SECOND DIVISION

obliged himself to pay the loan in 25 years, with a

monthly amortization of P1,417.91, with 9% interest
per annum, to be deducted from his monthly salary.[3]

DEVELOPMENT BANK OF G.R. No. 161397

THE PHILIPPINES,
Petitioner,
- versus FELIPE P. ARCILLA, JR.,
Respondent.
x - - - - - - - - -- - - - - - - - - - - - - - -x
FELIPE P. ARCILLA, JR., G.R. No. 161426
Petitioner,
Present:
- versus - PUNO, J., Chairman,

DBP obliged itself to transfer the title of the

property upon the payment of the loan, including any
increments thereof. It was also agreed therein that if
Arcilla availed of optional retirement, he could elect
to continue paying the loan, provided that the
loan/amount would be converted into a regular real
estate loan account with the prevailing interest
assigned on real estate loans, payable within the
remaining term of the loan account.[4]
A

USTRIA-MARTINEZ, CALLEJO, SR.,

TINGA, and
DEVELOPMENT
BANK
OF CHICONAZARIO, JJ.
THE PHILIPPINES,
Respondent.
Promulgated:

Atty. Felipe P. Arcilla, Jr. was employed by the

Development Bank of the Philippines (DBP) in
October 1981. About five or six months thereafter, he
was assigned to the legal department, and thereafter,
decided to avail of a loan under the Individual
Housing Project (IHP) of the bank.[1] On September
12, 1983, DBP and Arcilla executed a Deed of
Conditional Sale[2] over a parcel of land, as well as
the house to be constructed thereon, for the price
of P160,000.00. Arcilla borrowed the said amount
from DBP for the purchase of the lot and the
construction of a residential building thereon. He

i. Interest on advances at 7% p.a.

over DBPs borrowing cost:
ii. No 2% service charge
iii. No 8% penalty charge
a.2 On the amount
advanced or balance thereof that
remains unpaid for more than 30
days:

Arcilla was notified of the periodic release

of his loan.[5] During the period of July 1984 to
December 31, 1986, the monthly amortizations for
the said account were deducted from his monthly
salary, for which he was issued receipts.[6]

The
monthly
amortization
was
increased
to P1,468.92 in November 1984, and to P1,691.51
beginning January 1985. However, Arcilla opted to
une 30,resign from the bank in December 1986.
2005
Conformably with the Deed of Conditional Sale, the
x------------------------------ -----bank informed him, on June 11, 1987, that the
-------------x
balance of his loan account with the bank had been
converted to a regular housing loan, thus:
DECISION
CALLEJO, SR., J.:

a.1 On the amount advanced or

balance thereof that remains unpaid
for 30 days* or less:

Amount converted
toPH Loan
P 155,218.79 - 1

Interest Rate

i. Interest on the advance

at 7% p.a. ]
over DBPs borrowing
cost; ]
ii. One time 2% service
charge ]-- To be computed from
iii. Interest on the service
charge ] the start of the 30-day
iv. 8% penalty charge on
the balances ] period
of the advances and
service charge.[9]
Arcilla also agreed to pay to DBP the following:
Remaining Term

9%
6 mos

6,802.45 - 2

9%

24,342.91 - 3
9%
Plus: MRI at PC. 41/thousand P1,614.20
76.41
P186,364.15 Total P1,690.61[7] ========
On July 24, 1987, Arcilla signed three Promissory
Notes[8] for the total amount of P186,364.15. He was
also obliged to pay service charge and interests, as
follows:

10 mos.
22 yrs.

*Insurance Premiums - 30-day

period to be computed from date of
advance
s
Other Advances - 30-day period to
be computed from date of
notificat
ion
b. Taxes
b.1 One time service charge 2% of
the amount advanced

b.2 Interest and penalty charge

Interest 7% p.a. over
borrowing
cost
Penalty charge 8% p.a. if unpaid
after 30 days from date of advance
i. Interest of the advance at ]
7% p.a. over DBPs ]
borrowing costs; ]-- To be
computed from start
ii One time 2% service
charge ] of 30-day period
iii Interest on the service
charge]
iv. 8% penalty charge on the
]
balances of the advance
and ]
service charge. ]
*Insurance Premiums - 30-day
period to be computed from date of
advance
s.
Other Advances - 30-day period to be
computed from date of
notification.
b. Taxes
b.1 One time service charge 2% of the amount
advanced
b.2 Interest and penalty charge Interest 7% p.a. over
borrowing
cost
Penalty charge 8% p.a. if unpaid
after 30 days from date of advance
However, Arcilla also agreed to the
reservation by the DBP of its right to increase (with
notice to him) the rate of interest on the loan, as well
as all other fees and charges on loans and advances
pursuant to such policy as it may adopt from time to
time during the period of the loan; Provided, that the
rate of interest on the loan shall be reduced by law or
by the Monetary Board; Provided, further, that the
adjustment in the rate of interest shall take effect on

or after the effectivity of the increase or decrease in

the maximum rate of interest.[10]

Upon his request, DBP agreed to grant

Arcilla an additional cash advance of P32,000.00.
Thereafter, on May 23, 1984, a Supplement to the
Conditional Sale Agreement was executed in which
DBP and Arcilla agreed on the following terms of the
loan:
Amount Interest Rate Per
Annum Terms Amortization
P32,000.00 Nine (9%) per cent MRI 24
years P271.57
for P32,000.00 at P0.40/
1,000.00 12.80
P32,000.00 same to be consolidated with the
(Est. P 284.37
original advance in accordance Amort.) =======
with Condition No. 8 hereof.[11]
The additional advance was, thus, consolidated to the
outstanding balance of Arcillas original advance,
payable within the remaining term thereof at 9% per
annum. However, he failed to pay his loan account,
advances, penalty charges and interests which, as of
October 31, 1990, amounted to P241,940.93.[12] DBP
rescinded the Deed of Conditional Sale by notarial
act on November 27, 1990.[13] Nevertheless, it wrote
Arcilla, on January 3, 1992, giving him until October
24, 1992, within which to repurchase the property
upon full payment of the current appraisal or updated
total, whichever is lesser; in case of failure to do so,
the property would be advertised for bidding.[14] DBP
reiterated the said offer on October 7, 1992.[15] Arcilla
failed to respond. Consequently, the property was
advertised for sale at public bidding on February 14,
1994.[16]
Arcilla filed a complaint against DBP with
the Regional Trial Court (RTC) of Antipolo, Rizal, on
February 21, 1994. He alleged that DBP failed to
furnish him with the disclosure statement required by

Republic Act (R.A.) No. 3765 and Central Bank (CB)

Circular No. 158 prior to the execution of the deed of
conditional sale and the conversion of his loan
account with the bank into a regular housing loan
account. Despite this, DBP immediately deducted the
account from his salary as early as 1984. Moreover,
the bank applied its own formula and imposed its
usurious interests, penalties and charges on his loan
account and advances. He further alleged, thus:
13. That when plaintiff could
no longer cope-up with defendants
illegal and usurious impositions,
the DBP unilaterally increased
further the rate of interest, without
notice to the latter, and heaped-up
usurious interests, penalties and
charges;
14. That to further bend the back of
the plaintiff, defendant rescinded
the subject deed of conditional sale
on 4 December 1990 without
giving due notice to plaintiff;
15. That much later, on 10
October 1993, plaintiff received a
letter from defendant dated 19
September
1993,
informing
plaintiff that the subject deed of
conditional sale was already
rescinded on 4 December 1990
(xerox copy of the same is hereto
attached and made an integral part
hereof as Annex C;[17]
In its answer to the complaint, the DBP alleged that it
substantially complied with R.A. No. 3765 and CB
Circular No. 158 because the details required in said
statements were particularly disclosed in the
promissory notes, deed of conditional sale and the
required notices sent to Arcilla. In any event, its
failure to comply strictly with R.A. No. 3765 did not
affect the validity and enforceability of the subject
contracts or transactions. DBP interposed a
counterclaim for the possession of the property.

On April 27, 2001, the trial court rendered

judgment in favor of Arcilla and nullified the notarial
rescission of the deeds executed by the parties.
The fallo of the decision reads:
WHEREFORE, premises
considered, judgment is hereby
rendered in favor of the plaintiff
and
against
the
defendant.
Defendant is hereby directed to
furnish the disclosure statement to
the plaintiff within five (5) days
upon receipt hereof in the manner
and form provided by R.A. No.
3765 and submit to this Court for
approval the total obligation of the
plaintiff as of this date, within ten
(10) days from receipt of this order.
The Notarial Rescission (Exh. 16)
dated November 27, 1990 is hereby
declared null and void. Costs
against the defendant.
SO ORDERED.[18]
DBP appealed the decision to the Court of
Appeals (CA) wherein it made the following
assignment of errors:
4.1. The trial court erred in ruling
that the provision of the details of
the loan without the issuance of a
Disclosure Statement is not
compliance with the Truth in
Lending Act;
4.2. The trial court erred in
declaring the Notarial Rescission
null and void; and
4.3. The trial court erred in denying
DBPs counterclaims for recovery
of possession, back rentals and
litigation expenses.[19]

On May 29, 2003, the CA rendered judgment setting

aside and reversing the decision of the RTC. In
ordering the dismissal of the complaint, the appellate
court ruled that DBP substantially complied with
R.A. No. 3765 and CB Circular No. 158. Arcilla filed
a motion for reconsideration of the decision. For its
part, DBP filed a motion for partial reconsideration of
the decision, praying that Arcilla be ordered to vacate
the property. However, the appellate court denied
both motions.
The parties filed separate petitions for review
on certiorari with this Court. The first petition,
entitled Development Bank of the Philippines v.
Court of Appeals, was docketed as G.R. No. 161397;
the second petition, entitled Felipe Arcilla, Jr. v.
Court of Appeals, was docketed as G.R. No. 161426.
The Court resolved to consolidate the two cases.
The issues raised in the two petitions are the
following: a) whether or not petitioner DBP complied
with the disclosure requirement of R.A. No. 3765 and
CB Circular No. 158, Series of 1978, in the execution
of the deed of conditional sale, the supplemental deed
of conditional sale, as well as the promissory notes;
and b) whether or not respondent Felipe Arcilla, Jr. is
mandated to vacate the property and pay rentals for
his occupation thereof after the notarial rescission of
the deed of conditional sale was rescinded by notarial
act, as well as the supplement executed by DBP.
On the first issue, Arcilla avers that under
R.A. No. 3765 and CB Circular No. 158, the DBP, as
the creditor bank, was mandated to furnish him with
the requisite information in such form prescribed by
the Central Bank before the commutation of the loan
transaction. He avers that the disclosure of the details
of the loan contained in the deed of conditional sale
and the supplement thereto, the promissory notes and
release
sheet,
do
not constitute substantial compliance with the law
and the CB Circular. He avers that the required
disclosure did not include the following:
[T]he percentage of Finance
Charges to Total Amount Financed

(Computed in accordance with Sec.

2(i) of CB Circular 158; the
Additional Charges in case certain
stipulations in the contract are not
met by the debtor; Total NonFinance Charges; Total Finance
Charges, Effective Interest Rate,
etc. [20]
Arcilla further posits that the failure of DBP to
comply with its obligation under R.A. No. 3765 and
CB Circular No. 158 forecloses its right to rescind
the transaction between them, and to demand
compliance of his obligation arising from said
transaction. Moreover, the bank had no right to
deduct the monthly amortizations from his salary
without first complying with the mandate of R.A. No.
3765.
DBP, on the other hand, avers that all the
information required by R.A. No. 3765 was already
contained in the loan transaction documents. It posits
that even if it failed to comply strictly with the
disclosure requirement of R.A. No. 3765,
nevertheless, under Section 6(b) of the law, the
validity and enforceability of any action or
transaction is not affected. It asserts that Arcilla was
estopped from invoking R.A. No. 3765 because he
failed to demand compliance with R.A. No. 3765
from the bank before the consummation of the loan
transaction, until the time his complaint was filed
with the trial court.
In its petition in G.R. No. 161397, DBP asserts that
the RTC erred in not rendering judgment on its
counterclaim for the possession of the subject
property, and the liability of Arcilla for rentals while
in the possession of the property after the notarial
rescission of the deeds of conditional sale. For his
part, Arcilla (in G.R. No. 161426) insists that the
respondent failed to comply with its obligation under
R.A. No. 3765; hence, the notarial rescission of the
deed of conditional sale and the supplement thereof
was null and void. Until DBP complies with its
obligation, he is not obliged to comply with his.

The petition of Arcilla has no merit.

Section 1 of R.A. No. 3765 provides that prior to the
consummation of a loan transaction, the bank, as
creditor, is obliged to furnish a client with a clear
statement, in writing, setting forth, to the extent
applicable and in accordance with the rules and
regulations prescribed by the Monetary Board of the
Central Bank of the Philippines, the following
information:
(1) the cash price or
delivered price of the property or
service to be acquired;
(2) the amounts, if any, to be
credited as down payment and/or
trade-in;
(3) the difference between the
amounts set forth under clauses (1)
and (2);
(4) the charges, individually
itemized, which are paid or to be
paid by such person in connection
with the transaction but which are
not incident to the extension of
credit;
(5) the total amount to be financed;
(6) the finance charges expressed in
terms of pesos and centavos; and
(7) the percentage that the finance
charge bears to the total amount to
be financed expressed as a simple
annual rate on the outstanding
unpaid balance of the obligation.
Under Circular No. 158 of the Central Bank,
the information required by R.A. No. 3765 shall be
included in the contract covering the credit
transaction or any other document to be
acknowledged and signed by the debtor, thus:

The contract covering the

credit transaction, or any other
document to be acknowledged and
signed by the debtor, shall indicate
the above seven items of
information. In addition, the
contract or document shall specify
additional charges, if any, which
will be collected in case certain
stipulations in the contract are not
met by the debtor.
Furthermore, the contract or document shall
specify additional charges, if any, which will be
collected in case certain stipulations in the contract
are not met by the debtor.[21]
If the borrower is not duly informed of the
data required by the law prior to the consummation of
the availment or drawdown, the lender will have no
right to collect such charge or increases thereof, even
if stipulated in the promissory note. [22] However, such
failure shall not affect the validity or enforceability of
any contract or transaction.[23]
In the present case, DBP failed to disclose
the requisite information in the disclosure statement
form authorized by the Central Bank, but did so in
the loan transaction documents between it and
Arcilla. There is no evidence on record that DBP
sought to collect or collected any interest, penalty or
other charges, from Arcilla other than those disclosed
in the said deeds/documents.
The Court is convinced that Arcillas claim
of not having been furnished the data/information
required by R.A. No. 3765 and CB Circular No. 158
was but an afterthought. Despite the notarial
rescission of the conditional sale in 1990, and DBPs
subsequent repeated offers to repurchase the property,
the latter maintained his silence. Arcilla filed his
complaint only on February 21, 1994, or four years
after the said notarial rescission. The Court finds and
so holds that the following findings and ratiocinations
of the CA are correct:

After a careful perusal of the

records, We find that the appellee
had been sufficiently informed of
the terms and the requisite charges
necessarily included in the subject
loan. It must be stressed that the
Truth in Lending Act (R.A. No.
3765), was enacted primarily to
protect its citizens from a lack of
awareness of the true cost of credit
to
the
user
by using a full disclosure of such
cost with a view of preventing the
uninformed use of credit to the
detriment of the national economy
(Emata vs. Intermediate Appellate
Court, 174, SCRA 464 [1989]; Sec.
2, R.A. No. 3765). Contrary to
appellees claim that he was not
sufficiently informed of the details
of the loan, the records disclose
that the required informations were
readily available in the three (3)
promissory notes he executed.
Precisely, the said promissory notes
were executed to apprise appellee
of the remaining balance on his
loan when the same was converted
into a regular housing loan. And on
its face, the promissory notes
signed by no less than the appellee
readily shows all the data required
by the Truth in Lending Act (R.A.
No. 3765).
Apropos, We agree with the
appellant that appellee, a lawyer,
would not be so gullible or
negligent as to sign documents
without knowing fully well the
legal
implications
and
consequences of his actions, and
that appellee was a former

employee of appellant. As such

employee, he is as well presumed
knowledgeable
with
matters
relating to appellants business and
fully cognizant of the terms of the
loan he applied for, including the
charges that had to be paid.
It might have been
different if the borrower was, say,
an ordinary employee eager to buy
his first house and is easily lured
into accepting onerous terms so
long as the same is payable on
installments. In such cases, the
Court would be disposed to be
stricter in the application of the
Truth in Lending Act, insisting that
the borrower be fully informed of
what he is entering into. But in the
case at bar, considering appellees
education and training, We must
hold, in the light of the evidence at
hand, that he was duly informed of
the necessary charges and fully
understood their implications and
effects. Consequently, the trial
courts annulment of the rescission
anchored on this ground was
unjustified.[24]
Anent the prayer of DBP to order Arcilla to
vacate the property and pay rentals therefor from
1990, a review of the records has shown that it failed
to adduce evidence on the reasonable amount of
rentals for Arcillas occupancy of the property. Hence,
the Court orders a remand of the case to the court of
origin, for the parties to adduce their respective
evidence on the banks counterclaim.
IN
LIGHT
OF
ALL
THE
FOREGOING, the petition in G.R. No. 161426
is DENIED for lack of merit. The petition in G.R.
No.
161397
is
PARTIALLY GRANTED. The case is

hereby REMANDED to the Regional Trial Court of

Antipolo, Rizal, Branch 73, for it to resolve the
counterclaim of the Development Bank of the
Philippines for possession of the property, and for the
reasonable rentals for Felipe P. Arcilla, Jr.s
occupancy thereof after the notarial rescission of the
Deed of Conditional Sale in 1990.
Costs against petitioner Felipe P. Arcilla, Jr.
SO ORDERED.

Republic of the Philippines

Supreme Court
Manila

General Banking Act, as amended by Presidential

Decree No. 1795, was filed against Go before the
RTC. The charge reads:

That on or about and

during the period comprised
between June 27, 1996 and
September 15, 1997, inclusive, in
JOSE C. GO,
G.R. No.
the City of Manila, Philippines, the
Petitioner,
said accused, being then the
Present:
Director and the President and
Chief Executive Officer of the
QUISUMBING, Orient Commercial Banking
*
versus CARPIO,
Corporation (Orient Bank), a
CARPIO MORALES,
commercial banking institution
BRION,
created, organized and existing
ABAD
under Philippines laws, with its
main branch located at C.M. Recto
BANGKO SENTRAL NG PILIPINAS,
Avenue, this City, and taking
Respondent.
Promulgated: advantage of his position as such
officer/director of the said bank,
October 23, 2009did then and there wilfully,
x ------------------------------------------------------------------------------------------x
unlawfully
and
knowingly
borrow, either directly or
indirectly, for himself or as the
DECISION
representative of his other related
companies, the deposits or funds
BRION, J.:
of
the
said
banking
institution and/or become
a
Through the present petition for review
guarantor, indorser or obligor for
on certiorari,[1] petitioner Jose C. Go (Go) assails
loans from the said bank to
the October 26, 2006 decision[2] of the Court of
others, by then and there using
Appeals (CA) in CA-G.R. SP No. 79149, as well as
said borrowed deposits/funds of
its June 4, 2007 resolution.[3] The CA decision and
the said bank in facilitating and
resolution annulled and set aside the May 20,
granting and/or caused the
2003[4] and June 30, 2003[5] orders of the Regional
facilitating and granting of credit
Trial Court (RTC), Branch 26, Manila which granted
lines/loans and, among others, to
Gos motion to quash the Information filed against
the New Zealand Accounts
him.
loans in the total amount of TWO
BILLION
AND
SEVEN
HUNDRED
FIFTY-FOUR
THE FACTS
MILLION NINE HUNDRED
FIVE THOUSAND AND EIGHT
HUNDRED FIFTY-SEVEN AND
On August 20, 1999, an Information[6] for violation of
0/100
PESOS,
Philippine
Section 83 of Republic Act No. 337 (RA 337) or the
Currency, said accused knowing
SECOND
DIVISION

fully well that the same has been

done by him without the written
approval of the majority of the
Board of Directors of said Orient
Bank and which approval the said
accused deliberately failed to
obtain and enter the same upon the
records of said banking institution
and to transmit a copy of which to
the supervising department of the
said bank, as required by the
General Banking Act.
CONTRARY TO LAW.
[Emphasis supplied.]
On May 28, 2001, Go pleaded not guilty to the
offense charged.
After the arraignment, both the prosecution
and accused Go took part in the pre-trial conference
where the marking of the voluminous evidence for
the parties was accomplished. After the completion
of the marking, the trial court ordered the parties to
proceed to trial on the merits.
Before the trial could commence, however, Go filed
on February 26, 2003[7] a motion to quash the
Information, which motion Go amended on March 1,
2003.[8] Go claimed that the Information was
defective, as the facts charged therein do not
constitute an offense under Section 83 of RA
337 which states:
No director or officer of any
banking institution shall either
directly or indirectly, for himself or
as the representative or agent of
another, borrow any of the deposits
of funds of such banks, nor shall
he become a guarantor, indorser, or
surety for loans from such bank, to
others, or in any manner be an
obligor for money borrowed from
the bank or loaned by it, except
with the written approval of the

majority of the directors of the

bank, excluding the director
concerned. Any such approval shall
be entered upon the records of the
corporation and a copy of such
entry shall be transmitted forthwith
to the appropriate supervising
department. The office of any
director or officer of a bank who
violates the provisions of this
section shall immediately become
vacant and the director or officer
shall be punished by imprisonment
of not less than one year nor more
than ten years and by a fine of not
less than one thousand nor more
than ten thousand pesos.
The Monetary Board may regulate
the
amount
of
credit
accommodations that may be
extended, directly or indirectly, by
banking institutions to their
directors,
officers,
or
stockholders.However,
the
outstanding credit accommodations
which a bank may extend to each
of its stockholders owning two
percent (2%) or more of the
subscribed capital stock, its
directors, or its officers, shall be
limited to an amount equivalent to
the respective outstanding deposits
and book value of the paid-in
capital
contribution
in
the
bank. Provided, however, that loans
and advances to officers in the form
of fringe benefits granted in
accordance
with
rules
and
regulations as may be prescribed by
Monetary Board shall not be
subject to the preceding limitation.
(As amended by PD 1795)
In addition to the
established in the

conditions
preceding

paragraph, no director or a building

and loan association shall engage in
any of the operations mentioned in
said paragraphs, except upon the
pledge of shares of the association
having a total withdrawal value
greater
than
the
amount
borrowed. (As amended by PD
1795)
In support of his motion to quash, Go
averred that based on the facts alleged in the
Information, he was being prosecuted for borrowing
the
deposits
or
funds
of
the
Orient
Bank and/or acting as a guarantor, indorser or
obligor for the banks loans to other persons. The use
of the word and/or meant that he was charged for
being either a borrower or a guarantor, or for being
both a borrower and guarantor. Go claimed that the
charge was not only vague, but also did not constitute
an offense. He posited that Section 83 of RA 337
penalized only directors and officers of banking
institutions who acted either as borrower or as
guarantor, but not as both.
Go further pointed out that the Information
failed to state that his alleged act of borrowing and/or
guarantying was not among the exceptions provided
for in the law.According to Go, the second paragraph
of Section 83 allowed banks to extend credit
accommodations to their directors, officers, and
stockholders, provided it is limited to an amount
equivalent to the respective outstanding deposits and
book value of the paid-in capital contribution in the
bank. Extending credit accommodations to bank
directors, officers, and stockholders is not per
se prohibited, unless the amount exceeds the legal
limit. Since the Information failed to state that the
amount he purportedly borrowed and/or guarantied
was beyond the limit set by law, Go insisted that the
acts so charged did not constitute an offense.
Finding Gos contentions persuasive, the
RTC granted Gos motion to quash the Information
on May 20, 2003. It denied on June 30, 2003 the
motion for reconsideration filed by the prosecution.

The prosecution did not accept the RTC

ruling and filed a petition for certiorari to question it
before the CA. The Information, the prosecution
claimed, was sufficient. The word and/or did not
materially affect the validity of the Information, as it
merely stated a mode of committing the crime
penalized under Section 83 of RA 337. Moreover, the
prosecution asserted that the second paragraph of
Section 83 (referring to the credit accommodation
limit) cannot be interpreted as an exception to what
the first paragraph provided. The second paragraph
only sets borrowing limits that, if violated, render the
bank, not the director-borrower, liable. A violation of
the second paragraph of Section 83 under which Go
is being prosecuted is therefore separate and distinct
from a violation of the first paragraph. Thus, the
prosecution prayed that the orders of the RTC
quashing the Information be set aside and the
criminal case against Go be reinstated.
On October 26, 2006, the CA rendered the
assailed decision granting the prosecutions petition
for certiorari.[9] The CA declared that the RTC
misread the law when it decided to quash the
Information against Go. It explained that the
allegation that Go acted either as a borrower or a
guarantor or as both borrower and guarantor merely
set forth the different modes by which the offense
was committed. It did not necessarily mean that Go
acted both as borrower and guarantor for the same
loan at the same time. It agreed with the prosecutions
stand that the second paragraph of Section 83 of RA
337 is not an exception to the first paragraph. Thus,
the failure of the Information to state that the amount
of the loan Go borrowed or guaranteed exceeded the
legal limits was, to the CA, an irrelevant issue. For
these reasons, the CA annulled and set aside the
RTCs orders and ordered the reinstatement of the
criminal charge against Go. After the CAs denial of
his motion for reconsideration,[10] Go filed the present
appeal by certiorari.
THE PETITION

In his petition, Go alleges that the appellate

court legally erred in overturning the trial courts
orders. He insists that the Information failed to allege
the acts or omissions complained of with sufficient
particularity to enable him to know the offense being
charged; to allow him to properly prepare his
defense; and likewise to allow the court to render
proper judgment.
Repeating his arguments in his motion to
quash, Go reads Section 83 of RA 337 as penalizing a
director or officer of a banking institution for
either borrowing the deposits or funds of the bank,
or guaranteeing or indorsing loans to others, but not
for assuming both capacities. He claimed that the
prosecutions shotgun approach in alleging that he
acted as borrower and/or guarantor rendered the
Information highly defective for failure to specify
with certainty the specific act or omission
complained of. To petitioner Go, the prosecutions
approach was a clear violation of his constitutional
right to be informed of the nature and cause of the
accusation against him.
Additionally, Go reiterates his claim that
credit accommodations by banks to their directors
and officers are legal and valid, provided that these
are limited to their outstanding deposits and book
value of the paid-in capital contribution in the
bank. The failure to state that he borrowed deposits
and/or guaranteed loans beyond this limit rendered
the Information defective. He thus asks the Court to
reverse the CA decision to reinstate the criminal
charge.
In its Comment,[11] the prosecution raises the
same defenses against Gos contentions. It insists on
the sufficiency of the allegations in the Information
and prays for the denial of Gos petition.

The Accuseds Right to be Informed

Under the Constitution, a person who stands
charged of a criminal offense has the right to be
informed of the nature and cause of the accusation
against him.[12] The Rules of Court, in implementing
the right, specifically require that the acts or
omissions complained of as constituting the offense,
including
the
qualifying
and
aggravating
circumstances, must be stated in ordinary and concise
language, not necessarily in the language used in the
statute, but in terms sufficient to enable a person of
common understanding to know what offense is
being charged and the attendant qualifying and
aggravating circumstances present, so that the
accused can properly defend himself and the court
can pronounce judgment.[13] To broaden the scope of
the right, the Rules authorize the quashal, upon
motion of the accused, of an Information that fails to
allege the acts constituting the offense.
[14]
Jurisprudence has laid down the fundamental test
in appreciating a motion to quash an Information
grounded on the insufficiency of the facts alleged
therein. We stated in People v. Romualdez[15] that:
The
determinative
test
in
appreciating a motion to quash xxx
is the sufficiency of the averments
in the information, that is, whether
the facts alleged, if hypothetically
admitted, would establish the
essential elements of the offense as
defined by law without considering
matters aliunde. As Section 6, Rule
110 of the Rules of Criminal
Procedure
requires, the
information only needs to state
the ultimate facts; the evidentiary
and other details can be provided
during the trial.

THE COURTS RULING

The Court does not find the petition meritorious
and accordingly denies it.

To restate the rule, an Information

only needs to state the ultimate
facts constituting the offense, not
the finer details of why and how
the illegal acts alleged amounted

to
undue
injury
or
damage matters
that
are
appropriate for the trial. [Emphasis
supplied]
The facts and circumstances necessary to be included
in the Information are determined by reference to the
definition and elements of the specific crimes. The
Information must allege clearly and accurately the
elements of the crime charged.[16]
Elements of Violation of
Section 83 of RA 337
Under Section 83, RA 337, the following elements
must be present to constitute a violation of its first
paragraph:
1. the offender is a director or officer of any
banking institution;
2. the offender, either directly or indirectly, for
himself or as representative or agent of
another, performs any of the following acts:
a. he borrows any of the deposits or
funds of such bank; or
b. he becomes a guarantor, indorser,
or surety for loans from such bank
to others, or
c.
he becomes in any manner an
obligor for money borrowed from
bank or loaned by it;
3. the offender has performed any of such acts
without the written approval of the majority
of the directors of the bank, excluding the
offender, as the director concerned.
A simple reading of the above elements
easily rejects Gos contention that the law penalizes a
bank director or officer only either for borrowing the
banks deposits or funds or for guarantying loans by
the bank, but not for acting in both capacities. The
essence of the crime is becoming an obligor of the
bank without securing the necessary written
approval of the majority of the banks directors.
The second element merely lists down the
various modes of committing the offense. The third

mode, by declaring that [no director or officer of any

banking institution shall xxx] in any manner be an
obligor for money borrowed from the bank or
loaned by it, in fact serves a catch-all phrase that
covers any situation when a director or officer of the
bank becomes its obligor. The prohibition is
directed against a bank director or officer who
becomes in any manner an obligor for money
borrowed from or loaned by the bank without the
written approval of the majority of the banks
board of directors. To make a distinction between
the act of borrowing and guarantying is therefore
unnecessary because in either situation, the director
or officer concerned becomes an obligor of the bank
against whom the obligation is juridically
demandable.
The language of the law is broad enough to
encompass either act of borrowing or guaranteeing,
or both. While the first paragraph of Section 83 is
penal in nature, and by principle should be strictly
construed in favor of the accused, the Court is
unwilling to adopt a liberal construction that would
defeat the legislatures intent in enacting the
statute.The objective of the law should allow for a
reasonable flexibility in its construction. Section 83
of RA 337, as well as other banking laws adopting
the same prohibition,[17] was enacted to ensure that
loans by banks and similar financial institutions to
their own directors, officers, and stockholders are
above board.[18] Banks were not created for the
benefit of their directors and officers; they cannot use
the assets of the bank for their own benefit, except as
may be permitted by law. Congress has thus deemed
it essential to impose restrictions on borrowings by
bank directors and officers in order to protect the
public, especially the depositors.[19] Hence, when the
law prohibits directors and officers of banking
institutions from becoming in any manner an obligor
of the bank (unless with the approval of the board),
the terms of the prohibition shall be the standards to
be applied to directors transactions such as those
involved in the present case.
Credit accommodation limit is not an exception nor
is it an element of the

offense

ceiling requirement does not dispense with the

approval requirement.

Contrary to Gos claims, the second

paragraph of Section 83, RA 337 does not provide for
an exception to a violation of the first paragraph
thereof, nor does it constitute as an element of the
offense charged. Section 83 of RA 337 actually
imposes three restrictions: approval, reportorial, and
ceiling requirements.

Evidently, the failure to observe the three

requirements under Section 83 paves the way for the
prosecution of three different offenses, each with its
own set of elements. A successful indictment for
failing to comply with the approval requirement will
not necessitate proof that the other two were likewise
not observed.

The approval requirement (found in the

first sentence of the first paragraph of the law) refers
to the written approval of the majority of the banks
board of directors required before bank directors and
officers can in any manner be an obligor for money
borrowed from or loaned by the bank. Failure to
secure the approval renders the bank director or
officer concerned liable for prosecution and, upon
conviction, subjects him to the penalty provided in
the third sentence of first paragraph of Section 83.

Rules of Court allow amendment of insufficient

Information
Assuming that the facts charged in the Information do
not constitute an offense, we find it erroneous for the
RTC to immediately order the dismissal of the
Information, without giving the prosecution a chance
to amend it. Section 4 of Rule 117 states:

The reportorial requirement, on the other

hand, mandates that any such approval should be
entered upon the records of the corporation, and a
copy of the entry be transmitted to the appropriate
supervising department. The reportorial requirement
is addressed to the bank itself, which, upon its failure
to do so, subjects it to quo warrantoproceedings
under Section 87 of RA 337.[20]
The ceiling requirement under the second
paragraph of Section 83 regulates the amount of
credit accommodations that banks may extend to
their directors or officers by limiting these to an
amount equivalent to the respective outstanding
deposits and book value of the paid-in capital
contribution in the bank. Again, this is a requirement
directed at the bank. In this light, a prosecution for
violation of the first paragraph of Section 83, such as
the one involved here, does not require an allegation
that the loan exceeded the legal limit. Even if the loan
involved is below the legal limit, a written approval
by the majority of the banks directors is still required;
otherwise, the bank director or officer who becomes
an obligor of the bank is liable. Compliance with the

SEC. 4. Amendment of complaint

or information.If the motion to quash
is based on an alleged defect of the
complaint or information which can be
cured by amendment, the court shall
order that an amendment be made.
If it is based on the ground that
the facts charged do not constitute
an offense, the prosecution shall be
given by the court an opportunity to
correct
the
defect
by
amendment. The motion shall be
granted if the prosecution fails to
make the amendment, or the
complaint or information still suffers
from the same defect despite the
amendment. [Emphasis supplied]
Although an Information may be defective because
the facts charged do not constitute an offense, the
dismissal of the case will not necessarily follow. The
Rules specifically require that the prosecution should
be given a chance to correct the defect; the court can
order the dismissal only upon the prosecutions failure
to do so. The RTCs failure to provide the prosecution
this opportunity twice[21] constitutes an arbitrary

exercise of power that was correctly addressed by the

CA through the certiorari petition. This defect in the
RTCs action on the case, while not central to the
issue before us, strengthens our conclusion that this
criminal case should be resolved through full-blown
trial on the merits.
WHEREFORE, we DENY the petitioners petition
for review on certiorari and AFFIRM the decision
of the Court of Appeals in CA-G.R. SP No. 79149,
promulgated on October 26, 2006, as well as its
resolution of June 4, 2007. The Regional Trial Court,
Branch 26, Manila is directed to PROCEED with the
hearing of Criminal Case No. 99-178551. Costs
against the petitioner.
SO ORDERED.

Republic of the Philippines

Supreme Court
Manila

WHEREFORE, premises
considered, the instant petition for
certiorari is hereby DENIED.[7]
Factual Antecedents

SECOND DIVISION
HILARIO P. SORIANO,
Petitioner,
- versus PEOPLE OF THE PHILIPPINES,
BANGKO SENTRAL NG
PILIPINAS (BSP), PHILIPPINE
DEPOSIT INSURANCE
CORPORATION (PDIC), PUBLIC
PROSECUTOR ANTONIO C.
BUAN, and STATE
PROSECUTOR ALBERTO R.
FONACIER,
Respondents. [1]
x------------------------------------------------------------------x
DECISION
DEL CASTILLO, J.:
A bank officer violates the DOSRI[2] law when he acquires
bank funds for his personal benefit, even if such acquisition
was facilitated by a fraudulent loan application. Directors,
officers, stockholders, and their related interests cannot be
allowed to interpose the fraudulent nature of the loan as a
defense to escape culpability for their circumvention of
Section 83 of Republic Act (RA) No. 337.[3]
Before us is a Petition for Review
on Certiorari[4] under Rule 45 of the Rules of Court,
assailing the September 26, 2003 Decision[5] and
the February 5, 2004 Resolution[6] of the Court of Appeals
(CA) in CA-G.R. SP No. 67657. The challenged Decision
disposed as follows:

Sometime in 2000, the Office of Special Investigation

(OSI) of the Bangko Sentral ng Pilipinas (BSP), through
G.R. No.
its officers,
162336[8] transmitted a letter[9] dated March 27, 2000 to
Jovencito Zuo, Chief State Prosecutor of the Department of
Justice (DOJ). The letter attached as annexes five
Present:
affidavits,[10] which would allegedly serve as bases for
filing criminal charges for Estafa thru Falsification of
CARPIO,
Commercial Documents, in relation to Presidential Decree
CORONA,
(PD) No. 1689,[11] and for Violation of Section 83 of RA
BRION,
337, as amended by PD 1795,[12] against, inter
DEL alia, petitioner herein Hilario P. Soriano. These five
PEREZ,
affidavits, along with other documents, stated that spouses
Enrico and Amalia Carlos appeared to have an outstanding
loan of P8 million with the Rural Bank of San Miguel
Promulgated:
(Bulacan), Inc. (RBSM), but had never applied for nor
received such loan; that it was petitioner, who was then
February
president
1, 2010of RBSM, who had ordered, facilitated, and
received the proceeds of the loan; and that the P8 million
loan had never been authorized by RBSM's Board of
Directors and no report thereof had ever been submitted to
the Department of Rural Banks, Supervision and
Examination Sector of the BSP. The letter of the OSI,
which was not subscribed under oath, ended with a request
that a preliminary investigation be conducted and the
corresponding criminal charges be filed against petitioner
at his last known address.
Acting on the letter-request and its annexes, State
Prosecutor Albert R. Fonacier proceeded with the
preliminary investigation. He issued a subpoena with the
witnesses affidavits and supporting documents attached,
and required petitioner to file his counter-affidavit. In due
course, the investigating officer issued a Resolution finding
probable cause and correspondingly filed two separate
informations against petitioner before the Regional Trial
Court (RTC) of Malolos, Bulacan.[13]
The first Information,[14] dated November 14, 2000 and
docketed as Criminal Case No. 237-M-2001, was for estafa
through falsification of commercial documents, under

Article 315, paragraph 1(b), of the Revised Penal Code

(RPC), in relation to Article 172 of the RPC and PD
1689. It basically alleged that petitioner and his co-accused,
in abuse of the confidence reposed in them as RBSM
officers, caused the falsification of a number of loan
documents, making it appear that one Enrico Carlos filled
up the same, and thereby succeeded in securing a loan and
converting the loan proceeds for their personal gain and
benefit.[15] The information reads:
That in or about the month of
April, 1997, and thereafter, in San
Miguel, Bulacan, and within the
jurisdiction of this Honorable Court,
the said accused HILARIO P.
SORIANO and ROSALINDA
ILAGAN, as principals by direct
participation, with unfaithfulness or
abuse of confidence and taking
advantage of their position as President
of the Rural Bank of San Miguel
(Bulacan), Inc. and Branch Manager of
the Rural Bank of San Miguel San
Miguel Branch [sic], a duly organized
banking institution under Philippine
Laws, conspiring, confederating and
mutually helping one another, did then
and there, willfully and feloniously
falsify loan documents consisting of
undated loan application/information
sheet, credit proposal dated April 14,
1997, credit proposal dated April 22,
1997, credit investigation report dated
April 15, 1997, promissory note dated
April 23, 1997, disclosure statement on
loan/credit transaction dated April 23,
1997, and other related documents, by
making it appear that one Enrico
Carlos
filled
up
the
application/information sheet and filed
the aforementioned loan documents
when in truth and in fact Enrico Carlos
did not participate in the execution of
said loan documents and that by virtue
of said falsification and with deceit and
intent to cause damage, the accused

succeeded in securing a loan in the

amount of eight million pesos
(PhP8,000,000.00) from the Rural
Bank of San Miguel San Ildefonso
branch in the name of Enrico Carlos
which amount of PhP8 million
representing the loan proceeds the
accused thereafter converted the same
amount to their own personal gain and
benefit, to the damage and prejudice of
the Rural Bank of San Miguel San
Ildefonso branch, its creditors, the
Bangko Sentral ng Pilipinas, and the
Philippine
Deposit
Insurance
Corporation.
CONTRARY TO LAW.[16]
The other Information[17] dated November 10, 2000 and
docketed as Criminal Case No. 238-M-2001, was for
violation of Section 83 of RA 337, as amended by PD
1795. The said provision refers to the prohibition against
the so-called DOSRI loans. The information alleged that, in
his capacity as President of RBSM, petitioner indirectly
secured an P8 million loan with RBSM, for his personal
use and benefit, without the written consent and approval
of the bank's Board of Directors, without entering the said
transaction in the bank's records, and without transmitting a
copy of the transaction to the supervising department of the
bank. His ruse was facilitated by placing the loan in the
name of an unsuspecting RBSM depositor, one Enrico
Carlos.[18] The information reads:
That in or about the month of
April, 1997, and thereafter, and within
the jurisdiction of this Honorable
Court, the said accused, in his capacity
as President of the Rural Bank of San
Miguel (Bulacan), Inc., did then and
there, willfully and feloniously
indirectly borrow or secure a loan with
the Rural Bank of San Miguel San
Ildefonso branch, a domestic rural
banking institution created, organized
and existing under Philippine laws,
amounting to eight million pesos
(PhP8,000,000.00), knowing fully well

that the same has been done by him

without the written consent and
approval of the majority of the board of
directors of the said bank, and which
consent and approval the said accused
deliberately failed to obtain and enter
the same upon the records of said
banking institution and to transmit a
copy thereof to the supervising
department of the said bank, as
required by the General Banking Act,
by using the name of one depositor
Enrico Carlos of San Miguel, Bulacan,
the latter having no knowledge of the
said loan, and one in possession of the
said amount of eight million pesos
(PhP8,000,000.00), accused converted
the same to his own personal use and
benefit, in flagrant violation of the said
law.

of the RPC is inherently incompatible with the violation of

DOSRI law (as set out in Section 83[23] of RA 337, as
amended by PD 1795),[24] hence a person cannot be
charged for both offenses. He argued that a violation of
DOSRI law requires the offender to obtain a loan from
his bank, without complying with procedural, reportorial,
or ceiling requirements. On the other hand, estafa under
par. 1(b), Article 315 of the RPC requires the offender to
misappropriate or convert something that he holds in
trust, or on commission, or for administration, or under
any other obligation involving the duty to return the same.
[25]

Essentially, the petitioner theorized that the

characterization of possession is different in the two
offenses. If petitioner acquired the loan as DOSRI, he
owned the loaned money and therefore, cannot
misappropriate or convert it as contemplated in the offense
of estafa. Conversely, if petitioner committed estafa, then
he merely held the money in trust for someone else and
therefore, did not acquire a loan in violation of DOSRI
rules.

CONTRARY TO LAW.[19]
Both cases were raffled to Branch 79 of the RTC
of Malolos, Bulacan.[20]
[21]

On June 8, 2001, petitioner moved to quash these

informations on two grounds: that the court had no
jurisdiction over the offense charged, and that the facts
charged do not constitute an offense.
On the first ground, petitioner argued that the letter
transmitted by the BSP to the DOJ constituted the
complaint and hence was defective for failure to comply
with the mandatory requirements of Section 3(a), Rule 112
of the Rules of Court, such as the statement of address of
petitioner and oath and subscription.[22] Moreover,
petitioner argued that the officers of OSI, who were the
signatories to the letter-complaint, were not authorized by
the BSP Governor, much less by the Monetary Board, to
file the complaint. According to petitioner, this alleged fatal
oversight violated Section 18, pars. (c) and (d) of the New
Central Bank Act (RA 7653).
On the second ground, petitioner contended that the
commission of estafa under paragraph 1(b) of Article 315

Ruling of the Regional Trial Court

In an Order[26] dated August 8, 2001, the trial court denied
petitioner's Motion to Quash for lack of merit. The lower
court agreed with the prosecution that the assailed OSI
letter was not the complaint-affidavit itself; thus, it need
not comply with the requirements under the Rules of
Court. The trial court held that the affidavits, which were
attached to the OSI letter, comprised the complaintaffidavit in the case. Since these affidavits were duly
subscribed and sworn to before a notary public, there was
adequate compliance with the Rules. The trial court further
held that the two offenses were separate and distinct
violations, hence the prosecution of one did not pose a bar
to the other.[27]
Petitioners Motion for Reconsideration was
likewise denied in an Order dated September 5, 2001.[28]
Aggrieved, petitioner filed a Petition for Certiorari[29] with
the CA, reiterating his arguments before the trial court.
Ruling of the Court of Appeals

The CA denied the petition on both issues presented by

petitioner.
On the first issue, the CA determined that the BSP letter,
which petitioner characterized to be a fatally infirm
complaint, was not actually a complaint, but a transmittal
or cover letter only. This transmittal letter merely contained
a summary of the affidavits which were attached to it. It
did not contain any averment of personal knowledge of the
events and transactions that constitute the elements of the
offenses charged. Being a mere transmittal letter, it need
not comply with the requirements of Section 3(a) of Rule
112 of the Rules of Court.[30]
The CA further determined that the five affidavits attached
to the transmittal letter should be considered as the
complaint-affidavits that charged petitioner with violation
of Section 83 of RA 337 and for Estafa thru Falsification of
Commercial Documents. These complaint-affidavits
complied with the mandatory requirements set out in the
Rules of Court they were subscribed and sworn to before a
notary public and subsequently certified by State
Prosecutor Fonacier, who personally examined the affiants
and was convinced that the affiants fully understood their
sworn statements.[31]
Anent the second ground, the CA found no merit in
petitioner's argument that the violation of the DOSRI law
and the commission of estafa thru falsification of
commercial documents are inherently inconsistent with
each other. It explained that the test in considering a motion
to quash on the ground that the facts charged do not
constitute an offense, is whether the facts alleged, when
hypothetically admitted, constitute the elements of the
offense charged. The appellate court held that this test was
sufficiently met because the allegations in the assailed
informations, when hypothetically admitted, clearly
constitute the elements of Estafa thru Falsification of
Commercial Documents and Violation of DOSRI law.[32]
Petitioners Motion for Reconsideration[33] was likewise
denied for lack of merit.
Hence, this petition.

Issues
Restated, petitioner raises the following issues[34] for our
consideration:
I
Whether the complaint complied with
the mandatory requirements provided
under Section 3(a), Rule 112 of the
Rules of Court and Section 18,
paragraphs (c) and (d) of RA 7653.
II
Whether a loan transaction within the
ambit of the DOSRI law (violation of
Section 83 of RA 337, as amended)
could also be the subject of Estafa
under Article 315 (1) (b) of the Revised
Penal Code.
III
Is a petition for certiorari under Rule 65
the proper remedy against an Order
denying a Motion to Quash?
IV
Whether petitioner is entitled to a writ
of injunction.
Our Ruling
The petition lacks merit.
First Issue:
Whether the complaint complied
with the mandatory requirements
provided under Section 3(a), Rule
112 of the Rules of Court and
Section 18, paragraphs (c) and (d) of
Republic Act No. 7653
Petitioner moved to withdraw the first issue from the
instant petition

On March 5, 2007, the Court noted[35] petitioner's

Manifestation and Motion for Partial Withdrawal of the
Petition[36] dated February 7, 2007. In the said motion,
petitioner informed the Court of the promulgation of a
Decision entitled Soriano v. Hon. Casanova,[37] which also
involved petitioner and similar BSP letters to the
DOJ. According to petitioner, the said Decision allegedly
ruled squarely on the nature of the BSP letters and the
validity of the sworn affidavits attached thereto. For this
reason, petitioner moved for the partial withdrawal of the
instant petition insofar as it involved the issue of whether or
not a court can legally acquire jurisdiction over a complaint
which failed to comply with the mandatory requirements
provided under Section 3(a), Rule 112 of the Rules of
Court and Section 18, paragraphs (c) and (d) of RA 7653.
[38]

Given that the case had already been submitted for

resolution of the Court when petitioner filed his latest
motion, and that all respondents had presented their
positions and arguments on the first issue, the Court deems
it proper to rule on the same.
In Soriano v. Hon. Casanova, the Court held that
the affidavits attached to the BSP transmittal letter
complied with the mandatory requirements under the Rules
of Court.
To be sure, the BSP letters involved in Soriano v. Hon.
Casanova[39] are not the same as the BSP letter involved in
the instant case. However, the BSP letters in Soriano v.
Hon. Casanova and the BSP letter subject of this case are
similar in the sense that they are all signed by the OSI
officers of the BSP, they were not sworn to by the said
officers, they all contained summaries of their attached
affidavits, and they all requested the conduct of a
preliminary investigation and the filing of corresponding
criminal charges against petitioner Soriano. Thus, the
principle of stare decisis dictates that the ruling in Soriano
v. Hon. Casanova be applied in the instant case once a
question of law has been examined and decided, it should
be deemed settled and closed to further argument.[40]
We held in Soriano v. Hon. Casanova, after a
close scrutiny of the letters transmitted by the BSP to the

DOJ, that these were not intended to be the complaint, as

envisioned under the Rules. They did not contain
averments of personal knowledge of the events and
transactions constitutive of any offense. The letters merely
transmitted for preliminary investigation the affidavits of
people who had personal knowledge of the acts of
petitioner. We ruled that these affidavits, not the letters
transmitting
them,
initiated
the
preliminary
investigation. Since these affidavits were subscribed under
oath by the witnesses who executed them before a notary
public, then there was substantial compliance with Section
3(a), Rule 112 of the Rules of Court.
Anent the contention that there was no authority from the
BSP Governor or the Monetary Board to file a criminal
case against Soriano, we held that the requirements of
Section 18, paragraphs (c) and (d) of RA 7653 did not
apply because the BSP did not institute the complaint but
merely transmitted the affidavits of the complainants to the
DOJ.
We further held that since the offenses for which Soriano
was charged were public crimes, authority holds that it can
be initiated by any competent person with personal
knowledge of the acts committed by the offender. Thus, the
witnesses who executed the affidavits clearly fell within the
purview of any competent person who may institute the
complaint for a public crime.
The ruling in Soriano v. Hon. Casanova has been
adopted and elaborated upon in the recent case of SantosConcio v. Department of Justice.[41] Instead of a transmittal
letter from the BSP, the Court in Santos-Concio was faced
with an NBI-NCR Report, likewise with affidavits of
witnesses as attachments. Ruling on the validity of the
witnesses sworn affidavits as bases for a preliminary
investigation, we held:
The Court is not unaware of
the practice of incorporating all
allegations
in
one
document
denominated as complaint-affidavit. It
does not pronounce strict adherence to
only one approach, however, for there
are cases where the extent of ones
personal knowledge may not cover the
entire gamut of details material to the

alleged offense. The private offended

party or relative of the deceased may
not even have witnessed the fatality, in
which case the peace officer or law
enforcer has to rely chiefly on affidavits
of witnesses. The Rules do not in fact
preclude the attachment of a referral or
transmittal letter similar to that of the
NBI-NCR. Thus, in Soriano v.
Casanova, the Court held:
A close
scrutiny
of
the letters
transmitted by the
BSP and PDIC to
the DOJ shows that
these were not inte
nded
to
be the complaint
envisioned under
the Rules. It may
be clearly inferred
from the tenor of
the letters that the
officers
merely
intended
to
transmit
the
affidavits of the
bank employees to
the DOJ. Nowhere
in the transmittal
letters is there any
averment on the
part of the BSP and
PDIC officers of
personal
knowledge of the
events
and
transactions
constitutive of the
criminal violations
alleged to have
been made by the
accused. In fact,
the letters clearly

stated that what the

OSI of the BSP and
the LIS of the
PDIC did was to
respectfully
transmit to the DOJ
for
preliminary
investigation the
affidavits
and
personal
knowledge of the
acts
of
the
petitioner. These
affidavits
were
subscribed under
oath
by
the
witnesses
who
executed
them
before a notary
public. Since the
affidavits,
not
the
letters
transmitting them,
were
intended
to initiate the
preliminary
investigation, we
hold that Section
3(a), Rule 112 of
the Rules of Court
was substantially
complied with.
Citing the
ruling of this Court
in Ebarle
v.
Sucaldito,
the
Court of Appeals
correctly
held
that a complaint
for purposes of
preliminary
investigation by the
fiscal need not be
filed
by
the
offended

party. The
rule
has
been
that, unless
the
offense
subject
thereof is one that
cannot
be
prosecuted de
oficio, the same
may be filed, for
preliminary
investigation
purposes, by any
competent person.
The crime of
estafa is a public
crime which can be
initiated by any
competent person.
The witnesses who
executed
the
affidavits based on
their
personal
knowledge of the
acts committed by
the petitioner fall
within the purview
of any competent
person who may
institute
the
complaint for a
public crime. x x
x (Emphasis and
italics supplied)
A preliminary investigation
can thus validly proceed on the basis of
an affidavit of any competent person,
without the referral document, like the
NBI-NCR Report, having been sworn
to by the law enforcer as the nominal
complainant. To require otherwise is a
needless exercise. The cited case
of Oporto, Jr. v. Judge Monserate does
not appear to dent this proposition.
After all, what is required is to reduce
the evidence into affidavits, for while

reports and even raw information may

justify the initiation of an investigation,
the preliminary investigation stage can
be held only after sufficient evidence
has been gathered and evaluated which
may warrant the eventual prosecution
of the case in court.[42]

In Criminal Case No. 238-M-2001 for violation of DOSRI

rules, the information alleged that petitioner Soriano was
the president of RBSM; that he was able to indirectly
obtain a loan from RBSM by putting the loan in the name
of depositor Enrico Carlos; and that he did this without
complying with the requisite board approval, reportorial,
and ceiling requirements.

Following the foregoing rulings in Soriano v. Hon.

Casanova and Santos-Concio v. Department of Justice, we
hold that the BSP letter, taken together with the affidavits
attached thereto, comply with the requirements provided
under Section 3(a), Rule 112 of the Rules of Court and
Section 18, paragraphs (c) and (d) of RA 7653.
Second Issue:

In Criminal Case No. 237-M-2001 for estafa thru

falsification of commercial documents, the information
alleged that petitioner, by taking advantage of his position
as president of RBSM, falsified various loan documents to
make it appear that an Enrico Carlos secured a loan of P8
million from RBSM; that petitioner succeeded in obtaining
the loan proceeds; that he later converted the loan proceeds
to his own personal gain and benefit; and that his action
caused damage and prejudice to RBSM, its creditors, the
BSP, and the PDIC.

Whether a loan transaction within

the ambit of the DOSRI law
(violation of Section 83 of RA 337, as
amended) could be the subject of
Estafa under Article 315 (1) (b) of
the
Revised Penal Code
The second issue was raised by petitioner in the
context of his Motion to Quash Information on the ground
that the facts charged do not constitute an offense.[43] It is
settled that in considering a motion to quash on such
ground, the test is whether the facts alleged, if
hypothetically admitted, would establish the essential
elements of the offense charged as defined by law.The trial
court may not consider a situation contrary to that set forth
in the criminal complaint or information. Facts that
constitute the defense of the petitioner[s] against the charge
under the information must be proved by [him] during trial.
Such facts or circumstances do not constitute proper
grounds for a motion to quash the information on the
ground that the material averments do not constitute the
offense. [44]
We have examined the two informations against petitioner
and we find that they contain allegations which, if
hypothetically admitted, would establish the essential
elements of the crime of DOSRI violation and estafa thru
falsification of commercial documents.

Significantly, this is not the first occasion that we adjudge

the
sufficiency
of
similarly
worded
informations. In Soriano v. People,[45] involving the same
petitioner in this case (but different transactions), we also
reviewed the sufficiency of informations for DOSRI
violation and estafa thru falsification of commercial
documents, which were almost identical, mutatis mutandis,
with the subject informations herein. We held in Soriano v.
People that there is no basis for the quashal of the
informations as they contain material allegations charging
Soriano with violation of DOSRI rules and estafa thru
falsification of commercial documents.
Petitioner raises the theory that he could not
possibly be held liable for estafa in concurrence with the
charge for DOSRI violation. According to him, the DOSRI
charge presupposes that he acquired a loan, which would
make the loan proceeds his own money and which he
could neither possibly misappropriate nor convert to the
prejudice of another, as required by the statutory definition
of estafa.[46] On the other hand, if petitioner did not acquire
any loan, there can be no DOSRI violation to speak
of. Thus, petitioner posits that the two offenses cannot coexist. This theory does not persuade us.
Petitioners theory is based on the false premises
that the loan was extended to him by the bank in his own

name, and that he became the owner of the loan

proceeds. Both premises are wrong.
The bank money (amounting to P8 million)
which came to the possession of petitioner was money held
in trust or administration by him for the bank, in his
fiduciary capacity as the President of said bank.[47] It is not
accurate to say that petitioner became the owner of the P8
million because it was the proceeds of a loan. That would
have been correct if the bank knowingly extended the loan
to petitioner himself. But that is not the case
here. According to the information for estafa, the loan was
supposed to be for another person, a certain Enrico Carlos;
petitioner, through falsification, made it appear that said
Enrico Carlos applied for the loan when in fact he (Enrico
Carlos) did not. Through such fraudulent device, petitioner
obtained the loan proceeds and converted the same. Under
these circumstances, it cannot be said that petitioner
became the legal owner of the P8 million. Thus, petitioner
remained the banks fiduciary with respect to that money,
which makes it capable of misappropriation or conversion
in his hands.
The next question is whether there can also be, at
the same time, a charge for DOSRI violation in such a
situation wherein the accused bank officer did not secure a
loan in his own name, but was alleged to have used the
name of another person in order to indirectly secure a loan
from the bank. We answer this in the affirmative. Section
83 of RA 337 reads:
Section 83. No director or
officer of any banking institution shall,
either directly or indirectly, for himself
or as the representative or agent of
others, borrow any of the deposits of
funds of such bank, nor shall he
become a guarantor, indorser, or surety
for loans from such bank to others, or
in any manner be an obligor for
moneys borrowed from the bank or
loaned by it, except with the written
approval of the majority of the directors
of the bank, excluding the director
concerned. Any such approval shall be

entered upon the records of the

corporation and a copy of such entry
shall be transmitted forthwith to the
Superintendent of Banks. The office of
any director or officer of a bank who
violates the provisions of this section
shall immediately become vacant and
the director or officer shall be punished
by imprisonment of not less than one
year nor more than ten years and by a
fine of not less than one thousand nor
more than ten thousand pesos. x x x

indirectly borrow[ed] or secure[d] a loan with [RBSM] x x

x knowing fully well that the same has been done by him
without the written consent and approval of the majority of
the board of directors x x x, and which consent and
approval the said accused deliberately failed to obtain and
enter the same upon the records of said banking institution
and to transmit a copy thereof to the supervising
department of the said bank x x x by using the name of one
depositor Enrico Carlos x x x, the latter having no
knowledge of the said loan, and once in possession of the
said amount of eight million pesos (P8 million), [petitioner]
converted the same to his own personal use and benefit.[53]

The prohibition in Section 83 is broad enough to cover

various modes of borrowing.[48] It covers loans by a bank
director or officer (like herein petitioner) which are made
either: (1) directly, (2) indirectly, (3) for himself, (4) or as
the representative or agent of others. It applies even if the
director or officer is a mere guarantor, indorser or surety for
someone else's loan or is in any manner an obligor for
money borrowed from the bank or loaned by it. The
covered transactions are prohibited unless the approval,
reportorial and ceiling requirements under Section 83 are
complied with. The prohibition is intended to protect the
public, especially the depositors,[49] from the overborrowing
of bank funds by bank officers, directors, stockholders and
related interests, as such overborrowing may lead to bank
failures.[50] It has been said that banking institutions are not
created for the benefit of the directors [or officers]. While
directors have great powers as directors, they have no
special privileges as individuals. They cannot use the assets
of the bank for their own benefit except as permitted by
law. Stringent restrictions are placed about them so that
when acting both for the bank and for one of themselves at
the same time, they must keep within certain prescribed
lines regarded by the legislature as essential to safety in the
banking business.[51]

The foregoing information describes the manner

of securing the loan as indirect; names petitioner as the
benefactor of the indirect loan; and states that the
requirements of the law were not complied with. It contains
all the required elements[54] for a violation of Section 83,
even if petitioner did not secure the loan in his own name.
The broad interpretation of the prohibition in
Section 83 is justified by the fact that it
even expressly covers loans to third parties where the third
parties are aware of the transaction (such as principals
represented by the DOSRI), and where the DOSRIs
interest does not appear to be beneficial but even
burdensome (such as in cases when the DOSRI acts as a
mere guarantor or surety). If the law finds it necessary to
protect the bank and the banking system in such situations,
it will surely be illogical for it to exclude a case like this
where the DOSRI acted for his own benefit, using
the name of an unsuspecting person. A contrary
interpretation will effectively allow a DOSRI to use
dummies to circumvent the requirements of the law.
In sum, the informations filed against petitioner
do not negate each other.
Third Issue:

A direct borrowing is obviously one that is made

in the name of the DOSRI himself or where the DOSRI is
a named party, while an indirect borrowing includes one
that is made by a third party, but the DOSRI has a stake in
the transaction.[52] The latter type indirect borrowing
applies here. The information in Criminal Case 238-M2001 alleges that petitioner in his capacity as President of
Rural Bank of San Miguel San Ildefonso branch x x x

Is a Rule 65 petition for certiorari the proper remedy

against
an Order denying a Motion to Quash?
This issue may be speedily resolved by adopting our ruling
in Soriano v. People,[55] where we held:

In fine, the Court has

consistently held that a special civil
action for certiorari is not the proper
remedy to assail the denial of a motion
to quash an information. The proper
procedure in such a case is for the
accused to enter a plea, go to trial
without prejudice on his part to present
the special defenses he had invoked in
his motion to quash and if after trial on
the merits, an adverse decision is
rendered, to appeal therefrom in the
manner authorized by law. Thus,
petitioners should not have forthwith
filed a special civil action
for certiorari with the CA and instead,
they should have gone to trial and
reiterated the special defenses
contained in their motion to quash.
There are no special or exceptional
circumstances in the present case that
would justify immediate resort to a
filing of a petition for certiorari.
Clearly, the CA did not commit any
reversible error, much less, grave abuse
of discretion in dismissing the petition.
[56]

Fourth Issue:
Whether petitioner is entitled to a
writ of injunction
The requisites to justify an injunctive relief are: (1) the right
of the complainant is clear and unmistakable; (2) the
invasion of the right sought to be protected is material and
substantial; and (3) there is an urgent and paramount
necessity for the writ to prevent serious damage. A clear
legal right means one clearly founded in or granted by law
or is enforceable as a matter of law. Absent any clear and
unquestioned legal right, the issuance of an injunctive writ
would constitute grave abuse of discretion.[57] Caution and
prudence must, at all times, attend the issuance of an
injunctive writ because it effectively disposes of the main
case without trial and/or due process.[58] In Olalia v. Hizon,
[59]
the Court held as follows:

It has been consistently held

that there is no power the exercise of
which is more delicate, which requires
greater caution, deliberation and sound
discretion, or more dangerous in a
doubtful case, than the issuance of an
injunction. It is the strong arm of equity
that should never be extended unless to
cases of great injury, where courts of
law cannot afford an adequate or
commensurate remedy in damages.
Every
court
should
remember that an injunction is a
limitation upon the freedom of action
of the [complainant] and should not be
granted lightly or precipitately. It
should be granted only when the court
is fully satisfied that the law permits it
and the emergency demands it.
Given this Court's findings in the earlier issues of the
instant case, we find no compelling reason to grant the
injunctive relief sought by petitioner.
WHEREFORE, the
petition
is DENIED. The assailed September 26, 2003 Decision
as well as the February 5, 2004 Resolution of the Court of
Appeals
in
CA-G.R.
SP
No.
67657
are AFFIRMED. Costs against petitioner.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 155001
May 5, 2003
DEMOSTHENES P. AGAN, JR., JOSEPH B.
CATAHAN, JOSE MARI B. REUNILLA,
MANUEL ANTONIO B. BOE, MAMERTO S.
CLARA, REUEL E. DIMALANTA, MORY V.
DOMALAON, CONRADO G. DIMAANO,
LOLITA R. HIZON, REMEDIOS P. ADOLFO,
BIENVENIDO C. HILARIO, MIASCOR
WORKERS UNION - NATIONAL LABOR
UNION (MWU-NLU), and PHILIPPINE
AIRLINES EMPLOYEES ASSOCIATION
(PALEA), petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR
TERMINALS CO., INC., MANILA
INTERNATIONAL AIRPORT AUTHORITY,
DEPARTMENT OF TRANSPORTATION AND
COMMUNICATIONS and SECRETARY
LEANDRO M. MENDOZA, in his capacity as
Head of the Department of Transportation and
Communications, respondents,
MIASCOR GROUNDHANDLING
CORPORATION, DNATA-WINGS AVIATION
SYSTEMS CORPORATION, MACROASIAEUREST SERVICES, INC., MACROASIAMENZIES AIRPORT SERVICES
CORPORATION, MIASCOR CATERING
SERVICES CORPORATION, MIASCOR
AIRCRAFT MAINTENANCE CORPORATION,
and MIASCOR LOGISTICS
CORPORATION, petitioners-in-intervention,
x---------------------------------------------------------x
G.R. No. 155547 May 5, 2003
SALACNIB F. BATERINA, CLAVEL A.
MARTINEZ and CONSTANTINO G.
JARAULA, petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR
TERMINALS CO., INC., MANILA
INTERNATIONAL AIRPORT AUTHORITY,
DEPARTMENT OF TRANSPORTATION AND
COMMUNICATIONS, DEPARTMENT OF

PUBLIC WORKS AND HIGHWAYS,

SECRETARY LEANDRO M. MENDOZA, in his
capacity as Head of the Department of
Transportation and Communications, and
SECRETARY SIMEON A. DATUMANONG, in
his capacity as Head of the Department of Public
Works and Highways, respondents,
JACINTO V. PARAS, RAFAEL P. NANTES,
EDUARDO C. ZIALCITA, WILLY BUYSON
VILLARAMA, PROSPERO C. NOGRALES,
PROSPERO A. PICHAY, JR., HARLIN CAST
ABAYON, and BENASING O.
MACARANBON, respondents-intervenors,
x---------------------------------------------------------x
G.R. No. 155661 May 5, 2003
CEFERINO C. LOPEZ, RAMON M. SALES,
ALFREDO B. VALENCIA, MA. TERESA V.
GAERLAN, LEONARDO DE LA ROSA, DINA
C. DE LEON, VIRGIE CATAMIN RONALD
SCHLOBOM, ANGELITO SANTOS, MA.
LUISA M. PALCON and SAMAHANG
MANGGAGAWA SA PALIPARAN NG
PILIPINAS (SMPP), petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR
TERMINALS CO., INC., MANILA
INTERNATIONAL AIRPORT AUTHORITY,
DEPARTMENT OF TRANSPORTATION AND
COMMUNICATIONS, SECRETARY LEANDRO
M. MENDOZA, in his capacity as Head of the
Department of Transportation and
Communications, respondents.
PUNO, J.:
Petitioners and petitioners-in-intervention filed the
instant petitions for prohibition under Rule 65 of the
Revised Rules of Court seeking to prohibit the
Manila International Airport Authority (MIAA) and
the Department of Transportation and
Communications (DOTC) and its Secretary from
implementing the following agreements executed by
the Philippine Government through the DOTC and
the MIAA and the Philippine International Air
Terminals Co., Inc. (PIATCO): (1) the Concession
Agreement signed on July 12, 1997, (2) the Amended
and Restated Concession Agreement dated November
26, 1999, (3) the First Supplement to the Amended

and Restated Concession Agreement dated August

27, 1999, (4) the Second Supplement to the Amended
and Restated Concession Agreement dated September
4, 2000, and (5) the Third Supplement to the
Amended and Restated Concession Agreement dated
June 22, 2001 (collectively, the PIATCO Contracts).
The facts are as follows:
In August 1989, the DOTC engaged the
services of Aeroport de Paris (ADP) to
conduct a comprehensive study of the Ninoy
Aquino International Airport (NAIA) and
determine whether the present airport can
cope with the traffic development up to the
year 2010. The study consisted of two parts:
first, traffic forecasts, capacity of existing
facilities, NAIA future requirements,
proposed master plans and development
plans; and second, presentation of the
preliminary design of the passenger terminal
building. The ADP submitted a Draft Final
Report to the DOTC in December 1989.
Some time in 1993, six business leaders
consisting of John Gokongwei, Andrew
Gotianun, Henry Sy, Sr., Lucio Tan, George
Ty and Alfonso Yuchengco met with then
President Fidel V. Ramos to explore the
possibility of investing in the construction
and operation of a new international airport
terminal. To signify their commitment to
pursue the project, they formed the Asia's
Emerging Dragon Corp. (AEDC) which was
registered with the Securities and Exchange
Commission (SEC) on September 15, 1993.
On October 5, 1994, AEDC submitted an
unsolicited proposal to the Government
through the DOTC/MIAA for the
development of NAIA International
Passenger Terminal III (NAIA IPT III) under
a build-operate-and-transfer arrangement
pursuant to RA 6957 as amended by RA
7718 (BOT Law).1
On December 2, 1994, the DOTC issued Dept. Order
No. 94-832 constituting the Prequalification Bids and
Awards Committee (PBAC) for the implementation
of the NAIA IPT III project.

On March 27, 1995, then DOTC Secretary Jose

Garcia endorsed the proposal of AEDC to the
National Economic and Development Authority
(NEDA). A revised proposal, however, was
forwarded by the DOTC to NEDA on December 13,
1995. On January 5, 1996, the NEDA Investment
Coordinating Council (NEDA ICC) Technical
Board favorably endorsed the project to the ICC
Cabinet Committee which approved the same, subject
to certain conditions, on January 19, 1996. On
February 13, 1996, the NEDA passed Board
Resolution No. 2 which approved the NAIA IPT III
project.
On June 7, 14, and 21, 1996, DOTC/MIAA caused
the publication in two daily newspapers of an
invitation for competitive or comparative proposals
on AEDC's unsolicited proposal, in accordance with
Sec. 4-A of RA 6957, as amended. The alternative
bidders were required to submit three (3) sealed
envelopes on or before 5:00 p.m. of September 20,
1996. The first envelope should contain the
Prequalification Documents, the second envelope the
Technical Proposal, and the third envelope the
Financial Proposal of the proponent.
On June 20, 1996, PBAC Bulletin No. 1 was issued,
postponing the availment of the Bid Documents and
the submission of the comparative bid proposals.
Interested firms were permitted to obtain the Request
for Proposal Documents beginning June 28, 1996,
upon submission of a written application and
payment of a non-refundable fee of P50,000.00
(US$2,000).
The Bid Documents issued by the PBAC provided
among others that the proponent must have adequate
capability to sustain the financing requirement for the
detailed engineering, design, construction, operation,
and maintenance phases of the project. The proponent
would be evaluated based on its ability to provide a
minimum amount of equity to the project, and its
capacity to secure external financing for the project.
On July 23, 1996, the PBAC issued PBAC Bulletin
No. 2 inviting all bidders to a pre-bid conference on
July 29, 1996.
On August 16, 1996, the PBAC issued PBAC
Bulletin No. 3 amending the Bid Documents. The

following amendments were made on the Bid

Documents:
a. Aside from the fixed Annual Guaranteed
Payment, the proponent shall include in its
financial proposal an additional percentage
of gross revenue share of the Government,
as follows:
i. First 5 years
ii. Next 10 years
iii. Next 10 years
b. The amount of the fixed Annual
Guaranteed Payment shall be subject of the
price challenge. Proponent may offer an
Annual Guaranteed Payment which need not
be of equal amount, but payment of which
shall start upon site possession.
c. The project proponent must have adequate
capability to sustain the financing
requirement for the detailed engineering,
design, construction, and/or operation and
maintenance phases of the project as the
case may be. For purposes of prequalification, this capability shall be
measured in terms of:
i. Proof of the availability of the
project proponent and/or the
consortium to provide the
minimum amount of equity for the
project; and
ii. a letter testimonial from
reputable banks attesting that the
project proponent and/or the
members of the consortium are
banking with them, that the project
proponent and/or the members are
of good financial standing, and
have adequate resources.
d. The basis for the prequalification shall be
the proponent's compliance with the
minimum technical and financial
requirements provided in the Bid
Documents and the IRR of the BOT Law.
The minimum amount of equity shall be
30% of the Project Cost.

e. Amendments to the draft Concession

Agreement shall be issued from time to
time. Said amendments shall only cover
items that would not materially affect the
preparation of the proponent's proposal.
On August 29, 1996, the Second Pre-Bid Conference
was held where certain clarifications were made.
Upon the request of prospective bidder People's Air
Cargo & Warehousing Co., Inc (Paircargo), the
PBAC warranted that based on Sec. 11.6, Rule 11 of
the Implementing Rules and Regulations of the BOT
Law, only the proposed Annual Guaranteed Payment
submitted by the challengers would be revealed to
AEDC, and that the challengers' technical and
financial proposals would remain confidential. The
PBAC also clarified that the list of revenue sources
contained in Annex 4.2a of the Bid Documents was
merely indicative and that other revenue sources may
be included by the proponent, subject to approval by
DOTC/MIAA. Furthermore, the PBAC clarified that
only those fees and charges denominated as Public
Utility Fees would be subject to regulation, and those
charges which would be actually deemed Public
Utility Fees could still be revised, depending on the
outcome of PBAC's query on the matter with the
Department of Justice.
In September 1996, the PBAC issued Bid Bulletin
No. 5, entitled "Answers to the Queries of
PAIRCARGO as Per Letter Dated September 3 and
10, 1996." Paircargo's queries and the PBAC's
responses were as follows:
1. It is difficult for Paircargo and Associates
to meet the required minimum equity
requirement as prescribed in Section 8.3.4
of the Bid Documents considering that the
capitalization of each member company is
so structured to meet the requirements and
needs of their current respective business
undertaking/activities. In order to comply
with this equity requirement, Paircargo is
requesting PBAC to just allow each member
of (sic) corporation of the Joint Venture to
just execute an agreement that embodies a
commitment to infuse the required capital in
case the project is awarded to the Joint
Venture instead of increasing each

corporation's current authorized capital

stock just for prequalification purposes.
In prequalification, the agency is interested
in one's financial capability at the time of
prequalification, not future or potential
capability.
A commitment to put up equity once
awarded the project is not enough to
establish that "present" financial capability.
However, total financial capability of all
member companies of the Consortium, to be
established by submitting the respective
companies' audited financial statements,
shall be acceptable.
2. At present, Paircargo is negotiating with
banks and other institutions for the
extension of a Performance Security to the
joint venture in the event that the
Concessions Agreement (sic) is awarded to
them. However, Paircargo is being required
to submit a copy of the draft concession as
one of the documentary requirements.
Therefore, Paircargo is requesting that
they'd (sic) be furnished copy of the
approved negotiated agreement between the
PBAC and the AEDC at the soonest possible
time.
A copy of the draft Concession Agreement is
included in the Bid Documents. Any
material changes would be made known to
prospective challengers through bid
bulletins. However, a final version will be
issued before the award of contract.
The PBAC also stated that it would require AEDC to
sign Supplement C of the Bid Documents
(Acceptance of Criteria and Waiver of Rights to
Enjoin Project) and to submit the same with the
required Bid Security.
On September 20, 1996, the consortium composed of
People's Air Cargo and Warehousing Co., Inc.
(Paircargo), Phil. Air and Grounds Services, Inc.
(PAGS) and Security Bank Corp. (Security Bank)
(collectively, Paircargo Consortium) submitted their
competitive proposal to the PBAC. On September 23,
1996, the PBAC opened the first envelope containing
the prequalification documents of the Paircargo

Consortium. On the following day, September 24,

1996, the PBAC prequalified the Paircargo
Consortium.
On September 26, 1996, AEDC informed the PBAC
in writing of its reservations as regards the Paircargo
Consortium, which include:
a. The lack of corporate approvals and
financial capability of PAIRCARGO;
b. The lack of corporate approvals and
financial capability of PAGS;
c. The prohibition imposed by RA 337, as
amended (the General Banking Act) on the
amount that Security Bank could legally
invest in the project;
d. The inclusion of Siemens as a contractor
of the PAIRCARGO Joint Venture, for
prequalification purposes; and
e. The appointment of Lufthansa as the
facility operator, in view of the Philippine
requirement in the operation of a public
utility.
The PBAC gave its reply on October 2, 1996,
informing AEDC that it had considered the issues
raised by the latter, and that based on the documents
submitted by Paircargo and the established
prequalification criteria, the PBAC had found that the
challenger, Paircargo, had prequalified to undertake
the project. The Secretary of the DOTC approved the
finding of the PBAC.
The PBAC then proceeded with the opening of the
second envelope of the Paircargo Consortium which
contained its Technical Proposal.
On October 3, 1996, AEDC reiterated its objections,
particularly with respect to Paircargo's financial
capability, in view of the restrictions imposed by
Section 21-B of the General Banking Act and
Sections 1380 and 1381 of the Manual Regulations
for Banks and Other Financial Intermediaries. On
October 7, 1996, AEDC again manifested its
objections and requested that it be furnished with
excerpts of the PBAC meeting and the accompanying
technical evaluation report where each of the issues
they raised were addressed.
On October 16, 1996, the PBAC opened the third
envelope submitted by AEDC and the Paircargo
Consortium containing their respective financial

proposals. Both proponents offered to build the

NAIA Passenger Terminal III for at least $350
million at no cost to the government and to pay the
government: 5% share in gross revenues for the first
five years of operation, 7.5% share in gross revenues
for the next ten years of operation, and 10% share in
gross revenues for the last ten years of operation, in
accordance with the Bid Documents. However, in
addition to the foregoing, AEDC offered to pay the
government a total of P135 million as guaranteed
payment for 27 years while Paircargo Consortium
offered to pay the government a total of P17.75
billion for the same period.
Thus, the PBAC formally informed AEDC that it had
accepted the price proposal submitted by the
Paircargo Consortium, and gave AEDC 30 working
days or until November 28, 1996 within which to
match the said bid, otherwise, the project would be
awarded to Paircargo.
As AEDC failed to match the proposal within the 30day period, then DOTC Secretary Amado Lagdameo,
on December 11, 1996, issued a notice to Paircargo
Consortium regarding AEDC's failure to match the
proposal.
On February 27, 1997, Paircargo Consortium
incorporated into Philippine International Airport
Terminals Co., Inc. (PIATCO).
AEDC subsequently protested the alleged undue
preference given to PIATCO and reiterated its
objections as regards the prequalification of PIATCO.
On April 11, 1997, the DOTC submitted the
concession agreement for the second-pass approval
of the NEDA-ICC.
On April 16, 1997, AEDC filed with the Regional
Trial Court of Pasig a Petition for Declaration of
Nullity of the Proceedings, Mandamus and Injunction
against the Secretary of the DOTC, the Chairman of
the PBAC, the voting members of the PBAC and
Pantaleon D. Alvarez, in his capacity as Chairman of
the PBAC Technical Committee.
On April 17, 1997, the NEDA-ICC conducted an ad
referendum to facilitate the approval, on a noobjection basis, of the BOT agreement between the
DOTC and PIATCO. As the ad referendum gathered
only four (4) of the required six (6) signatures, the
NEDA merely noted the agreement.

On July 9, 1997, the DOTC issued the notice of

award for the project to PIATCO.
On July 12, 1997, the Government, through then
DOTC Secretary Arturo T. Enrile, and PIATCO,
through its President, Henry T. Go, signed the
"Concession Agreement for the Build-Operate-andTransfer Arrangement of the Ninoy Aquino
International Airport Passenger Terminal III" (1997
Concession Agreement). The Government granted
PIATCO the franchise to operate and maintain the
said terminal during the concession period and to
collect the fees, rentals and other charges in
accordance with the rates or schedules stipulated in
the 1997 Concession Agreement. The Agreement
provided that the concession period shall be for
twenty-five (25) years commencing from the inservice date, and may be renewed at the option of the
Government for a period not exceeding twenty-five
(25) years. At the end of the concession period,
PIATCO shall transfer the development facility to
MIAA.
On November 26, 1998, the Government and
PIATCO signed an Amended and Restated
Concession Agreement (ARCA). Among the
provisions of the 1997 Concession Agreement that
were amended by the ARCA were: Sec. 1.11
pertaining to the definition of "certificate of
completion"; Sec. 2.05 pertaining to the Special
Obligations of GRP; Sec. 3.02 (a) dealing with the
exclusivity of the franchise given to the
Concessionaire; Sec. 4.04 concerning the assignment
by Concessionaire of its interest in the Development
Facility; Sec. 5.08 (c) dealing with the proceeds of
Concessionaire's insurance; Sec. 5.10 with respect to
the temporary take-over of operations by GRP; Sec.
5.16 pertaining to the taxes, duties and other imposts
that may be levied on the Concessionaire; Sec. 6.03
as regards the periodic adjustment of public utility
fees and charges; the entire Article VIII concerning
the provisions on the termination of the contract; and
Sec. 10.02 providing for the venue of the arbitration
proceedings in case a dispute or controversy arises
between the parties to the agreement.
Subsequently, the Government and PIATCO signed
three Supplements to the ARCA. The First
Supplement was signed on August 27, 1999; the

Second Supplement on September 4, 2000; and the

Third Supplement on June 22, 2001 (collectively,
Supplements).
The First Supplement to the ARCA amended Sec.
1.36 of the ARCA defining "Revenues" or "Gross
Revenues"; Sec. 2.05 (d) of the ARCA referring to
the obligation of MIAA to provide sufficient funds
for the upkeep, maintenance, repair and/or
replacement of all airport facilities and equipment
which are owned or operated by MIAA; and further
providing additional special obligations on the part of
GRP aside from those already enumerated in Sec.
2.05 of the ARCA. The First Supplement also
provided a stipulation as regards the construction of a
surface road to connect NAIA Terminal II and
Terminal III in lieu of the proposed access tunnel
crossing Runway 13/31; the swapping of obligations
between GRP and PIATCO regarding the
improvement of Sales Road; and the changes in the
timetable. It also amended Sec. 6.01 (c) of the ARCA
pertaining to the Disposition of Terminal Fees; Sec.
6.02 of the ARCA by inserting an introductory
paragraph; and Sec. 6.02 (a) (iii) of the ARCA
referring to the Payments of Percentage Share in
Gross Revenues.
The Second Supplement to the ARCA contained
provisions concerning the clearing, removal,
demolition or disposal of subterranean structures
uncovered or discovered at the site of the
construction of the terminal by the Concessionaire. It
defined the scope of works; it provided for the
procedure for the demolition of the said structures
and the consideration for the same which the GRP
shall pay PIATCO; it provided for time extensions,
incremental and consequential costs and losses
consequent to the existence of such structures; and it
provided for some additional obligations on the part
of PIATCO as regards the said structures.
Finally, the Third Supplement provided for the
obligations of the Concessionaire as regards the
construction of the surface road connecting Terminals
II and III.
Meanwhile, the MIAA which is charged with the
maintenance and operation of the NAIA Terminals I
and II, had existing concession contracts with various
service providers to offer international airline airport

services, such as in-flight catering, passenger

handling, ramp and ground support, aircraft
maintenance and provisions, cargo handling and
warehousing, and other services, to several
international airlines at the NAIA. Some of these
service providers are the Miascor Group, DNATAWings Aviation Systems Corp., and the MacroAsia
Group. Miascor, DNATA and MacroAsia, together
with Philippine Airlines (PAL), are the dominant
players in the industry with an aggregate market
share of 70%.
On September 17, 2002, the workers of the
international airline service providers, claiming that
they stand to lose their employment upon the
implementation of the questioned agreements, filed
before this Court a petition for prohibition to enjoin
the enforcement of said agreements.2
On October 15, 2002, the service providers, joining
the cause of the petitioning workers, filed a motion
for intervention and a petition-in-intervention.
On October 24, 2002, Congressmen Salacnib
Baterina, Clavel Martinez and Constantino Jaraula
filed a similar petition with this Court.3
On November 6, 2002, several employees of the
MIAA likewise filed a petition assailing the legality
of the various agreements.4
On December 11, 2002. another group of
Congressmen, Hon. Jacinto V. Paras, Rafael P.
Nantes, Eduardo C. Zialcita, Willie B. Villarama,
Prospero C. Nograles, Prospero A. Pichay, Jr., Harlin
Cast Abayon and Benasing O. Macaranbon, moved to
intervene in the case as Respondents-Intervenors.
They filed their Comment-In-Intervention defending
the validity of the assailed agreements and praying
for the dismissal of the petitions.
During the pendency of the case before this Court,
President Gloria Macapagal Arroyo, on November
29, 2002, in her speech at the 2002 Golden Shell
Export Awards at Malacaang Palace, stated that she
will not "honor (PIATCO) contracts which the
Executive Branch's legal offices have concluded (as)
null and void."5
Respondent PIATCO filed its Comments to the
present petitions on November 7 and 27, 2002. The
Office of the Solicitor General and the Office of the

Government Corporate Counsel filed their respective

Comments in behalf of the public respondents.
On December 10, 2002, the Court heard the case on
oral argument. After the oral argument, the Court
then resolved in open court to require the parties to
file simultaneously their respective Memoranda in
amplification of the issues heard in the oral
arguments within 30 days and to explore the
possibility of arbitration or mediation as provided in
the challenged contracts.
In their consolidated Memorandum, the Office of the
Solicitor General and the Office of the Government
Corporate Counsel prayed that the present petitions
be given due course and that judgment be rendered
declaring the 1997 Concession Agreement, the
ARCA and the Supplements thereto void for being
contrary to the Constitution, the BOT Law and its
Implementing Rules and Regulations.
On March 6, 2003, respondent PIATCO informed the
Court that on March 4, 2003 PIATCO commenced
arbitration proceedings before the International
Chamber of Commerce, International Court of
Arbitration (ICC) by filing a Request for Arbitration
with the Secretariat of the ICC against the
Government of the Republic of the Philippines acting
through the DOTC and MIAA.
In the present cases, the Court is again faced with the
task of resolving complicated issues made difficult by
their intersecting legal and economic implications.
The Court is aware of the far reaching fall out effects
of the ruling which it makes today. For more than a
century and whenever the exigencies of the times
demand it, this Court has never shirked from its
solemn duty to dispense justice and resolve "actual
controversies involving rights which are legally
demandable and enforceable, and to determine
whether or not there has been grave abuse of
discretion amounting to lack or excess of
jurisdiction."6 To be sure, this Court will not begin to
do otherwise today.
We shall first dispose of the procedural issues raised
by respondent PIATCO which they allege will bar the
resolution of the instant controversy.
Petitioners' Legal Standing to File
the present Petitions
a. G.R. Nos. 155001 and 155661

In G.R. No. 155001 individual petitioners are

employees of various service providers7 having
separate concession contracts with MIAA and
continuing service agreements with various
international airlines to provide in-flight catering,
passenger handling, ramp and ground support,
aircraft maintenance and provisions, cargo handling
and warehousing and other services. Also included as
petitioners are labor unions MIASCOR Workers
Union-National Labor Union and Philippine Airlines
Employees Association. These petitioners filed the
instant action for prohibition as taxpayers and as
parties whose rights and interests stand to be violated
by the implementation of the PIATCO Contracts.
Petitioners-Intervenors in the same case are all
corporations organized and existing under Philippine
laws engaged in the business of providing in-flight
catering, passenger handling, ramp and ground
support, aircraft maintenance and provisions, cargo
handling and warehousing and other services to
several international airlines at the Ninoy Aquino
International Airport. Petitioners-Intervenors allege
that as tax-paying international airline and airportrelated service operators, each one of them stands to
be irreparably injured by the implementation of the
PIATCO Contracts. Each of the petitionersintervenors have separate and subsisting concession
agreements with MIAA and with various
international airlines which they allege are being
interfered with and violated by respondent PIATCO.
In G.R. No. 155661, petitioners constitute employees
of MIAA and Samahang Manggagawa sa Paliparan
ng Pilipinas - a legitimate labor union and accredited
as the sole and exclusive bargaining agent of all the
employees in MIAA. Petitioners anchor their petition
for prohibition on the nullity of the contracts entered
into by the Government and PIATCO regarding the
build-operate-and-transfer of the NAIA IPT III. They
filed the petition as taxpayers and persons who have a
legitimate interest to protect in the implementation of
the PIATCO Contracts.
Petitioners in both cases raise the argument that the
PIATCO Contracts contain stipulations which
directly contravene numerous provisions of the
Constitution, specific provisions of the BOT Law and
its Implementing Rules and Regulations, and public

policy. Petitioners contend that the DOTC and the

MIAA, by entering into said contracts, have
committed grave abuse of discretion amounting to
lack or excess of jurisdiction which can be remedied
only by a writ of prohibition, there being no plain,
speedy or adequate remedy in the ordinary course of
law.
In particular, petitioners assail the provisions in the
1997 Concession Agreement and the ARCA which
grant PIATCO the exclusive right to operate a
commercial international passenger terminal within
the Island of Luzon, except those international
airports already existing at the time of the execution
of the agreement. The contracts further provide that
upon the commencement of operations at the NAIA
IPT III, the Government shall cause the closure of
Ninoy Aquino International Airport Passenger
Terminals I and II as international passenger
terminals. With respect to existing concession
agreements between MIAA and international airport
service providers regarding certain services or
operations, the 1997 Concession Agreement and the
ARCA uniformly provide that such services or
operations will not be carried over to the NAIA IPT
III and PIATCO is under no obligation to permit such
carry over except through a separate agreement duly
entered into with PIATCO.8
With respect to the petitioning service providers and
their employees, upon the commencement of
operations of the NAIA IPT III, they allege that they
will be effectively barred from providing
international airline airport services at the NAIA
Terminals I and II as all international airlines and
passengers will be diverted to the NAIA IPT III. The
petitioning service providers will thus be compelled
to contract with PIATCO alone for such services,
with no assurance that subsisting contracts with
MIAA and other international airlines will be
respected. Petitioning service providers stress that
despite the very competitive market, the substantial
capital investments required and the high rate of fees,
they entered into their respective contracts with the
MIAA with the understanding that the said contracts
will be in force for the stipulated period, and
thereafter, renewed so as to allow each of the

petitioning service providers to recoup their

investments and obtain a reasonable return thereon.
Petitioning employees of various service providers at
the NAIA Terminals I and II and of MIAA on the
other hand allege that with the closure of the NAIA
Terminals I and II as international passenger
terminals under the PIATCO Contracts, they stand to
lose employment.
The question on legal standing is whether such
parties have "alleged such a personal stake in the
outcome of the controversy as to assure that concrete
adverseness which sharpens the presentation of issues
upon which the court so largely depends for
illumination of difficult constitutional
questions."9 Accordingly, it has been held that the
interest of a person assailing the constitutionality of a
statute must be direct and personal. He must be able
to show, not only that the law or any government act
is invalid, but also that he sustained or is in imminent
danger of sustaining some direct injury as a result of
its enforcement, and not merely that he suffers
thereby in some indefinite way. It must appear that
the person complaining has been or is about to be
denied some right or privilege to which he is lawfully
entitled or that he is about to be subjected to some
burdens or penalties by reason of the statute or act
complained of.10
We hold that petitioners have the requisite standing.
In the above-mentioned cases, petitioners have a
direct and substantial interest to protect by reason of
the implementation of the PIATCO Contracts. They
stand to lose their source of livelihood, a property
right which is zealously protected by the
Constitution. Moreover, subsisting concession
agreements between MIAA and petitionersintervenors and service contracts between
international airlines and petitioners-intervenors
stand to be nullified or terminated by the operation of
the NAIA IPT III under the PIATCO Contracts. The
financial prejudice brought about by the PIATCO
Contracts on petitioners and petitioners-intervenors in
these cases are legitimate interests sufficient to confer
on them the requisite standing to file the instant
petitions.
b. G.R. No. 155547

In G.R. No. 155547, petitioners filed the petition for

prohibition as members of the House of
Representatives, citizens and taxpayers. They allege
that as members of the House of Representatives,
they are especially interested in the PIATCO
Contracts, because the contracts compel the
Government and/or the House of Representatives to
appropriate funds necessary to comply with the
provisions therein.11 They cite provisions of the
PIATCO Contracts which require disbursement of
unappropriated amounts in compliance with the
contractual obligations of the Government. They
allege that the Government obligations in the
PIATCO Contracts which compel government
expenditure without appropriation is a curtailment of
their prerogatives as legislators, contrary to the
mandate of the Constitution that "[n]o money shall be
paid out of the treasury except in pursuance of an
appropriation made by law."12
Standing is a peculiar concept in constitutional law
because in some cases, suits are not brought by
parties who have been personally injured by the
operation of a law or any other government act but by
concerned citizens, taxpayers or voters who actually
sue in the public interest. Although we are not
unmindful of the cases of Imus Electric Co. v.
Municipality of Imus13 and Gonzales v.
Raquiza14 wherein this Court held that appropriation
must be made only on amounts immediately
demandable, public interest demands that we take
a more liberal view in determining whether the
petitioners suing as legislators, taxpayers and
citizens have locus standi to file the instant
petition. In Kilosbayan, Inc. v. Guingona,15 this
Court held "[i]n line with the liberal policy of this
Court on locus standi, ordinary taxpayers, members
of Congress, and even association of planters, and
non-profit civic organizations were allowed to initiate
and prosecute actions before this Court to question
the constitutionality or validity of laws, acts,
decisions, rulings, or orders of various government
agencies or instrumentalities."16 Further, "insofar as
taxpayers' suits are concerned . . . (this Court) is not
devoid of discretion as to whether or not it should be
entertained."17 As such ". . . even if, strictly speaking,
they [the petitioners] are not covered by the

definition, it is still within the wide discretion of the

Court to waive the requirement and so remove the
impediment to its addressing and resolving the
serious constitutional questions raised."18 In view of
the serious legal questions involved and their impact
on public interest, we resolve to grant standing to the
petitioners.
Other Procedural Matters
Respondent PIATCO further alleges that this Court is
without jurisdiction to review the instant cases as
factual issues are involved which this Court is illequipped to resolve. Moreover, PIATCO alleges that
submission of this controversy to this Court at the
first instance is a violation of the rule on hierarchy of
courts. They contend that trial courts have concurrent
jurisdiction with this Court with respect to a special
civil action for prohibition and hence, following the
rule on hierarchy of courts, resort must first be had
before the trial courts.
After a thorough study and careful evaluation of the
issues involved, this Court is of the view that the crux
of the instant controversy involves significant legal
questions. The facts necessary to resolve these legal
questions are well established and, hence, need not be
determined by a trial court.
The rule on hierarchy of courts will not also prevent
this Court from assuming jurisdiction over the cases
at bar. The said rule may be relaxed when the redress
desired cannot be obtained in the appropriate courts
or where exceptional and compelling circumstances
justify availment of a remedy within and calling for
the exercise of this Court's primary jurisdiction.19
It is easy to discern that exceptional
circumstances exist in the cases at bar that call for
the relaxation of the rule. Both petitioners and
respondents agree that these cases are
of transcendental importance as they involve the
construction and operation of the country's premier
international airport. Moreover, the crucial issues
submitted for resolution are of first impression and
they entail the proper legal interpretation of key
provisions of the Constitution, the BOT Law and its
Implementing Rules and Regulations. Thus,
considering the nature of the controversy before the
Court, procedural bars may be lowered to give way
for the speedy disposition of the instant cases.

Legal Effect of the Commencement

of Arbitration Proceedings by
PIATCO
There is one more procedural obstacle which must be
overcome. The Court is aware that arbitration
proceedings pursuant to Section 10.02 of the ARCA
have been filed at the instance of respondent
PIATCO. Again, we hold that the arbitration step
taken by PIATCO will not oust this Court of its
jurisdiction over the cases at bar.
In Del Monte Corporation-USA v. Court of
Appeals,20 even after finding that the arbitration
clause in the Distributorship Agreement in question is
valid and the dispute between the parties is arbitrable,
this Court affirmed the trial court's decision denying
petitioner's Motion to Suspend Proceedings pursuant
to the arbitration clause under the contract. In so
ruling, this Court held that as contracts produce legal
effect between the parties, their assigns and heirs,
only the parties to the Distributorship Agreement are
bound by its terms, including the arbitration clause
stipulated therein. This Court ruled that arbitration
proceedings could be called for but only with respect
to the parties to the contract in question. Considering
that there are parties to the case who are neither
parties to the Distributorship Agreement nor heirs or
assigns of the parties thereto, this Court, citing its
previous ruling in Salas, Jr. v. Laperal Realty
Corporation,21 held that to tolerate the splitting of
proceedings by allowing arbitration as to some of the
parties on the one hand and trial for the others on the
other hand would, in effect, result in multiplicity of
suits, duplicitous procedure and unnecessary
delay.22 Thus, we ruled that the interest of justice
would best be served if the trial court hears and
adjudicates the case in a single and complete
proceeding.
It is established that petitioners in the present
cases who have presented legitimate interests in the
resolution of the controversy are not parties to the
PIATCO Contracts. Accordingly, they cannot be
bound by the arbitration clause provided for in the
ARCA and hence, cannot be compelled to submit to
arbitration proceedings. A speedy and decisive
resolution of all the critical issues in the present
controversy, including those raised by petitioners,

cannot be made before an arbitral tribunal. The

object of arbitration is precisely to allow an
expeditious determination of a dispute. This objective
would not be met if this Court were to allow the
parties to settle the cases by arbitration as there are
certain issues involving non-parties to the PIATCO
Contracts which the arbitral tribunal will not be
equipped to resolve.
Now, to the merits of the instant controversy.
I
Is PIATCO a qualified bidder?
Public respondents argue that the Paircargo
Consortium, PIATCO's predecessor, was not a duly
pre-qualified bidder on the unsolicited proposal
submitted by AEDC as the Paircargo Consortium
failed to meet the financial capability required under
the BOT Law and the Bid Documents. They allege
that in computing the ability of the Paircargo
Consortium to meet the minimum equity
requirements for the project, the entire net worth of
Security Bank, a member of the consortium,
should not be considered.
PIATCO relies, on the other hand, on the strength of
the Memorandum dated October 14, 1996 issued by
the DOTC Undersecretary Primitivo C. Cal stating
that the Paircargo Consortium is found to have a
combined net worth of P3,900,000,000.00, sufficient
to meet the equity requirements of the project. The
said Memorandum was in response to a letter from
Mr. Antonio Henson of AEDC to President Fidel V.
Ramos questioning the financial capability of the
Paircargo Consortium on the ground that it does not
have the financial resources to put up the required
minimum equity of P2,700,000,000.00. This
contention is based on the restriction under R.A. No.
337, as amended or the General Banking Act that a
commercial bank cannot invest in any single
enterprise in an amount more than 15% of its net
worth. In the said Memorandum, Undersecretary Cal
opined:
The Bid Documents, as clarified through
Bid Bulletin Nos. 3 and 5, require that
financial capability will be evaluated based
on total financial capability of all the
member companies of the [Paircargo]
Consortium. In this connection, the

Challenger was found to have a combined

net worth of P3,926,421,242.00 that could
support a project costing approximately P13
Billion.
It is not a requirement that the net worth
must be "unrestricted." To impose that as a
requirement now will be nothing less than
unfair.
The financial statement or the net worth is
not the sole basis in establishing financial
capability. As stated in Bid Bulletin No. 3,
financial capability may also be established
by testimonial letters issued by reputable
banks. The Challenger has complied with
this requirement.
To recap, net worth reflected in the Financial
Statement should not be taken as the amount
of the money to be used to answer the
required thirty percent (30%) equity of the
challenger but rather to be used in
establishing if there is enough basis to
believe that the challenger can comply with
the required 30% equity. In fact, proof of
sufficient equity is required as one of the
conditions for award of contract (Section
12.1 IRR of the BOT Law) but not for prequalification (Section 5.4 of the same
document).23
Under the BOT Law, in case of a buildoperate-and-transfer arrangement, the
contract shall be awarded to the bidder
"who, having satisfied the minimum
financial, technical, organizational and
legal standards" required by the law, has
submitted the lowest bid and most favorable
terms of the project.24 Further, the 1994
Implementing Rules and Regulations of the
BOT Law provide:
Section 5.4 Pre-qualification Requirements.
xxx
xxx
xxx
c. Financial Capability: The project
proponent must have adequate capability to
sustain the financing requirements for the
detailed engineering design, construction
and/or operation and maintenance phases of
the project, as the case may be. For purposes

of pre-qualification, this capability shall be

measured in terms of (i) proof of the ability
of the project proponent and/or the
consortium to provide a minimum
amount of equity to the project, and (ii) a
letter testimonial from reputable banks
attesting that the project proponent
and/or members of the consortium are
banking with them, that they are in good
financial standing, and that they have
adequate resources. The government
agency/LGU concerned shall determine on a
project-to-project basis and before prequalification, the minimum amount of equity
needed. (emphasis supplied)
Pursuant to this provision, the PBAC issued PBAC
Bulletin No. 3 dated August 16, 1996 amending the
financial capability requirements for pre-qualification
of the project proponent as follows:
6. Basis of Pre-qualification
The basis for the pre-qualification shall be
on the compliance of the proponent to the
minimum technical and financial
requirements provided in the Bid
Documents and in the IRR of the BOT Law,
R.A. No. 6957, as amended by R.A. 7718.
The minimum amount of equity to which the
proponent's financial capability will be
based shall be thirty percent (30%) of the
project cost instead of the twenty percent
(20%) specified in Section 3.6.4 of the Bid
Documents. This is to correlate with the
required debt-to-equity ratio of 70:30 in
Section 2.01a of the draft concession
agreement. The debt portion of the project
financing should not exceed 70% of the
actual project cost.
Accordingly, based on the above provisions of law,
the Paircargo Consortium or any challenger to the
unsolicited proposal of AEDC has to show that it
possesses the requisite financial capability to
undertake the project in the minimum amount of
30% of the project cost through (i) proof of the
ability to provide a minimum amount of equity to the
project, and (ii) a letter testimonial from reputable
banks attesting that the project proponent or members

of the consortium are banking with them, that they

are in good financial standing, and that they have
adequate resources.
As the minimum project cost was estimated to be
US$350,000,000.00 or roughly
P9,183,650,000.00,25 the Paircargo Consortium had
to show to the satisfaction of the PBAC that it had the
ability to provide the minimum equity for the project
in the amount of at least P2,755,095,000.00.
Paircargo's Audited Financial Statements as of 1993
and 1994 indicated that it had a net worth of
P2,783,592.00 and P3,123,515.00
respectively.26 PAGS' Audited Financial Statements
as of 1995 indicate that it has approximately
P26,735,700.00 to invest as its equity for the
project.27 Security Bank's Audited Financial
Statements as of 1995 show that it has a net worth
equivalent to its capital funds in the amount of
P3,523,504,377.00.28
We agree with public respondents that with respect to
Security Bank, the entire amount of its net worth
could not be invested in a single undertaking or
enterprise, whether allied or non-allied in accordance
with the provisions of R.A. No. 337, as amended or
the General Banking Act:
Sec. 21-B. The provisions in this or in any
other Act to the contrary notwithstanding,
the Monetary Board, whenever it shall deem
appropriate and necessary to further national
development objectives or support national
priority projects, may authorize a
commercial bank, a bank authorized to
provide commercial banking services, as
well as a government-owned and
controlled bank, to operate under an
expanded commercial banking authority
and by virtue thereof exercise, in addition
to powers authorized for commercial
banks, the powers of an Investment
House as provided in Presidential Decree
No. 129, invest in the equity of a nonallied undertaking, or own a majority or all
of the equity in a financial intermediary
other than a commercial bank or a bank
authorized to provide commercial banking
services: Provided, That (a) the total

investment in equities shall not exceed fifty

percent (50%) of the net worth of the
bank; (b) the equity investment in any one
enterprise whether allied or non-allied
shall not exceed fifteen percent (15%) of
the net worth of the bank; (c) the equity
investment of the bank, or of its wholly or
majority-owned subsidiary, in a single nonallied undertaking shall not exceed thirtyfive percent (35%) of the total equity in the
enterprise nor shall it exceed thirty-five
percent (35%) of the voting stock in that
enterprise; and (d) the equity investment in
other banks shall be deducted from the
investing bank's net worth for purposes of
computing the prescribed ratio of net worth
to risk assets.
xxx
xxx
xxx
Further, the 1993 Manual of Regulations for Banks
provides:
SECTION X383. Other Limitations and
Restrictions. The following limitations
and restrictions shall also apply regarding
equity investments of banks.
a. In any single enterprise. The equity
investments of banks in any single enterprise
shall not exceed at any time fifteen percent
(15%) of the net worth of the investing bank
as defined in Sec. X106 and Subsec.
X121.5.
Thus, the maximum amount that Security Bank could
validly invest in the Paircargo Consortium is only
P528,525,656.55, representing 15% of its entire net
worth. The total net worth therefore of the Paircargo
Consortium, after considering the maximum
amounts that may be validly invested by each of its
members is P558,384,871.55 or only 6.08% of the
project cost,29 an amount substantially less than the
prescribed minimum equity investment required for
the project in the amount of P2,755,095,000.00 or
30% of the project cost.
The purpose of pre-qualification in any public
bidding is to determine, at the earliest opportunity,
the ability of the bidder to undertake the project.
Thus, with respect to the bidder's financial capacity at
the pre-qualification stage, the law requires the

government agency to examine and determine the

ability of the bidder to fund the entire cost of the
project by considering the maximum amounts that
each bidder may invest in the project at the time
of pre-qualification.
The PBAC has determined that any prospective
bidder for the construction, operation and
maintenance of the NAIA IPT III project should
prove that it has the ability to provide equity in the
minimum amount of 30% of the project cost, in
accordance with the 70:30 debt-to-equity ratio
prescribed in the Bid Documents. Thus, in the case of
Paircargo Consortium, the PBAC should determine
the maximum amounts that each member of the
consortium may commit for the construction,
operation and maintenance of the NAIA IPT III
project at the time of pre-qualification. With respect
to Security Bank, the maximum amount which may
be invested by it would only be 15% of its net worth
in view of the restrictions imposed by the General
Banking Act. Disregarding the investment ceilings
provided by applicable law would not result in a
proper evaluation of whether or not a bidder is prequalified to undertake the project as for all intents
and purposes, such ceiling or legal restriction
determines the true maximum amount which a
bidder may invest in the project.
Further, the determination of whether or not a bidder
is pre-qualified to undertake the project requires an
evaluation of the financial capacity of the said
bidder at the time the bid is submitted based on the
required documents presented by the bidder. The
PBAC should not be allowed to speculate on
the future financial ability of the bidder to
undertake the project on the basis of documents
submitted. This would open doors to abuse and defeat
the very purpose of a public bidding. This is
especially true in the case at bar which involves the
investment of billions of pesos by the project
proponent. The relevant government authority is
duty-bound to ensure that the awardee of the contract
possesses the minimum required financial capability
to complete the project. To allow the PBAC to
estimate the bidder's future financial capability would
not secure the viability and integrity of the project. A
restrictive and conservative application of the rules

and procedures of public bidding is necessary not

only to protect the impartiality and regularity of the
proceedings but also to ensure the financial and
technical reliability of the project. It has been held
that:
The basic rule in public bidding is that bids
should be evaluated based on the required
documents submitted before and not after
the opening of bids. Otherwise, the
foundation of a fair and competitive public
bidding would be defeated. Strict
observance of the rules, regulations, and
guidelines of the bidding process is the
only safeguard to a fair, honest and
competitive public bidding.30
Thus, if the maximum amount of equity that a
bidder may invest in the project at the time the bids
are submitted falls short of the minimum amounts
required to be put up by the bidder, said bidder
should be properly disqualified. Considering that at
the pre-qualification stage, the maximum amounts
which the Paircargo Consortium may invest in the
project fell short of the minimum amounts prescribed
by the PBAC, we hold that Paircargo Consortium
was not a qualified bidder. Thus the award of the
contract by the PBAC to the Paircargo Consortium, a
disqualified bidder, is null and void.
While it would be proper at this juncture to end the
resolution of the instant controversy, as the legal
effects of the disqualification of respondent
PIATCO's predecessor would come into play and
necessarily result in the nullity of all the subsequent
contracts entered by it in pursuance of the project, the
Court feels that it is necessary to discuss in full the
pressing issues of the present controversy for a
complete resolution thereof.
II
Is the 1997 Concession Agreement valid?
Petitioners and public respondents contend that the
1997 Concession Agreement is invalid as it contains
provisions that substantially depart from the draft
Concession Agreement included in the Bid
Documents. They maintain that a substantial
departure from the draft Concession Agreement is a
violation of public policy and renders the 1997
Concession Agreement null and void.

PIATCO maintains, however, that the Concession

Agreement attached to the Bid Documents is
intended to be a draft, i.e., subject to change,
alteration or modification, and that this intention was
clear to all participants, including AEDC, and
DOTC/MIAA. It argued further that said intention is
expressed in Part C (6) of Bid Bulletin No. 3 issued
by the PBAC which states:
6. Amendments to the Draft Concessions
Agreement
Amendments to the Draft Concessions
Agreement shall be issued from time to
time. Said amendments shall only cover
items that would not materially affect the
preparation of the proponent's proposal.
By its very nature, public bidding aims to protect the
public interest by giving the public the best possible
advantages through open competition. Thus:
Competition must be legitimate, fair and
honest. In the field of government contract
law, competition requires, not only `bidding
upon a common standard, a common basis,
upon the same thing, the same subject
matter, the same undertaking,' but also that
it be legitimate, fair and honest; and not
designed to injure or defraud the
government.31
An essential element of a publicly bidded contract is
that all bidders must be on equal footing. Not simply
in terms of application of the procedural rules and
regulations imposed by the relevant government
agency, but more importantly, on the contract bidded
upon. Each bidder must be able to bid on the same
thing. The rationale is obvious. If the winning bidder
is allowed to later include or modify certain
provisions in the contract awarded such that the
contract is altered in any material respect, then the
essence of fair competition in the public bidding is
destroyed. A public bidding would indeed be a farce
if after the contract is awarded, the winning bidder
may modify the contract and include provisions
which are favorable to it that were not previously
made available to the other bidders. Thus:
It is inherent in public biddings that there
shall be a fair competition among the
bidders. The specifications in such biddings

provide the common ground or basis for the

bidders. The specifications should,
accordingly, operate equally or
indiscriminately upon all bidders.32
The same rule was restated by Chief Justice Stuart of
the Supreme Court of Minnesota:
The law is well settled that where, as in this
case, municipal authorities can only let a
contract for public work to the lowest
responsible bidder, the proposals and
specifications therefore must be so framed
as to permit free and full competition. Nor
can they enter into a contract with the
best bidder containing substantial
provisions beneficial to him, not included
or contemplated in the terms and
specifications upon which the bids were
invited.33
In fact, in the PBAC Bid Bulletin No. 3 cited by
PIATCO to support its argument that the draft
concession agreement is subject to amendment, the
pertinent portion of which was quoted above, the
PBAC also clarified that "[s]aid amendments shall
only cover items that would not materially affect
the preparation of the proponent's proposal."
While we concede that a winning bidder is not
precluded from modifying or amending certain
provisions of the contract bidded upon, such
changes must not constitute substantial or material
amendments that would alter the basic
parameters of the contract and would constitute a
denial to the other bidders of the opportunity to
bid on the same terms. Hence, the determination of
whether or not a modification or amendment of a
contract bidded out constitutes a substantial
amendment rests on whether the contract, when taken
as a whole, would contain substantially different
terms and conditions that would have the effect of
altering the technical and/or financial proposals
previously submitted by other bidders. The
alterations and modifications in the contract executed
between the government and the winning bidder must
be such as to render such executed contract to be an
entirely different contract from the one that was
bidded upon.

In the case of Caltex (Philippines), Inc. v. Delgado

Brothers, Inc.,34 this Court quoted with approval the
ruling of the trial court that an amendment to a
contract awarded through public bidding, when such
subsequent amendment was made without a new
public bidding, is null and void:
The Court agrees with the contention of
counsel for the plaintiffs that the due
execution of a contract after public bidding
is a limitation upon the right of the
contracting parties to alter or amend it
without another public bidding, for
otherwise what would a public bidding be
good for if after the execution of a
contract after public bidding, the
contracting parties may alter or amend
the contract, or even cancel it, at their
will? Public biddings are held for the
protection of the public, and to give the
public the best possible advantages by
means of open competition between the
bidders. He who bids or offers the best terms
is awarded the contract subject of the bid,
and it is obvious that such protection and
best possible advantages to the public will
disappear if the parties to a contract
executed after public bidding may alter or
amend it without another previous public
bidding.35
Hence, the question that comes to fore is this: is the
1997 Concession Agreement the same agreement that
was offered for public bidding, i.e., the draft
Concession Agreement attached to the Bid
Documents? A close comparison of the draft
Concession Agreement attached to the Bid
Documents and the 1997 Concession Agreement
reveals that the documents differ in at least two
material respects:
a. Modification on the Public
Utility Revenues and Non-Public
Utility Revenues that may be
collected by PIATCO
The fees that may be imposed and collected by
PIATCO under the draft Concession Agreement and
the 1997 Concession Agreement may be classified
into three distinct categories: (1) fees which are

subject to periodic adjustment of once every two

years in accordance with a prescribed parametric
formula and adjustments are made effective only
upon written approval by MIAA; (2) fees other than
those included in the first category which maybe
adjusted by PIATCO whenever it deems necessary
without need for consent of DOTC/MIAA; and (3)
new fees and charges that may be imposed by
PIATCO which have not been previously imposed or
collected at the Ninoy Aquino International Airport
Passenger Terminal I, pursuant to Administrative
Order No. 1, Series of 1993, as amended. The glaring
distinctions between the draft Concession Agreement
and the 1997 Concession Agreement lie in the types
of fees included in each category and the extent of
the supervision and regulation which MIAA is
allowed to exercise in relation thereto.
For fees under the first category, i.e., those which
are subject to periodic adjustment in accordance with
a prescribed parametric formula and effective only
upon written approval by MIAA, the draft
Concession Agreement includes the following:36
(1) aircraft parking fees;
(2) aircraft tacking fees;
(3) groundhandling fees;
(4) rentals and airline offices;
(5) check-in counter rentals; and
(6) porterage fees.
Under the 1997 Concession Agreement, fees which
are subject to adjustment and effective upon MIAA
approval are classified as "Public Utility Revenues"
and include:37
(1) aircraft parking fees;
(2) aircraft tacking fees;
(3) check-in counter fees; and
(4) Terminal Fees.
The implication of the reduced number of fees that
are subject to MIAA approval is best appreciated in
relation to fees included in the second
category identified above. Under the 1997
Concession Agreement, fees which PIATCO may
adjust whenever it deems necessary without need for
consent of DOTC/MIAA are "Non-Public Utility
Revenues" and is defined as "all other income not
classified as Public Utility Revenues derived from
operations of the Terminal and the Terminal

Complex."38 Thus, under the 1997 Concession

Agreement, ground handling fees, rentals from airline
offices and porterage fees are no longer subject to
MIAA regulation.
Further, under Section 6.03 of the draft Concession
Agreement, MIAA reserves the right to regulate (1)
lobby and vehicular parking fees and (2) other new
fees and charges that may be imposed by PIATCO.
Such regulation may be made by periodic adjustment
and is effective only upon written approval of MIAA.
The full text of said provision is quoted below:
Section 6.03. Periodic Adjustment in Fees
and Charges. Adjustments in the aircraft
parking fees, aircraft tacking fees,
groundhandling fees, rentals and airline
offices, check-in-counter rentals and
porterage fees shall be allowed only once
every two years and in accordance with the
Parametric Formula attached hereto as
Annex F. Provided that adjustments shall be
made effective only after the written express
approval of the MIAA. Provided, further,
that such approval of the MIAA, shall be
contingent only on the conformity of the
adjustments with the above said parametric
formula. The first adjustment shall be made
prior to the In-Service Date of the Terminal.
The MIAA reserves the right to regulate
under the foregoing terms and conditions
the lobby and vehicular parking fees and
other new fees and charges as
contemplated in paragraph 2 of Section
6.01 if in its judgment the users of the
airport shall be deprived of a free option
for the services they cover.39
On the other hand, the equivalent provision under
the 1997 Concession Agreement reads:
Section 6.03 Periodic Adjustment in Fees
and Charges.
xxx
xxx
xxx
(c) Concessionaire shall at all times be
judicious in fixing fees and charges
constituting Non-Public Utility Revenues in
order to ensure that End Users are not
unreasonably deprived of services. While
the vehicular parking fee, porterage fee

and greeter/well wisher fee constitute

Non-Public Utility Revenues of
Concessionaire, GRP may intervene and
require Concessionaire to explain and
justify the fee it may set from time to
time, if in the reasonable opinion of GRP
the said fees have become exorbitant
resulting in the unreasonable deprivation of
End Users of such services.40
Thus, under the 1997 Concession Agreement, with
respect to (1) vehicular parking fee, (2) porterage fee
and (3) greeter/well wisher fee, all that MIAA can do
is to require PIATCO to explain and justify the fees
set by PIATCO. In the draft Concession
Agreement, vehicular parking fee is subject to
MIAA regulation and approval under the second
paragraph of Section 6.03 thereof while porterage fee
is covered by the first paragraph of the same
provision. There is an obvious relaxation of the
extent of control and regulation by MIAA with
respect to the particular fees that may be charged by
PIATCO.
Moreover, with respect to the third category of fees
that may be imposed and collected by PIATCO, i.e.,
new fees and charges that may be imposed by
PIATCO which have not been previously imposed or
collected at the Ninoy Aquino International Airport
Passenger Terminal I, under Section 6.03 of the draft
Concession Agreement MIAA has reserved the right
to regulate the same under the same conditions that
MIAA may regulate fees under the first category, i.e.,
periodic adjustment of once every two years in
accordance with a prescribed parametric formula and
effective only upon written approval by MIAA.
However, under the 1997 Concession
Agreement, adjustment of fees under the third
category is not subject to MIAA regulation.
With respect to terminal fees that may be charged by
PIATCO,41 as shown earlier, this was included within
the category of "Public Utility Revenues" under the
1997 Concession Agreement. This classification is
significant because under the 1997 Concession
Agreement, "Public Utility Revenues" are subject to
an "Interim Adjustment" of fees upon the occurrence
of certain extraordinary events specified in the
agreement.42 However, under the draft Concession

Agreement, terminal fees are not included in the

types of fees that may be subject to "Interim
Adjustment."43
Finally, under the 1997 Concession
Agreement, "Public Utility Revenues," except
terminal fees, are denominated in US Dollars44 while
payments to the Government are in Philippine Pesos.
In the draft Concession Agreement, no such
stipulation was included. By stipulating that "Public
Utility Revenues" will be paid to PIATCO in US
Dollars while payments by PIATCO to the
Government are in Philippine currency under the
1997 Concession Agreement, PIATCO is able to
enjoy the benefits of depreciations of the Philippine
Peso, while being effectively insulated from the
detrimental effects of exchange rate fluctuations.
When taken as a whole, the changes under the 1997
Concession Agreement with respect to reduction in
the types of fees that are subject to MIAA regulation
and the relaxation of such regulation with respect to
other fees are significant amendments that
substantially distinguish the draft Concession
Agreement from the 1997 Concession
Agreement. The 1997 Concession Agreement, in
this respect, clearly gives PIATCO more favorable
terms than what was available to other bidders at
the time the contract was bidded out. It is not very
difficult to see that the changes in the 1997
Concession Agreement translate to direct and
concrete financial advantages for PIATCO which
were not available at the time the contract was
offered for bidding. It cannot be denied that under the
1997 Concession Agreement only "Public Utility
Revenues" are subject to MIAA regulation.
Adjustments of all other fees imposed and collected
by PIATCO are entirely within its control. Moreover,
with respect to terminal fees, under the 1997
Concession Agreement, the same is further subject to
"Interim Adjustments" not previously stipulated in
the draft Concession Agreement. Finally, the change
in the currency stipulated for "Public Utility
Revenues" under the 1997 Concession Agreement,
except terminal fees, gives PIATCO an added benefit
which was not available at the time of bidding.
b. Assumption by the
Government of the liabilities of

PIATCO in the event of the latter's

default thereof
Under the draft Concession Agreement, default by
PIATCO of any of its obligations to creditors who
have provided, loaned or advanced funds for the
NAIA IPT III project does not result in the
assumption by the Government of these liabilities. In
fact, nowhere in the said contract does default of
PIATCO's loans figure in the agreement. Such default
does not directly result in any concomitant right or
obligation in favor of the Government.
However, the 1997 Concession Agreement provides:
Section 4.04 Assignment.
xxx
xxx
xxx
(b) In the event Concessionaire should
default in the payment of an Attendant
Liability, and the default has resulted in the
acceleration of the payment due date of the
Attendant Liability prior to its stated date of
maturity, the Unpaid Creditors and
Concessionaire shall immediately inform
GRP in writing of such default. GRP shall,
within one hundred eighty (180) Days from
receipt of the joint written notice of the
Unpaid Creditors and Concessionaire, either
(i) take over the Development Facility and
assume the Attendant Liabilities, or (ii)
allow the Unpaid Creditors, if qualified, to
be substituted as concessionaire and
operator of the Development Facility in
accordance with the terms and conditions
hereof, or designate a qualified operator
acceptable to GRP to operate the
Development Facility, likewise under the
terms and conditions of this Agreement;
Provided that if at the end of the 180-day
period GRP shall not have served the
Unpaid Creditors and Concessionaire
written notice of its choice, GRP shall be
deemed to have elected to take over the
Development Facility with the concomitant
assumption of Attendant Liabilities.
(c) If GRP should, by written notice, allow
the Unpaid Creditors to be substituted as
concessionaire, the latter shall form and
organize a concession company qualified to

take over the operation of the Development

Facility. If the concession company should
elect to designate an operator for the
Development Facility, the concession
company shall in good faith identify and
designate a qualified operator acceptable to
GRP within one hundred eighty (180) days
from receipt of GRP's written notice. If the
concession company, acting in good faith
and with due diligence, is unable to
designate a qualified operator within the
aforesaid period, then GRP shall at the end
of the 180-day period take over the
Development Facility and assume Attendant
Liabilities.
The term "Attendant Liabilities" under the 1997
Concession Agreement is defined as:
Attendant Liabilities refer to all amounts
recorded and from time to time outstanding
in the books of the Concessionaire as owing
to Unpaid Creditors who have provided,
loaned or advanced funds actually used
for the Project, including all interests,
penalties, associated fees, charges,
surcharges, indemnities, reimbursements
and other related expenses, and further
including amounts owed by Concessionaire
to its suppliers, contractors and subcontractors.
Under the above quoted portions of Section 4.04 in
relation to the definition of "Attendant
Liabilities," default by PIATCO of its loans used to
finance the NAIA IPT III project triggers the
occurrence of certain events that leads to the
assumption by the Government of the liability for
the loans. Only in one instance may the Government
escape the assumption of PIATCO's liabilities, i.e.,
when the Government so elects and allows a
qualified operator to take over as
Concessionaire. However, this circumstance is
dependent on the existence and availability of a
qualified operator who is willing to take over the
rights and obligations of PIATCO under the
contract, a circumstance that is not entirely within
the control of the Government.

Without going into the validity of this provision at

this juncture, suffice it to state that Section 4.04 of
the 1997 Concession Agreement may be considered a
form of security for the loans PIATCO has obtained
to finance the project, an option that was not made
available in the draft Concession Agreement. Section
4.04 is an important amendment to the 1997
Concession Agreement because it grants PIATCO
a financial advantage or benefit which was not
previously made available during the bidding
process. This financial advantage is a significant
modification that translates to better terms and
conditions for PIATCO.
PIATCO, however, argues that the parties to the
bidding procedure acknowledge that the draft
Concession Agreement is subject to amendment
because the Bid Documents permit financing or
borrowing. They claim that it was the lenders who
proposed the amendments to the draft Concession
Agreement which resulted in the 1997 Concession
Agreement.
We agree that it is not inconsistent with the rationale
and purpose of the BOT Law to allow the project
proponent or the winning bidder to obtain financing
for the project, especially in this case which involves
the construction, operation and maintenance of the
NAIA IPT III. Expectedly, compliance by the project
proponent of its undertakings therein would involve a
substantial amount of investment. It is therefore
inevitable for the awardee of the contract to seek
alternate sources of funds to support the project. Be
that as it may, this Court maintains that amendments
to the contract bidded upon should always conform to
the general policy on public bidding if such
procedure is to be faithful to its real nature and
purpose. By its very nature and characteristic,
competitive public bidding aims to protect the public
interest by giving the public the best possible
advantages through open competition.45 It has been
held that the three principles in public bidding are (1)
the offer to the public; (2) opportunity for
competition; and (3) a basis for the exact comparison
of bids. A regulation of the matter which excludes
any of these factors destroys the distinctive character
of the system and thwarts the purpose of its
adoption.46 These are the basic parameters which

every awardee of a contract bidded out must conform

to, requirements of financing and borrowing
notwithstanding. Thus, upon a concrete showing that,
as in this case, the contract signed by the government
and the contract-awardee is an entirely different
contract from the contract bidded, courts should not
hesitate to strike down said contract in its entirety for
violation of public policy on public bidding. A strict
adherence on the principles, rules and regulations on
public bidding must be sustained if only to preserve
the integrity and the faith of the general public on the
procedure.
Public bidding is a standard practice for procuring
government contracts for public service and for
furnishing supplies and other materials. It aims to
secure for the government the lowest possible price
under the most favorable terms and conditions, to
curtail favoritism in the award of government
contracts and avoid suspicion of anomalies and it
places all bidders in equal footing.47 Any
government action which permits any substantial
variance between the conditions under which the
bids are invited and the contract executed after
the award thereof is a grave abuse of discretion
amounting to lack or excess of jurisdiction which
warrants proper judicial action.
In view of the above discussion, the fact that the
foregoing substantial amendments were made on
the 1997 Concession Agreement renders the same
null and void for being contrary to public policy.
These amendments convert the 1997 Concession
Agreement to an entirely different agreement from
the contract bidded out or the draft Concession
Agreement. It is not difficult to see that the
amendments on (1) the types of fees or charges that
are subject to MIAA regulation or control and the
extent thereof and (2) the assumption by the
Government, under certain conditions, of the
liabilities of PIATCO directly translates concrete
financial advantages to PIATCO that were
previously not available during the bidding
process. These amendments cannot be taken as
merely supplements to or implementing provisions of
those already existing in the draft Concession
Agreement. The amendments discussed above
present new terms and conditions which provide

financial benefit to PIATCO which may have altered

the technical and financial parameters of other
bidders had they known that such terms were
available.
III
Direct Government Guarantee
Article IV, Section 4.04(b) and (c), in relation to
Article 1.06, of the 1997 Concession Agreement
provides:
Section 4.04 Assignment
xxx
xxx
xxx
(b) In the event Concessionaire
should default in the payment of an
Attendant Liability, and the default
resulted in the acceleration of the payment
due date of the Attendant Liability prior to
its stated date of maturity, the Unpaid
Creditors and Concessionaire shall
immediately inform GRP in writing of such
default. GRP shall within one hundred
eighty (180) days from receipt of the joint
written notice of the Unpaid Creditors and
Concessionaire, either (i) take over the
Development Facility and assume the
Attendant Liabilities, or (ii) allow the
Unpaid Creditors, if qualified to be
substituted as concessionaire and operator of
the Development facility in accordance with
the terms and conditions hereof, or designate
a qualified operator acceptable to GRP to
operate the Development Facility, likewise
under the terms and conditions of this
Agreement; Provided, that if at the end of
the 180-day period GRP shall not have
served the Unpaid Creditors and
Concessionaire written notice of its
choice, GRP shall be deemed to have
elected to take over the Development
Facility with the concomitant assumption
of Attendant Liabilities.
(c) If GRP, by written notice, allow the
Unpaid Creditors to be substituted as
concessionaire, the latter shall form and
organize a concession company qualified to
takeover the operation of the Development
Facility. If the concession company should

elect to designate an operator for the

Development Facility, the concession
company shall in good faith identify and
designate a qualified operator acceptable to
GRP within one hundred eighty (180) days
from receipt of GRP's written notice. If the
concession company, acting in good faith
and with due diligence, is unable to
designate a qualified operator within the
aforesaid period, then GRP shall at the end
of the 180-day period take over the
Development Facility and assume
Attendant Liabilities.
.
Section 1.06. Attendant Liabilities
Attendant Liabilities refer to all amounts
recorded and from time to time
outstanding in the books of the
Concessionaire as owing to Unpaid
Creditors who have provided, loaned or
advanced funds actually used for the Project,
including all interests, penalties, associated
fees, charges, surcharges, indemnities,
reimbursements and other related expenses,
and further including amounts owed by
Concessionaire to its suppliers, contractors
and sub-contractors.48
It is clear from the above-quoted provisions
that Government, in the event that PIATCO
defaults in its loan obligations, is obligated to
pay "all amounts recorded and from time to time
outstanding from the books" of PIATCO which the
latter owes to its creditors.49 These amounts include
"all interests, penalties, associated fees, charges,
surcharges, indemnities, reimbursements and other
related expenses."50 This obligation of the
Government to pay PIATCO's creditors upon
PIATCO's default would arise if the Government opts
to take over NAIA IPT III. It should be noted,
however, that even if the Government chooses the
second option, which is to allow PIATCO's unpaid
creditors operate NAIA IPT III, the Government is
still at a risk of being liable to PIATCO's creditors
should the latter be unable to designate a qualified
operator within the prescribed period.51 In
effect, whatever option the Government chooses to

take in the event of PIATCO's failure to fulfill its

loan obligations, the Government is still at a risk
of assuming PIATCO's outstanding loans. This is
due to the fact that the Government would only be
free from assuming PIATCO's debts if the unpaid
creditors would be able to designate a qualified
operator within the period provided for in the
contract. Thus, the Government's assumption of
liability is virtually out of its control. The
Government under the circumstances provided for in
the 1997 Concession Agreement is at the mercy of
the existence, availability and willingness of a
qualified operator. The above contractual provisions
constitute a direct government guarantee which is
prohibited by law.
One of the main impetus for the enactment of the
BOT Law is the lack of government funds to
construct the infrastructure and development projects
necessary for economic growth and development.
This is why private sector resources are being tapped
in order to finance these projects. The BOT law
allows the private sector to participate, and is in fact
encouraged to do so by way of incentives, such as
minimizing the unstable flow of returns,52 provided
that the government would not have to unnecessarily
expend scarcely available funds for the project itself.
As such, direct guarantee, subsidy and equity by the
government in these projects are strictly
prohibited.53 This is but logical for if the
government would in the end still be at a risk of
paying the debts incurred by the private entity in
the BOT projects, then the purpose of the law is
subverted.
Section 2(n) of the BOT Law defines direct guarantee
as follows:
(n) Direct government guarantee An
agreement whereby the government or any
of its agencies or local government units
assume responsibility for the repayment of
debt directly incurred by the project
proponent in implementing the project in
case of a loan default.
Clearly by providing that the Government "assumes"
the attendant liabilities, which consists of PIATCO's
unpaid debts, the 1997 Concession Agreement
provided for a direct government guarantee for the

debts incurred by PIATCO in the implementation of

the NAIA IPT III project. It is of no moment that the
relevant sections are subsumed under the title of
"assignment". The provisions providing for direct
government guarantee which is prohibited by law is
clear from the terms thereof.
The fact that the ARCA superseded the 1997
Concession Agreement did not cure this fatal defect.
Article IV, Section 4.04(c), in relation to Article I,
Section 1.06, of the ARCA provides:
Section 4.04 Security
xxx
xxx
xxx
(c) GRP agrees with Concessionaire
(PIATCO) that it shall negotiate in good
faith and enter into direct agreement with
the Senior Lenders, or with an agent of
such Senior Lenders (which agreement shall
be subject to the approval of the Bangko
Sentral ng Pilipinas), in such form as may be
reasonably acceptable to both GRP and
Senior Lenders, with regard, inter alia, to the
following parameters:
xxx
xxx
xxx
(iv) If the
Concessionaire [PIATCO] is in
default under a payment
obligation owed to the Senior
Lenders, and as a result thereof the
Senior Lenders have become
entitled to accelerate the Senior
Loans, the Senior Lenders shall
have the right to notify GRP of the
same, and without prejudice to any
other rights of the Senior Lenders
or any Senior Lenders' agent may
have (including without limitation
under security interests granted in
favor of the Senior Lenders), to
either in good faith identify and
designate a nominee which is
qualified under sub-clause (viii)(y)
below to operate the Development
Facility [NAIA Terminal 3] or
transfer the Concessionaire's
[PIATCO] rights and obligations
under this Agreement to a

transferee which is qualified under

sub-clause (viii) below;
xxx
xxx
xxx
(vi) if the Senior Lenders, acting in
good faith and using reasonable
efforts, are unable to designate a
nominee or effect a transfer in
terms and conditions satisfactory to
the Senior Lenders within one
hundred eighty (180) days after
giving GRP notice as referred to
respectively in (iv) or (v) above,
then GRP and the Senior Lenders
shall endeavor in good faith to
enter into any other arrangement
relating to the Development
Facility [NAIA Terminal 3] (other
than a turnover of the Development
Facility [NAIA Terminal 3] to
GRP) within the following one
hundred eighty (180) days. If no
agreement relating to the
Development Facility [NAIA
Terminal 3] is arrived at by GRP
and the Senior Lenders within the
said 180-day period, then at the end
thereof the Development Facility
[NAIA Terminal 3] shall be
transferred by the
Concessionaire [PIATCO] to
GRP or its designee and GRP
shall make a termination
payment to Concessionaire
[PIATCO] equal to the Appraised
Value (as hereinafter defined) of
the Development Facility [NAIA
Terminal 3] or the sum of the
Attendant Liabilities, if greater.
Notwithstanding Section 8.01(c)
hereof, this Agreement shall be
deemed terminated upon the
transfer of the Development
Facility [NAIA Terminal 3] to GRP
pursuant hereto;
xxx
xxx
xxx
Section 1.06. Attendant Liabilities

Attendant Liabilities refer to all

amounts in each case supported by
verifiable evidence from time to time owed
or which may become owing by
Concessionaire [PIATCO] to Senior
Lenders or any other persons or entities
who have provided, loaned, or advanced
funds or provided financial facilities to
Concessionaire [PIATCO] for the Project
[NAIA Terminal 3], including, without
limitation, all principal, interest,
associated fees, charges, reimbursements,
and other related expenses (including the
fees, charges and expenses of any agents or
trustees of such persons or entities), whether
payable at maturity, by acceleration or
otherwise, and further including amounts
owed by Concessionaire [PIATCO] to its
professional consultants and advisers,
suppliers, contractors and sub-contractors.54
It is clear from the foregoing contractual provisions
that in the event that PIATCO fails to fulfill its loan
obligations to its Senior Lenders, the Government is
obligated to directly negotiate and enter into an
agreement relating to NAIA IPT III with the Senior
Lenders, should the latter fail to appoint a qualified
nominee or transferee who will take the place of
PIATCO. If the Senior Lenders and the Government
are unable to enter into an agreement after the
prescribed period, the Government must then pay
PIATCO, upon transfer of NAIA IPT III to the
Government, termination payment equal to the
appraised value of the project or the value of the
attendant liabilities whichever is greater. Attendant
liabilities as defined in the ARCA includes all
amounts owed or thereafter may be owed by PIATCO
not only to the Senior Lenders with whom PIATCO
has defaulted in its loan obligations but to all other
persons who may have loaned, advanced funds or
provided any other type of financial facilities to
PIATCO for NAIA IPT III. The amount of PIATCO's
debt that the Government would have to pay as a
result of PIATCO's default in its loan obligations -- in
case no qualified nominee or transferee is appointed
by the Senior Lenders and no other agreement
relating to NAIA IPT III has been reached between

the Government and the Senior Lenders -- includes,

but is not limited to, "all principal, interest, associated
fees, charges, reimbursements, and other related
expenses . . . whether payable at maturity, by
acceleration or otherwise."55
It is clear from the foregoing that the ARCA
provides for a direct guarantee by the government
to pay PIATCO's loans not only to its Senior
Lenders but all other entities who provided
PIATCO funds or services upon PIATCO's
default in its loan obligation with its Senior
Lenders. The fact that the Government's obligation
to pay PIATCO's lenders for the latter's obligation
would only arise after the Senior Lenders fail to
appoint a qualified nominee or transferee does not
detract from the fact that, should the conditions as
stated in the contract occur, the ARCA still obligates
the Government to pay any and all amounts owed by
PIATCO to its lenders in connection with NAIA IPT
III. Worse, the conditions that would make the
Government liable for PIATCO's debts is triggered by
PIATCO's own default of its loan obligations to its
Senior Lenders to which loan contracts the
Government was never a party to. The Government
was not even given an option as to what course of
action it should take in case PIATCO defaulted in the
payment of its senior loans. The Government, upon
PIATCO's default, would be merely notified by the
Senior Lenders of the same and it is the Senior
Lenders who are authorized to appoint a qualified
nominee or transferee. Should the Senior Lenders fail
to make such an appointment, the Government is then
automatically obligated to "directly deal and
negotiate" with the Senior Lenders regarding NAIA
IPT III. The only way the Government would not be
liable for PIATCO's debt is for a qualified nominee or
transferee to be appointed in place of PIATCO to
continue the construction, operation and maintenance
of NAIA IPT III. This "pre-condition", however, will
not take the contract out of the ambit of a direct
guarantee by the government as the existence,
availability and willingness of a qualified nominee or
transferee is totally out of the government's control.
As such the Government is virtually at the mercy
of PIATCO (that it would not default on its loan
obligations to its Senior Lenders), the Senior Lenders

(that they would appoint a qualified nominee or

transferee or agree to some other arrangement with
the Government) and the existence of a qualified
nominee or transferee who is able and willing to take
the place of PIATCO in NAIA IPT III.
The proscription against government guarantee in
any form is one of the policy considerations
behind the BOT Law. Clearly, in the present case,
the ARCA obligates the Government to pay for all
loans, advances and obligations arising out of
financial facilities extended to PIATCO for the
implementation of the NAIA IPT III project should
PIATCO default in its loan obligations to its Senior
Lenders and the latter fails to appoint a qualified
nominee or transferee. This in effect would make the
Government liable for PIATCO's loans should the
conditions as set forth in the ARCA arise. This is a
form of direct government guarantee.
The BOT Law and its implementing rules provide
that in order for an unsolicited proposal for a BOT
project may be accepted, the following conditions
must first be met: (1) the project involves a new
concept in technology and/or is not part of the list of
priority projects, (2) no direct government
guarantee, subsidy or equity is required, and (3)
the government agency or local government unit has
invited by publication other interested parties to a
public bidding and conducted the same.56 The failure
to meet any of the above conditions will result in the
denial of the proposal. It is further provided that the
presence of direct government guarantee, subsidy or
equity will "necessarily disqualify a proposal from
being treated and accepted as an unsolicited
proposal."57 The BOT Law clearly and strictly
prohibits direct government guarantee, subsidy and
equity in unsolicited proposals that the mere
inclusion of a provision to that effect is fatal and is
sufficient to deny the proposal. It stands to reason
therefore that if a proposal can be denied by reason of
the existence of direct government guarantee, then its
inclusion in the contract executed after the said
proposal has been accepted is likewise sufficient to
invalidate the contract itself. A prohibited provision,
the inclusion of which would result in the denial of a
proposal cannot, and should not, be allowed to later
on be inserted in the contract resulting from the said

proposal. The basic rules of justice and fair play

alone militate against such an occurrence and must
not, therefore, be countenanced particularly in this
instance where the government is exposed to the risk
of shouldering hundreds of million of dollars in debt.
This Court has long and consistently adhered to the
legal maxim that those that cannot be done directly
cannot be done indirectly.58 To declare the PIATCO
contracts valid despite the clear statutory
prohibition against a direct government guarantee
would not only make a mockery of what the BOT
Law seeks to prevent -- which is to expose the
government to the risk of incurring a monetary
obligation resulting from a contract of loan
between the project proponent and its lenders and
to which the Government is not a party to -- but
would also render the BOT Law useless for what it
seeks to achieve - to make use of the resources of
the private sector in the "financing, operation and
maintenance of infrastructure and development
projects"59 which are necessary for national
growth and development but which the
government, unfortunately, could ill-afford to
finance at this point in time.
IV
Temporary takeover of business affected with
public interest
Article XII, Section 17 of the 1987 Constitution
provides:
Section 17. In times of national emergency,
when the public interest so requires, the
State may, during the emergency and under
reasonable terms prescribed by it,
temporarily take over or direct the operation
of any privately owned public utility or
business affected with public interest.
The above provision pertains to the right of the State
in times of national emergency, and in the exercise of
its police power, to temporarily take over the
operation of any business affected with public
interest. In the 1986 Constitutional Commission, the
term "national emergency" was defined to include
threat from external aggression, calamities or national
disasters, but not strikes "unless it is of such
proportion that would paralyze government
service."60 The duration of the emergency itself is the

determining factor as to how long the temporary

takeover by the government would last.61 The
temporary takeover by the government extends only
to the operation of the business and not to the
ownership thereof. As such the government is not
required to compensate the private entity-owner
of the said business as there is no transfer of
ownership, whether permanent or temporary. The
private entity-owner affected by the temporary
takeover cannot, likewise, claim just compensation
for the use of the said business and its properties as
the temporary takeover by the government is in
exercise of its police power and not of its power of
eminent domain.
Article V, Section 5.10 (c) of the 1997 Concession
Agreement provides:
Section 5.10 Temporary Take-over of
operations by GRP.
.
(c) In the event the development Facility or
any part thereof and/or the operations of
Concessionaire or any part thereof, become
the subject matter of or be included in any
notice, notification, or declaration
concerning or relating to acquisition, seizure
or appropriation by GRP in times of war or
national emergency, GRP shall, by written
notice to Concessionaire, immediately take
over the operations of the Terminal and/or
the Terminal Complex. During such take
over by GRP, the Concession Period shall be
suspended; provided, that upon termination
of war, hostilities or national emergency, the
operations shall be returned to
Concessionaire, at which time, the
Concession period shall commence to run
again.Concessionaire shall be entitled to
reasonable compensation for the duration
of the temporary take over by GRP,
which compensation shall take into
account the reasonable cost for the use of
the Terminal and/or Terminal Complex,
(which is in the amount at least equal to
the debt service requirements of
Concessionaire, if the temporary take over
should occur at the time when

Concessionaire is still servicing debts owed

to project lenders), any loss or damage to the
Development Facility, and other
consequential damages. If the parties cannot
agree on the reasonable compensation of
Concessionaire, or on the liability of GRP as
aforesaid, the matter shall be resolved in
accordance with Section 10.01 [Arbitration].
Any amount determined to be payable by
GRP to Concessionaire shall be offset from
the amount next payable by Concessionaire
to GRP.62
PIATCO cannot, by mere contractual stipulation,
contravene the Constitutional provision on
temporary government takeover and obligate the
government to pay "reasonable cost for the use of
the Terminal and/or Terminal Complex."63 Article
XII, section 17 of the 1987 Constitution envisions a
situation wherein the exigencies of the times
necessitate the government to "temporarily take over
or direct the operation of any privately owned public
utility or business affected with public interest." It is
the welfare and interest of the public which is the
paramount consideration in determining whether or
not to temporarily take over a particular business.
Clearly, the State in effecting the temporary takeover
is exercising its police power. Police power is the
"most essential, insistent, and illimitable of
powers."64 Its exercise therefore must not be
unreasonably hampered nor its exercise be a source
of obligation by the government in the absence of
damage due to arbitrariness of its exercise.65 Thus,
requiring the government to pay reasonable
compensation for the reasonable use of the property
pursuant to the operation of the business contravenes
the Constitution.
V
Regulation of Monopolies
A monopoly is "a privilege or peculiar advantage
vested in one or more persons or companies,
consisting in the exclusive right (or power) to carry
on a particular business or trade, manufacture a
particular article, or control the sale of a particular
commodity."66 The 1987 Constitution strictly
regulates monopolies, whether private or public, and
even provides for their prohibition if public interest

so requires. Article XII, Section 19 of the 1987

Constitution states:
Sec. 19. The state shall regulate or prohibit
monopolies when the public interest so
requires. No combinations in restraint of
trade or unfair competition shall be allowed.
Clearly, monopolies are not per se prohibited by the
Constitution but may be permitted to exist to aid the
government in carrying on an enterprise or to aid in
the performance of various services and functions in
the interest of the public.67 Nonetheless, a
determination must first be made as to whether public
interest requires a monopoly. As monopolies are
subject to abuses that can inflict severe prejudice to
the public, they are subject to a higher level of State
regulation than an ordinary business undertaking.
In the cases at bar, PIATCO, under the 1997
Concession Agreement and the ARCA, is granted the
"exclusive right to operate a commercial
international passenger terminal within the Island of
Luzon" at the NAIA IPT III.68This is with the
exception of already existing international airports in
Luzon such as those located in the Subic Bay
Freeport Special Economic Zone ("SBFSEZ"), Clark
Special Economic Zone ("CSEZ") and in Laoag
City.69 As such, upon commencement of PIATCO's
operation of NAIA IPT III, Terminals 1 and 2 of
NAIA would cease to function as international
passenger terminals. This, however, does not prevent
MIAA to use Terminals 1 and 2 as domestic
passenger terminals or in any other manner as it may
deem appropriate except those activities that would
compete with NAIA IPT III in the latter's operation as
an international passenger terminal.70 The right
granted to PIATCO to exclusively operate NAIA
IPT III would be for a period of twenty-five (25)
years from the In-Service Date71 and renewable for
another twenty-five (25) years at the option of the
government.72 Both the 1997 Concession
Agreement and the ARCA further provide that, in
view of the exclusive right granted to PIATCO,
the concession contracts of the service providers
currently servicing Terminals 1 and 2 would no
longer be renewed and those concession contracts
whose expiration are subsequent to the In-Service
Date would cease to be effective on the said date.73

The operation of an international passenger airport

terminal is no doubt an undertaking imbued with
public interest. In entering into a BuildOperate-andTransfer contract for the construction, operation and
maintenance of NAIA IPT III, the government has
determined that public interest would be served better
if private sector resources were used in its
construction and an exclusive right to operate be
granted to the private entity undertaking the said
project, in this case PIATCO. Nonetheless, the
privilege given to PIATCO is subject to reasonable
regulation and supervision by the Government
through the MIAA, which is the government agency
authorized to operate the NAIA complex, as well as
DOTC, the department to which MIAA is attached.74
This is in accord with the Constitutional mandate that
a monopoly which is not prohibited must be
regulated.75While it is the declared policy of the BOT
Law to encourage private sector participation by
"providing a climate of minimum government
regulations,"76 the same does not mean that
Government must completely surrender its sovereign
power to protect public interest in the operation of a
public utility as a monopoly. The operation of said
public utility can not be done in an arbitrary manner
to the detriment of the public which it seeks to serve.
The right granted to the public utility may be
exclusive but the exercise of the right cannot run riot.
Thus, while PIATCO may be authorized to
exclusively operate NAIA IPT III as an international
passenger terminal, the Government, through the
MIAA, has the right and the duty to ensure that it is
done in accord with public interest. PIATCO's right to
operate NAIA IPT III cannot also violate the rights of
third parties.
Section 3.01(e) of the 1997 Concession Agreement
and the ARCA provide:
3.01 Concession Period
xxx
xxx
xxx
(e) GRP confirms that certain concession
agreements relative to certain services and
operations currently being undertaken at the
Ninoy Aquino International Airport
passenger Terminal I have a validity period
extending beyond the In-Service Date.
GRP through DOTC/MIAA, confirms that

these services and operations shall not be

carried over to the Terminal and the
Concessionaire is under no legal obligation
to permit such carry-over except through a
separate agreement duly entered into with
Concessionaire. In the event Concessionaire
becomes involved in any litigation initiated
by any such concessionaire or operator, GRP
undertakes and hereby holds Concessionaire
free and harmless on full indemnity basis
from and against any loss and/or any
liability resulting from any such litigation,
including the cost of litigation and the
reasonable fees paid or payable to
Concessionaire's counsel of choice, all such
amounts shall be fully deductible by way of
an offset from any amount which the
Concessionaire is bound to pay GRP under
this Agreement.
During the oral arguments on December 10,
2002, the counsel for the petitioners-inintervention for G.R. No. 155001 stated that
there are two service providers whose
contracts are still existing and whose
validity extends beyond the In-Service Date.
One contract remains valid until 2008 and
the other until 2010.77
We hold that while the service providers presently
operating at NAIA Terminal 1 do not have an
absolute right for the renewal or the extension of their
respective contracts, those contracts whose duration
extends beyond NAIA IPT III's In-Service-Date
should not be unduly prejudiced. These contracts
must be respected not just by the parties thereto but
also by third parties. PIATCO cannot, by law and
certainly not by contract, render a valid and binding
contract nugatory. PIATCO, by the mere expedient of
claiming an exclusive right to operate, cannot require
the Government to break its contractual obligations to
the service providers. In contrast to the arrastre and
stevedoring service providers in the case of AngloFil Trading Corporation v. Lazaro78 whose
contracts consist of temporary hold-over permits, the
affected service providers in the cases at bar, have a
valid and binding contract with the Government,
through MIAA, whose period of effectivity, as well

as the other terms and conditions thereof, cannot be

violated.
In fine, the efficient functioning of NAIA IPT III is
imbued with public interest. The provisions of the
1997 Concession Agreement and the ARCA did not
strip government, thru the MIAA, of its right to
supervise the operation of the whole NAIA complex,
including NAIA IPT III. As the primary government
agency tasked with the job,79 it is MIAA's
responsibility to ensure that whoever by contract is
given the right to operate NAIA IPT III will do so
within the bounds of the law and with due regard to
the rights of third parties and above all, the interest of
the public.
VI
CONCLUSION
In sum, this Court rules that in view of the absence of
the requisite financial capacity of the Paircargo
Consortium, predecessor of respondent PIATCO, the
award by the PBAC of the contract for the
construction, operation and maintenance of the NAIA
IPT III is null and void. Further, considering that the
1997 Concession Agreement contains material and
substantial amendments, which amendments had the
effect of converting the 1997 Concession Agreement
into an entirely different agreement from the contract
bidded upon, the 1997 Concession Agreement is
similarly null and void for being contrary to public
policy. The provisions under Sections 4.04(b) and (c)
in relation to Section 1.06 of the 1997 Concession
Agreement and Section 4.04(c) in relation to Section
1.06 of the ARCA, which constitute a direct
government guarantee expressly prohibited by,
among others, the BOT Law and its Implementing
Rules and Regulations are also null and void. The
Supplements, being accessory contracts to the
ARCA, are likewise null and void.
WHEREFORE, the 1997 Concession Agreement,
the Amended and Restated Concession Agreement
and the Supplements thereto are set aside for being
null and void.
SO ORDERED.

Republic of the Philippines

Supreme Court
Manila
SECOND DIVISION
RIZAL
COMMERCIAL
CORPORATION,

BANKING
Petitioner,

versus
HI-TRI
DEVELOPMENT
CORPORATION and LUZ R. BAKUNAWA,
Respondents.

x-------------------------------------------------x
DECISION
SERENO, J.:
Before the Court is a Rule 45 Petition for
Review on Certiorari filed by petitioner Rizal
Commercial Banking Corporation (RCBC) against
respondents Hi-Tri Development Corporation (HiTri) and Luz R. Bakunawa (Bakunawa). Petitioner
seeks to appeal from the 26 November 2009 Decision
and 27 May 2010 Resolution of the Court of Appeals
(CA),[1] which reversed and set aside the 19 May
2008 Decision and 3 November 2008 Order of the
Makati City Regional Trial Court (RTC) in Civil
Case No. 06-244.[2] The case before the RTC
involved the Complaint for Escheat filed by the
Republic of the Philippines (Republic) pursuant to
Act No. 3936, as amended by Presidential Decree
No. 679 (P.D. 679), against certain deposits, credits,
and unclaimed balances held by the branches of
various banks in the Philippines. The trial court
declared the amounts, subject of the special
proceedings, escheated to the Republic and ordered

them deposited with the Treasurer of the Philippines

(Treasurer) and credited in favor of the Republic.
[3]
The assailed RTC judgments included an
unclaimed balance in the amount of 1,019,514.29,
maintained by RCBC in its Ermita Business Center
branch.
We quote the narration of facts of the
CA[4] as follows:
x x x Luz [R.] Bakunawa
and her husband Manuel, now
deceased (Spouses Bakunawa) are
registered owners of six (6) parcels
of land covered by TCT Nos.
324985 and 324986 of the Quezon
City Register of Deeds, and TCT
Nos. 103724, 98827, 98828 and
98829 of the Marikina Register of
Deeds. These lots were sequestered
by the Presidential Commission on
Good Government [(PCGG)].
Sometime in 1990, a
certain Teresita Millan (Millan),
through her representative, Jerry
Montemayor, offered to buy said
lots for 6,724,085.71, with the
promise that she will take care of
clearing whatever preliminary
obstacles there may[]be to effect a
completion of the sale. The
Spouses Bakunawa gave to Millan
the Owners Copies of said TCTs
and in turn, Millan made a
down[]payment of 1,019,514.29
for
the
intended
purchase.
However, for one reason or another,
Millan was not able to clear said
obstacles. As a result, the Spouses
Bakunawa rescinded the sale and
offered to return to Millan her
down[]payment of 1,019,514.29.
However, Millan refused to accept
back
the
1,019,514.29
down[]payment. Consequently, the
Spouses Bakunawa, through their
company, the Hi-Tri Development
Corporation (Hi-Tri) took out on

October 28, 1991, a Managers

Check from RCBC-Ermita in the
amount of 1,019,514.29, payable
to Millans company Rosmil Realty
and Development Corporation
(Rosmil) c/o Teresita Millan and
used this as one of their basis for a
complaint against Millan and
Montemayor which they filed with
the Regional Trial Court of Quezon
City, Branch 99, docketed as Civil
Case No. Q-91-10719 [in 1991],
praying that:
1.
That
the
defendants
Teresita
Mil[l]an and
Jerry
Montemayor
may
be
ordered
to
return
to
plaintiffs
spouses the
Owners
Copies
of
Transfer
Certificates
of Title Nos.
324985,
324986,
103724,
98827,
98828 and
98829;
2.
That
the
defendant
Teresita
Mil[l]an be
correspondin
gly ordered
to receive the
amount
of
One Million
Nineteen
Thousand

Five
Hundred
Fourteen
Pesos
and
Twenty Nine
Centavos
(1,019,514.
29);
3.
That
the
defendants
be ordered to
pay
to
plaintiffs
spouses
moral
damages in
the amount
of
2,000,000.0
0; and
4.
That
the
defendants
be ordered to
pay plaintiffs
attorneys
fees in the
amount
of
50,000.00.
Being part and parcel of
said complaint, and consistent with
their prayer in Civil Case No. Q91-10719 that Teresita Mil[l]an be
correspondingly ordered to receive
the amount of One Million
Nineteen Thousand Five Hundred
Fourteen Pesos and Twenty Nine
[Centavos] (1,019,514.29)[], the
Spouses Bakunawa, upon advice of
their counsel, retained custody of
RCBC Managers Check No. ER
034469 and refrained from
canceling or negotiating it.
All
throughout
the
proceedings in Civil Case No. Q91-10719,
especially
during
negotiations
for
a
possible

settlement of the case, Millan was

informed that the Managers Check
was available for her withdrawal,
she being the payee.
On January 31, 2003,
during the pendency of the
abovementioned case and without
the knowledge of [Hi-Tri and
Spouses Bakunawa], x x x RCBC
reported the 1,019,514.29-credit
existing in favor of Rosmil to the
Bureau of Treasury as among its
unclaimed balances as of January
31, 2003. Allegedly, a copy of the
Sworn Statement executed by
Florentino N. Mendoza, Manager
and Head of RCBCs Asset
Management, Disbursement &
Sundry Department (AMDSD) was
posted within the premises of
RCBC-Ermita.
On December 14, 2006, x
x x Republic, through the [Office of
the Solicitor General (OSG)], filed
with the RTC the action below for
Escheat [(Civil Case No. 06-244)].
On April 30, 2008,
[Spouses
Bakunawa]
settled
amicably their dispute with Rosmil
and Millan. Instead of only the
amount of 1,019,514.29, [Spouses
Bakunawa] agreed to pay Rosmil
and Millan the amount of
3,000,000.00, [which is] inclusive
[of] the amount of []1,019,514.29.
But during negotiations and
evidently prior to said settlement,
[Manuel Bakunawa, through HiTri] inquired from RCBC-Ermita
the
availability
of
the
1,019,514.29
under
RCBC
Managers Check No. ER 034469.
[Hi-Tri and Spouses Bakunawa]
were however dismayed when they
were informed that the amount was

already subject of the escheat

proceedings before the RTC.
On April 17, 2008,
[Manuel Bakunawa, through HiTri] wrote x x x RCBC, viz:
We understand
that the deposit
corresponding to
the amount of
Php 1,019,514.29
stated in the
Managers Check
is currently the
subject of escheat
proceedings
pending before
Branch 150 of the
Makati Regional
Trial Court.
Please note that it
was
our
impression that
the deposit would
be taken from
[Hi-Tris] RCBC
bank
account
once an order to
debit is issued
upon the payees
presentation of
the
Managers
Check. Since the
payee
rejected
the
negotiated
Managers Check,
presentation of
the
Managers
Check was never
made.
Consequently, the
deposit that was
supposed to be
allocated for the
payment of the
Managers Check
was supposed to

remain part of the

Corporation[s]
RCBC
bank
account, which,
thereafter,
continued to be
actively
maintained and
operated. For this
reason,
We
hereby demand
your
confirmation that
the amount of
Php 1,019,514.29
continues to form
part of the funds
in
the
Corporations
RCBC
bank
account,
since
pay-out of said
amount
was
never
ordered.
We wish to point
out that if there
was any attempt
on the part of
RCBC
to
consider
the
amount indicated
in the Managers
Check separate
from
the
Corporations
bank
account,
RCBC
would
have issued a
statement to that
effect,
and
repeatedly
reminded
the
Corporation that
the deposit would
be
considered
dormant absent

any
fund
movement. Since
the Corporation
never
received
any statements of
account
from
RCBC to that
effect, and more
importantly,
never
received
any single letter
from
RCBC
noting
the
absence of fund
movement
and
advising
the
Corporation that
the deposit would
be treated as
dormant.
On April 28, 2008,
[Manuel Bakunawa] sent another
letter to x x x RCBC reiterating
their position as above-quoted.
In a letter dated May 19,
2008, x x x RCBC replied and
informed [Hi-Tri and Spouses
Bakunawa] that:
The
Banks
Ermita
BC
informed Hi-Tri
and/or
its
principals
regarding
the
inclusion
of
Managers Check
No. ER034469 in
the
escheat
proceedings
docketed as Civil
Case No. 06-244,
as well as the
status
thereof,
between
28
January 2008 and
1 February 2008.

xxx xxx xxx

Contrary to what
Hi-Tri hopes for,
the funds covered
by the Managers
Check
No.
ER034469 does
not form part of
the Banks own
account.
By
simple operation
of law, the funds
covered by the
managers check
in issue became a
deposit/credit
susceptible
for
inclusion in the
escheat
case
initiated by the
OSG
and/or
Bureau
of
Treasury.
xxx xxx xxx
Granting
arguendo that the
Bank was dutybound to make
good the check,
the
Banks
obligation to do
so prescribed as
early as October
2001.
(Emphases,
citations,
and
annotations were omitted.)
The RTC Ruling
The escheat proceedings before the Makati City RTC
continued. On 19 May 2008, the trial court rendered
its assailed Decision declaring the deposits, credits,
and unclaimed balances subject of Civil Case No. 06244 escheated to the Republic. Among those included
in the order of forfeiture was the amount of
1,019,514.29 held by RCBC as allocated funds
intended for the payment of the Managers Check
issued in favor of Rosmil. The trial court ordered the

deposit of the escheated balances with the Treasurer

and credited in favor of the Republic. Respondents
claim that they were not able to participate in the
trial, as they were not informed of the ongoing
escheat proceedings.
Consequently, respondents filed an Omnibus
Motion dated 11 June 2008, seeking the partial
reconsideration of the RTC Decision insofar as it
escheated the fund allocated for the payment of the
Managers Check. They asked that they be included as
party-defendants or, in the alternative, allowed to
intervene in the case and their motion considered as
an answer-in-intervention. Respondents argued that
they had meritorious grounds to ask reconsideration
of the Decision or, alternatively, to seek intervention
in the case. They alleged that the deposit was subject
of an ongoing dispute (Civil Case No. Q-91-10719)
between them and Rosmil since 1991, and that they
were interested parties to that case.[5]
On 3 November 2008, the RTC issued an
Order denying the motion of respondents. The trial
court explained that the Republic had proven
compliance with the requirements of publication and
notice, which served as notice to all those who may
be affected and prejudiced by the Complaint for
Escheat. The RTC also found that the motion failed to
point out the findings and conclusions that were not
supported by the law or the evidence presented, as
required by Rule 37 of the Rules of Court. Finally, it
ruled that the alternative prayer to intervene was filed
out of time.
The CA Ruling
On 26 November 2009, the CA issued its
assailed Decision reversing the 19 May 2008
Decision and 3 November 2008 Order of the
RTC. According to the appellate court, [6] RCBC
failed to prove that the latter had communicated with
the purchaser of the Managers Check (Hi-Tri and/or
Spouses Bakunawa) or the designated payee (Rosmil)
immediately before the bank filed its Sworn
Statement on the dormant accounts held therein. The
CA ruled that the banks failure to notify respondents
deprived them of an opportunity to intervene in the
escheat proceedings and to present evidence to
substantiate their claim, in violation of their right to
due process. Furthermore, the CA pronounced that

the Makati City RTC Clerk of Court failed to issue

individual notices directed to all persons claiming
interest in the unclaimed balances, as well as to
require them to appear after publication and show
cause why the unclaimed balances should not be
deposited with the Treasurer of the Philippines. It
explained that the jurisdictional requirement of
individual notice by personal service was distinct
from the requirement of notice by publication.
Consequently, the CA held that the Decision and
Order of the RTC were void for want of jurisdiction.
Issue
After a perusal of the arguments presented
by the parties, we cull the main issues as follows:
I.
Whether the Decision and
Order of the RTC were void for
failure to send separate notices to
respondents by personal service
II.
Whether petitioner had the
obligation to notify respondents
immediately before it filed its
Sworn Statement with the Treasurer
III.
Whether or not the allocated
funds may be escheated in favor of
the Republic
Discussion
Petitioner bank assails[7] the CA judgments
insofar as they ruled that notice by personal service
upon respondents is a jurisdictional requirement in
escheat proceedings. Petitioner contends that
respondents were not the owners of the unclaimed
balances and were thus not entitled to notice from the
RTC Clerk of Court. It hinges its claim on the theory
that the funds represented by the Managers Check
were deemed transferred to the credit of the payee or
holder upon its issuance.
We quote the pertinent provision of Act No.
3936, as amended, on the rule on service of
processes, to wit:
Sec. 3. Whenever the Solicitor
General shall be informed of such
unclaimed
balances,
he shall
commence an action or actions in
the name of the People of the
Republic of the Philippinesin the
Court of First Instance of the

province or city where the bank,

building and loan association or
trust corporation is located, in
which shall be joined as parties
the bank, building and loan
association
or
trust
corporation and all such creditors
or depositors. All or any of such
creditors or depositors or banks,
building and loan association or
trust corporations may be included
in one action. Service of process in
such action or actions shall
be made by delivery of a copy of
the complaint and summons to
the
president,
cashier,
or
managing
officer
of
each
defendant bank, building and loan
association or trust corporation
and by publication of a copy of
such summons in a newspaper of
general circulation, either in
English, in Filipino, or in a local
dialect, published in the locality
where the bank, building and loan
association or trust corporation is
situated, if there be any, and in case
there is none, in the City of Manila,
at such time as the court may order.
Upon the trial, the court must hear
all parties who have appeared
therein, and if it be determined
that such unclaimed balances in
any defendant bank, building and
loan
association
or
trust
corporation are unclaimed as
hereinbefore stated, then the
court shall render judgment in
favor of the Government of the
Republic of the Philippines,
declaring that said unclaimed
balances have escheated to the
Government of the Republic of the
Philippines and commanding said
bank, building and loan association
or trust corporation to forthwith

deposit the same with the Treasurer

of the Philippines to credit of the
Government of the Republic of the
Philippines to be used as the
National Assembly may direct.
At the time of issuing summons in
the action above provided for,
the clerk of court shall also issue
a notice signed by him, giving the
title and number of said action, and
referring to the complaint therein,
and directed to all persons, other
than those named as defendants
therein, claiming any interest in
any
unclaimed
balance
mentioned in said complaint,
and requiring them to appear
within sixty days after the
publication or first publication, if
there are several, of such
summons, and show cause, if they
have any, why the unclaimed
balances involved in said action
should not be deposited with the
Treasurer of the Philippines as in
this Act provided and notifying
them that if they do not appear
and show cause, the Government
of the Republic of the Philippines
will apply to the court for the
relief
demanded
in
the
complaint. A copy of said notice
shall be attached to, and published
with the copy of, said summons
required to be published as above,
and at the end of the copy of such
notice so published, there shall be a
statement of the date of publication,
or first publication, if there are
several, of said summons and
notice. Any person interested may
appear in said action and become
a party thereto. Upon the
publication or the completion of
the publication, if there are
several, of the summons and

notice, and the service of the

summons on the defendant banks,
building and loan associations or
trust corporations, the court shall
have
full
and
complete
jurisdiction in the Republic of the
Philippines
over
the
said
unclaimed balances and over the
persons having or claiming any
interest in the said unclaimed
balances, or any of them, and
shall have full and complete
jurisdiction
to
hear
and
determine the issues herein, and
render the appropriate judgment
thereon. (Emphasis supplied.)
Hence, insofar as banks are concerned,
service of processes is made by delivery of a copy of
the complaint and summons upon the president,
cashier, or managing officer of the defendant bank.
[8]
On the other hand, as to depositors or other
claimants of the unclaimed balances, service is
made by publication of a copy of the summons in a
newspaper of general circulation in the locality where
the institution is situated.[9] A notice about the
forthcoming escheat proceedings must also be issued
and published, directing and requiring all persons
who may claim any interest in the unclaimed
balances to appear before the court and show cause
why the dormant accounts should not be deposited
with the Treasurer.
Accordingly, the CA committed reversible
error when it ruled that the issuance of individual
notices upon respondents was a jurisdictional
requirement, and that failure to effect personal
service on them rendered the Decision and the Order
of the RTC void for want of jurisdiction. Escheat
proceedings are actions in rem,[10] whereby an action
is brought against the thing itself instead of the
person.[11] Thus, an action may be instituted and
carried to judgment without personal service upon the
depositors or other claimants.[12] Jurisdiction is
secured by the power of the court over the res.
[13]
Consequently, a judgment of escheat is conclusive
upon persons notified by advertisement, as

publication is considered a general and constructive

notice to all persons interested.[14]
Nevertheless, we find sufficient grounds to
affirm the CA on the exclusion of the funds allocated
for the payment of the Managers Check in the escheat
proceedings.
Escheat proceedings refer to the judicial
process in which the state, by virtue of its
sovereignty, steps in and claims abandoned, left
vacant, or unclaimed property, without there being an
interested person having a legal claim thereto.[15] In
the case of dormant accounts, the state inquires into
the status, custody, and ownership of the unclaimed
balance to determine whether the inactivity was
brought about by the fact of death or absence of or
abandonment by the depositor.[16] If after the
proceedings the property remains without a lawful
owner interested to claim it, the property shall be
reverted to the state to forestall an open invitation to
self-service by the first comers. [17] However, if
interested parties have come forward and lain claim
to the property, the courts shall determine whether the
credit or deposit should pass to the claimants or be
forfeited in favor of the state.[18] We emphasize that
escheat is not a proceeding to penalize depositors for
failing to deposit to or withdraw from their
accounts. It is a proceeding whereby the state
compels the surrender to it of unclaimed deposit
balances when there is substantial ground for a belief
that they have been abandoned, forgotten, or without
an owner.[19]
Act No. 3936, as amended, outlines the
proper procedure to be followed by banks and other
similar institutions in filing a sworn statement with
the Treasurer concerning dormant accounts:
Sec. 2. Immediately after the taking
effect of this Act and within the
month of January of every odd
year, all banks, building and loan
associations,
and
trust
corporations shall forward to the
Treasurer of the Philippines a
statement, under oath, of their
respective managing officers, of all
credits and deposits held by them
in favor of persons known to be

dead, or who have not made

further deposits or withdrawals
during the preceding ten years or
more, arranged in alphabetical
order according to the names of
creditors
and
depositors,
and showing:
(a) The names and last known
place of residence or post
office addresses of the persons
in
whose
favor
such
unclaimed balances stand;
(b)

The amount and the date of

the outstanding unclaimed
balance and whether the same
is in money or in security, and
if the latter, the nature of the
same;

(c)

The date when the person in

whose favor the unclaimed
balance stands died, if known,
or the date when he made his
last deposit or withdrawal; and

(d)

The interest due on such

unclaimed balance, if any, and
the amount thereof.
A copy of the above sworn
statement shall be posted in a
conspicuous place in the premises
of the bank, building and loan
association, or trust corporation
concerned for at least sixty days
from
the
date
of
filing
thereof: Provided,
That immediately before filing
the above sworn statement,
the bank, building and loan
association,
and
trust
corporation shall
communicate
with the person in whose favor
the unclaimed balance stands at
his last known place of residence
or post office address.

It shall be the duty of the Treasurer

of the Philippines to inform the
Solicitor General from time to time
the existence of unclaimed balances
held by banks, building and loan
associations, and trust corporations.
(Emphasis supplied.)
As seen in the afore-quoted provision, the
law sets a detailed system for notifying depositors of
unclaimed balances. This notification is meant to
inform them that their deposit could be escheated if
left unclaimed. Accordingly, before filing a sworn
statement, banks and other similar institutions are
under obligation to communicate with owners of
dormant accounts. The purpose of this initial notice is
for a bank to determine whether an inactive account
has indeed been unclaimed, abandoned, forgotten, or
left without an owner. If the depositor simply does
not wish to touch the funds in the meantime, but still
asserts ownership and dominion over the dormant
account, then the bank is no longer obligated to
include the account in its sworn statement. [20] It is not
the intent of the law to force depositors into
unnecessary litigation and defense of their rights, as
the state is only interested in escheating balances that
have been abandoned and left without an owner.
In case the bank complies with the
provisions of the law and the unclaimed balances
are eventually escheated to the Republic, the bank
shall not thereafter be liable to any person for the
same and any action which may be brought by any
person against in any bank xxx for unclaimed
balances so deposited xxx shall be defended by the
Solicitor General without cost to such bank.
[21]
Otherwise, should it fail to comply with the
legally outlined procedure to the prejudice of the
depositor, the bank may not raise the defense
provided under Section 5 of Act No. 3936, as
amended.
Petitioner asserts[22] that the CA committed a
reversible error when it required RCBC to send prior
notices to respondents about the forthcoming escheat
proceedings involving the funds allocated for the
payment of the Managers Check. It explains that,
pursuant to the law, only those whose favor such
unclaimed balances stand are entitled to receive

notices. Petitioner argues that, since the funds

represented by the Managers Check were deemed
transferred to the credit of the payee upon issuance of
the check, the proper party entitled to the notices was
the payee Rosmil and not respondents. Petitioner then
contends that, in any event, it is not liable for failing
to send a separate notice to the payee, because it did
not have the address of Rosmil. Petitioner avers that
it was not under any obligation to record the address
of the payee of a Managers Check.
In contrast, respondents Hi-Tri and
Bakunawa allege[23] that they have a legal interest in
the fund allocated for the payment of the Managers
Check. They reason that, since the funds were part of
the Compromise Agreement between respondents and
Rosmil in a separate civil case, the approval and
eventual execution of the agreement effectively
reverted the fund to the credit of respondents.
Respondents further posit that their ownership of the
funds was evidenced by their continued custody of
the Managers Check.
An ordinary check refers to a bill of
exchange drawn by a depositor (drawer) on a bank
(drawee),[24] requesting the latter to pay a person
named therein (payee) or to the order of the payee or
to the bearer, a named sum of money.[25] The issuance
of the check does not of itself operate as an
assignment of any part of the funds in the bank to the
credit of the drawer.[26] Here, the bank becomes liable
only after it accepts or certifies the check.[27] After the
check is accepted for payment, the bank would then
debit the amount to be paid to the holder of the check
from the account of the depositor-drawer.
There are checks of a special type
called managers or cashiers checks. These are bills of
exchange drawn by the banks manager or cashier, in
the name of the bank, against the bank itself.
[28]
Typically, a managers or a cashiers check is
procured from the bank by allocating a particular
amount of funds to be debited from the depositors
account or by directly paying or depositing to the
bank the value of the check to be drawn. Since the
bank issues the check in its name, with itself as the
drawee, the check is deemed accepted in advance.
[29]
Ordinarily, the check becomes the primary

obligation of the issuing bank and constitutes its

written promise to pay upon demand.[30]
Nevertheless, the mere issuance of a
managers check does not ipso facto work as an
automatic transfer of funds to the account of the
payee. In case the procurer of the managers or
cashiers check retains custody of the instrument, does
not tender it to the intended payee, or fails to make an
effective delivery, we find the following provision on
undelivered instruments under the Negotiable
Instruments Law applicable:[31]
Sec. 16. Delivery; when
effectual; when presumed. Every
contract on
a
negotiable
instrument is incomplete and
revocable until delivery of the
instrument for the purpose of
giving effect thereto. As between
immediate parties and as regards a
remote party other than a holder in
due course, the delivery, in order
to be effectual, must be made
either by or under the authority
of the party making, drawing,
accepting, or indorsing, as the
case may be; and, in such case, the
delivery may be shown to have
been conditional, or for a special
purpose only, and not for the
purpose of transferring the property
in the instrument. But where the
instrument is in the hands of a

holder in due course, a valid

delivery thereof by all parties prior
to him so as to make them liable to
him is conclusively presumed. And
where the instrument is no longer
in the possession of a party whose
signature appears thereon, a valid
and intentional delivery by him is
presumed until the contrary is
proved. (Emphasis supplied.)
Petitioner acknowledges that the Managers Check
was procured by respondents, and that the amount to
be paid for the check would be sourced from the
deposit account of Hi-Tri.[32] When Rosmil did not
accept the Managers Check offered by respondents,
the latter retained custody of the instrument instead
of cancelling it. As the Managers Check neither went
to the hands of Rosmil nor was it further negotiated
to other persons, the instrument remained
undelivered. Petitioner does not dispute the fact that
respondents retained custody of the instrument.[33]
Since there was no delivery, presentment of
the check to the bank for payment did not occur. An
order to debit the account of respondents was never
made. In fact, petitioner confirms that the Managers
Check was never negotiated or presented for payment
to its Ermita Branch, and that the allocated fund is
still held by the bank.[34] As a result, the assigned
fund is deemed to remain part of the account of HiTri, which procured the Managers Check. The
doctrine that the deposit represented by a managers
check automatically passes to the payee is

inapplicable, because the instrument although

accepted in advance remains undelivered. Hence,
respondents should have been informed that the
deposit had been left inactive for more than 10 years,
and that it may be subjected to escheat proceedings if
left unclaimed.
After a careful review of the RTC records,
we find that it is no longer necessary to remand the
case for hearing to determine whether the claim of
respondents was valid. There was no contention that
they were the procurers of the Managers Check. It is
undisputed that there was no effective delivery of the
check, rendering the instrument incomplete. In
addition, we have already settled that respondents
retained ownership of the funds. As it is obvious from
their foregoing actions that they have not abandoned
their claim over the fund, we rule that the allocated
deposit, subject of the Managers Check, should be
excluded from the escheat proceedings. We reiterate
our pronouncement that the objective of escheat
proceedings is state forfeiture of unclaimed balances.
We further note that there is nothing in the records
that would show that the OSG appealed the assailed
CA judgments. We take this failure to appeal as an
indication of disinterest in pursuing the escheat
proceedings in favor of the Republic.
WHEREFORE the Petition is DENIED.
The 26 November 2009 Decision and 27 May 2010
Resolution of the Court of Appeals in CA-G.R. SP
No. 107261 are hereby AFFIRMED.
SO ORDERED.