A.
Deposit, Loans and Other Operations
Powers of Universal banks (Section 23 and 29, GBL)
Article I
Operations Of Universal Banks
Section 23. Powers of a Universal Bank - A universal bank shall have the authority to exercise,
in addition to the powers authorized for a commercial bank in Section 29, the powers of an
investment house as provided in existing laws and the power to invest in non-allied enterprises
as provided in this Act. (21-B)
Section 29. Powers of a Commercial Bank. - A commercial bank shall have, in addition to the
general powers incident to corporations, all such powers as may be necessary to carry on the
business of commercial banking such as accepting drafts and issuing letters of credit;
discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of
debt; accepting or creating demand deposits; receiving other types of deposits and deposit
substitutes; buying and selling foreign exchange and gold or silver bullion; acquiring
marketable bonds and other debt securities; and extending credit, subject to such rules as the
Monetary Board may promulgate. These rules may include the determination of bonds and
other debt securities eligible for investment, the maturities and aggregate amount of such
investment.
Equity Investments (Universal Banks (Section 24, 25, 26, 27)
Section 24. Equity Investments of a Universal Bank. - A universal bank may, subject to the
conditions stated in the succeeding paragraph, invest in the equities of allied and non-allied
enterprises as may be determined by the Monetary Board. Allied enterprises may either be
financial or non-financial. Except as the Monetary Board may otherwise prescribe:
24.1. The total investment in equities of allied and non-allied enterprises shall not exceed fifty
percent (50%) of the net worth of the bank; and
24.2. The equity investment in any one enterprise, whether allied or non-allied, shall not
exceed twenty-five percent (25%) of the net worth of the bank.
As used in this Act, "net worth" shall mean the total of the unimpaired paid-in capital including
paid-in surplus, retained earnings and undivided profit, net of valuation reserves and other
adjustments as may be required by the Bangko Sentral.
The acquisition of such equity or equities is subject to the prior approval of the Monetary
Board which shall promulgate appropriate guidelines to govern such investments. (21-Ba)
Section 25. Equity Investments of a Universal Bank in Financial Allied Enterprises. - A
universal bank can own up to one hundred percent (100%) of the equity in a thrift bank, a rural
bank or a financial allied enterprise. A publicly-listed universal or commercial bank may own up
to one hundred percent (100%) of the voting stock of only one other universal or commercial
bank. (21-B; 21-Ca)
Section 26. Equity Investments of a Universal Bank in Non-Financial Allied Enterprises. - A
universal bank may own up to one hundred percent (100%) of the equity in a non-financial
allied enterprise. (21-Ba)
Section 27. Equity Investments of a Universal Bank in Non-Allied Enterprises. - The equity
investment of a universal bank, or of its wholly or majority-owned subsidiaries, in a single
non-allied enterprise shall not exceed thirty-five percent (35%) of the total equity in that
enterprise nor shall it exceed thirty-five percent (35%) of the voting stock in that enterprise.
(21-B)
Section 28 Equity Investment in Quasi Banks
Section 28. Equity Investments in Quasi-Banks. - To promote competitive conditions in
financial markets, the Monetary Board may further limit to forty percent (40%) equity
investments of universal banks in quasi-banks. This rule shall also apply in the case of
commercial banks. (12-E) Article II. Operations Of Commercial Banks.
Section 29 Powers of a Commercial Bank
Section 29. Powers of a Commercial Bank. - A commercial bank shall have, in addition to the
general powers incident to corporations, all such powers as may be necessary to carry on the
business of commercial banking such as accepting drafts and issuing letters of credit;
discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of
debt; accepting or creating demand deposits; receiving other types of deposits and deposit
substitutes; buying and selling foreign exchange and gold or silver bullion; acquiring
marketable bonds and other debt securities; and extending credit, subject to such rules as the
Monetary Board may promulgate. These rules may include the determination of bonds and
other debt securities eligible for investment, the maturities and aggregate amount of such
investment.
1. Powers of a corporation
2. Enumerated powers
3. Cases:
Reliance Commodities .v Daewoo Industries (GR 100831, Dec 17, 1993):
G.R. No. L-100831 December 17, 1993
RELIANCE COMMODITIES, INC., petitioner,
vs.
DAEWOO INDUSTRIAL CO., LTD., respondent.
FELICIANO, J.:
On 9 January 1980, petitioner Reliance Commodities, Inc. ("reliance") and private respondent Read and agreed to:
Daewoo Industrial Co., Ltd. ("Daewoo") entered into a contract of sale under the terms of
which the latter undertook to ship and deliver to the former 2,000 metric tons of foundry pig Name of addressee: Daewoo Industrial Co., Ltd.
iron for the price of US$404,000.00. Pursuant to this contract, Daewoo shipped from Pohang,
Republic of Korea, 2,000 metric tons of foundry pig iron on board the M/S Aurelio III under Bill
By: (SGD) MR SAMUEL CHUASON By: (SGD) JA-HYUNG RYU
of Lading No. PIP-1 for carriage to and delivery in Manila to its consignee, Reliance. The
Date: July 31, 1980 Date: July 31, 19801
shipment was fully paid for. Upon arrival in Manila, the subject cargo was found to be short of
135.655 metric tons as only 1,864.345 metric tons were discharged and delivered to Reliance.
The attached sheet referred to above set out the following:
On 2 May 1980, another contract was entered into between the same parties for the purchase
of another 2,000 metric tons of foundry pig iron. Daewoo acknowledged the short shipment of Reliance Commodities, Inc.
135.655 metric tons under the 9 January 1980 contract and, to compensate Reliance therefor, Our Reference No. HSB-PI/SO19-R
bound itself to reduce the price by US$1 to US$2 per metric ton of pig iron for succeeding
orders. This undertaking was made part of the 2 May 1980 contract. However, that contract 1. Invoicing: Actual Weight
was not consummated and was later superseded by still another contract dated 31 July 1980.
2. Chemical Composition (%):
The 31 July 1980 contract read as follows: Carbon: 3.30 min. (aiming 3.80 min.)
Silicon: 2.21-2.60 (aiming 2.60)
CONFIRMATION OF ORDER Manganese: 0.30-1.00
SALES NOTE No. HSB-SN/S001-R Phosphorous: 0.45 max. (aiming 0.25 max.)
Sulfur: 0.05 max.
To Messrs: Reliance Commodities, Inc.
161, 9th Street, 10th Avenue 3. Quantity Tolerance: +10 percent of total quantity should be allowed.
Caloocan City
Reference: HSB-PI/8019-R 4. Unit Weight: 5 kgs. + 1 kg. (one notch)
Contracted through:
5. Broken pieces of twenty (20%) percent should be allowed.
Order No.:
Commodity: Foundry Pig Iron 6. All disputes, controversies, or differences which may arise between the parties, out of or in
Spec.: JIS G 2202 Class 1-1C relation to or in connection with this contract, or for the breach thereof, shall be finally settled
Quantity: 2,000MT by arbitration in Korea in accordance with the rules and regulations of Korea commercial
Price: US $190.30/MT C&F Manila arbitration association or in the Philippines in accordance with the Philippine arbitration rules.
Amount: US $380,600.00
Packing: Bare Loose
Shipment: August 7. Letter of credit should be opened on or before August 7, 1980.
Destination: Manila
Payment: By an irrevocable of sight letter of credit in favor of Daewoo Industrial Co., Ltd., 541 8. Other terms and conditions, if necessary, are to be solved later by mutual agreement.
5th Street, namdaemunro, Jung-Gu, Seoul, Korea.
9. Mill sheets and copies of non-negotiable documents to be sent to buyer by airmail
Remarks: Other terms and conditions as per attached sheet. immediately after shipment.

We confirm our sales as specified herein. Subject to the terms and conditions set forth herein,
this confirmation of order ("the Contract") constitutes a contract between Daewoo Industrial
Co. Ltd. ("Seller") and the addressee ("Buyer"). Other terms and conditions of the Contract are
on the back hereof. If you find anything herein not in order, please let us know immediately, if
necessary by telex, cable or telegram. Kindly sign and return the duplicate after confirming the
above.
10. This Sales Note No. HSB-SN/S001R cancels Sales Note No. HSB-SN/8001 dated May 2,
1980.2
On August 1, 1980, Reliance, through its Mrs. Samuel Chuason, filed with the China Banking
Corporation, an application for a Letter of Credit (L/C) in favor of Daewoo covering the amount
of US$380,600.00. The application was endorsed to the Iron and Steel Authority (ISA) or
approval but the application was denied. Reliance was instead asked to submit purchase orders
from end-users to support its application for a Letter of Credit. However, Reliance was not able
to raise purchase orders for 2,000 metric tons. Reliance alleges that it was able to raise
purchase orders for 1,900 metric tons. 3 Daewoo, upon the other hand, contends that Reliance
was only able to raise purchase orders for 900 metric tons. 4 An examination of the
exhibits 5 presented by Reliance in the trial court shows that only purchase orders for 900
metric tons were stamped "Received" by the ISA. The other purchase orders for 1,000 metric
tons allegedly sent by prospective end users to Reliance were not shown to have been duly
sent and exhibited to the ISA. Whatever the exact amount of the purchase orders was, Daewoo
rejected the proposed L/C for the reason that the covered quantity fell short of the contracted
tonnage. Thus, Reliance withdrew the application for the L/C on 14 August 1980.
Subsequently, Daewoo leaned that the failure of Reliance to open the L/C as stipulated in the
31 July 1980 contract was due to the fact that as early as May 1980, Reliance has already
exceeded its foreign exchange allocation for 1980. Because of the failure of Reliance to comply
with its undertaking under the 31 July 1980 contract, Daewoo was compelled to sell the 2,000
metric tons to another buyer at a lower price, to cut losses and expenses Daewoo had begun to
incur due to its inability to ship the 2000 metric tons to Reliance under their contract.
On 3 September 1980, Reliance, through its counsel, wrote Daewoo requesting payment of the
amount of P226,370.48, representing the value of the short delivery of 135.655 metric tons of
foundry pig iron under the contract of 9 January 1980. Not being heeded, Reliance filed an
action for damages against Daewoo with the trial court. Daewoo responded, inter alia, with a
counterclaim for damages, contending that Reliance was guilty of breach of contract when it
failed to open an L/C as required in the 31 July 1980 contract.
After trial, the trial court ruled that:
(1) the 31 July 1980 contract did not extinguish Daewoo's obligation for short delivery pursuant
to the 9 January 1980 contract and must therefore pay Reliance P226,370.48 representing the
value of the short delivered goods plus interest and attorney's fees; and
(2) Reliance is in turn liable for breach of contract for its failure to open a letter of credit in
favor of Daewoo pursuant to the 31 July 1980 contract and must therefore pay the latter
P331,920.97 as actual damages with legal interest plus attorney's fees.
Reliance appealed the second part of the trial court's judgment. Public respondent Court of
Appeals found no merit in the appeal and in affirming the decision of the trial court ruled that:
1) the trial court's finding that Reliance could not have opened the Letter of Credit in favor of
Daewoo because it had already exhausted its foreign exchange allocation at the time of its
application, was amply supported by evidence; and
2) the opening of a letter of credit is not such a future and uncertain event as to make it a
suspensive condition within the contemplation of law; but, only mode of payment agreed upon
by the parties, and a standard mode at that when one of the parties to the transaction is a
foreigner and the consideration is payable in foreign exchange.
In the present Petition for Review, Reliance assails the award of damages in favor of Daewoo.
Reliance contends a) that its failure to open a Letter of Credit was due to the failure of Daewoo
to accept the purchase orders for 1,900 metric tons instead of 2,000 metric tons; b) that the
opening of the Letter of Credit was a condition precedent to the effectivity of the contract
between Reliance and Daewoo; and c) that since such condition had not occurred, the contract
never came into existence and, therefore, Reliance should not have been held liable for
damages.
The issue before us is whether or not the failure of an importer (Reliance) to open a letter of
credit on the date agreed upon makes him liable to the exporter (Daewoo) for damages.
In addressing this issue, it is useful to recall the nature of a Letter of Credit, and the mechanics
involved in applying for a Letter of Credit.
The nature of a letter of credit was extensively discussed in Bank of America, NT & SA v. Court
of Appeals, et al. 6by Vitug, J. in the following terms:
A letter of credit is a financial device developed by merchants as a convenient and relatively
safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable interests of a
seller, who refuses to part with his goods before he is paid, and a buyer, who wants to have
control of the goods before paying. To break the impasse, the buyer may be required to
contract a bank to issue a letter of credit in favor of the seller so that, by virtue of the letter of
credit, the issuing bank can authorize the seller to draw drafts and engage to pay them upon
their presentment simultaneously with the tender of documents required by the letter of
credit. The buyer and seller agree on what documents are to be presented for payment, but
ordinarily they are documents of title evidencing or attesting to the shipment of the goods to
the buyer.
Once the credit is established, the seller ships the goods to the buyer and in the process
secures the required shipping documents or documents of title. To get paid, the seller executes
a draft and pays cash to the seller if it finds that the documents submitted by the seller
conform with what the letter of credit requires. The bank then obtains possession of the
documents upon paying the seller. The transaction is completed when the buyer reimburses
the issuing bank and acquires the documents entitling him to the goods. Under this
arrangement, the seller gets paid only if he delivers the documents of title over the goods,
while the goods only after reimbursing the bank. 7 (footnotes omitted)
A letter of credit is one of the modes of payment, set out in Sec. 8, Central Bank Circular No.
1389, "Consolidated Foreign Exchange Rules and Regulations," dated 13 April 1993, by which
commercial banks sell foreign exchange to service payments for, e.g., commodity imports. The
primary purpose of the letter of credit is to substitute for and therefore support, the
agreement of the buyer/importer to pay money under a contract or other arrangement. 8 It
creates in the seller/exporter a secure expectation of payment.
A letter of credit transaction may thus be seen to be a composite of at least three (3) distinct
but intertwined relationships being concretized in a contract:
(a) One contract relationship links the party applying for the L/C (the account party or buyer or
importer) and the party for whose benefit the L/C is issued (the beneficiary or seller or
exporter). In this contract, the account party, here Reliance, agrees, among other things and
subject to the terms and conditions of the contract, to pay money to the beneficiary, here
Daewoo.
(b) A second contract relationship is between the account party and the issuing bank. Under
this contract, (sometimes called the "Application and Agreement" or the "Reimbursement
Agreement"), the account party among other things, applies to the issuing bank for a specified
L/C and agrees to reimburse the bank for amounts paid by that bank pursuant to the L/C.
(c) The third contract relationship is established between the issuing bank and the beneficiary,
in order to support the contract, under
(a) above, of the account party and the beneficiary to, inter alia, pay certain monies to the
latter.
Certain other parties may be added to the foregoing, but the above three are the indispensable
ones.
The issue raised in the Petition at bar relates principally to the first component contractual
relation above: that between account party or importer Reliance and beneficiary or exporter
Daewoo.
Examining the actual terms of that relationship as set out in the 31 July 1980 contract quoted
earlier (and not simply the summary inaccurately rendered by the trial court), the Court
considers that under that instrument, the opening of an L/C upon application of Reliance was
not a condition precedent for the birth of the obligation of Reliance to purchase foundry pig
iron from Daewoo. We agree with the Court of Appeals that Reliance and Daewoo, having
reached "a meeting of minds" in respect of the subject matter of the contract (2000 metric
tons of foundry pig iron with a specified chemical composition), the price thereof (US
$380,600.00), and other principal provisions, "they had a perfected contract." 9 The failure of
Reliance to open, the appropriate L/C did not prevent the birth of that contract, and neither
did such failure extinguish that contract. The opening of the L/C in favor of Daewoo was an
obligation of Reliance and the performance of that obligation by Reliance was a condition of
enforcement of the reciprocal obligation of Daewoo to ship the subject matter of the contract
the foundry pig iron to Reliance. But the contract itself between Reliance and Daewoo
had already sprung into legal existence and was enforceable.
The L/C provided for in that contract was the mode or mechanism by which payment was to be
effected by Reliance of the price of the pig iron. In undertaking to accept or pay the drafts
presented to it by the beneficiary according to the tenor of an L/C, and only later on being
reimbursed by the account party, the issuing bank in effect extends a loan to the account party.
This loan feature, combined with the bank's undertaking to accept the beneficiary's drafts
drawn on the bank, constitutes the L/C as a mode of payment. 10 Logically, before the issuing
bank open an L/C, it will take steps to ensure that it would indeed be reimbursed when the
time comes. Before an L/C can be opened, specific legal requirements must be complied with.
The Central Bank of the Philippines has established the following requirements for opening a
letter of credit:
All L/C's must be opened on or before the date of shipment with maximum validity of one (1)
year. Likewise, only one L/C should be opened for each import transaction. for purposes of
opening an L/C, importers shall submit to the commercial bank the following documents:
a) the duly accomplished L/C application;
b) firm offer/proforma invoice which shall contain information on the specific quantity of the
importation, unit cost and total cost, complete description/specification of the commodity and
the Philippine Standard Commodity Classification statistical code;
c) permits/clearances from the appropriate government agencies, whenever applicable; and
d) duly accomplished Import Entry Declaration (IED) form which shall serve as basis for
payment of advance duties as required under PD 1853. 11 (Emphasis supplied)
The need for permits or clearances from appropriate government agencies arises when
regulated commodities are to be imported. 12 Certain commodities are classified as "regulated
commodities" for purposes of their importation, "for reasons of public health and safety,
national security, international commitments, and development/rationalization of local
industry." 13 The petitioner in the instant case entered into a transaction to import foundry pig
iron, a regulated commodity. In respect of the importation of this particular commodity, the
Iron and Steel Authority (ISA) is the government agency designated to issue the permit or
clearance. 14 Prior to the issuance of such permit or clearance, ISA asks the buyer/importer to
comply with particular requirements, such as to show the availability of foreign exchange
allocations. The issuance of an L/C becomes, among other things, an indication of compliance
by the buyer/importer with his own government's regulations relating to imports and to
payment thereof. 15
The records shows that the opening of the L/C in the instant case became very difficult because
Reliance had exhausted its dollar allocation. Reliance knew that it had already exceeded its
dollar allocation for the year 1980 when it entered into the 31 July 1980 transaction with
Daewoo. 16 As a rule, when the importer has exceeded its foreign exchange allocation, his
application would be denied. However, ISA could reconsider such application on a case to case
basis. 17 Thus, in the instant case, ISA required Reliance to support its application by submitting
purchase orders from end-users for the same quantity the latter wished to import. As earlier
noted, Reliance was able to present purchase orders for only 900 metric tons of the subject pig
iron. 18 For having exceeded its foreign exchange allocation before it entered into the 31 July
1980 contract with Daewoo, petitioner Reliance can hold only itself responsible. for having
failed to secure end-users purchase orders equivalent to 2,000 metric tons, only Reliance
should be held responsible.
Daewoo rejected Reliance's proposed reduced tonnage. It had the right to demand compliance
with the terms of the basic contract and had no duty to accept any unilateral modification of
that contract. Compliance with Philippine legal requirements was the duty of Reliance; it is not
disputed that ISA's requirements were legal and valid, and not arbitrary or capricious.
Compliance with such requirements, like keeping within one's dollar allocation and complying
with the requirements of ISA, were within the control of Reliance and not of Daewoo. The
Court is compelled to agree with the Court of Appeals that the non-opening of the L/C was due
to the failure of Reliance to comply with its duty under the contract.
We believe and so hold that failure of a buyer seasonably to furnish an agreed letter of credit is
a breach of he contract between buyer and seller. Where the buyer fails to open a letter of
credit as stipulated, the seller or exporter is entitled to claim damages for such breach.
Damages for failure to open a commercial credit may, in appropriate cases, include the loss of
profit which the seller would reasonably have made had the transaction been carried out. 19
We hold, further, that the Court of Appeals committed no reversible error when it ruled that
the damages incurred by Daewoo were sufficiently proved with the testimony of Mr. Ricardo
Fernandez and "the various documentary evidence showing the loss suffered by the defendant
when it was compelled to sell the subject goods at a lower price." 20
WHEREFORE, in view of the foregoing, the Petition for Review is hereby DENIED for lack of
merit and the decision of the Court of Appeals dated 8 February 1991 is hereby AFFIRMED.
Costs against petitioner.
SO ORDERED.
Prudential Bank .v IAC, GR 74888, Dec. 8, 1992
G.R. No. 74886 December 8, 1992
PRUDENTIAL BANK, petitioner,
vs.
INTERMEDIATE APPELLATE COURT, PHILIPPINE RAYON MILLS, INC. and ANACLETO R.
CHI, respondents.
Petitioner seeks to review and set aside the decision 1 of public respondent; Intermediate
Appellate Court (now Court of Appeals), dated 10 March 1986, in AC-G.R. No. 66733 which
affirmed in toto the 15 June 1978 decision of Branch 9 (Quezon City) of the then Court of First
Instance (now Regional Trial Court) of Rizal in Civil Case No. Q-19312. The latter involved an
action instituted by the petitioner for the recovery of a sum of money representing the amount
paid by it to the Nissho Company Ltd. of Japan for textile machinery imported by the defendant,
now private respondent, Philippine Rayon Mills, Inc. (hereinafter Philippine Rayon),
represented by co-defendant Anacleto R. Chi.
The facts which gave rise to the instant controversy are summarized by the public respondent
as follows:
On August 8, 1962, defendant-appellant Philippine Rayon Mills, Inc. entered into a contract
with Nissho Co., Ltd. of Japan for the importation of textile machineries under a five-year
deferred payment plan (Exhibit B, Plaintiff's Folder of Exhibits, p 2). To effect payment for said
machineries, the defendant-appellant applied for a commercial letter of credit with the
Prudential Bank and Trust Company in favor of Nissho. By virtue of said application, the
Prudential Bank opened Letter of Credit No. DPP-63762 for $128,548.78 (Exhibit A, Ibid., p. 1).
Against this letter of credit, drafts were drawn and issued by Nissho (Exhibits X, X-1 to
X-11, Ibid., pp. 65, 66 to 76), which were all paid by the Prudential Bank through its
correspondent in Japan, the Bank of Tokyo, Ltd. As indicated on their faces, two of these drafts
(Exhibit X and X-1, Ibid., pp. 65-66) were accepted by the defendant-appellant through its
president, Anacleto R. Chi, while the others were not (Exhibits X-2 to X-11, Ibid., pp. 66 to 76).
Upon the arrival of the machineries, the Prudential Bank indorsed the shipping documents to
the defendant-appellant which accepted delivery of the same. To enable the
defendant-appellant to take delivery of the machineries, it executed, by prior arrangement
with the Prudential Bank, a trust receipt which was signed by Anacleto R. Chi in his capacity as
President (sic) of defendant-appellant company (Exhibit C, Ibid., p. 13).
At the back of the trust receipt is a printed form to be accomplished by two sureties who, by
the very terms and conditions thereof, were to be jointly and severally liable to the Prudential
Bank should the defendant-appellant fail to pay the total amount or any portion of the drafts
issued by Nissho and paid for by Prudential Bank. The defendant-appellant was able to take
delivery of the textile machineries and installed the same at its factory site at 69 Obudan Street,
Quezon City.
Sometime in 1967, the defendant-appellant ceased business operation (sic). On December 29,
1969, defendant-appellant's factory was leased by Yupangco Cotton Mills for an annual rental
of P200,000.00 (Exhibit I, Ibid., p. 22). The lease was renewed on January 3, 1973 (Exhibit
J, Ibid., p. 26). On January 5, 1974, all the textile machineries in the defendant-appellant's
factory were sold to AIC Development Corporation for P300,000.00 (Exhibit K, Ibid., p. 29).
The obligation of the defendant-appellant arising from the letter of credit and the trust receipt
remained unpaid and unliquidated. Repeated formal demands (Exhibits U, V, and W, Ibid., pp.
62, 63, 64) for the payment of the said trust receipt yielded no result Hence, the present action
for the collection of the principal amount of P956,384.95 was filed on October 3, 1974 against
the defendant-appellant and Anacleto R. Chi. In their respective answers, the defendants
interposed identical special defenses, viz., the complaint states no cause of action; if there is,
the same has prescribed; and the plaintiff is guilty of laches. 2
On 15 June 1978, the trial court rendered its decision the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered sentencing the defendant Philippine Rayon Mills,
Inc. to pay plaintiff the sum of P153,645.22, the amounts due under Exhibits "X" & "X-1", with
interest at 6% per annum beginning September 15, 1974 until fully paid.
Insofar as the amounts involved in drafts Exhs. "X" (sic) to "X-11", inclusive, the same not
having been accepted by defendant Philippine Rayon Mills, Inc., plaintiff's cause of action
thereon has not accrued, hence, the instant case is premature.
Insofar as defendant Anacleto R. Chi is concerned, the case is dismissed. Plaintiff is ordered to
pay defendant Anacleto R. Chi the sum of P20,000.00 as attorney's fees.
With costs against defendant Philippine Rayon Mills, Inc.
SO ORDERED. 3
Petitioner appealed the decision to the then Intermediate Appellate Court. In urging the said
court to reverse or modify the decision, petitioner alleged in its Brief that the trial court erred
in (a) disregarding its right to reimbursement from the private respondents for the entire
unpaid balance of the imported machines, the total amount of which was paid to the Nissho
Company Ltd., thereby violating the principle of the third party payor's right to reimbursement
provided for in the second paragraph of Article 1236 of the Civil Code and under the rule
against unjust enrichment; (b) refusing to hold Anacleto R. Chi, as the responsible officer of
defendant corporation, liable under Section 13 of P.D No 115 for the entire unpaid balance of
the imported machines covered by the bank's trust receipt (Exhibit "C"); (c) finding that the
solidary guaranty clause signed by Anacleto R. Chi is not a guaranty at all; (d) controverting the
judicial admissions of Anacleto R. Chi that he is at least a simple guarantor of the said trust
receipt obligation; (e) contravening, based on the assumption that Chi is a simple guarantor,
Articles 2059, 2060 and 2062 of the Civil Code and the related evidence and jurisprudence
which provide that such liability had already attached; (f) contravening the judicial admissions
of Philippine Rayon with respect to its liability to pay the petitioner the amounts involved in
the drafts (Exhibits "X", "X-l" to "X-11''); and (g) interpreting "sight" drafts as requiring
acceptance by Philippine Rayon before the latter could be held liable thereon. 4
In its decision, public respondent sustained the trial court in all respects. As to the first and last
assigned errors, it ruled that the provision on unjust enrichment, Article 2142 of the Civil Code,
applies only if there is no express contract between the parties and there is a clear showing
that the payment is justified. In the instant case, the relationship existing between the
petitioner and Philippine Rayon is governed by specific contracts, namely the application for
letters of credit, the promissory note, the drafts and the trust receipt. With respect to the last
ten (10) drafts (Exhibits "X-2" to "X-11") which had not been presented to and were not
accepted by Philippine Rayon, petitioner was not justified in unilaterally paying the amounts
stated therein. The public respondent did not agree with the petitioner's claim that the drafts
were sight drafts which did not require presentment for acceptance to Philippine Rayon
because paragraph 8 of the trust receipt presupposes prior acceptance of the drafts. Since the
ten (10) drafts were not presented and accepted, no valid demand for payment can be made.
Public respondent also disagreed with the petitioner's contention that private respondent Chi
is solidarily liable with Philippine Rayon pursuant to Section 13 of P.D. No. 115 and based on his
signature on the solidary guaranty clause at the dorsal side of the trust receipt. As to the first
contention, the public respondent ruled that the civil liability provided for in said Section 13
attaches only after conviction. As to the second, it expressed misgivings as to whether Chi's
signature on the trust receipt made the latter automatically liable thereon because the
so-called solidary guaranty clause at the dorsal portion of the trust receipt is to be signed not
by one (1) person alone, but by two (2) persons; the last sentence of the same is incomplete
and unsigned by witnesses; and it is not acknowledged before a notary public. Besides, even
granting that it was executed and acknowledged before a notary public, Chi cannot be held
liable therefor because the records fail to show that petitioner had either exhausted the
properties of Philippine Rayon or had resorted to all legal remedies as required in Article 2058
of the Civil Code. As provided for under Articles 2052 and 2054 of the Civil Code, the obligation
of a guarantor is merely accessory and subsidiary, respectively. Chi's liability would therefore
arise only when the principal debtor fails to comply with his obligation. 5
Its motion to reconsider the decision having been denied by the public respondent in its
Resolution of 11 June 1986, 6 petitioner filed the instant petition on 31 July 1986 submitting
the following legal issues:
I. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY ERRED IN DENYING
PETITIONER'S CLAIM FOR FULL REIMBURSEMENT AGAINST THE PRIVATE RESPONDENTS FOR
THE PAYMENT PETITIONER MADE TO NISSHO CO. LTD. FOR THE BENEFIT OF PRIVATE
RESPONDENT UNDER ART. 1283 OF THE NEW CIVIL CODE OF THE PHILIPPINES AND UNDER THE
GENERAL PRINCIPLE AGAINST UNJUST ENRICHMENT;
II. WHETHER OR NOT RESPONDENT CHI IS SOLIDARILY LIABLE UNDER THE TRUST RECEIPT (EXH.
C);
III. WHETHER OR NOT ON THE BASIS OF THE JUDICIAL ADMISSIONS OF RESPONDENT CHI HE IS
LIABLE THEREON AND TO WHAT EXTENT;
IV. WHETHER OR NOT RESPONDENT CHI IS MERELY A SIMPLE GUARANTOR; AND IF SO; HAS HIS
LIABILITY AS SUCH ALREADY ATTACHED;
V. WHETHER OR NOT AS THE SIGNATORY AND RESPONSIBLE OFFICER OF RESPONDENT PHIL.
RAYON RESPONDENT CHI IS PERSONALLY LIABLE PURSUANT TO THE PROVISION OF SECTION 13,
P.D. 115;
VI. WHETHER OR NOT RESPONDENT PHIL. RAYON IS LIABLE TO THE PETITIONER UNDER THE
TRUST RECEIPT (EXH. C);
VII. WHETHER OR NOT ON THE BASIS OF THE JUDICIAL ADMISSIONS RESPONDENT PHIL. RAYON
IS LIABLE TO THE PETITIONER UNDER THE DRAFTS (EXHS. X, X-1 TO X-11) AND TO WHAT
EXTENT;
VIII. WHETHER OR NOT SIGHT DRAFTS REQUIRE PRIOR ACCEPTANCE FROM RESPONDENT PHIL.
RAYON BEFORE THE LATTER BECOMES LIABLE TO PETITIONER. 7
In the Resolution of 12 March 1990, 8 this Court gave due course to the petition after the filing
of the Comment thereto by private respondent Anacleto Chi and of the Reply to the latter by
the petitioner; both parties were also required to submit their respective memoranda which Sec. 143. When presentment for acceptance must be made. Presentment for acceptance
they subsequently complied with. must be made:

As We see it, the issues may be reduced as follows: (a) Where the bill is payable after sight, or in any other case, where presentment for
acceptance is necessary in order to fix the maturity of the instrument; or
1. Whether presentment for acceptance of the drafts was indispensable to make Philippine
Rayon liable thereon; (b) Where the bill expressly stipulates that it shall be presented for acceptance; or

2. Whether Philippine Rayon is liable on the basis of the trust receipt; (c) Where the bill is drawn payable elsewhere than at the residence or place of business of the
drawee.
3. Whether private respondent Chi is jointly and severally liable with Philippine Rayon for the
obligation sought to be enforced and if not, whether he may be considered a guarantor; in the In no other case is presentment for acceptance necessary in order to render any party to the
latter situation, whether the case should have been dismissed on the ground of lack of cause of bill liable.
action as there was no prior exhaustion of Philippine Rayon's properties.
Obviously then, sight drafts do not require presentment for acceptance.
Both the trial court and the public respondent ruled that Philippine Rayon could be held liable
for the two (2) drafts, Exhibits "X" and "X-1", because only these appear to have been accepted The acceptance of a bill is the signification by the drawee of his assent to the order of the
by the latter after due presentment. The liability for the remaining ten (10) drafts (Exhibits drawer; 14 this may be done in writing by the drawee in the bill itself, or in a separate
"X-2" to "X-11" inclusive) did not arise because the same were not presented for acceptance. In instrument. 15
short, both courts concluded that acceptance of the drafts by Philippine Rayon was
indispensable to make the latter liable thereon. We are unable to agree with this proposition.
The parties herein agree, and the trial court explicitly ruled, that the subject, drafts are sight
The transaction in the case at bar stemmed from Philippine Rayon's application for a
drafts. Said the latter:
commercial letter of credit with the petitioner in the amount of $128,548.78 to cover the
former's contract to purchase and import loom and textile machinery from Nissho Company,
Ltd. of Japan under a five-year deferred payment plan. Petitioner approved the application. As . . . In the instant case the drafts being at sight, they are supposed to be payable upon
correctly ruled by the trial court in its Order of 6 March 1975: 9 acceptance unless plaintiff bank has given the Philippine Rayon Mills Inc. time within which to
pay the same. The first two drafts (Annexes C & D, Exh. X & X-1) were duly accepted as
indicated on their face (sic), and upon such acceptance should have been paid forthwith. These
. . . By virtue of said Application and Agreement for Commercial Letter of Credit, plaintiff
two drafts were not paid and although Philippine Rayon Mills
bank 10 was under obligation to pay through its correspondent bank in Japan the drafts that
ought to have paid the same, the fact remains that until now they are still unpaid. 16
Nisso (sic) Company, Ltd., periodically drew against said letter of credit from 1963 to 1968,
pursuant to plaintiff's contract with the defendant Philippine Rayon Mills, Inc. In turn,
defendant Philippine Rayon Mills, Inc., was obligated to pay plaintiff bank the amounts of the Corollarily, they are, pursuant to Section 7 of the NIL, payable on demand. Section 7 provides:
drafts drawn by Nisso (sic) Company, Ltd. against said plaintiff bank together with any accruing
commercial charges, interest, etc. pursuant to the terms and conditions stipulated in the Sec. 7. When payable on demand. An instrument is payable on demand
Application and Agreement of Commercial Letter of Credit Annex "A".
(a) When so it is expressed to be payable on demand, or at sight, or on presentation; or
A letter of credit is defined as an engagement by a bank or other person made at the request
of a customer that the issuer will honor drafts or other demands for payment upon compliance (b) In which no time for payment in expressed.
with the conditions specified in the credit. 11Through a letter of credit, the bank merely
substitutes its own promise to pay for one of its customers who in return promises to pay the
bank the amount of funds mentioned in the letter of credit plus credit or commitment fees Where an instrument is issued, accepted, or indorsed when overdue, it is, as regards the
mutually agreed upon. 12 In the instant case then, the drawee was necessarily the herein person so issuing, accepting, or indorsing it, payable on demand. (emphasis supplied)
petitioner. It was to the latter that the drafts were presented for payment. In fact, there was
no need for acceptance as the issued drafts are sight drafts. Presentment for acceptance is Paragraph 8 of the Trust Receipt which reads: "My/our liability for payment at maturity of any
necessary only in the cases expressly provided for in Section 143 of the Negotiable Instruments accepted draft, bill of exchange or indebtedness shall not be extinguished or modified" 17 does
Law (NIL). 13 The said section reads: not, contrary to the holding of the public respondent, contemplate prior acceptance by
Philippine Rayon, but by the petitioner. Acceptance, however, was not even necessary in the
first place because the drafts which were eventually issued were sight drafts And even if these
were not sight drafts, thereby necessitating acceptance, it would be the petitioner and not
Philippine Rayon which had to accept the same for the latter was not the drawee.
Presentment for acceptance is defined an the production of a bill of exchange to a drawee for
acceptance. 18The trial court and the public respondent, therefore, erred in ruling that
presentment for acceptance was an indispensable requisite for Philippine Rayon's liability on
the drafts to attach. Contrary to both courts' pronouncements, Philippine Rayon immediately
became liable thereon upon petitioner's payment thereof. Such is the essence of the letter of
credit issued by the petitioner. A different conclusion would violate the principle upon which
commercial letters of credit are founded because in such a case, both the beneficiary and the
issuer, Nissho Company Ltd. and the petitioner, respectively, would be placed at the mercy of
Philippine Rayon even if the latter had already received the imported machinery and the
petitioner had fully paid for it. The typical setting and purpose of a letter of credit are
described in Hibernia Bank and Trust Co.vs. J. Aron & Co., Inc., 19 thus:
Commercial letters of credit have come into general use in international sales transactions
where much time necessarily elapses between the sale and the receipt by a purchaser of the
merchandise, during which interval great price changes may occur. Buyers and sellers struggle
for the advantage of position. The seller is desirous of being paid as surely and as soon as
possible, realizing that the vendee at a distant point has it in his power to reject on trivial
grounds merchandise on arrival, and cause considerable hardship to the shipper. Letters of
credit meet this condition by affording celerity and certainty of payment. Their purpose is to
insure to a seller payment of a definite amount upon presentation of documents. The bank
deals only with documents. It has nothing to do with the quality of the merchandise. Disputes
as to the merchandise shipped may arise and be litigated later between vendor and vendee,
but they may not impede acceptance of drafts and payment by the issuing bank when the
proper documents are presented.
The trial court and the public respondent likewise erred in disregarding the trust receipt and in
not holding that Philippine Rayon was liable thereon. In People vs. Yu Chai Ho, 20 this Court
explains the nature of a trust receipt by quoting In re Dunlap Carpet Co., 21 thus:
By this arrangement a banker advances money to an intending importer, and thereby lends the
aid of capital, of credit, or of business facilities and agencies abroad, to the enterprise of
foreign commerce. Much of this trade could hardly be carried on by any other means, and
therefore it is of the first importance that the fundamental factor in the transaction, the
banker's advance of money and credit, should receive the amplest protection. Accordingly, in
order to secure that the banker shall be repaid at the critical point that is, when the
imported goods finally reach the hands of the intended vendee the banker takes the full
title to the goods at the very beginning; he takes it as soon as the goods are bought and settled
for by his payments or acceptances in the foreign country, and he continues to hold that title
as his indispensable security until the goods are sold in the United States and the vendee is
called upon to pay for them. This security is not an ordinary pledge by the importer to the
banker, for the importer has never owned the goods, and moreover he is not able to deliver
the possession; but the security is the complete title vested originally in the bankers, and this
characteristic of the transaction has again and again been recognized and protected by the
courts. Of course, the title is at bottom a security title, as it has sometimes been called, and the
banker is always under the obligation to reconvey; but only after his advances have been fully
repaid and after the importer has fulfilled the other terms of the contract.
As further stated in National Bank vs. Viuda e Hijos de Angel Jose, 22 trust receipts:
. . . [I]n a certain manner, . . . partake of the nature of a conditional sale as provided by the
Chattel Mortgage Law, that is, the importer becomes absolute owner of the imported
merchandise as soon an he has paid its price. The ownership of the merchandise continues to
be vested in the owner thereof or in the person who has advanced payment, until he has been
paid in full, or if the merchandise has already been sold, the proceeds of the sale should be
turned over to him by the importer or by his representative or successor in interest.
Under P.D. No. 115, otherwise known an the Trust Receipts Law, which took effect on 29
January 1973, a trust receipt transaction is defined as "any transaction by and between a
person referred to in this Decree as the entruster, and another person referred to in this
Decree as the entrustee, whereby the entruster, who owns or holds absolute title or security
interests' over certain specified goods, documents or instruments, releases the same to the
possession of the entrustee upon the latter's execution and delivery to the entruster of a
signed document called the "trust receipt" wherein the entrustee binds himself to hold the
designated goods, documents or instruments in trust for the entruster and to sell or otherwise
dispose of the goods, documents or instruments with the obligation to turn over to the
entruster the proceeds thereof to the extent of the amount owing to the entruster or as
appears in the trust receipt or the goods, instruments themselves if they are unsold or not
otherwise disposed of, in accordance with the terms and conditions specified in the trusts
receipt, or for other purposes substantially equivalent to any one of the following: . . ."
It is alleged in the complaint that private respondents "not only have presumably put said
machinery to good use and have profited by its operation and/or disposition but very recent
information that (sic) reached plaintiff bank that defendants already sold the machinery
covered by the trust receipt to Yupangco Cotton Mills," and that "as trustees of the property
covered by the trust receipt, . . . and therefore acting in fiduciary (sic) capacity, defendants
have willfully violated their duty to account for the whereabouts of the machinery covered by
the trust receipt or for the proceeds of any lease, sale or other disposition of the same that
they may have made, notwithstanding demands therefor; defendants have fraudulently
misapplied or converted to their own use any money realized from the lease, sale, and other
disposition of said machinery." 23 While there is no specific prayer for the delivery to the
petitioner by Philippine Rayon of the proceeds of the sale of the machinery covered by the
trust receipt, such relief is covered by the general prayer for "such further and other relief as
may be just and equitable on the premises." 24 And although it is true that the petitioner
commenced a criminal action for the violation of the Trust Receipts Law, no legal obstacle
prevented it from enforcing the civil liability arising out of the trust, receipt in a separate civil
action. Under Section 13 of the Trust Receipts Law, the failure of an entrustee to turn over the
proceeds of the sale of goods, documents or instruments covered by a trust receipt to the
extent of the amount owing to the entruster or as appear in the trust receipt or to return said
goods, documents or instruments if they were not sold or disposed of in accordance with the
terms of the trust receipt shall constitute the crime of estafa, punishable under the provisions
of Article 315, paragraph 1(b) of the Revised Penal Code. 25 Under Article 33 of the Civil Code, a
civil action for damages, entirely separate and distinct from the criminal action, may be
brought by the injured party in cases of defamation, fraud and physical injuries. Estafa falls
under fraud.
We also conclude, for the reason hereinafter discussed, and not for that adduced by the public
respondent, that private respondent Chi's signature in the dorsal portion of the trust receipt
did not bind him solidarily with Philippine Rayon. The statement at the dorsal portion of the
said trust receipt, which petitioner describes as a "solidary guaranty clause", reads:
In consideration of the PRUDENTIAL BANK AND TRUST COMPANY complying with the foregoing,
we jointly and severally agree and undertake to pay on demand to the PRUDENTIAL BANK AND
TRUST COMPANY all sums of money which the said PRUDENTIAL BANK AND TRUST COMPANY
may call upon us to pay arising out of or pertaining to, and/or in any event connected with the
default of and/or non-fulfillment in any respect of the undertaking of the aforesaid:
PHILIPPINE RAYON MILLS, INC.
We further agree that the PRUDENTIAL BANK AND TRUST COMPANY does not have to take any
steps or exhaust its remedy against aforesaid:
before making demand on me/us.
(Sgd.) Anacleto R. Chi
ANACLETO R. CHI 26
Petitioner insists that by virtue of the clear wording of the statement, specifically the clause
". . . we jointly and severally agree and undertake . . .," and the concluding sentence on
exhaustion, Chi's liability therein is solidary.
In holding otherwise, the public respondent ratiocinates as follows:
With respect to the second argument, we have our misgivings as to whether the mere
signature of defendant-appellee Chi of (sic) the guaranty agreement, Exhibit "C-1", will make it
an actionable document. It should be noted that Exhibit "C-1" was prepared and printed by the
plaintiff-appellant. A perusal of Exhibit "C-1" shows that it was to be signed and executed by
two persons. It was signed only by defendant-appellee Chi. Exhibit "C-1" was to be witnessed
by two persons, but no one signed in that capacity. The last sentence of the guaranty clause is
incomplete. Furthermore, the plaintiff-appellant also failed to have the purported guarantee
clause acknowledged before a notary public. All these show that the alleged guaranty provision
was disregarded and, therefore, not consummated.
But granting arguendo that the guaranty provision in Exhibit "C-1" was fully executed and
acknowledged still defendant-appellee Chi cannot be held liable thereunder because the
records show that the plaintiff-appellant had neither exhausted the property of the
defendant-appellant nor had it resorted to all legal remedies against the said
defendant-appellant as provided in Article 2058 of the Civil Code. The obligation of a guarantor
is merely accessory under Article 2052 of the Civil Code and subsidiary under Article 2054 of
the Civil Code. Therefore, the liability of the defendant-appellee arises only when the principal
debtor fails to comply with his obligation. 27
Our own reading of the questioned solidary guaranty clause yields no other conclusion than
that the obligation of Chi is only that of a guarantor. This is further bolstered by the last
sentence which speaks of waiver of exhaustion, which, nevertheless, is ineffective in this case
because the space therein for the party whose property may not be exhausted was not filled
up. Under Article 2058 of the Civil Code, the defense of exhaustion (excussion) may be raised
by a guarantor before he may be held liable for the obligation. Petitioner likewise admits that
the questioned provision is a solidary guaranty clause, thereby clearly distinguishing it from a
contract of surety. It, however, described the guaranty as solidary between the guarantors; this
would have been correct if two (2) guarantors had signed it. The clause "we jointly and
severally agree and undertake" refers to the undertaking of the two (2) parties who are to sign
it or to the liability existing between themselves. It does not refer to the undertaking between
either one or both of them on the one hand and the petitioner on the other with respect to the
liability described under the trust receipt. Elsewise stated, their liability is not divisible as
between them, i.e., it can be enforced to its full extent against any one of them.
Furthermore, any doubt as to the import, or true intent of the solidary guaranty clause should
be resolved against the petitioner. The trust receipt, together with the questioned solidary
guaranty clause, is on a form drafted and prepared solely by the petitioner; Chi's participation
therein is limited to the affixing of his signature thereon. It is, therefore, a contract of
adhesion; 28 as such, it must be strictly construed against the party responsible for its
preparation. 29
Neither can We agree with the reasoning of the public respondent that this solidary guaranty
clause was effectively disregarded simply because it was not signed and witnessed by two (2)
persons and acknowledged before a notary public. While indeed, the clause ought to have
been signed by two (2) guarantors, the fact that it was only Chi who signed the same did not
make his act an idle ceremony or render the clause totally meaningless. By his signing, Chi
became the sole guarantor. The attestation by witnesses and the acknowledgement before a
notary public are not required by law to make a party liable on the instrument. The rule is that
contracts shall be obligatory in whatever form they may have been entered into, provided all
the essential requisites for their validity are present; however, when the law requires that a
contract be in some form in order that it may be valid or enforceable, or that it be proved in a
certain way, that requirement is absolute and indispensable. 30 With respect to a
guaranty, 31 which is a promise to answer for the debt or default of another, the law merely
requires that it, or some note or memorandum thereof, be in writing. Otherwise, it would be
unenforceable unless ratified. 32 While the acknowledgement of a surety before a notary
public is required to make the same a public document, under Article 1358 of the Civil Code, a
contract of guaranty does not have to appear in a public document.
And now to the other ground relied upon by the petitioner as basis for the solidary liability of
Chi, namely the criminal proceedings against the latter for the violation of P.D. No. 115.
Petitioner claims that because of the said criminal proceedings, Chi would be answerable for
the civil liability arising therefrom pursuant to Section 13 of P.D. No. 115. Public respondent
rejected this claim because such civil liability presupposes prior conviction as can be gleaned
from the phrase "without prejudice to the civil liability arising from the criminal offense." Both
are wrong. The said section reads:
Sec. 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of
the goods, documents or instruments covered by a trust receipt to the extent of the amount
owing to the entruster or as appears in the trust receipt or to return said goods, documents or
instruments if they were not sold or disposed of in accordance with the terms of the trust
receipt shall constitute the crime of estafa, punishable under the provisions of Article Three
hundred and fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred and
fifteen, as amended, otherwise known as the Revised Penal Code. If the violation or offense is
committed by a corporation, partnership, association or other juridical entities, the penalty
provided for in this Decree shall be imposed upon the directors, officers, employees or other
officials or persons therein responsible for the offense, without prejudice to the civil liabilities
arising from the criminal offense.
A close examination of the quoted provision reveals that it is the last sentence which provides
for the correct solution. It is clear that if the violation or offense is committed by a corporation,
partnership, association or other juridical entities, the penalty shall be imposed upon the
directors, officers, employees or other officials or persons therein responsible for the offense.
The penalty referred to is imprisonment, the duration of which would depend on the amount
of the fraud as provided for in Article 315 of the Revised Penal Code. The reason for this is
obvious: corporations, partnerships, associations and other juridical entities cannot be put in
jail. However, it is these entities which are made liable for the civil liability arising from the
criminal offense. This is the import of the clause "without prejudice to the civil liabilities arising
from the criminal offense." And, as We stated earlier, since that violation of a trust receipt
constitutes fraud under Article 33 of the Civil Code, petitioner was acting well within its rights
in filing an independent civil action to enforce the civil liability arising therefrom against
Philippine Rayon.
The remaining issue to be resolved concerns the propriety of the dismissal of the case against
private respondent Chi. The trial court based the dismissal, and the respondent Court its
affirmance thereof, on the theory that Chi is not liable on the trust receipt in any capacity
either as surety or as guarantor because his signature at the dorsal portion thereof was
useless; and even if he could be bound by such signature as a simple guarantor, he cannot,
pursuant to Article 2058 of the Civil Code, be compelled to pay until
after petitioner has exhausted and resorted to all legal remedies against the principal debtor,
Philippine Rayon. The records fail to show that petitioner had done so 33 Reliance is thus
placed on Article 2058 of the Civil Code which provides:
Art. 2056. The guarantor cannot be compelled to pay the creditor unless the latter has
exhausted all the property of the debtor, and has resorted to all the legal remedies against the
debtor.
Simply stated, there is as yet no cause of action against Chi.
We are not persuaded. Excussion is not a condition sine qua non for the institution of an action
against a guarantor. In Southern Motors, Inc. vs. Barbosa, 34 this Court stated:
4. Although an ordinary personal guarantor not a mortgagor or pledgor may demand the
aforementioned exhaustion, the creditor may, prior thereto, secure a judgment against said
guarantor, who shall be entitled, however, to a deferment of the execution of said judgment
against him until after the properties of the principal debtor shall have been exhausted to
satisfy the obligation involved in the case.
There was then nothing procedurally objectionable in impleading private respondent Chi as a
co-defendant in Civil Case No. Q-19312 before the trial court. As a matter of fact, Section 6,
Rule 3 of the Rules of Court on permissive joinder of parties explicitly allows it. It reads:
Sec. 6. Permissive joinder of parties. All persons in whom or against whom any right to relief
in respect to or arising out of the same transaction or series of transactions is alleged to exist,
whether jointly, severally, or in the alternative, may, except as otherwise provided in these
rules, join as plaintiffs or be joined as defendants in one complaint, where any question of law
or fact common to all such plaintiffs or to all such defendants may arise in the action; but the
court may make such orders as may be just to prevent any plaintiff or defendant from being
embarrassed or put to expense in connection with any proceedings in which he may have no
interest.
This is the equity rule relating to multifariousness. It is based on trial convenience and is
designed to permit the joinder of plaintiffs or defendants whenever there is a common
question of law or fact. It will save the parties unnecessary work, trouble and expense. 35
However, Chi's liability is limited to the principal obligation in the trust receipt plus all the
accessories thereof including judicial costs; with respect to the latter, he shall only be liable for
those costs incurred after being judicially required to pay. 36 Interest and damages, being
accessories of the principal obligation, should also be paid; these, however, shall run only from
the date of the filing of the complaint. Attorney's fees may even be allowed in appropriate
cases.37
In the instant case, the attorney's fees to be paid by Chi cannot be the same as that to be paid
by Philippine Rayon since it is only the trust receipt that is covered by the guaranty and not the
full extent of the latter's liability. All things considered, he can be held liable for the sum of
P10,000.00 as attorney's fees in favor of the petitioner.
Thus, the trial court committed grave abuse of discretion in dismissing the complaint as against
private respondent Chi and condemning petitioner to pay him P20,000.00 as attorney's fees.
In the light of the foregoing, it would no longer necessary to discuss the other issues raised by
the petitioner
WHEREFORE, the instant Petition is hereby GRANTED.
The appealed Decision of 10 March 1986 of the public respondent in AC-G.R. CV No. 66733 and,
necessarily, that of Branch 9 (Quezon City) of the then Court of First Instance of Rizal in Civil
Case No. Q-19312 are hereby REVERSED and SET ASIDE and another is hereby entered:
1. Declaring private respondent Philippine Rayon Mills, Inc. liable on the twelve drafts in
question (Exhibits "X", "X-1" to "X-11", inclusive) and on the trust receipt (Exhibit "C"), and
ordering it to pay petitioner: (a) the amounts due thereon in the total sum of P956,384.95 as of
15 September 1974, with interest thereon at six percent (6%) per annum from 16 September
1974 until it is fully paid, less whatever may have been applied thereto by virtue of foreclosure
of mortgages, if any; (b) a sum equal to ten percent (10%) of the aforesaid amount as
attorney's fees; and (c) the costs.
2. Declaring private respondent Anacleto R. Chi secondarily liable on the trust receipt and
ordering him to pay the face value thereof, with interest at the legal rate, commencing from
the date of the filing of the complaint in Civil Case No. Q-19312 until the same is fully paid as
well as the costs and attorney's fees in the sum of P10,000.00 if the writ of execution for the
enforcement of the above awards against Philippine Rayon Mills, Inc. is returned unsatisfied.
Costs against private respondents.
SO ORDERED.
Bank of America, NT v. CA, GR 105395, Dec, 10, 1993
G.R. No. 105395 December 10, 1993
BANK OF AMERICA, NT & SA, petitioners,
vs.
COURT OF APPEALS, INTER-RESIN INDUSTRIAL CORPORATION, FRANCISCO TRAJANO, JOHN
DOE AND JANE DOE, respondents.
A "fiasco," involving an irrevocable letter of credit, has found the distressed parties coming to
court as adversaries in seeking a definition of their respective rights or liabilities thereunder.
On 05 March 1981, petitioner Bank of America, NT & SA, Manila, received by registered mail an
Irrevocable Letter of Credit No. 20272/81 purportedly issued by Bank of Ayudhya, Samyaek
Branch, for the account of General Chemicals, Ltd., of Thailand in the amount of
US$2,782,000.00 to cover the sale of plastic ropes and "agricultural files," with the petitioner
as advising bank and private respondent Inter-Resin Industrial Corporation as beneficiary.
On 11 March 1981, Bank of America wrote Inter-Resin informing the latter of the foregoing and
transmitting, along with the bank's communication,
the latter of credit. Upon receipt of the letter-advice with the letter of credit, Inter-Resin sent
Atty. Emiliano Tanay to Bank of America to have the letter of credit confirmed. The bank did
not. Reynaldo Dueas, bank employee in charge of letters of credit, however, explained to Atty.
Tanay that there was no need for confirmation because the letter of credit would not have
been transmitted if it were not genuine.
Between 26 March to 10 April 1981, Inter-Resin sought to make a partial availment under the
letter of credit by submitting to Bank of America invoices, covering the shipment of 24,000
bales of polyethylene rope to General Chemicals valued at US$1,320,600.00, the corresponding
packing list, export declaration and bill of lading. Finally, after being satisfied that Inter-Resin's
documents conformed with the conditions expressed in the letter of credit, Bank of America
issued in favor of Inter-Resin a Cashier's Check for P10,219,093.20, "the Peso equivalent of the
draft (for) US$1,320,600.00 drawn by Inter-Resin, after deducting the costs for documentary
stamps, postage and mail issuance." 1 The check was picked up by Inter-Resin's Executive
Vice-President Barcelina Tio. On 10 April 1981, Bank of America wrote Bank of Ayudhya
advising the latter of the availment under the letter of credit and sought the corresponding
reimbursement therefor.
Meanwhile, Inter-Resin, through Ms. Tio, presented to Bank of America the documents for the
second availment under the same letter of credit consisting of a packing list, bill of lading,
invoices, export declaration and bills in set, evidencing the second shipment of goods.
Immediately upon receipt of a telex from the Bank of Ayudhya declaring the letter of credit
fraudulent, 2 Bank of America stopped the processing of Inter-Resin's documents and sent a
telex to its branch office in Bangkok, Thailand, requesting assistance in determining the
authenticity of the letter of credit. 3 Bank of America kept Inter-Resin informed of the
developments. Sensing a fraud, Bank of America sought the assistance of the National Bureau
of Investigation (NBI). With the help of the staff of the Philippine Embassy at Bangkok, as well
as the police and customs personnel of Thailand, the NBI agents, who were sent to Thailand,
discovered that the vans exported by Inter-Resin did not contain ropes but plastic strips,
wrappers, rags and waste materials. Here at home, the NBI also investigated Inter-Resin's
President Francisco Trajano and Executive Vice President Barcelina Tio, who, thereafter, were
criminally charged for estafa through falsification of commercial documents. The case,
however, was eventually dismissed by the Rizal Provincial Fiscal who found no prima
facieevidence to warrant prosecution.
Bank of America sued Inter-Resin for the recovery of P10,219,093.20, the peso equivalent of
the draft for US$1,320,600.00 on the partial availment of the now disowned letter of credit. On
the other hand, Inter-Resin claimed that not only was it entitled to retain P10,219,093.20 on its
first shipment but also to the balance US$1,461,400.00 covering the second shipment.
On 28 June 1989, the trial court ruled for Inter-Resin, 4 holding that:
(a) Bank of America made assurances that enticed Inter-Resin to send the merchandise to
Thailand; (b) the telex declaring the letter of credit fraudulent was unverified and self-serving,
hence, hearsay, but even assuming that the letter of credit was fake, "the fault should be
borne by the BA which was careless and negligent" 5 for failing to utilize its modern means of
communication to verify with Bank of Ayudhya in Thailand the authenticity of the letter of
credit before sending the same to Inter-Resin; (c) the loading of plastic products into the vans
were under strict supervision, inspection and verification of government officers who have in
their favor the presumption of regularity in the performance of official functions; and (d) Bank
of America failed to prove the participation of Inter-Resin or its employees in the alleged fraud
as, in fact, the complaint for estafa through falsification of documents was dismissed by the documents are presented to it. In turn, this arrangement assures the seller of prompt payment,
Provincial Fiscal of Rizal.6 independent of any breach of the main sales contract. By this so-called "independence
principle," the bank determines compliance with the letter of credit only by examining the
On appeal, the Court of Appeals 7
sustained the trial court; hence, this present recourse by shipping documents presented; it is precluded from determining whether the main contract is
petitioner Bank of America. actually accomplished or not. 11

The following issues are raised by Bank of America: (a) whether it has warranted the There would at least be three (3) parties: (a) the buyer, 12 who procures the letter of credit and
genuineness and authenticity of the letter of credit and, corollarily, whether it has acted obliges himself to reimburse the issuing bank upon receipts of the documents of title; (b)
merely as an advising bank or as a confirming bank; (b) whether Inter-Resin has actually the bank issuing the letter of credit, 13 which undertakes to pay the seller upon receipt of the
shipped the ropes specified by the letter of credit; and (c) following the dishonor of the letter draft and proper document of titles and to surrender the documents to the buyer upon
of credit by Bank of Ayudhya, whether Bank of America may recover against Inter-Resin under reimbursement; and, (c) the seller, 14 who in compliance with the contract of sale ships the
the draft executed in its partial availment of the letter of credit.8 goods to the buyer and delivers the documents of title and draft to the issuing bank to recover
payment.
In rebuttal, Inter-Resin holds that: (a) Bank of America cannot, on appeal, belatedly raise the
issue of being only an advising bank; (b) the findings of the trial court that the ropes have The number of the parties, not infrequently and almost invariably in international trade
actually been shipped is binding on the Court; and, (c) Bank of America cannot recover from practice, may be increased. Thus, the services of an advising (notifying) bank 15 may be utilized
Inter-Resin because the drawer of the letter of credit is the Bank of Ayudhya and not to convey to the seller the existence of the credit; or, of a confirming bank 16 which will lend
Inter-Resin. credence to the letter of credit issued by a lesser known issuing bank; or, of a paying
bank, 17 which undertakes to encash the drafts drawn by the exporter. Further, instead of
going to the place of the issuing bank to claim payment, the buyer may approach another bank,
If only to understand how the parties, in the first place, got themselves into the mess, it may
termed the negotiating bank, 18 to have the draft discounted.
be well to start by recalling how, in its modern use, a letter of credit is employed in trade
transactions.
Being a product of international commerce, the impact of this commercial instrument
transcends national boundaries, and it is thus not uncommon to find a dearth of national law
A letter of credit is a financial device developed by merchants as a convenient and relatively
that can adequately provide for its governance. This country is no exception. Our own Code of
safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable interests of a
Commerce basically introduces only its concept under Articles 567-572, inclusive, thereof. It is
seller, who refuses to part with his goods before he is paid, and a buyer, who wants to have
no wonder then why great reliance has been placed on commercial usage and practice, which,
control of the goods before paying. 9 To break the impasse, the buyer may be required to
in any case, can be justified by the universal acceptance of the autonomy of contract rules. The
contract a bank to issue a letter of credit in favor of the seller so that, by virtue of the latter of
rules were later developed into what is now known as the Uniform Customs and Practice for
credit, the issuing bank can authorize the seller to draw drafts and engage to pay them upon
Documentary Credits ("U.C.P.") issued by the International Chamber of Commerce. It is by no
their presentment simultaneously with the tender of documents required by the letter of
means a complete text by itself, for, to be sure, there are other principles, which, although part
credit. 10 The buyer and the seller agree on what documents are to be presented for payment,
of lex mercatoria, are not dealt with the U.C.P.
but ordinarily they are documents of title evidencing or attesting to the shipment of the goods
to the buyer.
In FEATI Bank and Trust Company v. Court of Appeals, 19 we have accepted, to the extent of
their pertinency, the application in our jurisdiction of this international commercial credit
Once the credit is established, the seller ships the goods to the buyer and in the process
regulatory set of rules. 20 In Bank of Phil. Islands v. De Nery, 21 we have said that the
secures the required shipping documents or documents of title. To get paid, the seller executes
observances of the U.C.P. is justified by Article 2 of the Code of Commerce which expresses
a draft and presents it together with the required documents to the issuing bank. The issuing
that, in the absence of any particular provision in the Code of Commerce, commercial
bank redeems the draft and pays cash to the seller if it finds that the documents submitted by
transactions shall be governed by usages and customs generally observed. We have further
the seller conform with what the letter of credit requires. The bank then obtains possession of
observed that there being no specific provisions which govern the legal complexities arising
the documents upon paying the seller. The transaction is completed when the buyer
from transactions involving letters of credit not only between or among banks themselves but
reimburses the issuing bank and acquires the documents entitling him to the goods. Under this
also between banks and the seller or the buyer, as the case may be, the applicability of the
arrangement, the seller gets paid only if he delivers the documents of title over the goods,
U.C.P. is undeniable.
while the buyer acquires said documents and control over the goods only after reimbursing the
bank.
The first issue raised with the petitioner, i.e., that it has in this instance merely been advising
bank, is outrightly rejected by Inter-Resin and is thus sought to be discarded for having been
What characterizes letters of credit, as distinguished from other accessory contracts, is the
raised only on appeal. We cannot agree. The crucial point of dispute in this case is whether
engagement of the issuing bank to pay the seller of the draft and the required shipping
under the "letter of credit," Bank of America has incurred any liability to the "beneficiary"
thereof, an issue that largely is dependent on the bank's participation in that transaction; as a
mere advising or notifying bank, it would not be liable, but as a confirming bank, had this been
the case, it could be considered as having incurred that liability. 22
In Insular Life Assurance Co. Ltd. Employees Association Natu vs. Insular Life Assurance Co.,
Ltd., 23 the Court said: Where the issues already raised also rest on other issues not specifically
presented, as long as the latter issues bear relevance and close relation to the former and as
long as they arise from the matters on record, the court has the authority to include them in its
discussion of the controversy and to pass upon them just as well. In brief, in those cases where
questions not particularly raised by the parties surface as necessary for the complete
adjudication of the rights and obligations of the parties, the interests of justice dictate that the
court should consider and resolve them. The rule that only issues or theories raised in the
initial proceedings may be taken up by a party thereto on appeal should only refer to
independent, not concomitant matters, to support or oppose the cause of action or defense.
The evil that is sought to be avoided, i.e., surprise to the adverse party, is in reality not existent
on matters that are properly litigated in the lower court and appear on record.
It cannot seriously be disputed, looking at this case, that Bank of America has, in fact, only
been an advising, not confirming, bank, and this much is clearly evident, among other things,
by the provisions of the letter of credit itself, the petitioner bank's letter of advice, its request
for payment of advising fee, and the admission of Inter-Resin that it has paid the same. That
Bank of America has asked Inter-Resin to submit documents required by the letter of credit
and eventually has paid the proceeds thereof, did not obviously make it a confirming bank. The
fact, too, that the draft required by the letter of credit is to be drawn under the account of
General Chemicals (buyer) only means the same had to be presented to Bank of Ayudhya
(issuing bank) for payment. It may be significant to recall that the letter of credit is an
engagement of the issuing bank, not the advising bank, to pay the draft.
No less important is that Bank of America's letter of 11 March 1981 has expressly stated that
"[t]he enclosure is solely an advise of credit opened by the abovementioned correspondent
and conveys no engagement by us." 24This written reservation by Bank of America in limiting its
obligation only to being an advising bank is in consonance with the provisions of U.C.P.
As an advising or notifying bank, Bank of America did not incur any obligation more than just
notifying Inter-Resin of the letter of credit issued in its favor, let alone to confirm the letter of
credit. 25 The bare statement of the bank employees, aforementioned, in responding to the
inquiry made by Atty. Tanay, Inter-Resin's representative, on the authenticity of the letter of
credit certainly did not have the effect of novating the letter of credit and Bank of America's
letter of advise, 26 nor can it justify the conclusion that the bank must now assume total
liability on the letter of credit. Indeed, Inter-Resin itself cannot claim to have been all that free
from fault. As the seller, the issuance of the letter of credit should have obviously been a great
concern to it. 27 It would have, in fact, been strange if it did not, prior to the letter of credit,
enter into a contract, or negotiated at the every least, with General Chemicals. 28 In the
ordinary course of business, the perfection of contract precedes the issuance of a letter of
credit.
Bringing the letter of credit to the attention of the seller is the primordial obligation of an
advising bank. The view that Bank of America should have first checked the authenticity of the
letter of credit with bank of Ayudhya, by using advanced mode of business communications,
before dispatching the same to Inter-Resin finds no real support in U.C.P. Article 18 of the
U.C.P. states that: "Banks assume no liability or responsibility for the consequences arising out
of the delay and/or loss in transit of any messages, letters or documents, or for delay,
mutilation or other errors arising in the transmission of any telecommunication . . ." As
advising bank, Bank of America is bound only to check the "apparent authenticity" of the letter
of credit, which it did. 29 Clarifying its meaning, Webster's Ninth New Collegiate
Dictionary 30 explains that the word "APPARENT suggests appearance to unaided senses that is
not or may not be borne out by more rigorous examination or greater knowledge."
May Bank of America then recover what it has paid under the letter of credit when the
corresponding draft for partial availment thereunder and the required documents were later
negotiated with it by Inter-Resin? The answer is yes. This kind of transaction is what is
commonly referred to as a discounting arrangement. This time, Bank of America has acted
independently as a negotiating bank, thus saving Inter-Resin from the hardship of presenting
the documents directly to Bank of Ayudhya to recover payment. (Inter-Resin, of course, could
have chosen other banks with which to negotiate the draft and the documents.) As a
negotiating bank, Bank of America has a right to recourse against the issuer bank and until
reimbursement is obtained, Inter-Resin, as the drawer of the draft, continues to assume a
contingent liability thereon. 31
While bank of America has indeed failed to allege material facts in its complaint that might
have likewise warranted the application of the Negotiable Instruments Law and possible then
allowed it to even go after the indorsers of the draft, this failure, 32/ nonetheless, does not
preclude petitioner bank's right (as negotiating bank) of recovery from Inter-Resin itself.
Inter-Resin admits having received P10,219,093.20 from bank of America on the letter of credit
and in having executed the corresponding draft. The payment to Inter-Resin has given, as
aforesaid, Bank of America the right of reimbursement from the issuing bank, Bank of Ayudhya
which, in turn, would then seek indemnification from the buyer (the General Chemicals of
Thailand). Since Bank of Ayudhya disowned the letter of credit, however, Bank of America may
now turn to Inter-Resin for restitution.
Between the seller and the negotiating bank there is the usual relationship existing between a
drawer and purchaser of drafts. Unless drafts drawn in pursuance of the credit are indicated to
be without recourse therefore, the negotiating bank has the ordinary right of recourse against
the seller in the event of dishonor by the issuing bank . . . The fact that the correspondent and
the negotiating bank may be one and the same does not affect its rights and obligations in
either capacity, although a special agreement is always a possibility . . . 33
The additional ground raised by the petitioner, i.e., that Inter-Resin sent waste instead of its
products, is really of no consequence. In the operation of a letter of credit, the involved banks
deal only with documents and not on goods described in those documents. 34
The other issues raised in then instant petition, for instance, whether or not Bank of Ayudhya
did issue the letter of credit and whether or not the main contract of sale that has given rise to
the letter of credit has been breached, are not relevant to this controversy. They are matters,
instead, that can only be of concern to the herein parties in an appropriate recourse against
those, who, unfortunately, are not impleaded in these proceedings.
In fine, we hold that
First, given the factual findings of the courts below, we conclude that petitioner Bank of
America has acted merely as a notifying bank and did not assume the responsibility of
a confirming bank; and
Second, petitioner bank, as a negotiating bank, is entitled to recover on Inter-Resin's partial
availment as beneficiary of the letter of credit which has been disowned by the alleged issuer
bank.
No judgment of civil liability against the other defendants, Francisco Trajano and other
unidentified parties, can be made, in this instance, there being no sufficient evidence to
warrant any such finding.
WHEREFORE, the assailed decision is SET ASIDE, and respondent Inter-Resin Industrial
Corporation is ordered to refund to petitioner Bank of America NT & SA the amount of
P10,219,093.20 with legal interest from the filing of the complaint until fully paid.
No costs.
SO ORDERED.
Sections 30-32 Equity Investments of Commercial Banks
Section 30. Equity Investments of a Commercial Bank. - A commercial bank may, subject to
the conditions stated in the succeeding paragraphs, invest only in the equities of allied
enterprises as may be determined by the Monetary Board. Allied enterprises may either be
financial or non-financial. Except as the Monetary Board may otherwise prescribe:
30.1. The total investment in equities of allied enterprises shall not exceed thirty-five percent
(35%) of the net worth of the bark; and
30.2. The equity investment in any one enterprise shall not exceed twenty-five percent (25%)
of tile net worth of the bank. The acquisition of such equity or equities is subject to the prior
approval of the Monetary Board which shall promulgate appropriate guidelines to govern such
investment.(2lA-a; 21-Ca)
Section 31. Equity Investments of a Commercial Bank in Financial Allied Enterprises. - A
commercial bank may own up to one hundred percent (100%) of the equity of a thrift bank or a
rural bank. Where the equity investment of a commercial bank is in other financial allied
enterprises, including another commercial bank, such investment shall remain a minority
holding in that enterprise. (21-Aa; 21-Ca)
Section 32. Equity Investments of a Commercial Bank in Non-Financial Allied Enterprises. A
commercial bank may own up to one hundred percent (100%) of the equity in a non-financial
allied enterprise. (21-Aa) Article III. Provisions Applicable To All Banks, Quasi-Banks, And Trust
Entities
B. Provisions Applicable to All Banks, QBs and Trust Entities:
Chapter III, Sections 33-46
Section 33. Acceptance of Demand Deposits. - A bank other than a universal or commercial
bank cannot accept or create demand deposits except upon prior approval of, and subject to
such conditions and rules as may be prescribed by the Monetary Board. (72-Aa)
Section 34. Risk-Based Capital. - The Monetary Board shall prescribe the minimum ratio which
the net worth of a bank must bear to its total risk assets which may include contingent
accounts. For purposes of this Section, the Monetary Board may require such ratio be
determined on the basis of the net worth and risk assets of a bank and its subsidiaries, financial
or otherwise, as well as prescribe the composition and the manner of determining the net
worth and total risk assets of banks and their subsidiaries: Provided, That in the exercise of this
authority, the Monetary Board shall, to the extent feasible conform to internationally accepted
standards, including those of the Bank for International Settlements(BIS), relating to risk-based
capital requirements: Provided further, That it may alter or suspend compliance with such ratio
whenever necessary for a maximum period of one (1) year: Provided, finally, That such ratio
shall be applied uniformly to banks of the same category. In case a bank does not comply with
the prescribed minimum ratio, the Monetary Board may limit or prohibit the distribution of net
profits by such bank and may require that part or all of the net profits be used to increase the
capital accounts of the bank until the minimum requirement has been met The Monetary
Board may, furthermore, restrict or prohibit the acquisition of major assets and the making of
new investments by the bank, with the exception of purchases of readily marketable evidences
of indebtedness of the Republic of the Philippines and of the Bangko Sentral and any other
evidences of indebtedness or obligations the servicing and repayment of which are fully
guaranteed by the Republic of the Philippines, until the minimum required capital ratio has
been restored. In case of a bank merger or consolidation, or when a bank is under
rehabilitation under a program approved by the Bangko Sentral, Monetary Board may
temporarily relieve the surviving bank, consolidated bank, or constituent bank or corporations
under rehabilitation from full compliance with the required capital ratio under such conditions
as it may prescribe. Before the effectivity of rules which the Monetary Board is authorized to
prescribe under this provision, Section 22 of the General Banking Act, as amended, Section 9 of
the Thrift Banks Act, and all pertinent rules issued pursuant thereto, shall continue to be in
force. (22a)
Section 35. Limit on Loans, Credit Accommodations and Guarantees
35.1 Except as the Monetary Board may otherwise prescribe for reasons of national interest,
the total amount of loans, credit accommodations and guarantees as may be defined by the
Monetary Board that may be extended by a bank to any person, partnership, association,
corporation or other entity shall at no time exceed twenty percent (20%) of the net worth of
such bank. The basis for determining compliance with single borrower limit is the total credit
commitment of the bank to the borrower.
35.2. Unless the Monetary Board prescribes otherwise, the total amount of loans, credit
accommodations and guarantees prescribed in the preceding paragraph may be increased by
an additional ten percent (10%) of the net worth of such bank provided the additional liabilities
of any borrower are adequately secured by trust receipts, shipping documents, warehouse
receipts or other similar documents transferring or securing title covering readily marketable,
non-perishable goods which must be fully covered by insurance.
35.3 The above prescribed ceilings shall include (a) the direct liability of the maker or acceptor
of paper discounted with or sold to such bank and the liability of a general endorser, drawer or
guarantor who obtains a loan or other credit accommodation from or discounts paper with or
sells papers to such bank; (b) in the case of an individual who owns or controls a majority
interest in a corporation, partnership, association or any other entity, the liabilities of said
entities to such bank; (c) in the case of a corporation, all liabilities to such bank of all
subsidiaries in which such corporation owns or controls a majority interest; and (d) in the case
of a partnership, association or other entity, the liabilities of the members thereof to such
bank.
35.4. Even if a parent corporation, partnership, association, entity or an individual who owns or
controls a majority interest in such entities has no liability to the bank, the Monetary Board
may prescribe the combination of the liabilities of subsidiary corporations or members of the
partnership, association, entity or such individual under certain circumstances, including but
not limited to any of the following situations: (a) the parent corporation, partnership,
association, entity or individual guarantees the repayment of the liabilities; (b) the liabilities
were incurred for the accommodation of the parent corporation or another subsidiary or of the
partnership or association or entity or such individual; or (c) the subsidiaries though separate
entities operate merely as departments or divisions of a single entity.
35.5. For purposes of this Section, loans, other credit accommodations and guarantees shall
exclude: (a) loans and other credit accommodations secured by obligations of the Bangko
Sentral or of the Philippine Government: (b) loans and other credit accommodations fully
guaranteed by the government as to the payment of principal and interest; (c) loans and other
credit accommodations covered by assignment of deposits maintained in the lending bank and
held in the Philippines; (d) loans, credit accommodations and acceptances under letters of
credit to the extent covered by margin deposits; and (e) other loans or credit accommodations
which the Monetary Board may from time to time, specify as non-risk items.
35.6. Loans and other credit accommodations, deposits maintained with, and usual guarantees
by a bank to any other bank or non-bank entity, whether locally or abroad, shall be subject to
the limits as herein prescribed.
35.7. Certain types of contingent accounts of borrowers may be included among those subject
to these prescribed limits as may be determined by the Monetary Board.(23a)
Section 36. Restriction on Bank Exposure to Directors, Officers, Stockholders and Their
Related Interests. - No director or officer of any bank shall, directly or indirectly, for himself or
as the representative or agent of others, borrow from such bank nor shall he become a
guarantor, endorser or surety for loans from such bank to others, or in any manner be an
obligor or incur any contractual liability to the bank except with the written approval of the
majority of all the directors of the bank, excluding the director concerned: Provided, That such
written approval shall not be required for loans, other credit accommodations and advances
granted to officers under a fringe benefit plan approved by the Bangko Sentral. The required
approval shall be entered upon the records of the bank and a copy of such entry shall be
transmitted forthwith to the appropriate supervising and examining department of the Bangko
Sentral. Dealings of a bank with any of its directors, officers or stockholders and their related
interests shall be upon terms not less favorable to the bank than those offered to others. After
due notice to the board of directors of the bank, the office of any bank director or officer who
violates the provisions of this Section may be declared vacant and the director or officer shall
be subject to the penal provisions of the New Central Bank Act. The Monetary Board may
regulate the amount of loans, credit accommodations and guarantees that may be extended,
directly or indirectly, by a bank to its directors, officers, stockholders and their related interests,
as well as investments of such bank in enterprises owned or controlled by said directors,
officers, stockholders and their related interests. However, the outstanding loans, credit
accommodations and guarantees which a bank may extend to each of its stockholders,
directors, or officers and their related interests, shall be limited to an amount equivalent to
their respective unencumbered deposits and book value of their paid-in capital contribution in
the bank: Provided, however, That loans, credit accommodations and guarantees secured by
assets considered as non-risk by the Monetary Board shall be excluded from such limit:
Provided, further, That loans, credit accommodations and advances to officers in the form of
fringe benefits granted in accordance with rules as may be prescribed by the Monetary Board
shall not be subject to the individual limit. The Monetary Board shall define the term "related
interests." The limit on loans, credit accommodations and guarantees prescribed herein shall
not apply to loans, credit accommodations and guarantees extended by a cooperative bank to
its cooperative shareholders. (83a)
Section 37. Loans and Other Credit Accommodations Against Real Estate. - Except as the
Monetary Board may otherwise prescribe, loans and other credit accommodations against real
estate shall not exceed seventy-five percent (75%) of the appraised value of the respective real
estate security, plus sixty percent (60%) of the appraised value of the insured improvements,
and such loans may be made to the owner of the real estate or to his assignees. (78a)
Section 38. Loans And Other Credit Accommodations on Security of Chattels and Intangible
Properties. - Except as the Monetary Board may otherwise prescribe, loans and other credit
accommodations on security of chattels and intangible properties such as, but not limited to,
patents, trademarks, trade names, and copyrights shall not exceed seventy-five percent (75%)
of the appraised value of the security, an such loans and other credit accommodation may be
made to the title-holder of the chattels and intangible properties or his assignees. (78a)
Section 39. Grant and Purpose of Loans and Other Credit Accommodations. - A bank shall
grant loans and other credit accommodations only in amounts and for the periods of time
essential for the effective completion of the operations to be financed. Such grant of loans and
other credit accommodations shall be consistent with safe and sound banking practices. (75a)
The purpose of all loans and other credit accommodations shall be stated in the application
and in the contract between the bank and the borrower. If the bank finds that the proceeds of
the loan or other credit accommodation have been employed, without its approval, for
purposes other than those agreed upon with the bank, it shall have the right to terminate the
loan or other credit accommodation and demand immediate repayment of the obligation. (77)
Section 40. Requirement for Grant Of Loans or 0ther Credit Accommodations. - Before
granting a loan or other credit accommodation, a bank must ascertain that the debtor is
capable of fulfilling his commitments to the bank. Toward this end, a bank may demand from
its credit applicants a statement of their assets and liabilities and of their income and
expenditures and such information as may be prescribed by law or by rules and regulations of
the Monetary Board to enable the bank to properly evaluate the credit application which
includes the corresponding financial statements submitted for taxation purposes to the Bureau
of Internal Revenue. Should such statements prove to be false or incorrect in any material
detail, the bank may terminate any loan or other credit accommodation granted on the basis
of said statements and shall have the right to demand immediate repayment or liquidation of
the obligation. In formulating rules and regulations under this Section, the Monetary Board
shall recognize the peculiar characteristics of micro financing, such as cash flow-based lending
to the basic sectors that are not covered by traditional collateral. (76a)
Section 41. Unsecured Loans or Other Credit Accommodations. - The Monetary Board is
hereby authorized to issue such regulations as it may deem necessary with respect to
unsecured loans or other credit accommodations that may be granted by banks. (n)
Section 42. Other Security Requirements for Bank Credits. - The Monetary Board may, by
regulation, prescribe further security requirements to which the various types of bank credits
shall be subject, and, in accordance with the authority granted to it in Section 106 of the New
Central Bank Act, the Board may by regulation, reduce the maximum ratios established in
Sections 36 and 37 of this Act, or, in special cases, increase the maximum ratios established
therein. (78)
Section 43. Authority to Prescribe Terms and Conditions of Loans and Other Credit
Accommodations. - The Monetary Board, may, similarly in accordance with the authority
granted to it in Section 106 of the New Central Bank Act, and taking into account the
requirements of the economy for the effective utilization of long-term funds, prescribe the
maturities, as well as related terms and conditions for various types of bank loans and other
credit accommodations. Any change by the Board in the maximum maturities, as well as
related terms and conditions for various types of bank loans and other credit accommodations.
Any change by the Board in the maximum maturities shall apply only to loans and other credit
accommodations made after the date of such action. The Monetary Board shall regulate the
interest imposed on micro finance borrowers by lending investors and similar lenders such as,
but not limited to, the unconscionable rates of interest collected on salary loans and similar
credit accommodations. (78a)
Section 44. Amortization on Loans and Other Credit Accommodations. - The amortization
schedule of bank loans and other credit accommodations shall be adapted to the nature of the
operations to be financed. In case of loans and other credit accommodations with maturities of
more than five (5) years, provisions must be made for periodic amortization payments, but
such payments must be made at least annually: Provided, however, That when the borrowed
funds are to be used for purposes which do not initially produce revenues adequate for regular
amortization payments therefrom, the bank may permit the initial amortization payment to be
deferred until such time as said revenues are sufficient for such purpose, but in no case shall
the initial amortization date be later than five (5) years from the date on which the loan or
other credit accommodation is granted. (79a) In case of loans and other credit
accommodations to micro finance sectors, the schedule of loan amortization shall take into
consideration the projected cash flow of the borrower and adopt this into the terms and
conditions formulated by banks. (n)
Section 45. Prepayment of Loans and Other Credit Accommodations. - A borrower may at any
time prior to the agreed maturity date prepay, in whole or in part, the unpaid balance of any
bank loan and other credit accommodation, subject to such reasonable terms and conditions
as may be agreed upon between the bank and its borrower. (80a)
Section 46. Development Assistance Incentives. - The Bangko Sentral shall provide incentives
to banks which, without government guarantee, extend loans to finance educational
institutions cooperatives, hospitals and other medical services, socialized or low-cost housing,
local government units and other activities with social content. (n)
MORB, Section X201- X203 (Demand Deposits) and Section X303 (SBL)
(Check PDF)
Check Section 32, Corporation Code on Self dealing transactions
Section 32. Dealings of directors, trustees or officers with the corporation. A contract
of the corporation with one or more of its directors or trustees or officers is voidable, at the
option of such corporation, unless all the following conditions are present:
1. That the presence of such director or trustee in the board meeting in which the contract was
approved was not necessary to constitute a quorum for such meeting;
2. That the vote of such director or trustee was not necessary for the approval of the contract;
3. That the contract is fair and reasonable under the circumstances; and
4. That in case of an officer, the contract has been previously authorized by the board of
directors.
Where any of the first two conditions set forth in the preceding paragraph is absent, in the
case of a contract with a director or trustee, such contract may be ratified by the vote of the
stockholders representing at least two-thirds (2/3) of the outstanding capital stock or of at
least two-thirds (2/3) of the members in a meeting called for the purpose: Provided, That full
disclosure of the adverse interest of the directors or trustees involved is made at such meeting:
Provided, however, That the contract is fair and reasonable under the circumstances. (n)
Cases:
G.R. No. 191015 August 6, 2014
PEOPLE OF THE PHILIPPINES Petitioner,
vs.
JOSE C. GO, AIDA C. DELA ROSA, and FELECITAS D. NECOMEDES,** Respondents.
The power of courts to grant demurrer in criminal cases should be exercised with great caution,
because not only the rights of the accused - but those of the offended party and the public
interest as well - are involved. Once granted, the accused is acquitted and the offended party
may be left with no recourse. Thus, in the resolution of demurrers, judges must act with
utmost circumspection and must engage in intelligent deliberation and reflection, drawing on
their experience, the law and jurisprudence, and delicately evaluating the evidence on hand.
This Petition for Review on Certiorari1 seeks to set aside the September 30, 2009 Decision2 of
the Court of Appeals (CA) in CA-G.R. SP No. 101823, entitled "People of the Philippines,
Petitioner, versus Hon. Concepcion Alarcon-Vergara et al., Respondents," as well as its January
22, 2010 Resolution3 denying reconsideration of the assailed judgment.
Factual Antecedents
The following facts appear from the account of the CA:
On October 14, 1998, the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) issued
Resolution No. 1427 ordering the closure of the Orient Commercial Banking Corporation (OCBC)
and placing such bank under the receivership of the Philippine Deposit Insurance Corporation
(PDIC). PDIC, as the statutory receiver of OCBC, effectively took charge of OCBCs assets and
liabilities in accordance withits mandate under Section 30 of Republic Act 7653.
xxxx
While all the aforementioned events were transpiring, PDIC began collecting on OCBCs past
due loans receivable by sending demand letters to its borrowers for the immediate settlement
oftheir outstanding loans. Allegedly among these borrowers of OCBC are Timmys, Inc. and Asia
Textile Mills, Inc. which appeared to have obtained a loanof [P]10 Million each. A
representative of Timmys, Inc. denied being granted any loan by OCBC and insisted that the
signatures on the loan documents were falsified. A representative of Asia Textile Mills, Inc.
denied having applied, much less being granted, a loan by OCBC.
The PDIC conducted an investigation and allegedly came out with a finding that the loans
purportedly in the names of Timmys, Inc. and Asia Textile Mills, Inc. were released in the form
of managerschecks in the name of Philippine Recyclers and Zeta International, Inc. These
managers checks were then allegedly deposited to the savings account of the private
respondent Jose C. Go with OCBC and, thereafter, were automatically transferred to his
current account in order to fund personal checks issued by him earlier.
On September 24, 1999, PDIC filed a complaint4 for two (2) counts of Estafa thru Falsification
of CommercialDocuments in the Office of the City Prosecutor of the City of Manila against the
private respondents in relation to the purported loans of Timmys, Inc.and Asia Textile Mills,
Inc. On November 22, 2000, after finding probable cause, the Office of the City Prosecutor of
the City of Manila filed Informations5 against the private respondents which were docketed as
Criminal Case Nos. 00-187318 and 00-187319 in the RTC in Manila.
Upon being subjected to arraignment by the RTC in Manila, the private respondents pleaded
not guilty to the criminal cases filed against them. A pretrial was conducted. Thereafter, trial of
the cases ensued and the prosecution presented its evidence. After the presentation of all of
the prosecutions evidence, the private respondents filed a Motion for Leave to File Demurrer
to Evidence and a Motion for Voluntary Inhibition. The presiding judge granted the private
respondents Motion for Voluntary Inhibition and ordered the case to be re-raffled to another
branch. The case was subsequently re-raffled to the branch of the respondent RTC judge.6
In an Order dated December 19, 2006, the respondent RTC judge granted the private
respondents Motion for Leave to File Demurrer to Evidence. On January 17, 2007, the private
respondents filed their Demurrer to Evidence7praying for the dismissal of the criminal cases
instituted against them due to the failure of the prosecution to establish their guilt beyond
reasonable doubt.
On July 2, 2007, an Order8 was promulgated by the respondent RTC judge finding the private
respondents Demurrer to Evidence to be meritorious, dismissing the Criminal Case Nos.
00-187318 and 00-187319 and acquitting all of the accused in these cases. On July20, 2007, the
private prosecutor in Criminal Case Nos. 00-187318 and 00-187319 moved for a
reconsideration of the July 2, 2007 Order but the same was denied by the respondent RTC
judge in an Order9 dated October 19, 2007.10
Surprisingly, and considering thathundreds of millions of Orient Commercial Banking
Corporation (OCBC) depositors money appear to have been lost which must have
contributed to the banks being placed under receivership, no motion for reconsideration of
the July 2, 2007 Order granting respondents demurrer to evidence was filed by the handling
public prosecutor, Manila Prosecutor Marlo B. Campanilla (Campanilla). Only complainant
Philippine Deposit Insurance Corporation (PDIC) filed a Motion for Reconsideration, and the
same lacked Campanillas approval and/or conform; the copy of the Motion for
Reconsideration filed with the RTC11 does not bear Campanillas approval/conform; instead,it
indicates thathe was merely furnished with a copy of the motion by registered mail.12 Thus,
while the prosecutions copy of PDICsMotion for Reconsideration13 bore Campanillas
subsequent approval and conformity, that which was actually filed by PDIC with the RTC on
July 30, 2007 did not contain the public prosecutors written approval and/or conformity.
Ruling of the Court of Appeals
On January 4, 2008, the prosecution, through the Office of the Solicitor General (OSG), filed
anoriginal Petition for Certiorari14 with the CA assailing the July 2, 2007 Order of the trial court.
Itclaimed that the Order was issued with grave abuse of discretion amounting to lackor excess
of jurisdiction; that it was issued with partiality; that the prosecution was deprived of its day in
court; and that the trial court disregarded the evidence presented, which undoubtedly showed
that respondents committed the crime of estafa through falsification ofcommercial
documents.
On September 30, 2009, the CA issued the assailed Decision with the following decretal portion:
WHEREFORE, in view of the foregoing premises, the petition filed in this case is hereby DENIED
and the assailed Orders of the respondent RTC judge are AFFIRMED and deemed final and
executory.
SO ORDERED.15
Notably, in dismissing the Petition, the appellate court held that the assailed July 2, 2007 Order
of the trial court became final since the prosecution failed to move for the reconsideration
thereof, and thus double jeopardy attached. The CA declared thus
certiorarior mandamus, if grave abuse amounting to excess or lack of jurisdiction is shown and
the aggrieved party has no right of appeal or given an adequate remedy in the ordinary course
of law."16
In addition, the CA ruled that the prosecution failed to demonstrate that the trial court
committed grave abuse of discretion in granting the demurrer, or that it was denied its day in
court; that on the contrary, the prosecution was afforded every opportunity to present its
evidence, yet it failed to prove that respondents committed the crime charged.
The CA further held that the prosecution failed to present a witness who could testify, based
on personal knowledge, that the loan documents were falsified by the respondents; that the
prosecution should not have relied on "letters and unverified ledgers," and it "should have
trailed the money from the beginning to the end;"17 that while the documentary
evidenceshowed that the signatures in the loan documents were falsified, it has not been
shown who falsified them. It added that since only two of the alleged 13 managers checks
were being questioned, there arose reasonable doubt as to whether estafa was committed, as
to these two checks; instead, there is an "inescapable possibility that an honest mistake was
made in the preparation of the two questioned managers checks since these checks were
made out to the names of different payees and not in the names of the alleged applicants of
the loans."18 The appellate court added

x x x Finally, the petitioner failed to present evidence on where the money went after they
More important than the fact that double jeopardy already attaches is the fact that the July 2,
were deposited to the checking account of the private respondent Jose C. Go. There is only a
2007 Order of the trial court has already attained finality. This Order was received by the Office
vague reference that the money was used to fund the personal checks earlier issued by x x x Go.
of the City Prosecutor of Manila on July 3, 2007 and by the Private Prosecutor on July 5, 2007.
The petitioner should have gone further and identified who were the recipients of these
While the Private Prosecutor filed a Motion for Reconsideration of the said Order, the Public
personal checks and if these personal checks were negotiated and honored. With all the
Prosecutor did not seek for the reconsideration thereof. It is the Public Prosecutor who has the
resources of the public prosecutors office, the petitioner should have done a better job of
authority to file a Motion for Reconsideration of the said order and the Solicitor General who
prosecuting the cases filed against the private respondents. It isa shame that all the efforts of
can file a petition for certiorari with respect to the criminal aspect of the cases. The failure of
the government will go for naught due to the negligence of the public prosecutors in tying up
the Public Prosecutor to file a Motion for Reconsideration on or before July 18, 2007 and the
the chain of evidence in a criminal case.19
failure of the Solicitor General to file a Petition for Certiorarion or before September 1, 2007
made the order of the trial court final.
As a final point, the CA held that if errors were made inthe appreciation of evidence, these are
mere errors of judgment and not errors of jurisdiction which may no longer be reviewed
As pointed out by the respondents, the Supreme Court ruled categorically on this matter in the
lest respondents be placed in double jeopardy.
case of Mobilia Products, Inc. vs. Umezawa (452 SCRA 736), as follows:

The OSG moved for reconsideration, but in the assailed January 22, 2010 Resolution, the CA
"In a criminal case in which the offended party is the State, the interest of the private
stood its ground. Hence, the instant Petition was instituted.
complainant or the offended party is limited to the civil liabilityarising therefrom. Hence, if a
criminal case is dismissed by the trial court or if there is an acquittal, a reconsideration of the
order of dismissal or acquittal may be undertaken, whenever legally feasible, insofar as the Issues
criminal aspect thereof is concerned and may be made only by the public prosecutor; or in the
case of an appeal, by the State only, through the OSG. The private complainant or offended In the Petition, it is alleged that
party may not undertake such motion for reconsideration or appeal on the criminal aspect
ofthe case. However, the offended party or private complainant may file a motion for THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT RULED THAT
reconsideration of such dismissal or acquittal or appeal therefrom but only insofar as the civil
aspect thereof is concerned. In so doing, the private complainant or offended party need not
(a) NO GRAVE ABUSE OF DISCRETION WAS COMMITTED BY RESPONDENT RTC JUDGE IN
secure the conformity of the public prosecutor. If the court denies his motion for
GRANTING THE DEMURRER TO EVIDENCE;
reconsideration, the private complainant or offended party may appeal or file a petition for
(b) THE ORDER OF ACQUITTAL HAS ALREADY ATTAINED FINALITY WHEN IT WAS NOT
CHALLENGED IN A TIMELY AND APPROPRIATE MANNER; AND
(c) THE LOWER COURT MERELY COMMITTED ERRORS OF JUDGMENT AND NOT OF
JURISDICTION.20
Petitioners Arguments
Petitioner argues that the public prosecutor actually filed a Motion for Reconsideration of the
assailed July 2,2007 Order of the trial court granting respondents demurrer that is, by
"joining"the private prosecutor PDIC in the latters July 20, 2007 Motion for Reconsideration.
Nonetheless,it admitted that while it joined PDIC in the latters July 20, 2007 Motion for
Reconsideration, it had only until July 18, 2007 within which to seek reconsideration since it
received the order on July 3, 2007, while the private prosecutor received a copy of the Order
only on July 5, 2007; it pleads thatthe two-day delay in filing the motion should not prejudice
the interests of the State and the People.
Petitioner assumes further that, since it was belated in its filing of the required Motion for
Reconsideration, it may have been tardy as well in the filing of the Petition for Certiorariwith
the CA, or CA-G.R. SP No. 101823. Still, it begs the Court to excuse its mistake in the nameof
public interest and substantial justice, and in order to maintain stability in the banking industry
given that the case involved embezzlement of large sums ofdepositors money in OCBC.
Petitioner goes on to argue that the CAerred in affirming the trial courts finding that demurrer
was proper. It claims that it was able to prove the offense charged, and it has shown that
respondents were responsible therefor.
In its Reply,21 petitioner claims thatthe July 2, 2007 Order of the trial court granting
respondents demurrer was null and void to begin with, and thus it could not have attained
finality. It adds thatcontrary to respondents submission, the private prosecutors Motion for
Reconsideration contained the public prosecutors written conformity, and that while it may be
saidthat the public prosecutors motion was two days late, still the trial court took cognizance
thereof and passed upon its merits; by so doing, the trial court thus validatedthe public
prosecutors action of adopting the private prosecutorsMotion for Reconsideration as his own.
This being the case, it should therefore besaid that the prosecutions resultant Petition for
Certiorariwith the CA on January 4, 2008 was timely filed within the required 60-day period,
counted from November 5, 2007,or the date the public prosecutor received the trial courts
October 19, 2007 Order denying the Motion for Reconsideration.
Petitioner submits further that a Petition for Certiorariwas the only available remedy against
the assailed Orders of the trial court, since the granting of a demurrer in criminal cases is
tantamount to an acquittal and is thus immediately final and executory. It adds that the denial
of its right to due process is apparent since the trial courts grant of respondents demurrer
was purely capricious and done with evident partiality, despite the prosecution having adduced
proof beyond reasonable doubt that they committed estafa through falsification of commercial
documents. Petitioner thus prays that the assailed CA dispositions be reversed and that
Criminal Case Nos. 00-187318 and 00-187319 be reinstated for further proceedings.
Respondents Arguments
Praying that the Petition be denied, respondents Jose C. Go (Go), Aida C. Dela Rosa (Dela Rosa),
and Felecitas D. Necomedes (Nicomedes) the accused in Criminal Case Nos. 00-187318 and
00-187319 argue in their Comment22 that the trial courts grant of their demurrer to
evidence amounts to an acquittal; any subsequent prosecution for the same offense would
thus violate their constitutional right against double jeopardy. They add thatsince the public
prosecutor failed to timely move for the reconsideration of the trial courts July 2, 2007 Order,
it could not have validly filed an original Petition for Certiorariwith the CA. Nor can it be said
that the prosecution and the private prosecutor jointly filed the latters July 20, 2007 Motion
for Reconsideration with the trial court because the public prosecutors copy of PDICsmotion
was merely sent through registered mail. Therefore if it were true that the public prosecutor
gave his approval or conformity to the motion, he did so only afterreceiving his copy of the
motion through the mail, and not at the time the private prosecutor actually filed its Motion
for Reconsideration with the trial court.
Next, respondents submit that petitioner was not deprived of its day in court; the grant of their
demurrer to evidence is based on a fair and judicious determination of the facts and evidence
bythe trial court, leading it to conclude that the prosecution failed to meet the quantum of
proof required to sustain a finding of guilt on the part of respondents. They argue thatthere is
no evidence to show that OCBC released loan proceeds to the alleged borrowers, Timmys, Inc.
and Asia Textile Mills, Inc., and that these loan proceeds were then deposited in the account of
respondent Go. Since no loans were granted to the two borrowers, then there is nothing for
Go to misappropriate. With respect to the two managers checks issued to Philippine Recyclers
Inc. and Zeta International, respondents contend that these may not beconsidered to be the
loan proceeds pertaining to Timmys, Inc. and Asia Textile Mills, Inc.s loan application because
these checks were not in the name of the alleged borrowers Timmys, Inc.and Asia Textile Mills,
Inc. as payees. Besides, these two checks were never negotiated with OCBC, either for
encashmentor deposit, since they did not bear the respective indorsements or signatures and
account numbers of the payees; thus, they could not be considered to havebeen negotiated
nor deposited with Gos account with OCBC.
Next, respondents argue that the cash deposit slip used to deposit the alleged loan proceeds in
Gos OCBC account is questionable, since under banking procedure, a cash deposit slip may not
be used to deposit checks. Moreover, it has not been shown who prepared the said cash
deposit slip. Respondents further question the validity and authenticity of the other
documentary evidence presented, such as the Subsidiary Ledger, Cash Proof,23 Schedule of
Returned Checks and Other Cash Items (RTCOCI), etc.
Finally, respondents claim that not all the elementsof the crime of estafa under Article 315, par.
1(b) of the Revised Penal Code have been established; specifically, it has not been shown that
Goreceived the alleged loan proceeds, and that a demand was made upon him for the return
thereof.
Our Ruling
The Court grants the Petition.
Criminal Case Nos. 00-187318 and 00-187319 for estafa through falsification of commercial
documents against the respondents are based on the theory that in 1997, fictitious loans in
favor of two entities Timmys, Inc. and Asia Textile Mills, Inc. were approved, after which
two managers checks representing the supposed proceeds of these fictitious loans were
issued but made payable to two different entities Philippine RecyclersInc. and
ZetaInternational without any documents issued by the supposed borrowers Timmys, Inc.
and Asia Textile Mills, Inc. assigning the supposedloan proceeds tothe two payees. Thereafter,
these two managers checks together with several others totaling 120,819,475.0024 were
encashed, and then deposited in the OCBC Savings Account No. 00810-00108-0 of Go. Then,
several automatic transfer deposits were made from Gos savings account to his OCBC Current
Account No. 008-00-000015-0 which were then used to fund Gos previously dishonored
personal checks.
The testimonial and documentary evidenceof the prosecution indicate that OCBC, a
commercial bank, was ordered closed by the BSP sometime in October 1998. PDIC was
designated as OCBC receiver, and it took over the banks affairs, assets and liabilities, records,
and collected the banks receivables.
During efforts to collect OCBCs pastdue loan receivables, PDIC as receiver sent demand letters
to the banks debtor-borrowers on record, including Timmys, Inc. and Asia Textile Mills, Inc.
which appeared to have obtained unsecured loans of 10 million each, and which apparently
remained unpaid. In response to the demand letters, Timmys, Inc. and Asia Textile Mills, Inc.
denied having obtained loans from OCBC. Timmys, Inc., through its designated representative,
claimed that while it is true that it applied for an OCBC loan, it no longer pursued the
application after it was granted a loan by another bank. When the OCBC loan documents were
presented to Timmys, Inc.s officers, it was discovered that the signatures therein of the
corporate officers were forgeries. In their defense and to clarify matters, Timmys, Inc.s
corporate officers executed affidavits and furnished official documents such as their passports
and the corporations Articles of Incorporation containing their respectivesignatures to show
PDIC that their purported signatures in the OCBC loan documents were forgeries. After its
investigation into the matter, PDIC came to the conclusion that the signatures on the Timmys,
Inc. loan documents were indeed falsified.25
On the other hand, in a written reply26 to PDICs demand letter, Asia Textile Mills, Inc.
vehemently denied thatit applied for a loan with OCBC. On this basis, PDIC concluded that the
AsiaTextile Mills, Inc.loan was likewise bogus. Moreover, PDIC discovered other bogus loans in
OCBC.
Through the falsified loan documents, the OCBC Loan Committee composed of Go, who was
likewise OCBCPresident, respondent Dela Rosa (OCBC Senior Vice President, or SVP, and Chief
Operating Officer, or COO), Arnulfo Aurellano and Richard Hsu approved a 10 million
unsecured loan purportedly in favor of Timmys, Inc. After deducting finance charges, advance
interest and taxes, DelaRosa certified a net loan proceeds amounting to 9,985,075.00
covered by Managers Check No. 000000334727 dated February 5, 1997.28 The face of the
check bears the notation "Loan proceeds of CL-484," the alpha numeric code ("CL-484")of
which refers to the purported loan of Timmys, Inc.29 However, the payee thereof was not the
purported borrower, Timmys, Inc., but a certain "Zeta International". Likewise, on even date,
Managers Check No. 000000334030 for 9,985,075.00 was issued, and on its face is indicated
"Loan proceeds of CL-477", which alpha numeric code ("CL-477") refers to the purported loan
of AsiaTextile Mills, Inc.31 Managers Check No. 0000003340 was made payable not to Asia
Textile Mills, Inc., but to "Phil. Recyclers Inc."
On the same day that the subject managers checks were issued, or on February 5, 1997, it
appears that the two checks together with other managers checks totaling
120,819,475.00 were encashed; on the face ofthe checks, the word "PAID" was stamped,
and at the dorsal portion thereof there were machine validations showing thatManagers
Check No. 0000003347 was presented at 6:16 p.m., while Managers Check No. 0000003340
was presented at 6:18 p.m.32
After presentment and encashment, the amount of 120,819,475.00 which among others
included the 9,985,075.00 proceeds of the purported Timmys, Inc. loan and the
9,985,075.00 proceeds of the supposed Asia Textile Mills, Inc. loan was deposited in Gos
OCBC Savings Account No. 00810-00108-0 at OCBC Recto Branch, apparently on instructions of
respondent Dela Rosa.33 The deposit is covered by OCBC Cash Deposit Slip34 dated February 5,
1997, with the corresponding machine validation thereon indicating that the deposit was made
at 6:19 p.m.35 The funds were credited to Gos savings account.36
It appears that previously, or on February 4, 1997, seven OCBC checks issued by Go from his
personal OCBC Current Account No. 008-00-000015-0 totaling 145,488,274.48 were
dishonored for insufficiency of funds.37 After Managers Check Nos. 0000003340 and
0000003347, along with several other managers checks, were encashed and the proceeds
thereof deposited in Gos OCBC Savings Account No. 00810-00108-0 withautomatic
transferfeature to his OCBC Current Account No. 008-00-000015-0, funds were automatically
transferred from the said savings account to the current account, which atthe time contained
only a total amountof 26,332,303.69. GosOCBC Current Account No. 008-00-000015-0 was
credited with 120,819,475.00, and thereafter the account registered a balance of
147,151,778.69. The seven previously dishonored personal checks were thenpresented for
clearing, and were subsequently cleared that sameday, or on February 5, 1997.38 Apparently,
they were partly funded by the 120,819,475.00managers check deposits which include
Managers Check Nos. 0000003340 and 0000003347.
During the examination and inquiry into OCBCs operations, oron January 28, 1998, Go issued
and sent a letter39 to the BSP, through Maria Dolores Yuviengco, Director of the Departmentof
Commercial Banks, specifically requesting that the BSP refrain from sending any
communication to Timmys, Inc. and Asia Textile Mills, Inc., among others. He manifested that
he was "willing to assume the viability and full payment"of the accounts under investigation
and examination, including the Timmys, Inc. and AsiaTextile Mills, Inc. accounts.
Demurrer to the evidence40 is "an objection by one of the parties in an action, to the effect
that the evidence which his adversary produced is insufficient in point of law, whether true or
not, to make out a case or sustain the issue. The party demurring challenges the sufficiencyof
the whole evidence to sustain a verdict. The court, in passing upon the sufficiency of the
evidence raised in a demurrer, is merely required to ascertain whether there is competent or
sufficient evidence to sustain the indictment or to support a verdict of guilt. x x x Sufficient
evidence for purposes of frustrating a demurrer thereto is such evidence in character, weight
or amount as will legally justify the judicial or official action demanded according to the
circumstances. To be considered sufficient therefore, the evidence must prove: (a) the
commission of the crime, and (b) the precise degree of participation therein by the
accused."41 Thus, when the accused files a demurrer, the court must evaluate whether the
prosecution evidence is sufficient enough to warrant the conviction of the accused beyond
reasonable doubt.42
"The grant or denial of a demurrer to evidence is left to the sound discretion of the trial court,
and its ruling on the matter shall not be disturbed in the absence of a grave abuse of such
discretion."43 As to effect, "the grant of a demurrer to evidence amounts to an acquittal and
cannot be appealed because it would place the accused in double jeopardy. The order is
reviewable only by certiorariif it was issued with grave abuse of discretion amounting tolack or
excess of jurisdiction."44 When grave abuse of discretion is present, an order granting a
demurrer becomes null and void.
As a general rule, an order granting the accuseds demurrer to evidence amounts to an
acquittal. There are certain exceptions, however, as when the grant thereof would not violate
the constitutional proscription on double jeopardy. For instance, this Court ruled that when
there is a finding that there was grave abuse of discretion on the part of the trial court in
dismissing a criminal case by granting the accuseds demurrer to evidence,its judgment is
considered void, as this Court ruled in People v. Laguio, Jr.:
By this time, it is settled that the appellate court may review dismissal orders of trial courts
granting an accuseds demurrer to evidence. This may be done via the special civil action of
certiorariunder Rule 65 based on the ground of grave abuse of discretion, amounting to lack or
excess of jurisdiction. Such dismissal order, being considered void judgment, does not result in
jeopardy. Thus, when the order of dismissal is annulled or set aside by an appellate court in an
original special civil action via certiorari, the right of the accused against double jeopardy is not
violated.
In the instant case, having affirmed the CA finding grave abuse of discretion on the part of the
trial court when it granted the accuseds demurrer to evidence, we deem its consequent order
of acquittal void.45
Grave abuse of discretion is defined as "that capricious or whimsical exercise of judgment
which is tantamount to lack of jurisdiction. The abuse of discretion must be patent and gross
as to amount to an evasion of a positive duty or a virtual refusal to perform a duty enjoined by
law, or to act at all in contemplation of law, as where the power is exercised in an arbitrary and
despotic manner by reason of passion and hostility. The party questioning the acquittal of an
accused should be able toclearly establish that the trial court blatantly abused its discretion
such that it was deprived of its authority to dispense justice."46
In the exercise of the Courts "superintending control over inferior courts, we are to be guided
by all the circumstances of each particular case as the ends of justice may require. So it is that
the writ will be granted where necessary to prevent a substantial wrong or to do substantial
justice."47
Guided by the foregoing pronouncements, the Court declaresthat the CA grossly erred in
affirming the trial courts July 2, 2007 Order granting the respondents demurrer, which Order
was patently null and void for having been issued with grave abuse of discretion and manifest
irregularity, thus causing substantial injury to the banking industry and public
interest.1avvphi1 The Court finds that the prosecution has presented competent evidence to
sustain the indictment for the crime of estafa through falsification of commercial documents,
and that respondents appear to be the perpetrators thereof. In evaluating the evidence, the
trial court effectively failed and/or refused to weigh the prosecutions evidence against the
respondents, which it was duty-bound to do as a trier of facts; considering that the case
involved hundreds of millions of pesos of OCBC depositors money not to mention that the
banking industry is impressed with public interest, the trial court should have conducted itself
with circumspection and engaged in intelligent reflection in resolving the issues.
The elements of estafa through abuse ofconfidence under Article 315, par. 1(b) of the Revised
Penal Code48 are: "(a) that money,goods or other personal property is received by the offender
in trust oron commission, or for administration, or under any other obligation involving the
duty to make delivery of or to return the same; (b) that there be misappropriation
orconversion of such money or property by the offender, or denial on his part of such receipt;
(c) that such misappropriation or conversion or denial is to the prejudice of another; and (d)
there is demand by the offended party to the offender."49
Obviously, a bank takes its depositors money as a loan, under an obligation to return the same;
thus, the term "demand deposit."
The contract between the bank and its depositor is governed by the provisions of the Civil Code
on simpleloan. Article 1980 of the Civil Code expressly provides that "x x x savingsx x x deposits
of money in banks and similar institutions shall be governed by the provisions concerning
simple loan." There is a debtor-creditor relationship between the bank and its depositor. The
bank is the debtor and the depositor is the creditor. The depositor lends the bank money and
the bank agrees to pay the depositor on demand. x x x50
Moreover, the banking laws impose high standards on banks in view of the fiduciary nature of
banking."This fiduciary relationship means that the banks obligation to observe high
standards ofintegrity and performance is deemed written into every deposit agreement
between a bank and its depositor. The fiduciary nature of banking requires banks to assume a
degree of diligence higher than that of a good father of a family."51
In Soriano v. People,52 it was held that the President of a bank is a fiduciary with respect to the
banks funds, and he holds the same in trust or for administration for the banks benefit. From
this, it may beinferred that when such bank president makes it appear through falsification
that an individual or entity applied for a loan when in fact such individual or entity did not, and
the bank president obtains the loan proceeds and converts the same, estafa is committed.
Next, regarding misappropriation, the evidence tends to extablish that Managers Check
Nos.0000003340 and 0000003347 were encashed, using the banks funds which clearly
belonged to OCBCs depositors, and then deposited in Gos OCBC Savings Account No.
00810-00108-0 at OCBC Recto Branch although he was not the named payee therein. Next,
the money was automatically transferred to Gos OCBC Current Account No. 008-00-000015-0
and used to fund his seven previously-issued personal checks totaling 145,488,274.48, which
checks were dishonored the day before. Simply put, the evidence strongly indicates that Go
converted OCBC funds to his own personal use and benefit. "The words convert and
misappropriate connote an act of using or disposing of anothers property as if it were ones
own, or of devoting it to a purpose or use different from that agreed upon. To misappropriate
for ones own use includes not only conversion to ones personal advantage, but also every
attempt to dispose of the property of another without right. x x x In proving the element of
conversion or misappropriation, a legal presumption of misappropriation arises when the
accused fails to deliver the proceeds of the sale or to return the items to be sold and fails to
give an account of their whereabouts.Thus, the merepresumption of misappropriation or
conversion is enough to conclude thata probable cause exists for the indictment x x x."53
As to the third element of estafa, there is no question that as a consequence of the
misappropriation of OCBCs funds, the bank and its depositors have been prejudiced; the bank
has been placed under receivership, and the depositors money is no longer under their
unimpeded disposal.
Finally, on the matter of demand, while it has not been shown that the bank demanded the
return of the funds, it has nevertheless been held that "[d]emand is not an element of the
felony or a condition precedent tothe filing of a criminal complaint for estafa. Indeed, the
accusedmay be convicted ofthe felony under Article 315, paragraph 1(b) of the Revised Penal
Code if the prosecution proved misappropriation or conversion by the accused of the money or
property subject of the Information. In a prosecution for estafa, demand is not necessary
where there is evidence of misappropriation or conversion."54 Thus, strictly speaking, demand
is not an element of the offense of estafa through abuse of confidence; even a verbal query
satisfies the requirement.55 Indeed, in several past rulings of the Court, demand was not even
included as anelement of the crime of estafa through abuse of confidence, orunder paragraph
1(b).56
On the other hand, the elements of the crime of falsification of commercial document under
Art. 17257 are: "(1) that the offender is a private individual; (2) that the offender committed
any of the acts of falsification; and (3) that the act of falsification is committed ina commercial
document."58 As to estafa through falsification of public, official or commercial documents, it
has been held that
The falsification of a public, official, or commercial document may be a means of committing
Estafa, because before the falsified document is actually utilized to defraud another, the crime
of Falsification has already been consummated, damage or intent to cause damage not being
an element of the crime of falsification of public, official or commercial document. In other
words, the crime of falsification has already existed. Actually utilizing that falsified public,
official or commercial document todefraud another is estafa. But the damage is caused by the
commission of Estafa, not by the falsification of the document. Therefore, the falsification of
the public, official or commercial document is only a necessary means to commit the estafa.59
Simulating OCBC loan documents such as loan applications, credit approval memorandums,
and the resultant promissory notes and other credit documents by causing it to appear that
persons have participated in any act or proceeding when they did not in fact so participate, and
by counterfeiting or imitating their handwriting or signatures constitute falsification of
commercial and public documents.
As to the respondents respective participation in the commission of the crime, suffice it to
state that as the beneficiary of the proceeds, Go is presumed to be the author of the
falsification. The fact that previously, his personal checks totaling 145,488,274.48 were
dishonored, and the day after, the amount of 120,819,475.00 was immediately credited to
his account, which included funds from the encashment of Managers Check Nos. 0000003340
and 0000003347 or the loan proceeds of the supposed Timmys, Inc. and Asia Textile Mills, Inc.
accounts, bolsters this view. "[W]henever someone has in his possession falsified documents
[which he used to] his advantage and benefit, the presumption that he authored it arises."60
x x x This is especially true if the use or uttering of the forged documents was so closely
connected in time with the forgery that the user or possessor may be proven to have the
capacity of committing the forgery, or to have close connection with the forgers, and therefore,
had complicity in the forgery.
In the absence of a satisfactory explanation, one who is found in possession of a forged
document and who used or uttered it is presumed to be the forger.
Certainly, the channeling of the subjectpayments via false remittances to his savings account,
his subsequent withdrawals of said amount as well as his unexplained flight at the height of the
banks inquiry into the matter more than sufficiently establish x x x involvement in the
falsification.61
Likewise, Dela Rosas involvement inthe scheme has been satisfactorily shown. As OCBC SVP
and COO and member of the OCBC Loan Committee, she approved the purported Timmys,
Inc.loan, and she certified and signed the February 2, 1997 OCBC Disclosure Statement and
other documents.62 She likewise gave specific instructions to deposit the proceeds of
Managers Check Nos. 0000003340 and 0000003347, among others, in Gos OCBC Savings
Account No. 00810-00108-0 at OCBC Recto Branch.63 Finally, she was a signatory to the two
checks.64
On the other hand, respondent Nicomedes as OCBC Senior Manager for Corporate Accounts
Account Management Group, among others prepared the Credit Approval Memorandum and
recommended the approval of the loans.65
In granting the demurrer, the trial court in its assailed July 2, 2007 Order concluded that
based on the evidence adduced, the respondents could not have falsified the loan documents
pertaining toTimmys, Inc. and Asia Textile Mills, Inc. since the individuals who assert that their
handwriting and signatures were forged were not presented incourt to testify on such claim;
that the prosecution witnesses Honorio E. Franco, Jr. (Franco) of PDIC, the designated
Assisting Deputy Liquidator of OCBC, and Virginia Rowella Famirin (Famirin), Cashier of OCBC
Recto Branch were not present when the loan documents were executed and signed, and
thus have no personal knowledge of the circumstances surrounding the alleged falsification;
and as high-ranking officers of OCBC, respondents could not be expected to have prepared the
saiddocuments. The evidence, however, suggests otherwise; it shows that respondents had a
direct hand in the falsification and creation of fictitious loans. The loan documents were even
signed by them. By disregarding what is evident in the record, the trial court committed
substantial wrong that frustrates the ends of justice and adversely affects the public interest.
The trial courts act was so patent and gross as to amount to an evasion of positive duty or to a
virtual refusal to perform a duty enjoined by law.
An act of a court or tribunal may only be considered as committed in grave abuse of discretion
when the same was performed in a capricious or whimsical exercise of judgment which is
equivalent to lack of jurisdiction. The abuse of discretion must be so patent and gross as to
amount to an evasion of positive duty or to a virtual refusal to perform a duty enjoined by law,
or to act at all in contemplation of law, as where the power is exercised in an arbitrary and
despotic manner by reason of passion and personal hostility. x x x66
On the charge of estafa, the trial court declared that since the payees of Managers Check Nos.
0000003340 and 0000003347 were not Asia Textile Mills, Inc. and Timmys, Inc., respectively,
but other entities Phil. Recyclers Inc. and Zeta International, and there are no documents
drawn by the borrowers assigning the loan proceeds to these two entities, then it cannot
besaid that there were loan proceeds released to these borrowers. The trial court added that it
is doubtful that the two managers checks were presented and negotiated for deposit in Gos
savings account, since theydo not contain the required indorsements of the borrowers, the
signatures of the tellers and individuals/payees who received the checks and the proceeds
thereof, and the respective account numbers of the respondents; and the checks were
presented beyond banking hours. The trial court likewise held that the fact that a cash deposit
slip and not a check deposit slip was used to allegedly deposit the checks raised doubts as
to the truth of the allegation that the managers checks were deposited and credited to Gos
savings account.
The CA echoed the trial courts observations, adding that the evidence consisted of mere
"letters and unverifiedledgers" which were thus insufficient; that there was an "inescapable
possibility that an honest mistake was made" in the preparation and issuance of Managers
CheckNos. 0000003340 and 0000003347, since these two checks are claimed to be just a few
of several checks numbering thirteen in all the rest of which werenever questioned by the
receiver PDIC. The appellate court added that the prosecution should have presented further
evidence as to where the money went after being deposited inGos savings and current
accounts, identifying thus the recipients of Gospersonal checks.
What the trial and appellate courts disregarded, however, is that the OCBC funds ended up in
the personal bank accountsof respondent Go, and were used to fund his personal checks, even
as he was not entitled thereto. These, if not rebutted, are indicative ofestafa, as may be seen
from the afore-cited Sorianocase.
The bank money (amounting to 8million) 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. It is not accurate to say that petitioner became the owner of the 8
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 infact 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 8 million. Thus, petitioner remained the
banks fiduciary with respect to that money, which makes it capable of misappropriation or
conversion in his hands.67
Thus, it is irrelevant that the proceeds of the supposed loans were made payable to entities
other than the alleged borrowers.1wphi1 Besides, the managers checks themselves indicate
that they were the proceeds of the purported Timmys, Inc.s and Asia Textile Mills, Inc.s loans,
through the alpha numeric codes specifically assigned to them that are printed on the face of
the checks; the connection between the checks and the purported loans is thus established. In
the same vein, the CAs supposition that there is an "inescapable possibility that an honest
mistake was made inthe preparation of the two questioned managers checks" is absurd; even
so, the bottom line is that they were encashed using bank funds, and the proceeds thereof
were deposited in Gos bank savings and current accounts and used to fund his personal
checks.
Furthermore, as correctly pointed outby petitioner, it issuperfluous to require that the
recipients of Gos personal checks be identified. For purposes of proving the crime, it has been
shown that Goconverted bank funds to his own personal use when they were deposited in his
accounts and his personal checks were cleared and the funds were debited from his
account.1wphi1 This suffices. Likewise, the Court agrees that the prosecutions reliance on
the supposed loan documents, subsidiary ledgers, deposit slip, cash proof, RTCOCI and other
documents was proper. They are both public and private documents which may be received in
evidence; notably, petitioners documentary evidence was admitted in full by the trial
court.68 With respect to evidence consisting of private documents, the presumption remains
that "therecording of private transactions has been fair and regular, and that the ordinary
course of business has been followed."69
Gos January 28, 1998 letter to the BSP stating that he was "willing to assume the viabilityand
full payment" of the accounts under examination which included the Timmys, Inc. and Asia
Textile Mills, Inc. accounts, among others is an offer of compromise, and thus an implied
admission of guilt under Rule 130, Section 27 of the Revised Rules on Evidence.70
In addition, appellants act of pleading for his sister-in-laws forgiveness may be considered as
analogous to an attempt to compromise, which in turn can be received as an implied admission
ofguilt under Section 27, Rule 130 x x x.71
As a result of the Courts declaration of nullity of the assailed Orders of the trial court, any
dissection of the truly questionable actions of Prosecutor Campanilla which should merit
appropriate disciplinary action for they reveal a patent ignorance of procedure, if not
indolence or a deliberate intention to bungle his own case becomes unnecessary. It is
conceded that the lack of Campanillas approval and/or conformto PDICs Motion for
Reconsideration should have rendered the trial courts assailed Ordersfinal and executory were
it not for the fact that they were inherently null and void; Campanillas irresponsible actions
almost cost the People its day in court and their right to exact justice and retribution, not to
mention that they could have caused immeasurable damage to the banking industry. Just the
same, "[a] void judgment or order has no legal and binding effect, force or efficacy for any
purpose. In contemplation of law, it is non-existent. Such judgment or order may be resisted in
any action or proceeding whenever it is involved. It is not even necessary to take any steps to
vacate or avoid a void judgment or final order; it may simply be ignored."72 More appropriately,
the following must be cited:
x x x Clearly, the assailed Order of Judge Santiago was issued in grave abuse of discretion
amounting to lack of jurisdiction. A void order is no order at all. It cannot confer any right or be
the source of any relief. This Court is not merely a court of law; it is likewise a court of justice.
To rule otherwise would leave the private respondent without any recourse to rectify the
public injustice brought about by the trial court's Order, leaving her with only the standing to
file administrative charges for ignorance of the law against the judge and the prosecutor. A
party cannot be left without recourse to address a substantive issue in law.73
Finally, it must be borne in mind that "[t]he granting of a demurrer to evidence should x x x be
exercised with caution, taking into consideration not only the rights of the accused, but also
the right of the private offended party to be vindicated of the wrongdoing done against him,
for if it is granted, the accused is acquitted and the private complainant is generally left with no
more remedy. In such instances, although the decision of the court may be wrong, the accused
can invoke his right against double jeopardy. Thus, judges are reminded to be more diligent
and circumspect in the performance of their duties as members of the Bench xx x."74
WHEREFORE, the Petition is GRANTED. The September 30, 2009 Decision and January 22, 2010
Resolution of the Court of Appeals are REVERSED and SET ASIDE. The July 2, 2007 and October
19, 2007 Orders of the Regional Trial Court of Manila, Branch 49 in Criminal Case Nos.
00-187318 and 00-187319 are declared null and void, and the said cases are ordered
REINSTATED for the continuation of proceedings.
SO ORDERED.
G.R. No. 194515
SPOUSES OSCAR AND GINA GIRO NELLA, Petitioners,
vs.
PHILIPPINE NATIONAL BANK, Respondent.
PEREZ, J.:
We have here a Petition for Review on Certiorari under Rule 45 of. the Rules of Court assailing
the Decision1 dated 27 August 2010 of the Court of Appeals (CA) in CA-G.R. CV No. 83870
which reversed and set aside the Decision2of the Regional Trial Court (RTC), Branch 44,
Dagupan City in Civil Case No. 2000-0099-D. The RTC granted the complaint of petitioners, the
Spouses Oscar and Gina Gironella (Spouses Gironella), against respondent Philippine National
Bank (PNB) for: (1) the proper construction of eyents between the parties relative to the
proposed Restructuring Agreement; (2) fraud, gross negligence, and/or at the very least, abuse
of right under Article 19, 20 and 21 of the Civil Code; and (3) corollary thereto, payment of
actual and compensatory damages, moral, attorneys fees and litigation expenses.
First, the bare and undisputed facts.
In separate Credit Agreements respectively dated 11 November 1991 and 16 January 1992, the
Spouses Gironella obtained two (2) loans from PNB in the amounts of Php7,500,000.00 and
Php2,000,000.00 for the construction of the Dagupan Village Hotel and Sports Complex. The
loans were co-terminus, both payable on installments and secured by the same real estate
mortgage over a parcel of land covered by Transfer Certificate of Title (TCT) No. 56059 in favor
of the creditor, PNB.
In May 1992, seeking to expand their hotel operations, the Spouses Gironella again applied for
another loan with PNB in the amount of. Php5,800,000.00 for the construction of a restaurant
bar and the purchase of a generator set.
From these front events, the dealings between the parties turned into the present case.
The Spouses Gironella began to default in paying their prior two (2) loans. They would aver, in
their complaint until this petition, that their default in payment is attributable to PNB whose
representatives and officers made them believe that their Php5,800,000.00 loan application
would be approved and directed them to proceed with their expansion plans. To that end and
with the full knowledge of the PNB's officers and representatives, the Spouses Gironella used
the income generated by the hotel for the construction of the restaurant bar and purchase of
the generator set while the Php5,800,000.00 loan was pending and still being processed. In
their Complaint, the Spouses Gironella alleged:
[PNB's] officers and representatives gave their assurance to the [Spouses
Gironella] that the said loan will be approved by [PNB] and even directed
the [Spouses Gironella] to make use of the funds being generated by
Dagupan Village Hotel for the said purposes, which the [Spouses Gironella]
did, but seriously affected the servicing of their first loan. [The Spouses
Gironella] then proposed a restructuring of their first loan and after a series
of meetings, offers and counter offers, the [Spouses Gironella] accepted
the offer of [PNB] to their proposed program (sic) to restructure the loan
which for all intents and purposes was already perfected.3
From the period of February 1993 to 2 October 1995, the Spouses Gironella paid a total of
Php4,219,000.00 on their first two loans of Php9,500,000.00. In January and April 1998, the
Spouses Gironella likewise paid PNB Phpl,000,000.00 and Phpl,650,000.00. They maintain that
all these payments were made to effect the restructuring of their loans with PNB.
Meanwhile, in separate instances, on 29 May 1996 and 1 7 April 1998, while the parties were
negotiating and discussing the restructuring of the Spouses Gironella's loans, PNB made a
couple of attempts to foreclose the mortgaged property. It filed a Petition for the Extra-Judicial
Foreclosure thereof and subsequently, a Notice of Extra-Judicial Foreclosure Sale. However,
the final foreclosure of the mortgaged property was stalled because of the continuing
negotiations between the parties for the restructuring of the loans.
By the year 2000, negotiations for the restructuring of the Spouses Gironella's loans was still
ongoing and remained indefinite. On 25 January 2000, after several exchange of
correspondence, PNB wrote the Spouses . Gironella and proposed, thus:
May we now have your written final conformity with the proposed restructuring of your
account by way of:
Capitalization of the P9,485,620.00, part of the accrued interest as of
December 14, 1999 for consolidation with the outstanding P9,500,000.00
unpaid principal to aggregate Pl4,380,000.00;
Restructuring of this P14,380,000.00 into a fullysecured 10 year term loan
payable quarterly under thefollowing scheme;
grace period on the payment of the principal only for Eight (8)
quarters.
amortization for the 1st to gth quarters be based on accrued
interest due.
amortization from the 9th up to the 39th quarter to be based on a
15-year payment scheme with balloon payment on the 40th
quarter.
Restructuring of P8,120,000.00, the other part of the accrued interest as of
December 14, 2000, on clean basis to be payable quarterly for five (5) years
with amortization from 1st to 19th quarters based on a 15-year payment
scheme and balloon payment on the 20th quarter.
Interest, net of capitalization, to be paid from December 14, 1999 up to
date of implementation,
This proposed restructuring is still subject for evaluation and approval of
higher management and therefore tentative in nature.4
(Emphasis Supplied)
In a letter dated 7 February 2000, the Spouses Gironella gave a qualified acceptance of PNB's
proposed restructuring, specifically referring to specific terms in the 25 January 2000
proposal of PNB.
However, in its 8 March 2000 letter, PNB rejected finally the counter offer of the Spouses
Gironella for the restructuring of their loan.
On 25 July 2000, PNB re-filed its Petition for Extra-Judicial Foreclosure of the mortgaged
property.
Forthwith, the Spouses Gironella filed the Complaint before the RTC with prayer for issuance of
a Temporary Restraining Order (TRO) and preliminary injunction to enjoin enforcement of the
original credit agreements, and security therefor, between the parties. Effectively, the Spouses
Gironella sought to enjoin the 'foreclosure of the mortgaged property .
On 4 and 28 September 2000, the RTC issued the prayed for TRO and Writ of Preliminary
injunction.
Subsequently, the RTC granted the Complaint of the Spouses Gironella ruling that there was a
perfected and binding restructured credit agreement, the terms contained in the 25 January
2000 and 7 February 2000 written exchanges of the parties:
WHEREFORE, judgment is rendered in favor of [petitioners] Oscar Gironella
and Gina F. Gironella and against [respondent] Philippine National Bank, as
follows:
1. On the first and third causes of action, judgment is rendered ordering
[PNB] to pay [the Spouses Gironella], the following:
a) P5,000,000.00 and PI00,000.00 a month as actual and compensatory
damages;
b) P2,000,000.00 as moral damages;
c) PS00,000.00 as and for Attorney's fees, plus Pl0,000.00 for every
conference or hearing as Appearance Fees; and
d) P250,000.00 as litigation expenses.
2. On the second cause of action, the [ c ]ourt declares the restructuring of
the subject loan pursuant to the letter of [PNB] dated January 25i 2000,
Exhibit U for [the Spouses Gironella], and Exhibit 2 for [PNB], and [the
Spouses Gironella's] letter dated February 7, 2000, Exhibit V for the
[Spouses Gironella],. and Exhibit 3 for [PNB], as perfected and binding upon
the parties.
[PNB] is ordered to pay the costs of suit.5
On Motion for Partial Reconsideration and/or Clarification filed by the Spouses Gironella, the
RTC clarified that the payment of Phpl00,000.00 a month as actual and compensatory damages
is reckoned from the filing of the Amended Complaint on 25 September 2002. In addition, the
R TC declared permanent the writ of preliminary injunction it had previously issued, effectively
enjoining the enforcement of the original credit agreements and the accessory contract, the
real estate mortgage over the land covered by TCT No. 56059.
Posthaste, PNB appealed to the CA questioning the trial court's ruling. PNB argued that the
exchange of correspondence between the parties, specifically the 25 January 2000 and 7
February 2000 letters, did not constitute a perfected and binding restructuring agreement
since there was no express acceptance by either party of the other's counter-offer. PNB
averred that it, in fact, finally rejected the restructuring proposal of the Spouses Gironella on 8
March 2000.
The appellate court granted the appeal of PNB and reversed the ruling of the trial court. The CA
ruled that the Spouses Gironella, apart from their bare allegations, failed to present evidence
required in civil cases, i.e. by a preponderance of evidence, to establish their claim that PNB
fraudulently and in gross negligence and/or, in abuse of right, gave them false hopes and
assurances that their third loan would be approved in violation of Articles 19, 20 and 21 of the
Civil Code thereby entitling them to damages. The appellate court ruled, thus:
In civil cases, he who alleges a fact has the burden of proving it by a
preponderance of evidence. Aside from the surmises of [the Spouses
Gironella] that they were given false hope and assurances by [PNB's]
officers, the [Spouses Gironella] in this case failed to show proof
preponderant enough to sway this [ c ]ourt in their favor.
As compared to the other transactions and negotiation entered into
between the parties herein which were very much documented, the
[Spouses Gironella] failed to present any documentary evidence relevant to
their claims of fraud, gross negligence, and abuse of right against the (PNB
's] officers. The records of the instant case are wanting of any proof that
would substantiate the [Spouses Gironella' s] claim that they were assured
by [PNB' s] officers that the additional loan application will be approved
and that it was agreed upon that the income of the hotel will be used for
the construction of the disco-restaurant and the purchase of the generator
set for the meantime.
It must also be noted that [the Spouses Gironella] contracted two previous
loans from [PNB] even before the additional loan subject of this case was
applied for.1wphi1 Thus, not being their first time to enter into a loan
with a bank, the [Spouses Gironella] are already very much aware of the
process being observed in obtaining a loan from such kind of institution.
Gina Gironella even wrote in her 7 August 1992 letter to Mr. Alfredo S.
Besa, Manager of the PNB Dagupan Branch, that:
Dear Mr. Besa:
I was very much elated over the information relayed to
me by my father, thru our Resident Manager, William
Crossly, regarding the profound concern and interest
shown by your Vice-President for Northern Luzon
Branches Pedrito D. Torres towards the Dagupan
Village Hotel and Sports Center. I understand that VP
Torres was also convinced that the construction of the
additional function hall and night club would, indeed,
upgrade the revenueearning capacity of the hotel, thus
reportedly giving his assent for the immediate
commencement of the project.
In this connection, therefore, may I reiterate our appeal
manifested in our previous letters for the approval of
our additional loan application with which to
underwrite the above project which was started almost
two months ago, and the purchase of a 125 ...
generating set.
In the above letter, [petitioner] Gina Gironella appears to be mindful that a
formal approval is necessary for their application to be considered as finally
approved. Thus, when the [Spouses Gironella] undertook to initiate the
construction of the disco-restaurant and the purchase of the generator set
even without the formal approval of their additional loan, the [Spouses
Gironella] did it at their own risk.6
On the finding of the trial court that the correspondence between the parties embodied in the
25 January 2000 and 7 February 2000 letters of PNB and the Spouses Gironella, respectively,
constituted the restructuring agreement, the appellate court found that there was no final
agreement reached by the parties where the offer was certain and acceptance thereof by the
other party was absolute. The appellate court held that, in this case, a qualified acceptance
equated to a counter-offer and, at that point, there was no absolute and unqualified
acceptance which is identical in all respects with that of the offer so as to produce consent or
meeting of the minds.
Hence, this appeal by certiorari of the Spouses Gironella insisting on the correctness of the trial
court's ruling.
We deny the petition and affirm the appellate court's ruling.
The Spouses Gironella claim fraud, gross negligence and/or, at the very least, abuse of right in
violation of Articles 19, 20 and 21 of the Civil Code when PNB, essentially, twice did not
approve their loan applications:
(1) the additional loan of Php5,800,000.00 for their businesses' expansion plans, and (2)
restructuring of their original credit agreements, despite purported assurances and
representations of approval by PNB 's officers and representatives. The Spouses Gironella
maintain that these actuations of PNB through its officers and representatives constituted
fraud, gross negligence and/or abuse of right in its dealings thus entitling the Spouses Gironella
to damages, actual and compensatory, moral, attorney's fees and litigation expenses.
Incredibly, the RTC adopted in full the stance and allegations of the Spouses Gironella, without
a shred of evidence or reference thereto in the ratiocination of its ruling:
It should be noted that [PNB's] act of continuously giving positive assurances to the [Spouses
Gironella] and giving them false hopes that the additional loan will be approved and eventually
informing them later that the same was disapproved by the higher management is a clear
indication of fraud and gross negligence. If it were not for [PNB 's] continuous assurances that
the loan will be approved, the [Spouses Gironella] would not have participated in the
negotiations with PNB officers and representatives, thus dispensing with the preparation and
submission of various documents, financial reports and other demands. The [ c ]ourt agrees
with the stand of the [Spouses Gironella] that if it were for [PNB's] directive to direct the use of
the funds generated by the hotel to construct [the] disco-restaurant purchase of the generator
set (sic), the servicing and/or payment of the original loan should. not have been affected. The
records would show that [PNB] misled the [Spouses Gironella] into believing that the additional
loan of 5.8 Million Pesos would be approved. It should be stated in this connection that the
payments for the first loan Php9,500,000.00 would have come from the funds generated by
the hotel. There is no doubt that the [Spouses Gironella] applied for an additional loan of
P5,800,000.00 for the purpose of constructing the disco-restaurant and purchase of generator
set. The hotel fund was used for the above-cited purpose and that was the reason instead of
using the same to pay [the Spouses Gironella's] obligation relative to the Php9,500,000.00 loan.
[The Spouses Gironella's] acted in good faith when they used the money to construct the
disco-restaurant and purchase the generator set because of the false assurances of [PNB] that
the amount of Php5,800,000.00 loan would be approved.7
The appellate court correctly did not give imprimatur to the foregoing ruling of the trial court
given that nowhere therein does the trial court refer to evidence to support its conclusions.
First. As plaintiffs, the Spouses Gironella had the duty, the burden of proof, to present
evidence, required by law, on the facts in issue necessary to establish their claim.8 The trial
court did not even name the bank officers and representatives who gave "false hopes and
assurances" to the Spouses Gironella. The trial court could have easily specified the
representations and statements of the bank officers and representatives which the Spouses
Gironella heavily relied upon. The Spouses Gironella's lack of evidence is further highlighted by
the trial court's non-sequitur statement that "[i]f it were not for [PNB' s] continuous assurances
that the loan will be approved, the [Spouses Gironella] would not have participated in the
negotiations with PNB officers and representatives, thus dispensing with the preparation and
submission of various documents, financial reports and other demands."9
Second. The foregoing statement fails to take into consideration the three (3) distinct stages of
a contract: (1) preparation or negotiation, (2) perfection, and finally, (3) consummation.10 At
th'1;t point where the Spouses Gironella were applying for the additional loan of
Php5,800,000.00, that involved the negotiation stage for a contract separate from the first two
credit agreements which were consolidated into one, secured by the same real estate
mortgage over TCT No. 56059, both payable on installment and with the same term.
Necessarily, the Spouses Gironella as debtors applying for an. additional loan, ought to
participate in the negotiations thereof and await PNB' s assessment and processing of their
additional loan application.
Discussion on the succeeding stages of a contract shall be done anon in relation to the alleged
restructuring agreement.
Third. We find difficulty in accepting the Spouses Gironella's insistence that PNB' s officers and
representatives repeatedly assured them that their additional loan will be approved,
apparently, without qualification.
In approving loans, credit accommodations and guarantees, PNB, as a bank, must still comply
with banking laws and conduct business in a safe and sound manner. Ultimately, PNB to
comply with the General Banking Act11 as amended, the old statute and precursor to the
present General Banking Law;12 must assess compliance by the Spouses Gironella with specific
legal banking requirements such as the Single Borrower's Limit.13 Clearly, approval of the
Spouses Gironella's additional loan is not contingent solely on the purported representations
of PNB's officers as claimed by the former.
Fourth. From these very same bare allegations of the Spouses Gironella, the trial court, in
upholding their stance, considered the assurances given by PNB's officers that the additional
loan will be approved as the evidence itself of PNB' s supposed commission of fraud. In short,
the Spouses Gironella proffer as evidence of fraud their own bare allegations which
regrettably, the trial court echoed.
We cannot overemphasize that the burden of proof is upon the party who alleges bad faith or
fraud.14 In this case, the Spouses Gironella's bare allegations that PNB' s officers assured them
that their additional loan will be approved are mere abstractions of fraud without specifics
pointing to the actual commission of fraud.
We thus agree with the disquisition of the appellate court thereon:
In civil cases, he who alleges a fact has the burden of proving it by a preponderance of
evidence. Aside from the surmises of [the Spouses Gironella] that they were given false hopes
and assurances by [PNB's] officers, the [Spouses Gironella] in this. case failed to show proof
preponderant enough to sway this [ c ]ourt in their favor.
As compared to the other transactions and negotiations entered into between the parties
herein which were very much documented, the [Spouses Gironella] failed to present any
documentary evidence relevant to their claims of fraud, gross negligence, and abuse of right
against the [PNB' s] officers. The records of the instant case are wanting of any proof that
would substantiate the [Spouses Gironella's] claim that they were assured by [PNB's] officers
that the additional loan application will be approved and that it was agreed upon that the
income of the hotel will be used for the construction of the disco-restaurant and the purchase
of the15 generator set for the meantime.
The Spouses Gironella next contend that the parties already had a partially executed, if not
perfected and binding, restructuring agreement. embodied in their 7 February 2000 letter of
acceptance of the offer and proposal contained in PNB's 25 January 2000 letter. As with their
first contention on the "false hopes and assurances" purportedly given by PNB's officers and
representatives to the Spouses Gironella, the trial court upheld them and found that there was
a perfected and binding restructuring agreement between the parties. Moreover, the Spouses
Gironella assert that since they have made substantial payments in pursuance of the
restructuring agreement, or at the least under a promise of restructuring the loan, there is
effectively a partially executed restructuring agreement.
We cannot subscribe to the contention of the Spouses Gironella, albeit upheld by the trial
court.
A contract is perfected by mere consent.16 In turn, consent is manifested by the meeting of the
offer and the acceptance upon the thing and the cause which are to constitute the
contract.17 The offer must be certain and the acceptance seasonable and absolute.18 If
qualified, the acceptance would merely constitute a counter-offer19 as what occurred in this
case.
To reach that moment of perfection, the parties must agree on the same thing in the same
sense, so that their minds meet as to all the terms.20 They must have a distinct intention
common to both and without doubt or difference; until all understand alike, there can be no
assent, and therefore no contract. The minds of parties must meet at every point; nothing can
be left open for further arrangement. So long as there is any uncertainty or indefiniteness, or
future negotiations or considerations to be had between the parties, there is not a completed
contract, and in fact, there is no contract at all.21
The Spouses Gironella's payments under its original loan account cannot be considered as
partial execution of the proposed restructuring loan agreement. They were clearly made
during the pendency of the negotiations on the restructuring. Such pendency proves, absence,
not presence of an agreement ready for execution. At the time of payments only petitioners'
obligation under the original credit agreements were in existence. Indeed, the payment
scheme under the proposed restructuring was outlined by PNB only in the letter of 25 January
2000.
Further on this, negotiation begins from the time the prospective contracting parties manifest
their interest in the contract and ends at the moment of agreement of the parties. Once there
is concurrence of the offer and acceptance of the object and cause, the stage of negotiation is
finished.22 This situation does not obtain in the case at bar. The letter dated 25 January . 2000
of PNB was qualifiedly accepted by the Spouses Gironella as contained in their 7 February 2000
letter and constituted a counter-offer which PNB ultimately rejected in its 8 March 2000 letter.
The surrounding circumstances clearly show that the parties were not past the stage of
negotiation for the terms and conditions of the restructured loan agreements.
There was no meeting of the minds on the restructuring of the loans. Thus, the Spouses
Gironella's original Php9,500,000.00 loan agreement subsists.
In all, we affirm the appellate court's ruling, PNB is not liable either for fraud, gross negligence
or abuse of right. It did not breach any agreement there having been no restructured loan
agreement at all that was perfected.
Consequently, the PNB is not liable to pay the Spouses Gironella any form of damages.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals dated 27 August
2010 in CA-G.R. CV No. 83870 is AFFIRMED. The Decision and Order dated 23 June 2004 and 28
September 2004 of the Regional Trial Court, Branch 44, Dagupan City are REVERSED and SET
ASIDE. The Amended Complaint of the petitioners, Oscar and Gina Gironella, is DISMISSED.
SO ORDERED.
G.R. No. 178429 October 23, 2009
JOSE C. GO, Petitioner,
vs.
BANGKO SENTRAL NG PILIPINAS, Respondent.
BRION, J.:
Through the present petition for review on certiorari,1 petitioner Jose C. Go (Go) assails the
October 26, 2006 decision2 of the Court of Appeals (CA) in CA-G.R. SP No. 79149, as well as its
June 4, 2007 resolution.3 The CA decision and resolution annulled and set aside the May 20,
20034 and June 30, 20035 orders of the Regional Trial Court (RTC), Branch 26, Manila which
granted Gos motion to quash the Information filed against him.
THE FACTS
On August 20, 1999, an Information6 for violation of Section 83 of Republic Act No. 337 (RA 337)
or the 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 the City of Manila, Philippines, the said accused, being then the Director and
the President and Chief Executive Officer of the Orient Commercial Banking Corporation
(Orient Bank), a commercial banking institution created, organized and existing under
Philippines laws, with its main branch located at C.M. Recto Avenue, this City, and taking
advantage of his position as such officer/director of the said bank, did then and there wilfully,
unlawfully and knowingly borrow, either directly or indirectly, for himself or as the
representative of his other related companies, the deposits or funds of the said banking
institution and/or become a guarantor, indorser or obligor for loans from the said bank to
others, by then and there using said borrowed deposits/funds of the said bank in facilitating
and granting and/or caused the facilitating and granting of credit lines/loans and, among
others, to the New Zealand Accounts loans in the total amount of TWO BILLION AND SEVEN
HUNDRED FIFTY-FOUR MILLION NINE HUNDRED FIVE THOUSAND AND EIGHT HUNDRED
FIFTY-SEVEN AND 0/100 PESOS, Philippine Currency, said accused knowing 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, 20037 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 conditions established in the 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, the prosecution raises the same defenses against Gos contentions. It insists
11
on the sufficiency of the allegations in the Information and prays for the denial of Gos petition.
THE COURTS RULING
The Court does not find the petition meritorious and accordingly denies it.
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.14Jurisprudence 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. Romualdez15 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.
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 is below the legal limit, a written approval by the majority of the banks directors is still
approval of the majority of the banks board of directors. To make a distinction between the required; otherwise, the bank director or officer who becomes an obligor of the bank is liable.
act of borrowing and guarantying is therefore unnecessary because in either situation, the Compliance with the ceiling requirement does not dispense with the approval requirement.
director or officer concerned becomes an obligor of the bank against whom the obligation is
juridically demandable. 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
The language of the law is broad enough to encompass either act of borrowing or guaranteeing, indictment for failing to comply with the approval requirement will not necessitate proof that
or both. While the first paragraph of Section 83 is penal in nature, and by principle should be the other two were likewise not observed.
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 Rules of Court allow amendment of insufficient Information
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
Assuming that the facts charged in the Information do not constitute an offense, we find it
and similar financial institutions to their own directors, officers, and stockholders are above
erroneous for the RTC to immediately order the dismissal of the Information, without giving
board.18 Banks were not created for the benefit of their directors and officers; they cannot use
the prosecution a chance to amend it. Section 4 of Rule 117 states:
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 SEC. 4. Amendment of complaint or information.If the motion to quash is based on an
directors and officers of banking institutions from becoming in any manner an obligor of the alleged defect of the complaint or information which can be cured by amendment, the court
bank (unless with the approval of the board), the terms of the prohibition shall be the shall order that an amendment be made.
standards to be applied to directors transactions such as those involved in the present case.
If it is based on the ground that the facts charged do not constitute an offense, the prosecution
Credit accommodation limit is not an exception nor is it an element of the offense 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]
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, Although an Information may be defective because the facts charged do not constitute an
reportorial, and ceiling requirements. 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
The approval requirement (found in the first sentence of the first paragraph of the law) refers
prosecution this opportunity twice21 constitutes an arbitrary exercise of power that was
to the written approval of the majority of the banks board of directors required before bank
correctly addressed by the CA through the certiorari petition. This defect in the RTCs action on
directors and officers can in any manner be an obligor for money borrowed from or loaned by
the case, while not central to the issue before us, strengthens our conclusion that this criminal
the bank. Failure to secure the approval renders the bank director or officer concerned liable
case should be resolved through full-blown trial on the merits.
for prosecution and, upon conviction, subjects him to the penalty provided in the third
sentence of first paragraph of Section 83.
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
The reportorial requirement, on the other hand, mandates that any such approval should be
well as its resolution of June 4, 2007. The Regional Trial Court, Branch 26, Manila is directed to
entered upon the records of the corporation, and a copy of the entry be transmitted to the
PROCEED with the hearing of Criminal Case No. 99-178551. Costs against the petitioner.
appropriate supervising department. The reportorial requirement is addressed to the bank
itself, which, upon its failure to do so, subjects it to quo warranto proceedings under Section
87 of RA 337.20 SO ORDERED.

The ceiling requirement under the second paragraph of Section 83 regulates the amount of G.R. No. 162336 February 1, 2010
credit accommodations that banks may extend to their directors or officers by limiting these to HILARIO P. SORIANO, Petitioner,
an amount equivalent to the respective outstanding deposits and book value of the paid-in vs.
capital contribution in the bank. Again, this is a requirement directed at the bank. In this light, a PEOPLE OF THE PHILIPPINES, BANGKO SENTRAL NG PILIPINAS (BSP), PHILIPPINE DEPOSIT
prosecution for violation of the first paragraph of Section 83, such as the one involved here, INSURANCE CORPORATION (PDIC), PUBLIC PROSECUTOR ANTONIO C.BUAN, and STATE
does not require an allegation that the loan exceeded the legal limit. Even if the loan involved PROSECUTOR ALBERTO R. FONACIER, Respondents.
DEL CASTILLO, J.:
A bank officer violates the DOSRI2 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 Certiorari4 under Rule 45 of the Rules of Court, assailing
the September 26, 2003 Decision5 and the February 5, 2004 Resolution6 of the Court of
Appeals (CA) in CA-G.R. SP No. 67657. The challenged Decision disposed as follows:
WHEREFORE, premises considered, the instant petition for certiorari is hereby DENIED.7
Factual Antecedents
Sometime in 2000, the Office of Special Investigation (OSI) of the Bangko Sentral ng
Pilipinas (BSP), through its officers,8 transmitted a letter9 dated March 27, 2000 to Jovencito
Zuo, Chief State Prosecutor of the Department of Justice (DOJ). The letter attached as
annexes five affidavits,10 which would allegedly serve as bases for filing criminal charges for
Estafa thru Falsification of Commercial Documents, in relation to Presidential Decree (PD) No.
1689,11 and for Violation of Section 83 of RA 337, as amended by PD 1795,12 against, inter
alia, petitioner herein Hilario P. Soriano. These five affidavits, along with other documents,
stated that spouses Enrico and Amalia Carlos appeared to have an outstanding loan of 8
million with the Rural Bank of San Miguel (Bulacan), Inc. (RBSM), but had never applied for nor
received such loan; that it was petitioner, who was then president of RBSM, who had ordered,
facilitated, and received the proceeds of the loan; and that the 8 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 Information17 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 8 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.
CONTRARY TO LAW.19
Both cases were raffled to Branch 79 of the RTC of Malolos, Bulacan.20
On June 8, 2001, petitioner moved to quash21 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 of the RPC is inherently incompatible with the violation of DOSRI law (as set
out in Section 8323 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.
Ruling of the Regional Trial Court
In an Order26 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 complaint-affidavit 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 Certiorari29 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 Reconsideration33 was likewise denied for lack of merit.
Hence, this petition.
Issues
Restated, petitioner raises the following issues34 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 noted35 petitioner's Manifestation and Motion for Partial
Withdrawal of the Petition36dated 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. Casanova39 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 Santos-Concio 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 intended 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
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:
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.
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.
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 8
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.
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
co-exist. 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 8 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 8 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 8 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
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
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-M-2001 alleges that petitioner "in his
capacity as President of Rural Bank of San Miguel San Ildefonso branch 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 (8 million), [petitioner] converted the same to his own
personal use and benefit".53
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 elements54 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:
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.
G.R. No. L-45710 October 3, 1985
CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR ANTONIO T. CASTRO, JR. OF THE
DEPARTMENT OF COMMERCIAL AND SAVINGS BANK, in his capacity as statutory receiver of
Island Savings Bank, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and SULPICIO M. TOLENTINO, respondents.
MAKASIAR, CJ.:
This is a petition for review on certiorari to set aside as null and void the decision of the Court
of Appeals, in C.A.-G.R. No. 52253-R dated February 11, 1977, modifying the decision dated
February 15, 1972 of the Court of First Instance of Agusan, which dismissed the petition of
respondent Sulpicio M. Tolentino for injunction, specific performance or rescission, and
damages with preliminary injunction.
On April 28, 1965, Island Savings Bank, upon favorable recommendation of its legal
department, approved the loan application for P80,000.00 of Sulpicio M. Tolentino, who, as a
security for the loan, executed on the same day a real estate mortgage over his 100-hectare
land located in Cubo, Las Nieves, Agusan, and covered by TCT No. T-305, and which mortgage
was annotated on the said title the next day. The approved loan application called for a lump
sum P80,000.00 loan, repayable in semi-annual installments for a period of 3 years, with 12%
annual interest. It was required that Sulpicio M. Tolentino shall use the loan proceeds solely as
an additional capital to develop his other property into a subdivision.
On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan was made by the
Bank; and Sulpicio M. Tolentino and his wife Edita Tolentino signed a promissory note for
P17,000.00 at 12% annual interest, payable within 3 years from the date of execution of the
contract at semi-annual installments of P3,459.00 (p. 64, rec.). An advance interest for the
P80,000.00 loan covering a 6-month period amounting to P4,800.00 was deducted from the
partial release of P17,000.00. But this pre-deducted interest was refunded to Sulpicio M.
Tolentino on July 23, 1965, after being informed by the Bank that there was no fund yet
available for the release of the P63,000.00 balance (p. 47, rec.). The Bank, thru its
vice-president and treasurer, promised repeatedly the release of the P63,000.00 balance (p.
113, rec.).
On August 13, 1965, the Monetary Board of the Central Bank, after finding Island Savings Bank
was suffering liquidity problems, issued Resolution No. 1049, which provides:
In view of the chronic reserve deficiencies of the Island Savings Bank against its deposit
liabilities, the Board, by unanimous vote, decided as follows:
1) To prohibit the bank from making new loans and investments [except investments in
government securities] excluding extensions or renewals of already approved loans, provided
that such extensions or renewals shall be subject to review by the Superintendent of Banks,
who may impose such limitations as may be necessary to insure correction of the bank's
deficiency as soon as possible;
xxx xxx xxx
(p. 46, rec.).
On June 14, 1968, the Monetary Board, after finding thatIsland Savings Bank failed to put up
the required capital to restore its solvency, issued Resolution No. 967 which prohibited Island
Savings Bank from doing business in the Philippines and instructed the Acting Superintendent
of Banks to take charge of the assets of Island Savings Bank (pp. 48-49, rec).
On August 1, 1968, Island Savings Bank, in view of non-payment of the P17,000.00 covered by
the promissory note, filed an application for the extra-judicial foreclosure of the real estate
mortgage covering the 100-hectare land of Sulpicio M. Tolentino; and the sheriff scheduled the
auction for January 22, 1969.
On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court of First Instance of
Agusan for injunction, specific performance or rescission and damages with preliminary
injunction, alleging that since Island Savings Bank failed to deliver the P63,000.00 balance of
the P80,000.00 loan, he is entitled to specific performance by ordering Island Savings Bank to
deliver the P63,000.00 with interest of 12% per annum from April 28, 1965, and if said balance
cannot be delivered, to rescind the real estate mortgage (pp. 32-43, rec.).
On January 21, 1969, the trial court, upon the filing of a P5,000.00 surety bond, issued a
temporary restraining order enjoining the Island Savings Bank from continuing with the
foreclosure of the mortgage (pp. 86-87, rec.).
On January 29, 1969, the trial court admitted the answer in intervention praying for the
dismissal of the petition of Sulpicio M. Tolentino and the setting aside of the restraining order,
filed by the Central Bank and by the Acting Superintendent of Banks (pp. 65-76, rec.).
On February 15, 1972, the trial court, after trial on the merits rendered its decision, finding
unmeritorious the petition of Sulpicio M. Tolentino, ordering him to pay Island Savings Bank
the amount of PI 7 000.00 plus legal interest and legal charges due thereon, and lifting the
restraining order so that the sheriff may proceed with the foreclosure (pp. 135-136. rec.
On February 11, 1977, the Court of Appeals, on appeal by Sulpicio M. Tolentino, modified the
Court of First Instance decision by affirming the dismissal of Sulpicio M. Tolentino's petition for
specific performance, but it ruled that Island Savings Bank can neither foreclose the real estate
mortgage nor collect the P17,000.00 loan pp. 30-:31. rec.).
Hence, this instant petition by the central Bank.
The issues are:
1. Can the action of Sulpicio M. Tolentino for specific performance prosper?
2. Is Sulpicio M. Tolentino liable to pay the P17,000.00 debt covered by the promissory note?
3. If Sulpicio M. Tolentino's liability to pay the P17,000.00 subsists, can his real estate mortgage
be foreclosed to satisfy said amount?
When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00 loan
agreement on April 28, 1965, they undertook reciprocal obligations. In reciprocal obligations,
the obligation or promise of each party is the consideration for that of the other (Penaco vs.
Ruaya, 110 SCRA 46 [1981]; Vda. de Quirino vs, Pelarca 29 SCRA 1 [1969]); and when one party
has performed or is ready and willing to perform his part of the contract, the other party who
has not performed or is not ready and willing to perform incurs in delay (Art. 1169 of the Civil
Code). The promise of Sulpicio M. Tolentino to pay was the consideration for the obligation of
Island Savings Bank to furnish the P80,000.00 loan. When Sulpicio M. Tolentino executed a real
estate mortgage on April 28, 1965, he signified his willingness to pay the P80,000.00 loan. From
such date, the obligation of Island Savings Bank to furnish the P80,000.00 loan accrued. Thus,
the Bank's delay in furnishing the entire loan started on April 28, 1965, and lasted for a period
of 3 years or when the Monetary Board of the Central Bank issued Resolution No. 967 on June
14, 1968, which prohibited Island Savings Bank from doing further business. Such prohibition
made it legally impossible for Island Savings Bank to furnish the P63,000.00 balance of the
P80,000.00 loan. The power of the Monetary Board to take over insolvent banks for the
protection of the public is recognized by Section 29 of R.A. No. 265, which took effect on June
15, 1948, the validity of which is not in question.
The Board Resolution No. 1049 issued on August 13,1965 cannot interrupt the default of Island
Savings Bank in complying with its obligation of releasing the P63,000.00 balance because said
resolution merely prohibited the Bank from making new loans and investments, and nowhere
did it prohibit island Savings Bank from releasing the balance of loan agreements previously
contracted. Besides, the mere pecuniary inability to fulfill an engagement does not discharge
the obligation of the contract, nor does it constitute any defense to a decree of specific
performance (Gutierrez Repide vs. Afzelius and Afzelius, 39 Phil. 190 [1918]). And, the mere
fact of insolvency of a debtor is never an excuse for the non-fulfillment of an obligation but
'instead it is taken as a breach of the contract by him (vol. 17A, 1974 ed., CJS p. 650)
The fact that Sulpicio M. Tolentino demanded and accepted the refund of the pre-deducted
interest amounting to P4,800.00 for the supposed P80,000.00 loan covering a 6-month period
cannot be taken as a waiver of his right to collect the P63,000.00 balance. The act of Island
Savings Bank, in asking the advance interest for 6 months on the supposed P80,000.00 loan,
was improper considering that only P17,000.00 out of the P80,000.00 loan was released. A
person cannot be legally charged interest for a non-existing debt. Thus, the receipt by Sulpicio
M. 'Tolentino of the pre-deducted interest was an exercise of his right to it, which right exist
independently of his right to demand the completion of the P80,000.00 loan. The exercise of
one right does not affect, much less neutralize, the exercise of the other.
The alleged discovery by Island Savings Bank of the over-valuation of the loan collateral cannot
exempt it from complying with its reciprocal obligation to furnish the entire P80,000.00 loan.
'This Court previously ruled that bank officials and employees are expected to exercise caution
and prudence in the discharge of their functions (Rural Bank of Caloocan, Inc. vs. C.A., 104
SCRA 151 [1981]). It is the obligation of the bank's officials and employees that before they
approve the loan application of their customers, they must investigate the existence and
evaluation of the properties being offered as a loan security. The recent rush of events where
collaterals for bank loans turn out to be non-existent or grossly over-valued underscore the
importance of this responsibility. The mere reliance by bank officials and employees on their
customer's representation regarding the loan collateral being offered as loan security is a
patent non-performance of this responsibility. If ever bank officials and employees totally reIy
on the representation of their customers as to the valuation of the loan collateral, the bank
shall bear the risk in case the collateral turn out to be over-valued. The representation made by
the customer is immaterial to the bank's responsibility to conduct its own investigation.
Furthermore, the lower court, on objections of' Sulpicio M. Tolentino, had enjoined petitioners
from presenting proof on the alleged over-valuation because of their failure to raise the same
in their pleadings (pp. 198-199, t.s.n. Sept. 15. 1971). The lower court's action is sanctioned by
the Rules of Court, Section 2, Rule 9, which states that "defenses and objections not pleaded
either in a motion to dismiss or in the answer are deemed waived." Petitioners, thus, cannot
raise the same issue before the Supreme Court.
Since Island Savings Bank was in default in fulfilling its reciprocal obligation under their loan
agreement, Sulpicio M. Tolentino, under Article 1191 of the Civil Code, may choose between
specific performance or rescission with damages in either case. But since Island Savings Bank is
now prohibited from doing further business by Monetary Board Resolution No. 967, WE cannot
grant specific performance in favor of Sulpicio M, Tolentino.
Rescission is the only alternative remedy left. WE rule, however, that rescission is only for the
P63,000.00 balance of the P80,000.00 loan, because the bank is in default only insofar as such
amount is concerned, as there is no doubt that the bank failed to give the P63,000.00. As far as
the partial release of P17,000.00, which Sulpicio M. Tolentino accepted and executed a
promissory note to cover it, the bank was deemed to have complied with its reciprocal
obligation to furnish a P17,000.00 loan. The promissory note gave rise to Sulpicio M.
Tolentino's reciprocal obligation to pay the P17,000.00 loan when it falls due. His failure to pay
the overdue amortizations under the promissory note made him a party in default, hence not
entitled to rescission (Article 1191 of the Civil Code). If there is a right to rescind the
promissory note, it shall belong to the aggrieved party, that is, Island Savings Bank. If Tolentino
had not signed a promissory note setting the date for payment of P17,000.00 within 3 years, he
would be entitled to ask for rescission of the entire loan because he cannot possibly be in
default as there was no date for him to perform his reciprocal obligation to pay.
Since both parties were in default in the performance of their respective reciprocal obligations,
that is, Island Savings Bank failed to comply with its obligation to furnish the entire loan and
Sulpicio M. Tolentino failed to comply with his obligation to pay his P17,000.00 debt within 3
years as stipulated, they are both liable for damages.
Article 1192 of the Civil Code provides that in case both parties have committed a breach of
their reciprocal obligations, the liability of the first infractor shall be equitably tempered by the
courts. WE rule that the liability of Island Savings Bank for damages in not furnishing the entire
loan is offset by the liability of Sulpicio M. Tolentino for damages, in the form of penalties and
surcharges, for not paying his overdue P17,000.00 debt. The liability of Sulpicio M. Tolentino
for interest on his PI 7,000.00 debt shall not be included in offsetting the liabilities of both
parties. Since Sulpicio M. Tolentino derived some benefit for his use of the P17,000.00, it is just
that he should account for the interest thereon.
WE hold, however, that the real estate mortgage of Sulpicio M. Tolentino cannot be entirely
foreclosed to satisfy his P 17,000.00 debt.
The consideration of the accessory contract of real estate mortgage is the same as that of the
principal contract (Banco de Oro vs. Bayuga, 93 SCRA 443 [1979]). For the debtor, the
consideration of his obligation to pay is the existence of a debt. Thus, in the accessory contract
of real estate mortgage, the consideration of the debtor in furnishing the mortgage is the
existence of a valid, voidable, or unenforceable debt (Art. 2086, in relation to Art, 2052, of the
Civil Code).
The fact that when Sulpicio M. 'Tolentino executed his real estate mortgage, no consideration
was then in existence, as there was no debt yet because Island Savings Bank had not made any
release on the loan, does not make the real estate mortgage void for lack of consideration. It is
not necessary that any consideration should pass at the time of the execution of the contract
of real mortgage (Bonnevie vs. C.A., 125 SCRA 122 [1983]). lt may either be a prior or
subsequent matter. But when the consideration is subsequent to the mortgage, the mortgage
can take effect only when the debt secured by it is created as a binding contract to pay (Parks
vs, Sherman, Vol. 176 N.W. p. 583, cited in the 8th ed., Jones on Mortgage, Vol. 2, pp. 5-6). And,
when there is partial failure of consideration, the mortgage becomes unenforceable to the
extent of such failure (Dow. et al. vs. Poore, Vol. 172 N.E. p. 82, cited in Vol. 59, 1974 ed. CJS, p.
138). Where the indebtedness actually owing to the holder of the mortgage is less than the
sum named in the mortgage, the mortgage cannot be enforced for more than the actual sum
due (Metropolitan Life Ins. Co. vs. Peterson, Vol. 19, F(2d) p. 88, cited in 5th ed., Wiltsie on
Mortgage, Vol. 1, P. 180).
Since Island Savings Bank failed to furnish the P63,000.00 balance of the P8O,000.00 loan, the
real estate mortgage of Sulpicio M. Tolentino became unenforceable to such extent.
P63,000.00 is 78.75% of P80,000.00, hence the real estate mortgage covering 100 hectares is
unenforceable to the extent of 78.75 hectares. The mortgage covering the remainder of 21.25
hectares subsists as a security for the P17,000.00 debt. 21.25 hectares is more than sufficient
to secure a P17,000.00 debt.
The rule of indivisibility of a real estate mortgage provided for by Article 2089 of the Civil Code
is inapplicable to the facts of this case.
Article 2089 provides:
A pledge or mortgage is indivisible even though the debt may be divided among the successors
in interest of the debtor or creditor.
Therefore, the debtor's heirs who has paid a part of the debt can not ask for the proportionate
extinguishment of the pledge or mortgage as long as the debt is not completely satisfied.
Neither can the creditor's heir who have received his share of the debt return the pledge or
cancel the mortgage, to the prejudice of other heirs who have not been paid.
The rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted presupposes
several heirs of the debtor or creditor which does not obtain in this case. Hence, the rule of
indivisibility of a mortgage cannot apply
WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED FEBRUARY 11, 1977 IS HEREBY
MODIFIED, AND
1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN FAVOR OF HEREIN PETITIONERS
THE SUM OF P17.000.00, PLUS P41,210.00 REPRESENTING 12% INTEREST PER ANNUM
COVERING THE PERIOD FROM MAY 22, 1965 TO AUGUST 22, 1985, AND 12% INTEREST ON THE
TOTAL AMOUNT COUNTED FROM AUGUST 22, 1985 UNTIL PAID;
2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL ESTATE MORTGAGE COVERING
21.25 HECTARES SHALL BE FORECLOSED TO SATISFY HIS TOTAL INDEBTEDNESS; AND

3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS HEREBY DECLARED UNEN
FORCEABLE AND IS HEREBY ORDERED RELEASED IN FAVOR OF SULPICIO M. TOLENTINO.

NO COSTS. SO ORDERED.