on the nature of the
exemption from court processes granted by the statute. 23
Private respondent's contentions do not persuade. Her belated invocation of the provisions of R.A. No. 6426 as amended
violates basic procedural due process by interposing a new matter before this Court the consideration of which would
further delay a final disposition on the propriety of petitioner of petitioner's application for an injunctive writ. 24
On a substantive, the Court holds that the privileges extended by the statute cited by private respondent are actually
enjoyed, and are invocable only, by the petitioner, both because private respondent's transactions fall outside the ambit of
the statute, and because petitioner is the owner of the foreign exchange fund subject of this case. This conclusion is
anchored on the consistent and contemporaneous administrative construction by the Central Bank of the basic statute, as
manifested in the relevant circulars issued by it in implementation of that law, which are entitled to great respect by the
courts. 25
Section 8 of R.A. No. 6426 (the Foreign Currency Deposit Act), as amended by P.D. No. 1246, which is still in force,
provides:
Sec. 8. Secretary of Foreign Currency Deposits All foreign currency deposits authorized under this Act,
as amended by Presidential Decree No. 1035, as well as foreign currency deposits authorized under
Presidential Decree No. 1034, are hereby declared as and considered of an absolutely confidential nature
and, except upon the written permission of the depositor, in no instance shall such foreign currency
deposits be examined, inquired or looked into by any person, government official, bureau or office,

whether judicial or administrative or legislative or any other entity whether public or private: Provided,
however, that said foreign currency shall be exempt from attachment, garnishment, or any other order or
process of any court, legislative body, government agency or any administrative body
whatsoever. 26 (Emphasis supplied)
Section one hundred-two of Circular No. 960, Series of 1983, provides in relevant part:
xxx xxx xxx
Sec. 102. Foreign currency funds ineligible for deposits.
a. Foreign exchange purchased from authorized agent banks in accordance with existing
regulations such as excess travel funds; unspent financial assistance of dependents
abroad of Philippine residents; foreign exchange acquired from any resident persons,
firm, association and corporation; and transfers to foreign currency deposit account or
receipt from another foreign currency deposit account, whether for payment of legitimate
obligation or otherwise, are not eligible for deposit under the System.
xxx xxx xxx 27
(Emphasis supplied)
This Circular was in force at the time private respondent undertook her questioned transactions; thus, such local transfer
from the original joint foreign currency account to another (personal) foreign currency account, was notan eligible foreign
currency deposit within the coverage of R.A. No. 6426 and not entitled to the benefit of the confidentiality provisions of
R.A. No. 6426.
Circular No. 960 was superseded by Circular No. 1318, Series of 1992, which did not reenact and continue the
administrative provision above-mentioned (Section 102). Nevertheless, Section seventy-four, Chapter seven of Circular
No. 1318, which deals with the foreign currency deposit system, provides in relevant part;
Section 74. Definition of Terms. As used in this Chapter, the following terms shall have the meaning
indicated unless the context clearly indicates otherwise:
xxx xxx xxx
The definition of such other terms used in this Chapter shall be consistent with the definition of terms
used under the Chapter on Offshore Banking System. 28 (Emphasis supplied)
Section forty-nine, Chapter five of the same Circular, dealing with the Offshore Banking System, stated in part:
Section 49. Definition of Terms. . . .
xxx xxx xxx
d. "Deposit" shall refer to funds in foreign currencies which are accepted and held by an
OBUbusiness, with the obligation to return an equivalent amount to the owner thereof, with or without
interest;
xxx xxx xxx 29
(Emphasis supplied)
In other words, although transfers from one foreign currency deposit account to another foreign currency deposit account
in the Philippines are now eligible deposits under the Central Bank's Foreign Currency Deposit System, private
respondent is still not entitled to the confidentiality provisions of the relevant circulars. For, as noted earlier, private
respondent is not the owner of such foreign currency funds and her personal deposit account is not, under Section 49 of
Circular No. 1318, protected by this Circular.

Circular No. 1318 was superseded for a brief period by Circular No. 1353, Series of 1992, which in turn was superseded
by Circular No. 1389, Series of 1993. Circular No. 1389 is the current implementing issuance for R.A. No. 6426; the
relevant provisions (Sections 74 and 49) of Circular No. 1318 have been incorporated en toto in the current Circular. 30
ACCORDINGLY, the Petition for Review is hereby GRANTED. The Decision and Resolution of the Court of Appeals dated
19 July 1991 and 9 July 1992, respectively, are hereby REVERSED and SET ASIDE. The temporary restraining order
issued by the Court dated 12 August 1992, enjoining the public respondent from dissolving the writ of preliminary
injunction issued by the Regional Trial Court through its case is hereby REMANDED to the trial court for continuation of
the main proceeding in Civil Case No. 90-659. No pronouncement as to costs.
SO ORDERED.
G.R. No. 93849 December 20, 1991
THE
PEOPLE
OF
THE
PHILIPPINES, plaintiff-appellee,
vs.
DICK ONG y CHAN, LINO MORFE y GUTIERREZ, RICARDO VILLARAN and LUCILA TALABIS, accused, DICK ONG
y CHAN, accused-appellant.
The Solicitor General for plaintiff-appellee.
Leoncio T. Mercado for accused-appellant.

MEDIALDEA, J.:p
The accused, Dick Ong y Chan, Lino Morfe y Gutierrez, Ricardo Villaran and Lucila Talabis, were charged with the crime
of estafa in Criminal Case No. 44080 before the Regional Trial Court of Manila, Branch 35. The information filed in said
case reads, as follows (pp. 8-9, Rollo):
That in (sic) or about and during the period comprised between December 6, 1978 and January 31, 1979,
both dates inclusive, in the City of Manila, Philippines, the said accused, conspiring and confederating
together and helping one another, did then and there wilfully, unlawfully and feloniously defraud the Home
Savings Bank in the following manner, to wit: the said accused Dick Ong y Chan, by means of false
manifestations and fraudulent representations which he made to the management of the Home Savings
Bank, Aurea Annex Branch, located at 640 Rizal Avenue, Sta. Cruz, in said City, to the effect that the
following checks, to wit:
NAME OF
CHECK

NUMBER

PAYBLE
TO

DATE

AMOUNT

Metropolitan
Bank
&
Trust Co

82508

Cash

1-3079

P49,500.0

Equitable
Bank

27624961

do.

do.

14,569.00

Phil. Bank
of Comm

T1907249

do.

do.

59,600.00

-do-

T1907249

do.

do.

67,400.00

China
Banking
Corp.

QCO86174A

do.

1-3179

69,850.00

Pacific

PCB 238056

do.

1-31-

60,890.00

Banking
Corp.

79

Producers
Bank of the
Phil.

C 987955

do.

do.

49,090.00

Equitable
Banking

27624963

do.

do.

14,965.00

Phil. Bank
of Comm.

1915852

do.

do.

63,900.00

-do-

1915855

do.

do.

59,800.00

-do-

1915856

do.

do.

65,880.00

or all in the total amount of P575,504.00, are good and covered with sufficient funds in the banks, and by
means of other similar deceits with the conspiracy of his co-accused Lino Morfe y Gutierrez, Ricardo
Villaran and Lucila Talabis, in their capacities as officer-in-charge, branch accountant and bank branch
cashier, respectively, of said bank (Home Savings Bank), induced and succeeded in inducing the
management of the said bank to accept said checks as deposits, all the said accused well knowing that
his (Dick Ong y Chan's) representations and manifestations are false and untrue and were made solely
for the purpose of defrauding the said bank, and, in accordance with the conspiracy, his co-accused Lino
Morfe y Gutierrez, Ricardo Villara and Lucila Talabis, facilitated the opening of a savings account in the
name of accused Dick Ong y Chan and, thereafter, approved said deposits; that on the strength of such
deposits made and the opening of an account, the said accused were able to withdraw the total amount of
P575,504.00, which once in their possession, with intent defraud, they thereafter wilfully, unlawfully and
feloniously misappropriated, misapplied and converted to their own personal use and benefit, to the
damage and prejudice of said Home Savings Bank in the said amount of P575,504.00, Philippine
Currency.
Contrary to law.
On October 15, 1979, the prosecution moved for the dismissal of the case, insofar as accused Lino Morfe y Gutierrez is
concerned, on the ground that after a reinvestigation, it was found that the evidence against him is not sufficient to sustain
the allegations contained in the information (p. 54, Records). On October 31, 1979, the trial court granted the motion (p. 6
Records).
Upon being arraigned, the remaining three (3) accused entered the plea of not guilty to the crime charged. After trial on
the merits, the trial court rendered its decision on January 11, 1990, the dispositive portion of which reads, as follows (p.
26,Rollo):
WHEREFORE, judgment is rendered: (1) pronouncing accused DICK ONG y CHAN guilty beyond
reasonable doubt, as principal, of ESTAFA defined under No. 2 (d) of Article 315 of the Revised Penal
Code, as amended by Republic Act 4885, and penalized under the lst paragraph of the same Code as
amended by Presidential Decree No. 818, and sentencing said accused to RECLUSION PERPETUA; (2)
ACQUITTING accused Lucila Talabis and Ricardo Villaran, their guilt of (sic) the felony charged against
them not having been established beyond reasonable doubt; (3) ordering accused Dick Ong to pay the
Home Saving Bank and Trust Company the sum of P559,381.34 as partial reparation of the damage
caused to said Bank; (4) ordering forfeited in favor of the Home Savings Bank and Trust Company the
sum of P16,122.66 the positive balance remaining outstanding in Savings Account No. 6-1981 of accused
Dick Ong with, and in the possession of, said Bank to complete the reparation of the damage caused by
Dick Ong to the Bank; (5) ordering accused Dick Ong to pay one-third (1/3) of the costs; and (6) ordering
two-thirds (2/3) of the costs charged de oficio.
SO ORDERED.

On February 15, 1990, the accused-appellant filed a motion for reconsideration. On March 22, 1990, he filed a
supplemental memorandum in support of the motion for reconsideration. On April 3, 1990, said motion was denied for lack
of merit (pp. 575-576, Records). Hence, the present appeal by Dick Ong y Chan.
The facts of this case were summarized by the trial court, as follows (pp. 18-20, Rollo):
Accused Dick Ong was one of the depositors of the Home Savings Bank and Trust Company in its Aurea
Annex Branch at Rizal Avenue, Sta. Cruz, Manila, hereafter, to be referred to as the Bank. He opened his
savings account on December 6, 1978, under the Bank's Saving Account No. 6-1981, with an initial
deposit of P22.14 in cash and P10,000.00 in (a) check.
On the same date, December 6, 1978, without his check undergoing the usual and reglamentary (sic)
clearance, which normally takes about five working days, Dick Ong was allowed to withdraw from his
savings account with the Bank the sum of P5,000.00. The corresponding withdrawal slip was signed and
approved by Lino Morfe, then the Branch Manager, and accused Lucila Talabis, the Branch Cashier.
That initial transaction was followed by other similar transactions where Dick Ong, upon depositing
checks in his savings account with the Bank, was allowed to withdraw against those uncleared checks
and uncollected deposits. The withdrawals were authorized and approved by accused Ricardo Villaran
and Lucila Talabis, sometimes jointly, sometimes by aither (aic) of them alone, and at other times by one
of them together with another official of the Bank. But all of those uncleared checks deposited by Dick
Ong prior to January 3, 1979 and against which he was allowed to withdraw were subsequently honored
and paid by the drawee banks. (TSN, Mar. 9, 1981, pp. 101-104; TSN, Mar. 18, 1981, pp. 144 -146.)
On January 30, 1979, Dick Ong issued and deposited in his savings account with the Bank the following
checks:
Drawee
Bank

Check
No.

Payee

Amount

1.
Metropolitan
Bank
&
Trust Co.

82508

Cash

P49,500.00

2. Equitable
Bank

27624961

Cash

14,569.00

3.
Phil.
Bank
of
Comm.

T1907265

Cash

59,600.00

4.
Phil.
Bank
of
Comm.

T1907249

Cash

67,400.00

TOTAL

P191,06900

Afterwards but before these checks could be cleared and the Bank could collect their amounts from the
drawee banks, Lucila Talabis allowed and approved the withdrawal of Dick Ong against the amounts of
said checks. (TSN, Mar. 18, 1981, pp. 47-48.)
On the following day, January 31, 1979, Dick Ong also issued and deposited in his savings account with
the Bank the following check;
Drawee Bank

Check No.

Payee

Amount

1.

QC08617A

Cash

P69,850.00

China

Banking
Corporation
2.
Pacific
Banking
Corporation

PCB238056
S

Cash

60,890.00

3.
Producers
Bank of the Phil.

C987955

Cash

49,090.00

4.
Equitable
Banking

27624963

Cash

14,965.00

5. Phil. Bank of
Communication
s

1915852

Cash

63,9000.009

6. Phil. Bank of
Communication
s

1915855

Cash

59,860.00

7. Phil. Bank of
Communication
s

1915856

Cash

65,880.00

TOTAL

P384,435.00

Subsequently, but before said seven checks were cleared and the Bank had collected their amounts,
Lucila Talabis and then officer in charge of the Bank Grace Silao allowed and approved the withdrawals of
Dick Ong against the amounts of these seven checks. (TSN, lbid., pp. 47-48.)
However, when the Bank presented those eleven checks issued and deposited by Dick Ong on January
30, 1979 and January 3l, 1979 and against which he made withdrawals against (sic) their amounts, to
their respective drawee banks for payment, they were all dishonored for lack or insufficiency of funds.
(TSN, Jan. 7, 1981, pp. 90-101; TSN, May 8, 1981, pp. 74-75.)
The accused-appellant neither took the witness stand to testify in his behalf, nor presented any witness to testify in his
favor. Instead, he offered the following documents (p. 20, Rollo):
1. Exhibit 1 Ong. The letter dated June 27, 1980 of the Central Bank Governor to all banks
authorized to accept demand deposits, enjoining strict compliance with Monetary Board Resolution No.
2202 dated December 21, 1979, prohibiting, as a matter of policy, drawing against uncollected deposits
effective July 1, 1980.
2. Exhibit 2 Ong. The Memorandum of the Central Bank Governor dated July 9, 1980, to all banks
for their guidance, that Monetary Board Resolution No. 2202 dated December 21, 1979, prohibiting, as a
matter of policy, drawing against uncollected deposits effective July 1, 1980, covers drawing against
demand deposits as well as withdrawals from savings deposits.
3. Exhibits 3 Ong. and 3-a. Clippings from the Bulletin Today issue on July 25, 1980 regarding on
(sic) ban on DAUD (drawn against uncollected deposits) effective July 1, 1980, and the one-day loan
which replaced the DAUD arrangement.
4. Exhibit 4 Ong. The sworn statement of Lino Morfe before the METROCOM taken on February 11,
1979.
5. Exhibit 5 Ong. The letter dated July 6, 1979, of Lino Morfe to the Assistant Fiscal of Manila,
transmitting his (Morfe's) affidavit.
6. Exhibits 5-a Ong to 5-a-3-Ong. Affidavit of Lino Morfe sworn on June 28, 1979.

7. Exhibit 5-b Ong. The Bank's Memorandum dated January 31, 1979, to all Branch
Manager/Extension Office O.I.C. (sic) requiring them to furnish the Head Office of the Bank every Monday
and Thursday with a list of all "drawn against" and "encashment" acommodations (sic) of P1,000.00 and
above granted by the Branch during the week.
8. Exhibit 6 Ong. The sworn statement of accused Dick Ong.
On the other hand, accused Lucila Talabis admitted that she approved the withdrawals of the accused-appellant against
uncleared checks. However, she explained that her approval thereof was in accordance with the instruction of then bank
manager Lino Morfe; that this accommodation given or extended to the accused-appellant had been going on even before
she started giving the same accommodation; that this was common practice in the bank; that she approved those
withdrawals together with one other bank official, namely, either the bank manager, the bank accountant, the other bank
cashier, or the bank assistant cashier; and that they reported those withdrawals against, and the dishonor of, the subject
checks always sending copies of their reports to the head office.
Accused Ricardo Villaran testified on his behalf that the accused-appellant was able to withdraw against his uncleared
checks because of the accommodations extended to him by bank officials Lino Morfe, co-accused Lucila Talabis, Grace
Silao, Precy Salamat, and Cora Gascon; that this practice of drawing against uncollected deposits was a common
practice in branches of the Bank; that on December 14, 1978, the accused-appellant withdrew the sum of P75,000.00
against his uncleared checks; that on December 21, 1978, the accused-appellant deposited several checks in the total
amount of P197,000.00 and withdrew on the same date the sum of P120,000.00; that on January 23, 1979, the accusedappellant again deposited several checks in the aggregate sum of P260,000.00 and withdrew also on the same date, the
amount of P28,000.00; and that he (Villaran) approved these three withdrawals of the accused-appellant against his
uncollected deposits.
In this appeal, the accused-appellant assigns the following errors committed by the trial court:
1) it concluded that the withdrawals against the amounts of the subject checks before clearance and collection of the
corresponding amounts thereof by the depository bank from the drawee banks is deceit or fraud constituting estafa under
Article 315, paragraph 2(d) of the Revised Penal Code, in the total absence of evidence showing criminal intent to defraud
the depository bank; and not a case which is civil in nature governed solely by the Negotiable Instruments Law;
2) it stated that he issued and deposited the subject checks when he is not the issuer, maker, nor drawer thereof but
merely an indorser; hence, his liability, if any, is that of a general indorser under the Negotiable Instruments Law;
3) it convicted him on mere presumption, without any evidence that he had prior knowledge of the lack or insufficiency of
funds in the drawee banks to cover the amounts of the subject checks; and
4) it failed to consider that a general indorser under the Negotiable Instruments Law warrants payment of the value of the
checks indorsed by him; no damage could have been suffered by the depository bank because he had offered payment
thereof.
To support the aforementioned assignment of errors, the accused-appellant alleges that based on the testimonies of coaccused Lucila Talabis and Ricardo Villaran, he did not employ any deceit or fraud on the Bank because the practice of
deposit and withdrawal against uncleared checks and uncollected deposits was tolerated by it. As soon as he learned of
the dishonor of the subject checks, he offered to pay the amounts thereof (see pp. 48-49, tsn of Felix Hocson, May 8,
1981) and put up as security his property. The subject checks were not in payment of an obligation but were deposited in
his savings account. He was merely a general indorser of the subject checks and this being the case, his obligations as
such, if any, should be governed by Section 66 of the Negotiable Instruments Law. * The subject checks were issued or
drawn by his customers and paid to him. He could not have had any knowledge as to the sufficiency of their funds in the
drawee banks.
The Office of the Solicitor General disputes the allegations of the accused-appellant. According to it, by reason of the
accused-appellant's antecedent acts of issuing and depositing check and withdrawing the amounts thereof before clearing
by the drawee banks, which checks were later honored and paid by drawee banks, he was able to gain the trust and
confidence the Bank, such that the practice, albeit contrary to sound banking policy, was tolerated by the Bank. After thus
having gained the trust and confidence of the Bank, the accused-appellant issued and deposited the subject checks, the
amounts of which he later withdrew, fully aware that he had no sufficient funds to cover the amounts of said checks in the
drawee banks. Contrary to the accused-appellant's allegation, the trial court found that he issued and deposited the
subject checks in his savings account. As drawer of the subject checks, the accused-appellant had the obligation to

maintain funds in his current account in the drawee banks sufficient to cover the amounts thereof or, in case of dishonor,
to deposit within three (3) days from receipt notice of dishonor, the amounts necessary to cover the check. The testimony
of Felix Hocson, Senior Vice President and Treasurer of the Bank, apart from being hearsay, does not prove that the
accused-appellant made an offer to pay the amounts covered by the subject checks. Even assuming arguendo that
accused-appellant made an offer to pay the amounts covered by the subject checks, said offer is not sufficient to rebut
the prima facie evidence of deceit. There is no showing that the accused-appellant deposited the amounts necessary to
cover the subject checks within three (3) days from receipt of notice from Bank and/or the payee or holder that said
checks have been dishonored. The damage suffered by the Bank consists in its inability to make use of the P575,504.00 it
had delivered to the accused-appellant.
We are convinced that the accused-appellant is innocent of the crime charged against him.
Article 315, paragraph 2(d) of the Revised Penal Code, as amended by Republic Act No. 4885, provides:
Art. 315. Swindling (estafa) Any person who shall defraud another by any of the means mentioned
hereinbelow shall be punished by:
..., provided that in the four cases mentioned, the fraud be committed by any of the
following means:
xxx xxx xxx
2. By means of any of the following false pretenses or fraudulent acts executed prior to or
simultaneously with the commission of the fraud:
xxx xxx xxx
(d) By post-dating a check, or issuing a check in payment of an obligation when the
offender had no funds in the bank, or his funds deposited therein were not sufficient to
cover the amount of the check. The failure of the drawer of the check to deposit the
amount necessary to cover his check within three (3) days from receipt of notice from the
bank and/or the payee or holder that said check has been dishonored for lack or
insufficiency of funds shall be prima facie evidence of deceit constituting false pretense or
fraudulent act.
The following are the elements of this kind of estafa: (1) postdating or issuance of a check in payment of an obligation
contracted at the time the check was issued; (2) lack or insufficiency of funds to cover the check; and (3) damage to the
payee thereof (People v. Tugbang, et al;, G.R. No. 76212, April 26, 1991; Sales v. Court of Appeals, et al., G.R. No. L47817, August 29, 1988, 164 SCRA 717; People v. Sabio, Sr., etc., et al., G.R. No. L-45490, November 20, 1978, 86
SCRA 568). Based thereon, the trial court concluded that the guilt of the accused-appellant has "been duly established by
the required quantum of evidence adduced by the People against (him)" (p. 22, Rollo). We shall confine Our discussion
only on the first element because there is no argument that the second and third elements are present in this case. For an
orderly discussion of this element, We will divide it into two (2) parts: first, "postdating or issuance of a check," and
second, "in payment of an obligation contracted at the time the check was issued."
Inasmuch as the first part of the first element of Article 315 paragraph 2(d) of the Revised Penal Code is concerned with
the act of "postdating or issuance of a check," the accused-appellant raises the defense that he was neither the issuer nor
drawer of the subject checks, but only an indorser thereof. Thus, his liability, if any, should be governed by the provision of
the Negotiable Instruments Law, particularly Section 66 thereof, supra. Also, he could not have had any knowledge as to
the sufficiency of the drawers' funds in their respective banks. The Office of the Solicitor General contend's that the trial
court found as a fact that the accused-appellant issued the subject checks.
The contention of the Office of the Solicitor General is accurate only in part. In the trial court's disquisition on the liability of
the accused-appellant, it said (p. 22, Rollo):
There is no question that on January 30, 1979, accused Dick Ong issued or used and indorsed, and
deposited in his Savings Account No. 6-1981 with the Bank the four checks ... .

There is likewise no dispute that on the following date, January 31, 1979, Dick Ong issued or used and
indorsed,and deposited in his savings account with the Bank seven checks ... . (emphasis supplied)
On this subject matter, Fernando Esguerra, Intemal Auditor of the Bank and a witness for the prosecution, testified that
(pp. 101-103, tsn, January 7, 1981):
Court
Q: You mentioned these checks, Mr. Witness. Did you or anybody for that matter ever
verify the actual depositors of these checks whether it is Mr. Dick Ong himself.?
A: Yes, Your Honor. Our Vice-President for Bank Operations verified said checks and
found out that one of or rather, two of those checks are in the account of Mr. Dick Ong
but the other checks are not in his account.
Court
Q: In other words, there are checks where the depositor himself was also Mr. Dick Ong?
A: Could I go over the checks, Your Honor.
Q: Is it indicated there?
A: Yes, Your Honor, it.is.
Q: All right, go over the checks.
A: There is one check, Your Honor. It is a China Banking Corporation check in the
amount of P69,850.00 (Witness referring to Exhibit "Z").
Q: Now, why do you say that the current checking account or current account was
opened by Mr. Dick Ong himself.
A: Because he is the drawer of the check, Your Honor.(emphasis supplied)
Thus, the fact established by the prosecution and adopted by the trial court is that the subject checks were either issued
or indorsed by the accused-appellant.
In the case of People v. Isleta, et al., 61 Phil. 332, which was recently reiterated in the case of Zagado v. Court of Appeals,
G.R. No. 76612, September 29, 1989, 178 SCRA 146, We declared the accused-appellant, who only negotiated the check
drawn by another, guilty of estafa. This case of People v. Isleta, et al. was relied upon by the trial court in its order dated
April 3, 1990, which denied the accused-appellant's motion for reconsideration based on the same defense. The trial court
erred in doing so. It must have overlooked the ratio decidendi of the aforementioned case. We held the accused-appellant
therein guilty of estafa because he "had guilty knowledge of the fact that (the drawer) had no funds in the bank when he
negotiated the (subject) check" (at p. 334). In the present case, the prosecution failed to prove that the accused-appellant
had such knowledge with respect to the subject checks that he indorsed. In applying Our decisions, it is not enough that
courts take into account only the facts and the dispositive portions thereof. It is imperative that the rationale of these
decisions be read and comprehended thoroughly.
It goes without saying that with respect to the subject checks wherein the accused-appellant was the issuer/drawer, the
first part of the first element of Article 315, paragraph 2(d) of the Revised Penal Code is applicable. However, this
statement will lose its significance in Our next discussion.
Regarding the second part of the first element of Article 315, paragraph 2(d) of the Revised Penal Code, the accusedappellant alleges that when he deposited the subject checks in his savings account, it was clearly not in payment of an
obligation to the Bank. The Office of the Solicitor General misses this point of the accused-appenant.

This single argument of the accused-appellant spells tilting the scale to his advantage. In several cases, We were
categorical that bank deposits are in the nature of irregular deposits. They are really loans because they earn interest. All
kinds of bank deposits, whether fixed, savings, or current are to be treated loans and are to be covered by the law on
loans. Current and savings deposits are loans to a bank because it can use the same (Serrano v. Central Bank of the
Philippines, et al., G.R. No. 30511, February 14, 1980, 96 SCRA 96; Gullas v. Philippine National Bank, 62 Phil. 519;
Central Bank of the Philippines v Morfe, etc., et al., G.R. No. L-38427, March 12, 1975, 63 SC 114; Guingona, Jr., et al. v.
The City Fiscal of Manila, et al. G.R. No. 60033, April 4, 1984, 128 SCRA 577).
The elements of estafa in general are: (1) that the accused defrauded another (a) by abuse of confidence, or (b) by
means of deceit; and (2) that damage or prejudice capable of pecuniary estimation is caused to the offended party or third
person. Aside from the elements that We have discussed earlier, in the crime of estafa by postdating or issuing a bad
check, deceit and damage are essential elements of the offense and have to be established with satisfactory proof to
warrant conviction (U.S v. Rivera, 23 Phil. 383; People, et al. v. Grospe, etc., et al., G.R No. 74053-54, January 20,
1988,157 SCRA 154; Buaya v. Polo etc., et al., G.R. No. 75079, January 26, 1989, 169 SCRA 471).
In this connection, the Office of the Solicitor General advances the view that by reason of the accused-appellant's
antecedent acts of issuing and depositing checks, and withdrawing the amounts thereof before clearing by the drawee
banks, which checks were later honored and paid by the drawee banks, he was able to gain the trust and confidence of
the Bank, such that the practice, albeit contrary to sound banking policy, was tolerated by the Bank. After thus having
gained the trust and confidence of the Bank, he issued and deposited the subject checks, the amounts of which he later
withdrew, fully aware that he had no sufficient funds to cover the amounts of said checks in the drawee banks.
This view is not supported by the facts of this case. Rather, the evidence for the prosecution proved that the Bank on its
own accorded him a drawn against uncollected deposit (DAUD) privilege without need of any pretensions on his part (pp.
7-8,supra). Moreover, this privilege was not only for the subject checks, but for other past transactions. Fernando
Esguerra and Felix Hocson even testified that in some instances prior to July 1, 1980, especially where the depositor is an
important client, the Bank relaxed its rule and internal policy against uncleared checks and uncollected deposits, and
allowed such depositor to withdraw against his uncleared checks and uncollected deposits. Admittedly, the accusedappellant was one of the important depositors of the Bank (pp. 24-25, Rollo). Granting, in gratia argumenti, that he had in
fact acted fraudulently, he could not have done so without the active cooperation of the Banks employees. Therefore,
since Lucila Talabis and Ricardo Villaran were declared innocent of the crimes charged against them, the same should be
said for the accused-appellant (see People v. Jalandoni, G.R. No. 57555, May 30, 1983, 122 SCRA 588). True it is that
the Bank suffered damage in the amount of P575,504.00 but the accused-appellant's liability thereon is only civil.
One additional statement made by the trial court in its decision requires correction. It said that "[t]he circumstances that
the drawer of a check had insufficient or no funds in the drawee bank to cover the amount of his check at the time of its
issuance and he did not inform the payee or holder of such fact, are sufficient to make him liable for estafa" (p. 23, Rollo).
This statement is no longer controlling. We have clarified in the case of People v. Sabio, Sr., etc., et al., supra, that
Republic Act No. 4885 has eliminated the requirement under the old provision for the drawer to inform the payee that he
had no funds in the bank or the funds deposited by him were not sufficient to cover the amount of the check.
We, therefore, find that the guilt of the accused-appellant for the crime of estafa under Article 315, paragraph 2(d) of the
Revised Penal Code has not been proven beyond reasonable doubt. However, We find him civilly liable to the bank in the
amount of P575,504.00, less the balance remaining in his savings account with it (p. 26, Rollo), with legal interest from the
date of the filing of this case until full payment.
ACCORDINGLY, the decision and order appealed from are hereby SET ASIDE. The accused-appellant is ACQUITTED of
the crime charged against him but ordered to pay the aforementioned amount. No costs.
SO ORDERED.

G.R. No. 133179

March 27, 2008

ALLIED
BANKING
CORPORATION, Petitioner,
vs.
LIM SIO WAN, METROPOLITAN BANK AND TRUST CO., and PRODUCERS BANK, Respondents.
DECISION
VELASCO, JR., J.:
To ingratiate themselves to their valued depositors, some banks at times bend over backwards that they unwittingly
expose themselves to great risks.
The Case
This Petition for Review on Certiorari under Rule 45 seeks to reverse the Court of Appeals (CAs) Decision promulgated
on March 18, 19981 in CA-G.R. CV No. 46290 entitled Lim Sio Wan v. Allied Banking Corporation, et al. The CA Decision
modified the Decision dated November 15, 1993 2 of the Regional Trial Court (RTC), Branch 63 in Makati City rendered in
Civil Case No. 6757.
The Facts
The facts as found by the RTC and affirmed by the CA are as follows:
On November 14, 1983, respondent Lim Sio Wan deposited with petitioner Allied Banking Corporation (Allied) at its
Quintin Paredes Branch in Manila a money market placement of PhP 1,152,597.35 for a term of 31 days to mature on
December 15, 1983,3 as evidenced by Provisional Receipt No. 1356 dated November 14, 1983. 4
On December 5, 1983, a person claiming to be Lim Sio Wan called up Cristina So, an officer of Allied, and instructed the
latter to pre-terminate Lim Sio Wans money market placement, to issue a managers check representing the proceeds of
the placement, and to give the check to one Deborah Dee Santos who would pick up the check. 5 Lim Sio Wan described
the appearance of Santos so that So could easily identify her.6
Later, Santos arrived at the bank and signed the application form for a managers check to be issued. 7 The bank issued
Managers Check No. 035669 for PhP 1,158,648.49, representing the proceeds of Lim Sio Wans money market
placement in the name of Lim Sio Wan, as payee. 8 The check was cross-checked "For Payees Account Only" and given
to Santos.9
Thereafter, the managers check was deposited in the account of Filipinas Cement Corporation (FCC) at respondent
Metropolitan Bank and Trust Co. (Metrobank),10 with the forged signature of Lim Sio Wan as indorser.11
Earlier, on September 21, 1983, FCC had deposited a money market placement for PhP 2 million with respondent
Producers Bank. Santos was the money market trader assigned to handle FCCs account. 12 Such deposit is evidenced by
Official Receipt No. 31756813 and a Letter dated September 21, 1983 of Santos addressed to Angie Lazo of FCC,
acknowledging receipt of the placement. 14 The placement matured on October 25, 1983 and was rolled-over until
December 5, 1983 as evidenced by a Letter dated October 25, 1983. 15 When the placement matured, FCC demanded the
payment of the proceeds of the placement. 16 On December 5, 1983, the same date that So received the phone call
instructing her to pre-terminate Lim Sio Wans placement, the managers check in the name of Lim Sio Wan was
deposited in the account of FCC, purportedly representing the proceeds of FCCs money market placement with
Producers Bank.17 In other words, the Allied check was deposited with Metrobank in the account of FCC as Producers
Banks payment of its obligation to FCC.
To clear the check and in compliance with the requirements of the Philippine Clearing House Corporation (PCHC) Rules
and Regulations, Metrobank stamped a guaranty on the check, which reads: "All prior endorsements and/or lack of
endorsement guaranteed."18

The check was sent to Allied through the PCHC. Upon the presentment of the check, Allied funded the check even without
checking the authenticity of Lim Sio Wans purported indorsement. Thus, the amount on the face of the check was
credited to the account of FCC.19
On December 9, 1983, Lim Sio Wan deposited with Allied a second money market placement to mature on January 9,
1984.20
On December 14, 1983, upon the maturity date of the first money market placement, Lim Sio Wan went to Allied to
withdraw it.21 She was then informed that the placement had been pre-terminated upon her instructions. She denied giving
any instructions and receiving the proceeds thereof. She desisted from further complaints when she was assured by the
banks manager that her money would be recovered. 22
When Lim Sio Wans second placement matured on January 9, 1984, So called Lim Sio Wan to ask for the latters
instructions on the second placement. Lim Sio Wan instructed So to roll-over the placement for another 30 days. 23 On
January 24, 1984, Lim Sio Wan, realizing that the promise that her money would be recovered would not materialize, sent
a demand letter to Allied asking for the payment of the first placement. 24 Allied refused to pay Lim Sio Wan, claiming that
the latter had authorized the pre-termination of the placement and its subsequent release to Santos. 25
Consequently, Lim Sio Wan filed with the RTC a Complaint dated February 13, 1984 26 docketed as Civil Case No. 6757
against Allied to recover the proceeds of her first money market placement. Sometime in February 1984, she withdrew her
second placement from Allied.
Allied filed a third party complaint 27 against Metrobank and Santos. In turn, Metrobank filed a fourth party
complaint28 against FCC. FCC for its part filed a fifth party complaint 29 against Producers Bank. Summonses were duly
served upon all the parties except for Santos, who was no longer connected with Producers Bank. 30
On May 15, 1984, or more than six (6) months after funding the check, Allied informed Metrobank that the signature on
the check was forged.31 Thus, Metrobank withheld the amount represented by the check from FCC. Later on, Metrobank
agreed to release the amount to FCC after the latter executed an Undertaking, promising to indemnify Metrobank in case
it was made to reimburse the amount.32
Lim Sio Wan thereafter filed an amended complaint to include Metrobank as a party-defendant, along with Allied. 33 The
RTC admitted the amended complaint despite the opposition of Metrobank. 34 Consequently, Allieds third party complaint
against Metrobank was converted into a cross-claim and the latters fourth party complaint against FCC was converted
into a third party complaint.35
After trial, the RTC issued its Decision, holding as follows:
WHEREFORE, judgment is hereby rendered as follows:
1. Ordering defendant Allied Banking Corporation to pay plaintiff the amount of P1,158,648.49 plus 12% interest
per annum from March 16, 1984 until fully paid;
2. Ordering defendant Allied Bank to pay plaintiff the amount of P100,000.00 by way of moral damages;
3. Ordering defendant Allied Bank to pay plaintiff the amount of P173,792.20 by way of attorneys fees; and,
4. Ordering defendant Allied Bank to pay the costs of suit.
Defendant Allied Banks cross-claim against defendant Metrobank is DISMISSED.
Likewise defendant Metrobanks third-party complaint as against Filipinas Cement Corporation is DISMISSED.
Filipinas Cement Corporations fourth-party complaint against Producers Bank is also DISMISSED.
SO ORDERED.36
The Decision of the Court of Appeals

Allied appealed to the CA, which in turn issued the assailed Decision on March 18, 1998, modifying the RTC Decision, as
follows:
WHEREFORE, premises considered, the decision appealed from is MODIFIED. Judgment is rendered ordering and
sentencing defendant-appellant Allied Banking Corporation to pay sixty (60%) percent and defendant-appellee
Metropolitan Bank and Trust Company forty (40%) of the amount of P1,158,648.49 plus 12% interest per annum from
March 16, 1984 until fully paid. The moral damages, attorneys fees and costs of suit adjudged shall likewise be paid by
defendant-appellant Allied Banking Corporation and defendant-appellee Metropolitan Bank and Trust Company in the
same proportion of 60-40. Except as thus modified, the decision appealed from is AFFIRMED.
SO ORDERED.37
Hence, Allied filed the instant petition.
The Issues
Allied raises the following issues for our consideration:
The Honorable Court of Appeals erred in holding that Lim Sio Wan did not authorize [Allied] to pre-terminate the initial
placement and to deliver the check to Deborah Santos.
The Honorable Court of Appeals erred in absolving Producers Bank of any liability for the reimbursement of amount
adjudged demandable.
The Honorable Court of Appeals erred in holding [Allied] liable to the extent of 60% of amount adjudged demandable in
clear disregard to the ultimate liability of Metrobank as guarantor of all endorsement on the check, it being the collecting
bank.38
The petition is partly meritorious.
A Question of Fact
Allied questions the finding of both the trial and appellate courts that Allied was not authorized to release the proceeds of
Lim Sio Wans money market placement to Santos. Allied clearly raises a question of fact. When the CA affirms the
findings of fact of the RTC, the factual findings of both courts are binding on this Court. 39
We also agree with the CA when it said that it could not disturb the trial courts findings on the credibility of witness So
inasmuch as it was the trial court that heard the witness and had the opportunity to observe closely her deportment and
manner of testifying. Unless the trial court had plainly overlooked facts of substance or value, which, if considered, might
affect the result of the case,40 we find it best to defer to the trial court on matters pertaining to credibility of witnesses.
Additionally, this Court has held that the matter of negligence is also a factual question. 41 Thus, the finding of the RTC,
affirmed by the CA, that the respective parties were negligent in the exercise of their obligations is also conclusive upon
this Court.
The Liability of the Parties
As to the liability of the parties, we find that Allied is liable to Lim Sio Wan. Fundamental and familiar is the doctrine that
the relationship between a bank and a client is one of debtor-creditor.
Articles 1953 and 1980 of the Civil Code provide:
Art. 1953. A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is
bound to pay to the creditor an equal amount of the same kind and quality.
Art. 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the
provisions concerning simple loan.

Thus, we have ruled in a line of cases that a bank deposit is in the nature of a simple loan or mutuum. 42 More succinctly, in
Citibank, N.A. (Formerly First National City Bank) v. Sabeniano, this Court ruled that a money market placement is a
simple loan or mutuum.43 Further, we defined a money market in Cebu International Finance Corporation v. Court of
Appeals, as follows:
[A] money market is a market dealing in standardized short-term credit instruments (involving large amounts) where
lenders and borrowers do not deal directly with each other but through a middle man or dealer in open market. In a money
market transaction, the investor is a lender who loans his money to a borrower through a middleman or dealer.
In the case at bar, the money market transaction between the petitioner and the private respondent is in the nature of a
loan.44
Lim Sio Wan, as creditor of the bank for her money market placement, is entitled to payment upon her request, or upon
maturity of the placement, or until the bank is released from its obligation as debtor. Until any such event, the obligation of
Allied to Lim Sio Wan remains unextinguished.
Art. 1231 of the Civil Code enumerates the instances when obligations are considered extinguished, thus:
Art. 1231. Obligations are extinguished:
(1) By payment or performance;
(2) By the loss of the thing due;
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor and debtor;
(5) By compensation;
(6) By novation.
Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a resolutory condition, and
prescription, are governed elsewhere in this Code. (Emphasis supplied.)
From the factual findings of the trial and appellate courts that Lim Sio Wan did not authorize the release of her money
market placement to Santos and the bank had been negligent in so doing, there is no question that the obligation of Allied
to pay Lim Sio Wan had not been extinguished. Art. 1240 of the Code states that "payment shall be made to the person in
whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it." As
commented by Arturo Tolentino:
Payment made by the debtor to a wrong party does not extinguish the obligation as to the creditor, if there is no fault or
negligence which can be imputed to the latter. Even when the debtor acted in utmost good faith and by mistake as to the
person of his creditor, or through error induced by the fraud of a third person, the payment to one who is not in fact his
creditor, or authorized to receive such payment, is void, except as provided in Article 1241. Such payment does not
prejudice the creditor, and accrual of interest is not suspended by it. 45 (Emphasis supplied.)
Since there was no effective payment of Lim Sio Wans money market placement, the bank still has an obligation to pay
her at six percent (6%) interest from March 16, 1984 until the payment thereof.
We cannot, however, say outright that Allied is solely liable to Lim Sio Wan.
Allied claims that Metrobank is the proximate cause of the loss of Lim Sio Wans money. It points out that Metrobank
guaranteed all prior indorsements inscribed on the managers check, and without Metrobanks guarantee, the present
controversy would never have occurred. According to Allied:
Failure on the part of the collecting bank to ensure that the proceeds of the check is paid to the proper party is, aside from
being an efficient intervening cause, also the last negligent act, x x x contributory to the injury caused in the present case,

which thereby leads to the conclusion that it is the collecting bank, Metrobank that is the proximate cause of the alleged
loss of the plaintiff in the instant case.46
We are not persuaded.
Proximate cause 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." 47 Thus, there is an efficient supervening event
if the event breaks the sequence leading from the cause to the ultimate result. To determine the proximate cause of a
controversy, the question that needs to be asked is: If the event did not happen, would the injury have resulted? If the
answer is NO, then the event is the proximate cause.
In the instant case, Allied avers that even if it had not issued the check payment, the money represented by the check
would still be lost because of Metrobanks negligence in indorsing the check without verifying the genuineness of the
indorsement thereon.
Section 66 in relation to Sec. 65 of the Negotiable Instruments Law provides:
Section 66. Liability of general indorser.Every indorser who indorses without qualification, warrants to all subsequent
holders in due course;
a) The matters and things mentioned in subdivisions (a), (b) and (c) of the next preceding section; and
b) That the instrument is at the time of his indorsement valid and subsisting;
And in addition, he engages that on due presentment, it shall be accepted or paid, or both, as the case may be according
to its tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount
thereof to the holder, or to any subsequent indorser who may be compelled to pay it.
Section 65. Warranty where negotiation by delivery, so forth.Every person negotiating an instrument by delivery or by a
qualified indorsement, warrants:
a) That the instrument is genuine and in all respects what it purports to be;
b) That he has a good title of it;
c) That all prior parties had capacity to contract;
d) That he has no knowledge of any fact which would impair the validity of the instrument or render it valueless.
But when the negotiation is by delivery only, the warranty extends in favor of no holder other than the immediate
transferee.
The provisions of subdivision (c) of this section do not apply to persons negotiating public or corporation securities, other
than bills and notes. (Emphasis supplied.)
The warranty "that the instrument is genuine and in all respects what it purports to be" covers all the defects in the
instrument affecting the validity thereof, including a forged indorsement. Thus, the last indorser will be liable for the
amount indicated in the negotiable instrument even if a previous indorsement was forged. We held in a line of cases that
"a collecting bank which indorses a check bearing a forged indorsement and presents it to the drawee bank guarantees all
prior indorsements, including the forged indorsement itself, and ultimately should be held liable therefor." 48
However, this general rule is subject to exceptions. One such exception is when the issuance of the check itself was
attended with negligence. Thus, in the cases cited above where the collecting bank is generally held liable, in two of the
cases where the checks were negligently issued, this Court held the institution issuing the check just as liable as or more
liable than the collecting bank.
In isolated cases where the checks were deposited in an account other than that of the payees on the strength of forged
indorsements, we held the collecting bank solely liable for the whole amount of the checks involved for having indorsed

the same. In Republic Bank v. Ebrada, 49 the check was properly issued by the Bureau of Treasury. While in Banco de Oro
Savings and Mortgage Bank (Banco de Oro) v. Equitable Banking Corporation, 50 Banco de Oro admittedly issued the
checks in the name of the correct payees. And in Traders Royal Bank v. Radio Philippines Network, Inc., 51 the checks
were issued at the request of Radio Philippines Network, Inc. from Traders Royal Bank.1avvphi1
However, in Bank of the Philippine Islands v. Court of Appeals, we said that the drawee bank is liable for 60% of the
amount on the face of the negotiable instrument and the collecting bank is liable for 40%. We also noted the relative
negligence exhibited by two banks, to wit:
Both banks were negligent in the selection and supervision of their employees resulting in the encashment of the forged
checks by an impostor. Both banks were not able to overcome the presumption of negligence in the selection and
supervision of their employees. It was the gross negligence of the employees of both banks which resulted in the fraud
and the subsequent loss. While it is true that petitioner BPIs negligence may have been the proximate cause of the loss,
respondent CBCs negligence contributed equally to the success of the impostor in encashing the proceeds of the forged
checks. Under these circumstances, we apply Article 2179 of the Civil Code to the effect that while respondent CBC may
recover its losses, such losses are subject to mitigation by the courts. (See Phoenix Construction Inc. v. Intermediate
Appellate Courts, 148 SCRA 353 [1987]).
Considering the comparative negligence of the two (2) banks, we rule that the demands of substantial justice are satisfied
by allocating the loss of P2,413,215.16 and the costs of the arbitration proceeding in the amount of P7,250.00 and the
cost of litigation on a 60-40 ratio.52
Similarly, we ruled in Associated Bank v. Court of Appeals that the issuing institution and the collecting bank should
equally share the liability for the loss of amount represented by the checks concerned due to the negligence of both
parties:
The Court finds as reasonable, the proportionate sharing of fifty percent-fifty percent (50%-50%). Due to the negligence of
the Province of Tarlac in releasing the checks to an unauthorized person (Fausto Pangilinan), in allowing the retired
hospital cashier to receive the checks for the payee hospital for a period close to three years and in not properly
ascertaining why the retired hospital cashier was collecting checks for the payee hospital in addition to the hospitals real
cashier, respondent Province contributed to the loss amounting to P203,300.00 and shall be liable to the PNB for fifty
(50%) percent thereof. In effect, the Province of Tarlac can only recover fifty percent (50%) of P203,300.00 from PNB.
The collecting bank, Associated Bank, shall be liable to PNB for fifty (50%) percent of P203,300.00. It is liable on its
warranties as indorser of the checks which were deposited by Fausto Pangilinan, having guaranteed the genuineness of
all prior indorsements, including that of the chief of the payee hospital, Dr. Adena Canlas. Associated Bank was also
remiss in its duty to ascertain the genuineness of the payees indorsement. 53
A reading of the facts of the two immediately preceding cases would reveal that the reason why the bank or institution
which issued the check was held partially liable for the amount of the check was because of the negligence of these
parties which resulted in the issuance of the checks.
In the instant case, the trial court correctly found Allied negligent in issuing the managers check and in transmitting it to
Santos without even a written authorization. 54 In fact, Allied did not even ask for the certificate evidencing the money
market placement or call up Lim Sio Wan at her residence or office to confirm her instructions. Both actions could have
prevented the whole fraudulent transaction from unfolding. Allieds negligence must be considered as the proximate cause
of the resulting loss.
To reiterate, had Allied exercised the diligence due from a financial institution, the check would not have been issued and
no loss of funds would have resulted. In fact, there would have been no issuance of indorsement had there been no check
in the first place.
The liability of Allied, however, is concurrent with that of Metrobank as the last indorser of the check. When Metrobank
indorsed the check in compliance with the PCHC Rules and Regulations 55 without verifying the authenticity of Lim Sio
Wans indorsement and when it accepted the check despite the fact that it was cross-checked payable to payees account
only,56 its negligent and cavalier indorsement contributed to the easier release of Lim Sio Wans money and perpetuation
of the fraud. Given the relative participation of Allied and Metrobank to the instant case, both banks cannot be adjudged
as equally liable. Hence, the 60:40 ratio of the liabilities of Allied and Metrobank, as ruled by the CA, must be upheld.

FCC, having no participation in the negotiation of the check and in the forgery of Lim Sio Wans indorsement, can raise
the real defense of forgery as against both banks.57
As to Producers Bank, Allied Banks argument that Producers Bank must be held liable as employer of Santos under Art.
2180 of the Civil Code is erroneous. Art. 2180 pertains to the vicarious liability of an employer for quasi-delicts that an
employee has committed. Such provision of law does not apply to civil liability arising from delict.
One also cannot apply the principle of subsidiary liability in Art. 103 of the Revised Penal Code in the instant case. Such
liability on the part of the employer for the civil aspect of the criminal act of the employee is based on the conviction of the
employee for a crime. Here, there has been no conviction for any crime.
As to the claim that there was unjust enrichment on the part of Producers Bank, the same is correct. Allied correctly claims
in its petition that Producers Bank should reimburse Allied for whatever judgment that may be rendered against it pursuant
to Art. 22 of the Civil Code, which provides: "Every person who through an act of performance by another, or any other
means, acquires or comes into possession of something at the expense of the latter without just cause or legal ground,
shall return the same to him."1avvphi1
The above provision of law was clarified in Reyes v. Lim, where we ruled that "[t]here is unjust enrichment when a person
unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the
fundamental principles of justice, equity and good conscience." 58
In Tamio v. Ticson, we further clarified the principle of unjust enrichment, thus: "Under Article 22 of the Civil Code, there is
unjust enrichment when (1) a person is unjustly benefited, and (2) such benefit is derived at the expense of or with
damages to another."59
In the instant case, Lim Sio Wans money market placement in Allied Bank was pre-terminated and withdrawn without her
consent. Moreover, the proceeds of the placement were deposited in Producers Banks account in Metrobank without any
justification. In other words, there is no reason that the proceeds of Lim Sio Wans placement should be deposited in
FCCs account purportedly as payment for FCCs money market placement and interest in Producers Bank.lavvphil With
such payment, Producers Banks indebtedness to FCC was extinguished, thereby benefitting the former. Clearly,
Producers Bank was unjustly enriched at the expense of Lim Sio Wan. Based on the facts and circumstances of the case,
Producers Bank should reimburse Allied and Metrobank for the amounts the two latter banks are ordered to pay Lim Sio
Wan.
It cannot be validly claimed that FCC, and not Producers Bank, should be considered as having been unjustly enriched. It
must be remembered that FCCs money market placement with Producers Bank was already due and demandable; thus,
Producers Banks payment thereof was justified. FCC was entitled to such payment. As earlier stated, the fact that the
indorsement on the check was forged cannot be raised against FCC which was not a part in any stage of the negotiation
of the check. FCC was not unjustly enriched.
From the facts of the instant case, we see that Santos could be the architect of the entire controversy. Unfortunately, since
summons had not been served on Santos, the courts have not acquired jurisdiction over her. 60 We, therefore, cannot
ascribe to her liability in the instant case.
Clearly, Producers Bank must be held liable to Allied and Metrobank for the amount of the check plus 12% interest per
annum, moral damages, attorneys fees, and costs of suit which Allied and Metrobank are adjudged to pay Lim Sio Wan
based on a proportion of 60:40.
WHEREFORE, the petition is PARTLY GRANTED. The March 18, 1998 CA Decision in CA-G.R. CV No. 46290 and the
November 15, 1993 RTC Decision in Civil Case No. 6757 are AFFIRMED with MODIFICATION.
Thus, the CA Decision is AFFIRMED, the fallo of which is reproduced, as follows:
WHEREFORE, premises considered, the decision appealed from is MODIFIED. Judgment is rendered ordering and
sentencing defendant-appellant Allied Banking Corporation to pay sixty (60%) percent and defendant-appellee
Metropolitan Bank and Trust Company forty (40%) of the amount of P1,158,648.49 plus 12% interest per annum from
March 16, 1984 until fully paid. The moral damages, attorneys fees and costs of suit adjudged shall likewise be paid by
defendant-appellant Allied Banking Corporation and defendant-appellee Metropolitan Bank and Trust Company in the
same proportion of 60-40. Except as thus modified, the decision appealed from is AFFIRMED.

SO ORDERED.
Additionally and by way of MODIFICATION, Producers Bank is hereby ordered to pay Allied and Metrobank the
aforementioned amounts. The liabilities of the parties are concurrent and independent of each other.
SO ORDERED.
CITIBANK, N.A.,
Petitioner,

G.R. No. 188412

Present:

CARPIO, J., Chairperson,

NACHURA,
- versus -

PERALTA,
ABAD, and
MENDOZA, JJ.

ATTY. ERNESTO S. DINOPOL,

Respondent.

Promulgated:
November 22, 2010

X ----------------------------------------------------------------------------------------------------- X

DECISION

MENDOZA, J.:

This is a petition for review filed under Rule 45 of the 1997 Revised Rules of Civil Procedure questioning 1] the
December 16, 2008 Decision[1] of the Court of Appeals(CA), in CA-G.R. CV No. 82291, which affirmed the February 20,
2004 Decision of the Regional Trial Court, Branch 226, Quezon City (RTC), ordering petitioner Citibank, N. A. (Citibank) to
pay respondent Atty. Ernesto S. Dinopol (Atty. Dinopol) moral damages and attorneys fees; and 2] its June 19, 2009
Resolution denying petitioners motion for the reconsideration thereof.
Records disclose that sometime in December 1996, Atty. Dinopol availed of Citibanks Ready Credit Checkbooks
advertised offer. After approving his application, Citibank granted Atty. Dinopol a credit line limit of P30,000.00. For said
reason, Atty. Dinopol received from Citibank a check booklet consisting of several checks with a letter stating that the
account was ready to use. Later, Citibank billed Atty. Dinopol the sum of P1,545.00 representing Ready Credit
Documentary Stamp and Annual Membership Fee as reflected in his Statement of Account dated December 26,
1996. Thereafter, Citibank billed him the amount of P1,629.21 for interest and charges as well as late payment charges as
stated in his Statement of Account dated January 26, 1997. Atty. Dinopol paid said interests and charges on February 26,
1997.

On March 6, 1997, Atty. Dinopol issued a check using his credit checkbook account with Citibank in the amount
of P30,000.00 in favor of one Dr. Marietta M. Geonzon(Dr. Geonzon) for investment purposes in her restaurant
business. However, when the check was deposited on March 12, 1997, it was dishonored for the reason, Drawn Against
Insufficient Funds or DAIF. Humiliated by the dishonor and the demand notice he received from Dr. Geonzon, Atty. Dinopol
filed a civil action for damages against Citibank before the RTC. Atty. Dinopol alleged that said bank was grossly negligent
and acted in bad faith in dishonoring his check.
In defense, Citibank averred that it was completely justified in dishonoring Atty. Dinopols check because the
account did not have sufficient funds at the time it was issued.Citibank explained that when said check in the amount
of P30,000.00 was issued, his credit line was already insufficient to accommodate it. His credit limit had been reduced by
the interests and penalty charges imposed as a result of his late payment. Citibank argued that had Atty. Dinopol been
prompt in the payment of his obligations, he would not have incurred interests and penalty charges and his credit line
of P30,000.00 would have been available at the time the check was issued and presented for payment.
On February 20, 2004, the RTC rendered a decision[2] against Citibank, the dispositive portion of which reads:
In view of the foregoing, judgment is hereby rendered in favor of the plaintiff and against the
defendant bank as follows: Defendant Citibank N.A. is hereby ordered to pay the plaintiff Atty. Ernesto
S. Dinopol:
1)
2)
3)

P100,000.00 as and for moral damages;

P50,000.00 as and for attorneys fees; and
Costs of suit.

SO ORDERED.
The RTC reasoned out, among others, that Citibank failed to completely disclose the terms and conditions of its
Citybank Ready Credit Account when Atty. Dinopol applied for it. Only the general provisions of the agreement were
explained to him. The Standard Handbook Guide which would have guided him as to fees, charges and penalties that
could be billed by the bank was never given to him.
Furthermore, the RTC found that Atty. Dinopol was given a go signal by Citibank when he informed the latter that
he was going to issue a check in the amount ofP30,000.00. Citibank failed to advise him that he still had an outstanding
balance of P58.33 as of February 26, 1997. Had he been informed, he could have paid such a small amount and avoided
the dishonor of his check. In fact, when he issued the check on March 6, 1997, no bill had yet been sent to him for the
amount of P58.33 because he had just paid P1,629.00 on February 26, 1997. The billing statement, if any, would still be
due on March 15, 1997. On March 11, 1997, when the check was presented for payment, Citibank could have called his
attention and he could have immediately remitted the amount of P58.00 within the same banking day so that the check
would be honored.
Decision of the Court of Appeals
On December 16, 2008, the CA affirmed the RTC decision with modification. It increased the award of moral damages
from P100,000.00 to P500,000.00 and awarded exemplary damages in the amount of P50,000.00.
In its decision, the CA found that Citibank, as admitted by its witness, Mark Andre P. Hernando (Hernando), displayed
dishonesty in claiming that Atty. Dinopol was provided with the banks Customer Guidebook. No proof to the contrary was
shown by the bank. Instead of exercising good faith by providing a new account holder like Atty. Dinopol with the service
guidebook, Citibank argued that since he was a lawyer, the latter should have already been familiar with the terms and
conditions of his Ready Credit Account.
Moreover, the CA noted that before Atty. Dinopol issued the subject check, he first consulted the bank if he could issue
one. It was only after being given the affirmative response that he issued said check which gave rise to this
controversy. The bank should have given the necessary advice to Atty. Dinopol and thereby avoid the dishonor of the
check for a measly amount of P58.33.
Finally, the CA ruled that Atty. Dinopol was not yet delinquent when he issued the check so as to justify the P58.33
deduction from his P30,000.00 credit line. Based on the documentary evidence, the due date for the February 26, 1997

Statement of Account was March 19, 1997. So, when Atty. Dinopol issued the check on March 6, 1997, the period within
which to settle his account was still running, thus, rendering the P58.33 deduction unjustified.
In modifying the decision, the CA increased the amount of moral damages from P100,000.00 to P500,000.00 for
the following reasons: 1] Atty. Dinopols stature - he was a lawyer of good standing, yet he was abused by Citibank; 2] the
dishonesty displayed by Citibank in claiming that Atty. Dinopol was given a service guidebook despite lack of proof
thereon; 3] the bad faith displayed by Citibank in using a measly amount of P58.33 as basis to justify its dishonor (due to
DAIF) of P30,000.00 worth of check issued by Atty. Dinopol; and 4] the fact that Citibank besmirched Atty. Dinopols
reputation and has considerably caused him undue humiliation.

Hence, this petition.

ISSUE
WHETHER OR NOT THE COURT OF APPEALS WAS CORRECT IN RULING THAT PETITIONER
CITIBANK, N.A. IS LIABLE TO RESPONDENT ATTY. ERNESTO S. DINOPOL FOR DAMAGES.

Position of the Petitioner

Citibank argues that the dishonor of Atty. Dinopols check was valid as it was done in the exercise of its rights and
prerogative under the terms and conditions of his Ready Credit Facility. It insists that it sent a copy of the guidebook to
Atty. Dinopol after his application for the credit facility was approved.

It also points out that upon the approval of Atty. Dinopols Ready Credit Facility, the latter was initially billed with
the amounts of P1,500.00 for the annual fee and P45.00 for the documentary stamp tax. The total amount of P1,545.00
was indicated in his Statement of Account dated December 26, 1996, bearing the due date on or before January 16, 1997.
Atty. Dinopol, however, failed to pay it on or before said date. Thus, interest and late payment charges accrued on his
unpaid account as provided for in the provisions of the guidebook.
Further, Citibank claims that a second statement of account dated January 26, 1997 was sent to Atty. Dinopol
which showed that the aggregate amount of P1,629.21 was due and payable immediately. This amount represents the
unpaid sum of P1,545.00 for the annual fee and documentary stamp tax, P10.00 as penalty charge for the late payment
and P74.21 as accrued interest. Atty. Dinopol paid the amount of P1,629.21 only on February 26, 1997. Thereafter,
Citibank sent him another statement of account acknowledging receipt of his payment and, at the same time, charging
him the additional amount of P58.33 for penalties and other charges. Since the unpaid amount of P58.33 was
automatically billed as an availment against his Ready Credit Facility, his available credit limit at the time of the issuance
of the subject check on March 6, 1997 was already reduced by P58.33. As a result, when the subject check was
negotiated, it had to be returned due to DAIF.
Accordingly, Citibank asserts that the dishonor of the subject check was due to Atty. Dinopols failure to timely
settle his outstanding obligations despite receipt of his statements of account. It cannot, therefore, be faulted because it
was just exercising its legal right under the terms and conditions of the Ready Credit Facility. It did not act fradulently or in
bad faith. No proof was shown that the dishonor of the subject check was carried out in an arbitrary, capricious, and
malicious manner.
Finally, Citibank advances that Atty. Dinopol, as a practising lawyer, is presumed to have carefully considered,
known, and understood the provisions and legal effects of the contracts he entered into.
Position of the Respondent
In answer to Citibanks assertions, Atty. Dinopol counters that the bank failed to prove that a copy of the guidebook
was sent to him. In fact, Citibanks own witness, Hernando, categorically admitted that the bank did not send him the said
guidebook. According to Atty. Dinopol, Citibank should have acted in good faith and in a manner deserving of the trust of
its customers.

He also contends that the dishonor of the check due to the non-payment of the penalty charges and interests
of P58.33 was uncalled for. The payment of said amount was not yet due on March 6, 1997 when the check was issued
and even on March 12, 1997 when it was dishonored. The statement of account would show that the sum of P58.33 was
due only on March 19, 1997. This only shows that his account was not yet delinquent, both at the time when said check
was issued and when it was eventually presented for payment, thereby making the act of the bank of dishonoring the
check wanting of any legal basis.
Lastly, Atty. Dinopol charges Citibank for having acted in bad faith when it dishonered the subject check for a
meager amount of P58.33 and for imposing highly questionable charges against his credit facility account. He believes
that the bank, wilfully or negligently, wronged him and damaged his reputation. Hence, it is liable to pay him damages.
The Courts Ruling

The general rule is that in petitions for review on certiorari, the Court will not re-examine the findings of fact of the
appellate court except (a) when the latters findings are grounded entirely on speculations, surmises or conjectures; (b)
when its inference is manifestly mistaken, absurd or impossible; (c) when there is a grave abuse of discretion; (d) when its
findings of fact are conflicting; and (e) when it goes beyond the issues of the case. [3] Citibank fails to convince the Court
that the case falls under any of the exceptions. Hence, the findings of fact should no longer be reviewed.

At any rate, the Courts agrees with the courts below in concluding that Citibank was liable to Atty. Dinopol for
moral and exemplary damages and attorneys fees.

A perusal of the evidentiary records shows that Citibank was at fault when it dishonored the subject check. First, Citibank
claims that, as a matter of standard operating procedure, it sent to Atty. Dinopol the Citibank Ready Credit Customer
Guidebook upon the approval of his Ready Credit Account application and so, he was aware of the terms and conditions
stated therein. Yet, except for its bare allegation, no other substantial proof was presented by Citibank that the guidebook
was indeed sent to Atty. Dinopol. In fact, its witness, Hernando, admitted that the subject handbook was not at all
delivered to him.

Second, when Atty. Dinopol issued the subject check for the full amount of P30,000.00 and Citibank dishonored it
because of insufficiency of funds by P58.33 representing the amount charged on his credit line for penalties and charges,
the said amount was not yet overdue. The banks Statement of Account dated January 26, 1997[4] showed that he must
pay the total amount of P1,629.21 representing the annual membership fee of P1,500.00, documentary stamp tax
of P45.00, late charges of P10.00 and interest/charges ofP74.21. On February 26, 1997, he immediately paid
the full amount of P1,629.21 as evidenced by his credit card payment slip. [5] The full payment was reflected in his
statement of account[6] dated February 26, 1997. The same statement of account[7] indicated that there were still charges
amounting to P58.33 due for payment on March 19, 1997. To reiterate, the check was issued on March 6, 1997[8] and
dishonored on March 12, 1997,[9] both dates being days before the said due date. Contrary to Citibanks insistence, Atty.
Dinopol was definitely not yet a delinquent account holder. More importantly, Citibank failed to consider the fact that Atty.
Dinopol issued the check on March 6, 1997 after paying the full amount of P1,629.21 and clearing with the bank if he
could issue a check in the amount of P30,000.00. Citibank did not even refute the allegation that it gave Atty. Dinopol the
go-signal to issue such a check.

With respect to damages, the Court is in agreement with the CA in awarding moral and exemplary damages. However, the
Court cannot sanction the modification by the CA, under the circumstances attending the case. It is of the considered view
that the award of the RTC would suffice subject, of course, to the payment of legal interest.

The award of moral damages should be granted in reasonable amounts depending on the facts and circumstances of the
case.[10] Moral damages are meant to compensate the claimant for any physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and similar injuries unjustly caused. [11]

As to the award of exemplary damages, the law allows it by way of example for the public good. The business of banking
is impressed with public interest and great reliance is made on the banks sworn profession of diligence and
meticulousness in giving irreproachable service. [12] Thus, the Court affirms the award as a way of setting an example for
the public good. In addition, it also provided for attorneys fees. Both are subject to legal interest.
In any event, Citibank should have been more cautious in dealing with its clients since its business is imbued with
public interest. Banks must always act in good faith and must win the confidence of clients and people in general. It is
irrelevant whether the client is a lawyer or not.
It cannot be over emphasized that the banking business is impressed with public interest. Of
paramount importance is the trust and confidence of the public in general in the banking industry.
Consequently, the diligence required of banks is more than that of a Roman pater familias or a good
father of a family. The highest degree of diligence is expected.

In its declaration of policy, the General Banking Law of 2000 requires of banks the highest
standards of integrity and performance. Needless to say, a bank is under obligation to treat the accounts
of its depositors with meticulous care. The fiduciary nature of the relationship between the bank and the
depositors must always be of paramount concern.[13]

WHEREFORE, the December 16, 2008 Decision of the Court of Appeals is MODIFIED to read as follows:
In view of the foregoing, judgment is hereby rendered ordering defendant Citibank N.A to pay
plaintiff Atty. Ernesto S. Dinopol the following:
1] P100,000.00 as and for moral damages;
2] P50,000.00 as and for exemplary damages;
3] P50,000.00 as and for attorneys fees; and
4] Costs of suit,
plus interest at the legal rate reckoned from the filing of the complaint.
SO ORDERED.
METROPOLITAN BANK AND
TRUST COMPANY,
Petitioner,

G.R. No. 179105

Present:
CARPIO, J.,
Chairperson,
NACHURA,
PERALTA,
ABAD, and
MENDOZA, JJ.

- versus -

Promulgated:
LARRY MARIAS,
Respondent.

July 26, 2010

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

DECISION
NACHURA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court, seeking to annul and set aside the Court of
Appeals (CA) Decision[1] dated July 31, 2007, affirming with modification the Regional Trial Court (RTC) decision [2] dated
October 14, 2004.
The factual and procedural antecedents are as follows:
Sometime in April 1998, respondent Larry Marias returned to the Philippines from the United States of America. He
opened a personal dollar savings account[3] by depositing US$100,000.00 with petitioner Metropolitan Bank and Trust
Company. On April 13, 1998, respondent obtained a loan from petitioner in the amount of P2,300,000.00, evidenced by
Promissory Note No. 355873.[4] From the initial deposit of US$100,000.00, respondent withdrew [5] US$67,227.95,[6] then
deposited it under Account No. 0-26400171-6 (Foreign Currency Deposit [FCD] No. 505671), [7] which he used as
security[8] for the P2,300,000.00 loan.
Respondent subsequently opened two more foreign currency accounts Account No. 0-26400244-5 (FCD No. 505688)
[9]
and Account No. 0-264-00357-3 (FCD No. 739809) [10] depositing therein US$25,000.00 and US$17,000.00,
respectively. On April 30, 1999, respondent obtained a second loan of P645,150.00,[11] secured[12] by Account No. 0-26400357-3 (FCD No. 739809).
When he inquired about his dollar deposits, respondent discovered that petitioner made deductions against the formers
accounts. On May 31, 1999, respondent, through his counsel, demanded from petitioner a proper and complete
accounting of his dollar deposits, and the restoration of his deposits to their proper amount without the deductions. [13]In
response, petitioner explained that the deductions made from respondents dollar accounts were used to pay the interest
due on the latters loan with the former. These deductions, according to petitioner, were authorized by respondent through
the Deeds of Assignment with Power of Attorney voluntarily executed by respondent. [14]
Unsatisfied, and believing that the deductions were unauthorized, respondent commenced an action for Damages against
petitioner and its Kabihasnan, Paraaque City Branch Manager Expedito Fernandez (Fernandez) before the RTC, Las Pias
City. The case was docketed as Civil Case No. 99-0172 and was raffled to Branch 255. While admitting the existence of
the P2,300,000.00 and P645,150.00 loans, respondent claimed that when he signed the loan documents, they were all in
blank and they were actually filled up by petitioner. Aside from the complete accounting of his dollar accounts and the
restoration of the true amounts of his deposits, respondent sought the payment of P400,000.00 as moral
damages, P100,000.00 as exemplary damages, and P100,000.00 as attorneys fees.[15]
On its part, petitioner insisted that respondent freely and voluntarily signed the loan documents. While admitting the full
payment of respondents P2,300,000.00 and P645,150.00 loans, petitioner claimed that the payments were made using
the formers US$67,227.95, US$25,000.00, and US$17,000.00 time deposits. Accordingly, there was nothing to account
for and restore. By way of counterclaim, petitioner prayed for the payment of P200,000.00 as attorneys
fees, P1,000,000.00 as moral damages, and P500,000.00 as exemplary damages.[16]
As no amicable settlement was reached, trial on the merits ensued.

On October 14, 2004, the RTC rendered a decision in favor of respondent, the dispositive portion of which reads:
WHEREFORE, the foregoing considered, judgment is hereby rendered in favor of plaintiff Larry Mari[]as,
and against the defendants Metropolitan Bank and Trust Company and Expedito Fernandez, ordering the
said defendants to account for the dollar deposits of the plaintiff in the amounts of US$30,000.00 and
US$25,000.00, respectively, and then return the same, including the interests due thereon reckoned from
31 May 1999 until fully paid.
Likewise, the defendants are hereby directed to pay to the herein plaintiff the following amounts, to wit:
1.

P100,000.00 in moral damages;

2.

P50,000.00 in exemplary damages;

3.

P50,000.00 as and by way of attorneys fees; and

4.

Costs of suit.

SO ORDERED.[17]
The RTC sustained the validity and regularity of the loan documents signed by respondent, and consequently the
existence of the P2,300,000.00 and P645,150.00 loans obtained from petitioner. Acknowledging the full payment of both
loans, the trial court found that the payments were made from respondents foreign currency deposits, particularly Account
Numbers 0-26400171-6 (FCD No. 505671) and 0-264-00357-3 (FCD No. 739809), amounting to US$67,227.95 and
US$17,000.00, respectively. There is no doubt that respondent specifically assigned these accounts to secure the
payment of his loans pursuant to the Deeds of Assignment with Power of Attorney. Hence, the deductions made from such
accounts were valid. However, the RTC found that petitioner should account for and eventually return the US$30,000.00
and US$25,000.00 deposits of respondent since they were not assigned to answer for the latters loans, and that any
deductions made from these accounts were, therefore, illegal. Consequently, petitioner was made to answer for damages
suffered by respondent.[18] Being the petitioners Kabihasnan Branch Manager, Fernandez was declared solidarily liable
with petitioner.
On appeal, the CA modified the RTC decision by absolving Fernandez from liability. The appellate court held that
Fernandez could not be made to answer for acts done in the performance of his duty absent any showing that he
assented to patently unlawful acts of the corporation or was guilty of bad faith or gross negligence in directing its affairs, or
that he agreed to hold himself personally and solidarily liable with the corporation. [19] No proof was adduced in this regard.
Hence, the instant petition raising the following issues:
1.

2.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN ORDERING

PETITIONER TO ACCOUNT FOR AND RETURN TO RESPONDENT THE SUMS OF US$30,000.00
AND US$25,000.00.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN HOLDING

PETITIONER LIABLE TO RESPONDENT FOR MORAL AND EXEMPLARY DAMAGES, AS WELL AS
ATTORNEYS FEES AND COSTS OF SUIT.[20]
Petitioner assails the CA Decision affirming the formers culpability for making unlawful deductions from respondents dollar
accounts without the latters consent. Additionally, it questions the award of moral and exemplary damages, as well as
attorneys fees.

We agree with the CAs factual findings as to the deposits and withdrawals made and loans obtained by respondent. We
do not, however, agree with its conclusion that petitioner absolutely lacked the authority to make deductions from
respondents deposits for the payment of his outstanding obligations.
It is apt to stress the well-settled principle that factual findings of the trial court, affirmed by the CA, are binding
and conclusive upon this Court.[21] 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.[22] The Court is not a trier of facts, its jurisdiction being limited to reviewing only errors of law that
may have been committed by the lower courts. [23]It is not the function of the Court to analyze or weigh all over again the
evidence or premises supportive of such factual determination. [24] The law creating the CA was intended mainly to take
away from the Supreme Court the work of examining the evidence, so that it may confine its task to the determination of
questions which do not call for the reading and study of transcripts containing the testimony of witnesses. [25]
In the present case, we find no justification to deviate from the factual findings of the trial court and the appellate
court. Petitioner has utterly failed to convince us that the assailed findings are devoid of basis or are not supported by
substantial evidence.

It is noteworthy that respondent opened four accounts with petitioner: 1) Account No. 2264-00145-0 for US$100,000.00;
2) Account No. 0-26400171-6 (FCD No. 505671) for US$67,227.95; 3) Account No. 0-26400244-5 (FCD No. 505688) for
US$25,000.00; and 4) Account No. 0-264-00357-3 (FCD No. 739809) for US$17,000.00. Admittedly, respondent withdrew
$70,000.00 from Account No. 2264-00145-0, leaving a balance of $30,000.00.
It is likewise undisputed that respondent obtained two separate loans from petitioner in amounts of P2,300,000.00
and P645,150.00. These were evidenced by promissory notes and secured by respondents two dollar accounts
Account Numbers 0-26400171-6 (FCD No. 505671) and 0-264-00357-3 (FCD No. 739809) for US$67,227.95 and
US$17,000.00, respectively. Respondents first loan of P2,300,000.00, obtained on April 13, 1998, was payable on April 8,
1999; while the second loan of P645,150.00, obtained on April 30, 1999, was payable on April 24, 2000. Records show
that the first loan was paid on April 21, 1999, with the payment therefor taken from Account No. 0-26400171-6. The
second loan, on the other hand, was paid on May 10, 1999, out of respondents Account No. 0-264-00357-3. It should be
clarified, though, that these payments referred only to the payment of the principal (P2,300,000.00 and P645,150.00) of
respondents loans, exclusive of interests stipulated in the promissory notes executed by the latter.
Aside from obligating himself to pay P2,300,000.00 as principal, respondent also agreed to pay interest at the rate
of 22.929% per annum (not monthly) from April 13, 1998 until full payment. As respondent made full payment of the
principal on April 21, 1999, respondent was also obliged to pay interest until that date. As to the P645,150.00 loan,
respondent agreed to pay interest at the rate of 16.987% per annum.
Respondent later discovered that his accounts with petitioner were all depleted. Upon inquiry from petitioner, it
explained that pursuant to the Deeds of Assignment with Power of Attorney executed by respondent, it deducted from
respondents accounts the interest due on his loans.
Contrary to the conclusions of the RTC and the CA, we find that petitioner is empowered to make lawful
deductions from respondents accounts for such amounts due it. This is authorized in the Promissory Notes and Deeds of
Assignment with Power of Attorney executed by respondent, to wit:
I/We hereby give the Bank a general lien upon, and/or right of set-off and/or right to hold and/or
apply to the loan account, or any claim of the Bank against any of us, all my/our rights, title and interest in
and to the balance of every deposit account, money, negotiable instruments, commercial papers, notes,
bonds, stocks, dividends, securities, interest, credits, chose in action, claims, demands, funds or any
interest in any thereof, and in any other property, rights and interest of any of us or any evidence thereof,
which have been, or at any time shall be delivered to, or otherwise come into the possession, control or
custody of the Bank or any of its subsidiaries, affiliates, agents or correspondents now or anytime
hereafter, for any purpose, whether or not accepted for the purpose or purposes for which they are
delivered or intended. For this purpose, I/We hereby appoint the Bank as my/our irrevocable Attorney-infact with full power of substitution/delegation to sign or endorse any and all documents and perform any
and all acts and things required or necessary in the premises. [26]
Effective upon default in the payment of CREDIT, or any part thereof, the ASSIGNOR hereby
grants to the ASSIGNEE, full power and authority to collect/withdraw the deposit/proceeds/receivables/
investments/securities and apply the collection/deposit to the payment of the outstanding principal,
interest and other charges on the CREDIT. For this purpose, the ASSIGNOR hereby names, constitutes
and appoints the ASSIGNEE as his/its true and lawful Attorney-in-Fact, with powers of substitution, to ask,
demand, collect, sue for, recover and receive the deposit/proceeds/receivables/investments/securities or
any part thereof, as well as to encash, negotiate and endorse checks, drafts and other commercial
papers/instruments received by and paid to the ASSIGNEE, incident thereto and to execute all
instruments and agreements connected therewith. A written Certification by the ASSIGNEE of the amount
of its claims from the ASSIGNOR and/or the BORROWER shall be conclusive on the ASSIGNOR and/or
the BORROWER absent manifest error.[27]
As provided in Article 1159 of the Civil Code, obligations arising from contract have the force of law between the
contracting parties and should be complied with in good faith. Verily, parties may freely stipulate their duties and
obligations which perforce would be binding on them. Not being repugnant to any legal proscription, the agreement
entered into between petitioner and respondent must be respected and given the force of law between them. [28]
Upon the maturity of the first loan on April 8, 1999, petitioner was authorized to automatically deduct, by way of
offsetting, respondents outstanding debt (including interests) to it from the latters deposit accounts and their accumulated
interest. Respondent did not object to the deduction made from the proceeds of Account No. 0-26400171-6, but would
limit such deduction only to the payment of the principal of P2,300,000.00. However, it should be borne in mind that in
addition to the authority to effect the said deduction for the principal loan amount, petitioner was authorized to make
further deductions for interest payments at the rate of 22.929% per annum until April 21, 1999.

With respect to the second loan, barely a month after the execution of the promissory note and definitely prior to
the maturity date, respondent already paid the principal ofP645,150.00 out of the deposited amount in Account No. 0-26400357-3. Pursuant to the promissory note, respondent agreed to pay interest at the rate of 16.987% per annum.While it is
conceded that petitioner had the right to offset the unpaid interests due it against the deposits of respondent, the issue of
whether it acted judiciously is an entirely different matter.[29] As business affected with public interest, and because of the
nature of their functions, banks are under obligation to treat the accounts of their depositors with meticulous care, always
having in mind the fiduciary nature of their relationship. [30]
Pursuant to the above disquisition, it is clear that despite such authority, petitioner should still account for
whatever excess deductions made on respondents deposits and return to respondent such amounts taken from him. To
be sure, respondent had interest-earning deposits with petitioner in accordance with their agreement. On the other hand,
after respondent paid the principal on April 21, 1999 and May 10, 1999 on the two loans which he obtained from petitioner,
the latter had the authority to make deductions for the payment of interest as stipulated in respondents promissory notes.
When we consider the total amount of respondents deposits in his dollar accounts inclusive of interests earned
vis--vis his total obligations to petitioner, we find that the total depletion of his accounts is not warranted. Hence, we find
no reason to disturb the CA conclusion on the award of damages. As aptly explained in Bank of the PhilippineIslands v.
Court of Appeals:
For the above reasons, the Court finds no reason to disturb the award of damages granted by the
CA against petitioner. This whole incident would have been avoided had petitioner adhered to the
standard of diligence expected of one engaged in the banking business. A depositor has the right to
recover reasonable moral damages even if the banks negligence may not have been attended with
malice and bad faith, if the former suffered mental anguish, serious anxiety, embarrassment and
humiliation. Moral damages are not meant to enrich a complainant at the expense of defendant. It is only
intended to alleviate the moral suffering she has undergone. The award of exemplary damages is
justified, on the other hand, when the acts of the bank are attended by malice, bad faith or gross
negligence. The award of reasonable attorneys fees is proper where exemplary damages are awarded. It
is proper where depositors are compelled to litigate to protect their interest. [31]
WHEREFORE, premises considered, the Court of Appeals Decision dated July 31, 2007 is
hereby AFFIRMED with MODIFICATION. Petitioner is ordered to account for respondents dollar deposits inclusive of
interests, subject to its right to deduct from the said deposits his loan obligations amounting to P2,300,000.00, plus
interest at 22.929%per annum until full payment on April 21, 1999; and P645,150.00, plus interest at 16.987% per
annum until full payment on May 10, 1999. After such accounting, petitioner shall restore to respondent whatever excess
amounts may have been deducted from such deposits, together with the earned interests.
All other aspects of the assailed decision STAND.
SO ORDERED.
BANK OF AMERICA NT & SA,

G.R. No. 150228

Petitioner,

Present:

PUNO, C.J., Chairperson,

-versus-

CARPIO,
CORONA,
LEONARDO-DE CASTRO, and
BERSAMIN, JJ.

PHILIPPINE RACING CLUB,

Respondent.

Promulgated:

July 30, 2009

x-----------------------------------------------------------------------------------------x
DECISION
LEONARDO-DE CASTRO, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court from the Decision [1] promulgated on July 16,
2001 by the former Second Division of the Court of Appeals (CA), in CA-G.R. CV No. 45371 entitled Philippine Racing
Club, Inc. v. Bank of America NT & SA, affirming the Decision[2] dated March 17, 1994 of the Regional Trial Court (RTC) of
Makati, Branch 135 in Civil Case No. 89-5650, in favor of the respondent. Likewise, the present petition assails the
Resolution[3] promulgated onSeptember 28, 2001, denying the Motion for Reconsideration of the CA Decision.

The facts of this case as narrated in the assailed CA Decision are as follows:

Plaintiff-appellee PRCI is a domestic corporation which maintains several accounts with different
banks in the Metro Manila area. Among the accounts maintained was Current Account No. 58891-012
with defendant-appellant BA (Paseo de Roxas Branch). The authorized joint signatories with respect to
said Current Account were plaintiff-appellees President (Antonia Reyes) and Vice President for Finance
(Gregorio Reyes).
On or about the 2nd week of December 1988, the President and Vice President of plaintiffappellee corporation were scheduled to go out of the country in connection with the corporations
business. In order not to disrupt operations in their absence, they pre-signed several checks relating to
Current Account No. 58891-012. The intention was to insure continuity of plaintiff-appellees operations by
making available cash/money especially to settle obligations that might become due. These checks were
entrusted to the accountant with instruction to make use of the same as the need arose. The internal
arrangement was, in the event there was need to make use of the checks, the accountant would prepare
the corresponding voucher and thereafter complete the entries on the pre-signed checks.
It turned out that on December 16, 1988, a John Doe presented to defendant-appellant bank for
encashment a couple of plaintiff-appellee corporations checks (Nos. 401116 and 401117) with the
indicated value of P110,000.00 each. It is admitted that these 2 checks were among those presigned by
plaintiff-appellee corporations authorized signatories.
The two (2) checks had similar entries with similar infirmities and irregularities. On the space
where the name of the payee should be indicated (Pay To The Order Of) the following 2-line entries were

instead typewritten: on the upper line was the word CASH while the lower line had the following
typewritten words, viz: ONE HUNDRED TEN THOUSAND PESOS ONLY.Despite the highly irregular
entries on the face of the checks, defendant-appellant bank, without as much as verifying and/or
confirming the legitimacy of the checks considering the substantial amount involved and the obvious
infirmity/defect of the checks on their faces, encashed said checks. A verification process, even by was of
a telephone call to PRCI office, would have taken less than ten (10) minutes. But this was not done by
BA. Investigation conducted by plaintiff-appellee corporation yielded the fact that there was no transaction
involving PRCI that call for the payment of P220,000.00 to anyone. The checks appeared to have come
into the hands of an employee of PRCI (one Clarita Mesina who was subsequently criminally charged for
qualified theft) who eventually completed without authority the entries on the pre-signed checks. PRCIs
demand for defendant-appellant to pay fell on deaf ears. Hence, the complaint.[4]
After due proceedings, the trial court rendered a Decision in favor of respondent, the dispositive portion of which
reads:

PREMISES CONSIDERED, judgment is hereby rendered in favor of plaintiff and against the
defendant, and the latter is ordered to pay plaintiff:
(1)
The sum of Two Hundred Twenty Thousand (P220,000.00) Pesos, with legal interest to be
computed from date of the filing of the herein complaint;
(2)

The sum of Twenty Thousand (P20,000.00) Pesos by way of attorneys fees;

(3)

The sum of Ten Thousand (P10,000.00) Pesos for litigation expenses, and

(4)

To pay the costs of suit.

SO ORDERED.[5]

Petitioner appealed the aforesaid trial court Decision to the CA which, however, affirmed said decision in toto in its
July 16, 2001 Decision. Petitioners Motion for Reconsideration of the CA Decision was subsequently denied on
September 28, 2001.

Petitioner now comes before this Court arguing that:

I.

II.

The Court of Appeals gravely erred in holding that the proximate cause of respondents loss
was petitioners encashment of the checks.

A.

The Court of Appeals gravely erred in holding that petitioner was liable for the amount of the
checks despite the fact that petitioner was merely fulfilling its obligation under law and
contract.

B.

The Court of Appeals gravely erred in holding that petitioner had a duty to verify the
encashment, despite the absence of any obligation to do so.

C.

The Court of Appeals gravely erred in not applying Section 14 of the Negotiable Instruments
Law, despite its clear applicability to this case;

The Court of Appeals gravely erred in not holding that the proximate cause of respondents
loss was its own grossly negligent practice of pre-signing checks without payees and amounts
and delivering these pre-signed checks to its employees (other than their signatories).

III.

The Court of Appeals gravely erred in affirming the trial courts award of attorneys fees despite
the absence of any applicable ground under Article 2208 of the Civil Code.

IV.

The Court of Appeals gravely erred in not awarding attorneys fees, moral and exemplary
damages, and costs of suit in favor of petitioner, who clearly deserves them. [6]

From the discussions of both parties in their pleadings, the key issue to be resolved in the present case is whether
the proximate cause of the wrongful encashment of the checks in question was due to (a) petitioners failure to make a
verification regarding the said checks with the respondent in view of the misplacement of entries on the face of the checks
or (b) the practice of the respondent of pre-signing blank checks and leaving the same with its employees.

Petitioner insists that it merely fulfilled its obligation under law and contract when it encashed the aforesaid
checks. Invoking Sections 126[7] and 185[8] of the Negotiable Instruments Law (NIL), petitioner claims that its duty as a
drawee bank to a drawer-client maintaining a checking account with it is to pay orders for checks bearing the drawerclients genuine signatures. The genuine signatures of the clients duly authorized signatories affixed on the checks signify
the order for payment. Thus, pursuant to the said obligation, the drawee bank has the duty to determine whether the
signatures appearing on the check are the drawer-clients or its duly authorized signatories. If the signatures are genuine,
the bank has the unavoidable legal and contractual duty to pay. If the signatures are forged and falsified, the drawee bank
has the corollary, but equally unavoidable legal and contractual, duty not to pay.[9]

Furthermore, petitioner maintains that there exists a duty on the drawee bank to inquire from the drawer before
encashing a check only when the check bears a material alteration. A material alteration is defined in Section 125 of the
NIL to be one which changes the date, the sum payable, the time or place of payment, the number or relations of the
parties, the currency in which payment is to be made or one which adds a place of payment where no place of payment is
specified, or any other change or addition which alters the effect of the instrument in any respect. With respect to the
checks at issue, petitioner points out that they do not contain any material alteration. [10] This is a fact which was affirmed
by the trial court itself.[11]

There is no dispute that the signatures appearing on the subject checks were genuine signatures of the
respondents authorized joint signatories; namely, Antonia Reyes and Gregorio Reyes who were respondents President
and Vice-President for Finance, respectively. Both pre-signed the said checks since they were both scheduled to go
abroad and it was apparently their practice to leave with the company accountant checks signed in black to answer for
company obligations that might fall due during the signatories absence. It is likewise admitted that neither of the subject
checks contains any material alteration or erasure.
However, on the blank space of each check reserved for the payee, the following typewritten words appear: ONE
HUNDRED TEN THOUSAND PESOS ONLY. Above the same is the typewritten word, CASH. On the blank reserved for
the amount, the same amount of One Hundred Ten Thousand Pesos was indicated with the use of a check writer. The
presence of these irregularities in each check should have alerted the petitioner to be cautious before proceeding to
encash them which it did not do.

It is well-settled that banks are engaged in a business impressed with public interest, and it is their duty to protect
in return their many clients and depositors who transact business with them. They have the obligation to treat their clients
account meticulously and with the highest degree of care, considering the fiduciary nature of their relationship.The
diligence required of banks, therefore, is more than that of a good father of a family.[12]

Petitioner asserts that it was not duty-bound to verify with the respondent since the amount below the typewritten
word CASH, expressed in words, is the very same amount indicated in figures by means of a check writer on the amount

portion of the check. The amount stated in words is, therefore, a mere reiteration of the amount stated in figures.
Petitioner emphasizes that a reiteration of the amount in words is merely a repetition and that a repetition is not an
alteration which if present and material would have enjoined it to commence verification with respondent. [13]

We do not agree with petitioners myopic view and carefully crafted defense. Although not in the strict sense
material alterations, the misplacement of the typewritten entries for the payee and the amount on the same blank and the
repetition of the amount using a check writer were glaringly obvious irregularities on the face of the check.Clearly,
someone made a mistake in filling up the checks and the repetition of the entries was possibly an attempt to rectify the
mistake. Also, if the check had been filled up by the person who customarily accomplishes the checks of respondent, it
should have occurred to petitioners employees that it would be unlikely such mistakes would be made. All these
circumstances should have alerted the bank to the possibility that the holder or the person who is attempting to encash
the checks did not have proper title to the checks or did not have authority to fill up and encash the same. As noted by the
CA, petitioner could have made a simple phone call to its client to clarify the irregularities and the loss to respondent due
to the encashment of the stolen checks would have been prevented.

In the case at bar, extraordinary diligence demands that petitioner should have ascertained from respondent the
authenticity of the subject checks or the accuracy of the entries therein not only because of the presence of highly
irregular entries on the face of the checks but also of the decidedly unusual circumstances surrounding their
encashment.Respondents witness testified that for checks in amounts greater than Twenty Thousand Pesos (P20,000.00)
it is the companys practice to ensure that the payee is indicated by name in the check. [14] This was not rebutted by
petitioner. Indeed, it is highly uncommon for a corporation to make out checks payable to CASH for substantial amounts
such as in this case. If each irregular circumstance in this case were taken singly or isolated, the banks employees might
have been justified in ignoring them. However, the confluence of the irregularities on the face of the checks and
circumstances that depart from the usual banking practice of respondent should have put petitioners employees on guard
that the checks were possibly not issued by the respondent in due course of its business. Petitioners subtle sophistry
cannot exculpate it from behavior that fell extremely short of the highest degree of care and diligence required of it as a
banking institution.

Indeed, taking this with the testimony of petitioners operations manager that in case of an irregularity on the face
of the check (such as when blanks were not properly filled out) the bank may or may not call the client depending on how
busy the bank is on a particular day,[15] we are even more convinced that petitioners safeguards to protect clients from
check fraud are arbitrary and subjective. Every client should be treated equally by a banking institution regardless of the
amount of his deposits and each client has the right to expect that every centavo he entrusts to a bank would be handled
with the same degree of care as the accounts of other clients. Perforce, we find that petitioner plainly failed to adhere to
the high standard of diligence expected of it as a banking institution.

In defense of its cashier/tellers questionable action, petitioner insists that pursuant to Sections 14 [16] and 16[17] of
the NIL, it could validly presume, upon presentation of the checks, that the party who filled up the blanks had authority and
that a valid and intentional delivery to the party presenting the checks had taken place. Thus, in petitioners view, the sole
blame for this debacle should be shifted to respondent for having its signatories pre-sign and deliver the subject checks.
[18]
Petitioner argues that there was indeed delivery in this case because, following American jurisprudence, the gross
negligence of respondents accountant in safekeeping the subject checks which resulted in their theft should be treated as
a voluntary delivery by the maker who is estopped from claiming non-delivery of the instrument. [19]

Petitioners contention would have been correct if the subject checks were correctly and properly filled out by the
thief and presented to the bank in good order. In that instance, there would be nothing to give notice to the bank of any
infirmity in the title of the holder of the checks and it could validly presume that there was proper delivery to the
holder. The bank could not be faulted if it encashed the checks under those circumstances. However, the undisputed facts
plainly show that there were circumstances that should have alerted the bank to the likelihood that the checks were not
properly delivered to the person who encashed the same. In all, we see no reason to depart from the finding in the
assailed CA Decision that the subject checks are properly characterized as incomplete and undelivered instruments thus
making Section 15[20] of the NIL applicable in this case.

However, we do agree with petitioner that respondents officers practice of pre-signing of blank checks should be
deemed seriously negligent behavior and a highly risky means of purportedly ensuring the efficient operation of
businesses. It should have occurred to respondents officers and managers that the pre-signed blank checks could fall into
the wrong hands as they did in this case where the said checks were stolen from the company accountant to whom the
checks were entrusted.

Nevertheless, even if we assume that both parties were guilty of negligent acts that led to the loss, petitioner will
still emerge as the party foremost liable in this case. In instances where both parties are at fault, this Court has
consistently applied the doctrine of last clear chance in order to assign liability.

In Westmont Bank v. Ong,[21] we ruled:

[I]t is petitioner [bank] which had the last clear chance to stop the fraudulent encashment of the subject
checks had it exercised due diligence and followed the proper and regular banking procedures in clearing
checks. As we had earlier ruled, the one who had a last clear opportunity to avoid the impending
harm but failed to do so is chargeable with the consequences thereof.[22] (emphasis ours)

In the case at bar, petitioner cannot evade responsibility for the loss by attributing negligence on the part of
respondent because, even if we concur that the latter was indeed negligent in pre-signing blank checks, the former had
the last clear chance to avoid the loss. To reiterate, petitioners own operations manager admitted that they could have
called up the client for verification or confirmation before honoring the dubious checks. Verily, petitioner had the final
opportunity to avert the injury that befell the respondent. Failing to make the necessary verification due to the volume of
banking transactions on that particular day is a flimsy and unacceptable excuse, considering that the banking business is
so impressed with public interest where the trust and confidence of the public in general is of paramount importance such
that the appropriate standard of diligence must be a high degree of diligence, if not the utmost diligence. [23] Petitioners
negligence has been undoubtedly established and, thus, pursuant to Art. 1170 of the NCC, [24] it must suffer the
consequence of said negligence.

In the interest of fairness, however, we believe it is proper to consider respondents own negligence to mitigate petitioners
liability. Article 2179 of the Civil Code provides:

Art. 2179. When the plaintiffs own negligence was the immediate and proximate cause of his injury, he
cannot recover damages. But if his negligence was only contributory, the immediate and proximate cause
of the injury being the defendants lack of due care, the plaintiff may recover damages, but the courts shall
mitigate the damages to be awarded.

Explaining this provision in Lambert v. Heirs of Ray Castillon,[25] the Court held:

The underlying precept on contributory negligence is that a plaintiff who is partly responsible for his own
injury should not be entitled to recover damages in full but must bear the consequences of his own
negligence. The defendant must thus be held liable only for the damages actually caused by his
negligence. xxx xxx xxx

As we previously stated, respondents practice of signing checks in blank whenever its authorized bank signatories
would travel abroad was a dangerous policy, especially considering the lack of evidence on record that respondent had
appropriate safeguards or internal controls to prevent the pre-signed blank checks from falling into the hands of

unscrupulous individuals and being used to commit a fraud against the company. We cannot believe that there was no
other secure and reasonable way to guarantee the non-disruption of respondents business. As testified to by petitioners
expert witness, other corporations would ordinarily have another set of authorized bank signatories who would be able to
sign checks in the absence of the preferred signatories. [26] Indeed, if not for the fortunate happenstance that the thief failed
to properly fill up the subject checks, respondent would expectedly take the blame for the entire loss since the defense of
forgery of a drawers signature(s) would be unavailable to it. Considering that respondent knowingly took the risk that the
pre-signed blank checks might fall into the hands of wrongdoers, it is but just that respondent shares in the responsibility
for the loss.

We also cannot ignore the fact that the person who stole the pre-signed checks subject of this case from
respondents accountant turned out to be another employee, purportedly a clerk in respondents accounting
department. As the employer of the thief, respondent supposedly had control and supervision over its own employee. This
gives the Court more reason to allocate part of the loss to respondent.

Following established jurisprudential precedents,[27] we believe the allocation of sixty percent (60%) of the actual
damages involved in this case (represented by the amount of the checks with legal interest) to petitioner is proper under
the premises. Respondent should, in light of its contributory negligence, bear forty percent (40%) of its own loss.

Finally, we find that the awards of attorneys fees and litigation expenses in favor of respondent are not justified
under the circumstances and, thus, must be deleted. The power of the court to award attorneys fees and litigation
expenses under Article 2208 of the NCC[28] demands factual, legal, and equitable justification.

An adverse decision does not ipso facto justify an award of attorneys fees to the winning party. [29] Even when a
claimant is compelled to litigate with third persons or to incur expenses to protect his rights, still attorneys fees may not be
awarded where no sufficient showing of bad faith could be reflected in a partys persistence in a case other than an
erroneous conviction of the righteousness of his cause.[30]

WHEREFORE, the Decision of the Court of Appeals dated July 16, 2001 and its Resolution dated September 28,
2001 are AFFIRMED with the following MODIFICATIONS: (a) petitioner Bank of America NT & SA shall pay to respondent
Philippine Racing Club sixty percent (60%) of the sum of Two Hundred Twenty Thousand Pesos (P220,000.00) with legal
interest as awarded by the trial court and (b) the awards of attorneys fees and litigation expenses in favor of respondent
are deleted.

Proportionate costs.

G.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 agency5like 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.1wph1.t
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 dismiss 7 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.1wph1.t