Banking Cases (For Finals)

I. AMLA (RA 9160)

G.R. No. 176944

March 6, 2013

RET. LT. GEN. JACINTO C. LIGOT, ERLINDA Y. LIGOT,

PAULO Y. LIGOT, RIZA Y. LIGOT, and MIGUEL Y.
LIGOT, Petitioners,
vs.
REPUBLIC OF THE PHILIPPINES, represented by the
ANTI-MONEY LAUNDERING COUNCIL, Respondent.
DECISION
BRION, J.:
In this petition for certiorari,1 retired Lieutenant General (Lt.
Gen.) Jacinto C. Ligot, Erlinda Y. Ligot (Mrs. Ligot), Paulo Y.
Ligot, Riza Y. Ligot, and Miguel Y. Ligot (petitioners) claim that
the Court of Appeals (CA) acted with grave abuse of discretion
amounting to lack or excess of jurisdiction when it issued its
January 12, 2007 resolution2 in CA G.R. SP No. 90238. This
assailed resolution affirmed in toto the CAs earlier January 4,
2006 resolution3 extending the freeze order issued against the
Ligots properties for an indefinite period of time.
BACKGROUND FACTS
On June 27, 2005, the Republic of the Philippines (Republic),
represented by the Anti-Money Laundering Council (AMLC),
filed an Urgent Ex-Parte Application for the issuance of a
freeze order with the CA against certain monetary instruments
and properties of the petitioners, pursuant to Section 10 4 of
Republic Act (RA) No. 9160, as amended (otherwise known as

the Anti-Money Laundering Act of 2001). This application was

based on the February 1, 2005 letter of the Office of the
Ombudsman to the AMLC, recommending that the latter
conduct an investigation on Lt. Gen. Ligot and his family for
possible violation of RA No. 9160.5
In support of this recommendation, the Ombudsman attached
the Complaint6 it filed against the Ligots for perjury under
Article 183 of the Revised Penal Code, and for violations of
Section 87 of RA No. 67138 and RA No. 3019 (Anti-Graft and
Corrupt Practices Act).

amounting to at least Fifty Four Million One Thousand Two

Hundred Seventeen Pesos (P54,001,217.00). These
undeclared assets consisted of the following:
Undeclared Assets

Amount

Jacinto Ligots undeclared assets

P
41,185,583.5313

Jacinto Ligots childrens assets

1,744,035.6014

Tuition fees and travel expenses

P 2,308,047.8715

The Ombudsmans Complaint

Edgardo Yambaos assets relative to the P 8,763,550.0016

real properties

a. Lt. Gen. Ligot and immediate family

Total

The Ombudsmans complaint alleges that Lt. Gen. Ligot

served in the Armed Forces of the Philippines (AFP) for 33
years and 2 months, from April 1, 1966 as a cadet until his
retirement on August 17, 2004.9 He and Mrs. Ligot have four
children, namely: Paulo Y. Ligot, Riza Y. Ligot,
George Y. Ligot and Miguel Y. Ligot, who have all reached the
age of majority at the time of the filing of the complaint.10
Lt. Gen. Ligot declared in his Statement of Assets, Liabilities,
and Net Worth (SALN) that as of December 31, 2003, he had
assets in the total amount of Three Million Eight Hundred
Forty-Eight Thousand and Three Pesos (P3,848,003.00).11 In
contrast, his declared assets in his 1982 SALN amounted to
only One Hundred Five Thousand Pesos (P105,000.00).12
Aside from these declared assets, the Ombudsmans
investigation revealed that Lt. Gen. Ligot and his family had
other properties and bank accounts, not declared in his SALN,

P 54,001,217.00

Bearing in mind that Lt. Gen. Ligots main source of income

was his salary as an officer of the AFP, 17 and given his wife and
childrens lack of any other substantial sources of income, 18 the
Ombudsman declared the assets registered in Lt. Gen. Ligots
name, as well as those in his wifes and childrens names, to
be illegally obtained and unexplained wealth, pursuant to the
provisions of RA No. 1379 (An Act Declaring Forfeiture in
Favor of the State Any Property Found to Have Been
Unlawfully Acquired by Any Public Officer or Employee and
Providing for the Proceedings Therefor).
b. Edgardo Tecson Yambao
The Ombudsmans investigation also looked into Mrs. Ligots
younger brother, Edgardo Tecson Yambao. The records of the
Social Security System (SSS) revealed that Yambao had been
employed in the private sector from 1977 to 1994. Based on
his contributions to the SSS, Yambao did not have a

substantial salary during his employment. While Yambao had

an investment with Mabelline Foods, Inc., the Ombudsman
noted that this company only had a net income of P5,062.96 in
2002 and P693.67 in 2003.19 Moreover, the certification from
the Bureau of Internal Revenue stated that Yambao had no
record of any annual Individual Income
Tax Return filed for the calendar year 1999 up to the date of
the investigation.
Despite Yambaos lack of substantial income, the records show
that he has real properties and vehicles registered in his name,
amounting to Eight Million Seven Hundred Sixty Three
Thousand Five Hundred Fifty Pesos (P8,763,550.00), which he
acquired from 1993 onwards. The Office of the Ombudsman
further observed that in the documents it examined, Yambao
declared three of the Ligots addresses as his own.
From these circumstances, the Ombudsman concluded that
Yambao acted as a dummy and/or nominee of the Ligot
spouses, and all the properties registered in Yambaos name
actually belong to the Ligot family.
Urgent Ex-Parte Freeze Order Application
As a result of the Ombudsmans complaint, the Compliance
and Investigation staff (CIS) of the AMLC conducted a financial
investigation, which revealed the existence of the Ligots
various bank accounts with several financial institutions.20 On
April 5, 2005, the Ombudsman for the Military and Other Law
Enforcement Officers issued a resolution holding that probable
OMB-P-C-05cause exists that Lt. Gen. Ligot violated Section 8,
in relation to0523
Section 11, of RA No. 6713, as well as Article
18321 of the0003
OMB-P-C-05Revised Penal Code.
OMB-P-C-05- 0184

On May 25, 2005, the AMLC issued Resolution No. 52, Series
of 2005, directing the Executive Director of the AMLC
Secretariat to file an application for a freeze order against the
properties of Lt. Gen. Ligot and the members of his family with
the CA.22 Subsequently, on June 27, 2005, the OMB-P-C-05-0352
Republic filed
an Urgent Ex-Parte Application with the appellate court for the
issuance of a Freeze Order against the properties of the Ligots
and Yambao.
The appellate court granted the application in its July 5, 2005
resolution, ruling that probable cause existed that an unlawful
activity and/or money laundering offense had been committed
by Lt. Gen. Ligot and his family, including Yambao, and that the
properties sought to be frozen are related to the unlawful
activity or money laundering offense. Accordingly, the CA
issued a freeze order against the Ligots and Yambaos various
bank accounts, web accounts and vehicles, valid for a period
of 20 days from the date of issuance.
On July 26, 2005, the Republic filed an Urgent Motion for
Extension of Effectivity of Freeze Order, arguing that if the
bank accounts, web accounts and vehicles were not
continuously frozen, they could be placed beyond the reach of
law enforcement authorities and the governments efforts to
recover the proceeds of the Ligots unlawful activities would be
frustrated. In support of its motion, it informed the CA that the
Ombudsman was presently investigating the following cases
involving the Ligots:
Complainant(s)

Nature

Wilfredo Garrido

Plunder

AGIO Gina Villamor, et al.

Field Investigation Office

Code in relation to Section 11 of RA No.

6713; Forfeiture Proceedings in Relation to
RA No. 1379
David Odilao

Malicious Mischief; Violation of Section 20,

RA No. 7856

Finding merit in the Republics arguments, the CA granted the

motion in its September 20, 2005 resolution, extending the
freeze order until after all the appropriate proceedings and/or
investigations have been terminated.
On September 28, 2005, the Ligots filed a motion to lift the
extended freeze order, principally arguing that there was no
evidence to support the extension of the freeze order. They
further argued that the extension not only deprived them of
their property without due process; it also punished them
before their guilt could be proven. The appellate court
subsequently denied this motion in its January 4, 2006
resolution.
Meanwhile, on November 15, 2005, the "Rule of Procedure in
Cases of Civil Forfeiture, Asset Preservation, and Freezing of
Monetary Instrument, Property, or Proceeds Representing,
Involving, or Relating to an Unlawful Activity or Money
Laundering Offense under Republic Act No. 9160, as
Amended"23 (Rule in Civil Forfeiture Cases) took effect. Under
this rule, a freeze order could be extended for a maximum
period of six months.

On January 31, 2006, the Ligots filed a motion for

reconsideration of the CAs January 4, 2006 resolution,
insisting that the freeze order should be lifted considering: (a)
Perjury
no predicate crime has been proven to support the freeze
Violation of RA No. 3019, orders
Sectionissuance;
3(b); (b) the freeze order expired six months after
Perjury under Article 183, Revised
Penal
it was issued on July 5, 2005; and (c) the freeze order is

provisional in character and not intended to supplant a case for

money laundering. When the CA denied this motion in its
resolution dated January 12, 2007, the Ligots filed the present
petition.
THE PETITIONERS ARGUMENTS

second motion for reconsideration in response to the CAs

January 4, 2006 resolution, instead of filing a petition for
review on certiorari via Rule 45 with this Court. Under these
circumstances, the assailed January 4, 2006 resolution
granting the freeze order had already attained finality when the
Ligots filed the present petition before this Court.

Lt. Gen. Ligot argues that the appellate court committed grave
abuse of discretion amounting to lack or excess of jurisdiction
when it extended the freeze order issued against him and his
family even though no predicate crime had been duly proven
or established to support the allegation of money laundering.
He also maintains that the freeze order issued against them
ceased to be effective in view of the 6-month extension limit of
freeze orders provided under the Rule in Civil Forfeiture
Cases. The CA, in extending the freeze order, not only unduly
deprived him and his family of their property, in violation of due
process, but also penalized them before they had been
convicted of the crimes they stand accused of.

THE COURTS RULING

THE REPUBLICS ARGUMENTS

Section 57. Appeal. - Any party aggrieved by the decision or

ruling of the court may appeal to the Supreme Court by petition
for review on certiorari under Rule 45 of the Rules of Court.
The appeal shall not stay the enforcement of the subject
decision or final order unless the Supreme Court directs
otherwise. [italics supplied]

In opposition, the Republic claims that the CA can issue a

freeze order upon a determination that probable cause exists,
showing that the monetary instruments or properties subject of
the freeze order are related to the unlawful activity enumerated
in RA No. 9160. Contrary to the petitioners claims, it is not
necessary that a formal criminal charge must have been
previously filed against them before the freeze order can be
issued.
The Republic further claims that the CAs September 20, 2005
resolution, granting the Republics motion to extend the
effectivity of the freeze order, had already become final and
executory, and could no longer be challenged. The Republic
notes that the Ligots erred when they filed what is effectively a

We find merit in the petition.

I. Procedural aspect
a. Certiorari not proper remedy to assail freeze order;
exception
Section 57 of the Rule in Civil Forfeiture Cases explicitly
provides the remedy available in cases involving freeze orders
issued by the CA:

From this provision, it is apparent that the petitioners should

have filed a petition for review on certiorari, and not a petition
for certiorari, to assail the CA resolution which extended the
effectivity period of the freeze order over their properties.
Even assuming that a petition for certiorari is available to the
petitioners, a review of their petition shows that the issues they
raise (i.e., existence of probable cause to support the freeze
order; the applicability of the 6-month limit to the extension of

freeze orders embodied in the Rule of Procedure in Cases of

Civil Forfeiture) pertain to errors of judgment allegedly
committed by the CA, which fall outside the Courts limited
jurisdiction when resolving certiorari petitions. As held in
People v. Court of Appeals:24
In a petition for certiorari, the jurisdiction of the court is narrow
in scope. It is limited to resolving only errors of jurisdiction. It is
not to stray at will and resolve questions or issues beyond its
competence such as errors of judgment. Errors of judgment of
the trial court are to be resolved by the appellate court in the
appeal by and of error or via a petition for review on certiorari
in this Court under Rule 45 of the Rules of Court. Certiorari will
issue only to correct errors of jurisdiction. It is not a remedy to
correct errors of judgment. An error of judgment is one in which
the court may commit in the exercise of its jurisdiction, and
which error is reversible only by an appeal. Error of jurisdiction
is one where the act complained of was issued by the court
without or in excess of jurisdiction and which error is
correctible only by the extraordinary writ of certiorari. Certiorari
will not be issued to cure errors by the trial court in its
appreciation of the evidence of the parties, and its conclusions
anchored on the said findings and its conclusions of law. As
long as the court acts within its jurisdiction, any alleged errors
committed in the exercise of its discretion will amount to
nothing more than mere errors of judgment, correctible by an
appeal or a petition for review under Rule 45 of the Rules of
Court.25 (citations omitted; italics supplied)
Clearly, the Ligots should have filed a petition for review on
certiorari, and not what is effectively a second motion for
reconsideration (nor an original action of certiorari after this
second motion was denied), within fifteen days from receipt of
the CAs January 4, 2006 resolution. To recall, this resolution
denied the petitioners motion to lift the extended freeze order

which is effectively a motion for reconsideration of the CA

ruling extending the freeze order indefinitely.26
However, considering the issue of due process squarely
brought before us in the face of an apparent conflict between
Section 10 of RA No. 9160, as amended, and Section 53(b) of
the Rule in Civil Forfeiture Cases, this Court finds it imperative
to relax the application of the rules of procedure and resolve
this case on the merits in the interest of justice.27
b. Applicability of 6-month extension period under the Rule in
Civil Forfeiture Cases
Without challenging the validity of the fixed 6-month extension
period, the Republic nonetheless asserts that the Rule in Civil
Forfeiture Cases does not apply to the present case because
the CA had already resolved the issues regarding the
extension of the freeze order before the
Rule in Civil Forfeiture Cases came into effect.
This reasoning fails to convince us.
Notably, the Rule in Civil Forfeiture Cases came into effect on
December 15, 2005. Section 59 provides that it shall "apply to
all pending civil forfeiture cases or petitions for freeze order" at
the time of its effectivity.
A review of the record reveals that after the CA issued its
September 20, 2005 resolution extending the freeze order, the
Ligots filed a motion to lift the extended freeze order on
September 28, 2005. Significantly, the CA only acted upon this
motion on January 4, 2006, when it issued a resolution
denying it.

While denominated as a Motion to Lift Extended Freeze Order,

this motion was actually a motion for reconsideration, as it
sought the reversal of the assailed CA resolution. Since the
Ligots motion for reconsideration was still pending resolution
at the time the Rule in Civil Forfeiture Cases came into effect
on December 15, 2005, the Rule unquestionably applies to the
present case.
c. Subsequent events
During the pendency of this case, the Republic manifested that
on September 26, 2011, it filed a Petition for Civil Forfeiture
with the Regional Trial Court (RTC) of Manila. On September
28, 2011, the RTC, Branch 22, Manila, issued a Provisional
Asset Preservation Order and on October 5, 2011, after due
hearing, it issued an Asset Preservation Order.
On the other hand, the petitioners manifested that as of
October 29, 2012, the only case filed in connection with the
frozen bank accounts is Civil Case No. 0197, for forfeiture of
unlawfully acquired properties under RA No. 1379 (entitled
"Republic of the Philippines v. Lt. Gen. Jacinto Ligot, et. al."),
pending before the Sandiganbayan.
These subsequent developments and their dates are
significant in our consideration of the present case, particularly
the procedural aspect. Under Section 56 of the Rule in Civil
Forfeiture Cases which provides that after the post-issuance
hearing on whether to modify, lift or extend the freeze order,
the CA shall remand the case and transmit the records to the
RTC for consolidation with the pending civil forfeiture
proceeding. This provision gives the impression that the filing
of the appropriate cases in courts in 2011 and 2012 rendered
this case moot and academic.

A case is considered moot and academic when it "ceases to

present a justiciable controversy by virtue of supervening
events, so that a declaration thereon would be of no practical
use or value. Generally, courts decline jurisdiction over such
case or dismiss it on ground of mootness."28 However, the
moot and academic principle is not an iron-clad rule and is
subject to four settled exceptions,29 two of which are present in
this case, namely: when the constitutional issue raised
requires the formulation of controlling principles to guide the
bench, the bar, and the public, and when the case is capable
of repetition, yet evading review.
The apparent conflict presented by the limiting provision of the
Rule in Civil Forfeiture Cases, on one hand, and the very
broad judicial discretion under RA No. 9160, as amended, on
the other hand, and the uncertainty it casts on an individuals
guaranteed right to due process indubitably call for the Courts
exercise of its discretion to decide the case, otherwise moot
and academic, under those two exceptions, for the future
guidance of those affected and involved in the implementation
of RA No. 9160, as amended.
Additionally, we would be giving premium to the governments
failure to file an appropriate case until only after six years
(despite the clear provision of the Rule in Civil Forfeiture
Cases) were we to dismiss the petition because of the filing of
the forfeiture case during the pendency of the case before the
Court. The sheer length of time and the constitutional violation
involved, as will be discussed below, strongly dissuade us from
dismissing the petition on the basis of the "moot and
academic" principle. The Court should not allow the seeds of
future violations to sprout by hiding under this principle even
when directly confronted with the glaring issue of the
respondents violation of the petitioners due process right30 an issue that the respondent itself chooses to ignore.

We shall discuss the substantive relevance of the subsequent

developments and their dates at length below.
II. Substantive aspect
a. Probable cause exists to support the issuance of a freeze
order
The legal basis for the issuance of a freeze order is Section 10
of RA No. 9160, as amended by RA No. 9194, which states:
Section 10. Freezing of Monetary Instrument or Property.
The Court of Appeals, upon application ex parte by the AMLC
and after determination that probable cause exists that any
monetary instrument or property is in any way related to an
unlawful activity as defined in Section
3(i) hereof, may issue a freeze order which shall be effective
immediately. The freeze order shall be for a period of twenty
(20) days unless extended by the court. [italics supplied]
The Ligots claim that the CA erred in extending the effectivity
period of the freeze order against them, given that they have
not yet been convicted of committing any of the offenses
enumerated under RA No. 9160 that would support the
AMLCs accusation of money-laundering activity.
We do not see any merit in this claim. The Ligots argument is
founded on a flawed understanding of probable cause in the
context of a civil forfeiture proceeding31 or freeze order
application.32
Based on Section 10 quoted above, there are only two
requisites for the issuance of a freeze order: (1) the application
ex parte by the AMLC and (2) the determination of probable
cause by the CA.33 The probable cause required for the

issuance of a freeze order differs from the probable cause

required for the institution of a criminal action, and the latter
was not an issue before the CA nor is it an issue before us in
this case.
As defined in the law, the probable cause required for the
issuance of a freeze order refers to "such facts and
circumstances which would lead a reasonably discreet,
prudent or cautious man to believe that an unlawful activity
and/or a money laundering offense is about to be, is being or
has been committed and that the account or any monetary
instrument or property subject thereof sought to be frozen is in
any way related to said unlawful activity and/or money
laundering offense."34
In other words, in resolving the issue of whether probable
cause exists, the CAs statutorily-guided determinations focus
is not on the probable commission of an unlawful activity (or
money laundering) that the Office of the Ombudsman has
already determined to exist, but on whether the bank accounts,
assets, or other monetary instruments sought to be frozen are
in any way related to any of the illegal activities enumerated
under RA No. 9160, as amended. 35 Otherwise stated, probable
cause refers to the sufficiency of the relation between an
unlawful activity and the property or monetary instrument
which is the focal point of Section 10 of RA No. 9160, as
amended. To differentiate this from any criminal case that may
thereafter be instituted against the same respondent, the Rule
in Civil Forfeiture Cases expressly provides
SEC. 28. Precedence of proceedings. - Any criminal case
relating to an unlawful activity shall be given precedence over
the prosecution of any offense or violation under Republic Act
No. 9160, as amended, without prejudice to the filing of a
separate petition for civil forfeiture or the issuance of an asset
preservation order or a freeze order. Such civil action shall

proceed independently of the criminal prosecution. [italics

supplied; emphases ours]
Section 10 of RA No. 9160 (allowing the extension of the
freeze order) and Section 28 (allowing a separate petition for
the issuance of a freeze order to proceed independently) of the
Rule in Civil Forfeiture Cases are only consistent with the very
purpose of the freeze order, which specifically is to give the
government the necessary time to prepare its case and to file
the appropriate charges without having to worry about the
possible dissipation of the assets that are in any way related to
the suspected illegal activity. Thus, contrary to the Ligots
claim, a freeze order is not dependent on a separate criminal
charge, much less does it depend on a conviction.
That a freeze order can be issued upon the AMLCs ex parte
application further emphasizes the laws consideration of how
critical time is in these proceedings. As we previously noted in
Republic v. Eugenio, Jr.,36 "to make such freeze order
anteceded by a judicial proceeding with notice to the account
holder would allow for or lead to the dissipation of such funds
even before the order could be issued."
It should be noted that the existence of an unlawful activity that
would justify the issuance and the extension of the freeze
order has likewise been established in this case.
From the ex parte application and the Ombudsmans
complaint, we glean that Lt. Gen. Ligot himself admitted that
his income came from his salary as an officer of the AFP. Yet,
the Ombudsmans investigation revealed that the bank
accounts, investments and properties in the name of Lt. Gen.
Ligot and his family amount to more than Fifty-Four Million
Pesos (P54,000,000.00). Since these assets are grossly
disproportionate to Lt. Gen. Ligots income, as well as the lack
of any evidence that the Ligots have other sources of income,

the CA properly found that probable cause exists that these

funds have been illegally acquired. On the other hand, the
AMLCs verified allegations in its ex parte application, based
on the complaint filed by the Ombudsman against Ligot and his
family for violations of the Anti-Graft and Corrupt Practices Act,
clearly sustain the CAs finding that probable cause exists that
the monetary instruments subject of the freeze order are
related to, or are the product of, an unlawful activity.
b. A freeze order, however, cannot be issued for an indefinite
period
Assuming that the freeze order is substantively in legal order,
the Ligots now assert that its effectiveness ceased after
January 25, 2006 (or six months after July 25, 2005 when the
original freeze order first expired), pursuant to Section 53(b) of
the Rule in Civil Forfeiture Cases (A.M. No. 05-11-04-SC). This
section states:
Section 53. Freeze order.
xxxx
(b) Extension. On motion of the petitioner filed before the
expiration of twenty days from issuance of a freeze order, the
court may for good cause extend its effectivity for a period not
exceeding six months. [italics supplied; emphasis ours]
We find merit in this claim.
A freeze order is an extraordinary and interim relief37 issued by
the CA to prevent the dissipation, removal, or disposal of
properties that are suspected to be the proceeds of, or related
to, unlawful activities as defined in Section 3(i) of RA No. 9160,
as amended.38 The primary objective of a freeze order is to
temporarily preserve monetary instruments or property that are

in any way related to an unlawful activity or money laundering,

by preventing the owner from utilizing them during the duration
of the freeze order.39 The relief is pre-emptive in character,
meant to prevent the owner from disposing his property and
thwarting the States effort in building its case and eventually
filing civil forfeiture proceedings and/or prosecuting the owner.
Our examination of the Anti-Money Laundering Act of 2001, as
amended, from the point of view of the freeze order that it
authorizes, shows that the law is silent on the maximum period
of time that the freeze order can be extended by the CA. The
final sentence of Section 10 of the Anti-Money Laundering Act
of 2001 provides, "the freeze order shall be for a period of
twenty (20) days unless extended by the court." In contrast,
Section 55 of the Rule in Civil Forfeiture Cases qualifies the
grant of extension "for a period not exceeding six months" "for
good cause" shown.
We observe on this point that nothing in the law grants the
owner of the "frozen" property any substantive right to demand
that the freeze order be lifted, except by implication, i.e., if he
can show that no probable cause exists or if the 20-day period
has already lapsed without any extension being requested
from and granted by the CA. Notably, the Senate deliberations
on RA No. 9160 even suggest the intent on the part of our
legislators to make the freeze order effective until the
termination of the case, when necessary.40
The silence of the law, however, does not in any way affect the
Courts own power under the Constitution to "promulgate rules
concerning the protection and enforcement of constitutional
rights xxx and procedure in all courts."41 Pursuant to this
power, the Court issued A.M. No. 05-11-04-SC, limiting the
effectivity of an extended freeze order to six months to
otherwise leave the grant of the extension to the sole
discretion of the CA, which may extend a freeze order

indefinitely or to an unreasonable amount of time carries

serious implications on an individuals substantive right to due
process.42 This right demands that no person be denied his
right to property or be subjected to any governmental action
that amounts to a denial.43 The right to due process, under
these terms, requires a limitation or at least an inquiry on
whether sufficient justification for the governmental action.44
In this case, the law has left to the CA the authority to resolve
the issue of extending the freeze order it issued. Without
doubt, the CA followed the law to the letter, but it did so by
avoiding the fundamental laws command under its Section 1,
Article III. This command, the Court under its constitutional
rule-making power sought to implement through Section
53(b) of the Rule in Civil Forfeiture Cases which the CA
erroneously assumed does not apply.
The Ligots case perfectly illustrates the inequity that would
result from giving the CA the power to extend freeze orders
without limitations. As narrated above, the CA, via its
September 20, 2005 resolution, extended the freeze order over
the Ligots various bank accounts and personal properties
"until after all the appropriate proceedings and/or investigations
being conducted are terminated."45 By its very terms, the CA
resolution effectively bars the Ligots from using any of the
property covered by the freeze order until after an eventual
civil forfeiture proceeding is concluded in their favor and after
they shall have been adjudged not guilty of the crimes they are
suspected of committing. These periods of extension are way
beyond the intent and purposes of a freeze order which is
intended solely as an interim relief; the civil and criminal trial
courts can very well handle the disposition of properties related
to a forfeiture case or to a crime charged and need not rely on
the interim relief that the appellate court issued as a guarantee
against loss of property while the government is preparing its
full case. The term of the CAs extension, too, borders on

inflicting a punishment to the Ligots, in violation of their

constitutionally protected right to be presumed innocent,
because the unreasonable denial of their property comes
before final conviction.
In more concrete terms, the freeze order over the Ligots
properties has been in effect since 2005, while the civil
forfeiture case per the Republics manifestation was filed
only in 2011 and the forfeiture case under RA No. 1379 per
the petitioners manifestation was filed only in 2012. This
means that the Ligots have not been able to access the
properties subject of the freeze order for six years or so simply
on the basis of the existence of probable cause to issue a
freeze order, which was intended mainly as an interim
preemptive remedy.
As correctly noted by the petitioners, a freeze order is meant to
have a temporary effect; it was never intended to supplant or
replace the actual forfeiture cases where the provisional
remedy - which means, the remedy is an adjunct of or an
incident to the main action of asking for the issuance of an
asset preservation order from the court where the petition is
filed is precisely available. For emphasis, a freeze order is both
a preservatory and preemptive remedy.
To stress, the evils caused by the laws silence on the freeze
orders period of effectivity46 compelled this Court to issue the
Rule in Civil Forfeiture Cases. Specifically, the Court fixed the
maximum allowable extension on the freeze orders effectivity
at six months. In doing so, the Court sought to balance the
States interest in going after suspected money launderers with
an individuals constitutionally-protected right not to be
deprived of his property without due process of law, as well as
to be presumed innocent until proven guilty.

To our mind, the six-month extension period is ordinarily

sufficient for the government to act against the suspected
money launderer and to file the appropriate forfeiture case
against him, and is a reasonable period as well that recognizes
the property owners right to due process. In this case, the
period of inaction of six years, under the circumstances,
already far exceeded what is reasonable.
We are not unmindful that the State itself is entitled to due
process.1wphi1 As a due process concern, we do not say
that the six-month period is an inflexible rule that would result
in the automatic lifting of the freeze order upon its expiration in
all instances. An inflexible rule may lend itself to abuse - to the
prejudice of the States legitimate interests - where the
property owner would simply file numerous suits, questioning
the freeze order during the six-month extension period, to
prevent the timely filing of a money laundering or civil forfeiture
case within this period. With the limited resources that our
government prosecutors and investigators have at their
disposal, the end-result of an inflexible rule is not difficult to
see.
We observe, too, that the factual complexities and intricacies
of the case and other matters that may be beyond the
governments prosecutory agencies control may contribute to
their inability to file the corresponding civil forfeiture case
before the lapse of six months. Given these considerations, it
is only proper to strike a balance between the individuals right
to due process and the governments interest in curbing
criminality, particularly money laundering and the predicate
crimes underlying it.
Thus, as a rule, the effectivity of a freeze order may be
extended by the CA for a period not exceeding six months.
Before or upon the lapse of this period, ideally, the Republic
should have already filed a case for civil forfeiture against the

property owner with the proper courts and accordingly secure

an asset preservation order or it should have filed the
necessary information.47 Otherwise, the property owner should
already be able to fully enjoy his property without any legal
process affecting it. However, should it become completely
necessary for the Republic to further extend the duration of the
freeze order, it should file the necessary motion before the
expiration of the six-month period and explain the reason or
reasons for its failure to file an appropriate case and justify the
period of extension sought. The freeze order should remain
effective prior to the resolution by the CA, which is hereby
directed to resolve this kind of motion for extension with
reasonable dispatch.
In the present case, we note that the Republic has not offered
any explanation why it took six years (from the time it secured
a freeze order) before a civil forfeiture case was filed in court,
despite the clear tenor of the Rule in Civil Forfeiture Cases
allowing the extension of a freeze order for only a period of six
months. All the Republic could proffer is its temporal argument
on the inapplicability of the Rule in Civil Forfeiture Cases; in
effect, it glossed over the squarely-raised issue of due
process. Under these circumstances, we cannot but conclude
that the continued extension of the freeze order beyond the
six-month period violated the Ligots right to due process; thus,
the CA decision should be reversed.
We clarify that our conclusion applies only to the CA ruling and
does not affect the proceedings and whatever order or
resolution the RTC may have issued in the presently pending
civil cases for forfeiture. We make this clarification to ensure
that we can now fully conclude and terminate this CA aspect of
the case.
As our last point, we commend the fervor of the CA in assisting
the States efforts to prosecute corrupt public officials. We

remind the appellate court though that the governments anticorruption drive cannot be done at the expense of cherished
fundamental rights enshrined in our Constitution. So long as
we continue to be guided by the Constitution and the rule of
law, the Court cannot allow the justification of governmental
action on the basis of the noblest objectives alone. As so oftrepeated, the end does not justify the means. Of primordial
importance is that the means employed must be in keeping
with the Constitution. Mere expediency will certainly not
excuse constitutional shortcuts.48
WHEREFORE, premises considered, we GRANT the petition
and LIFT the freeze order issued by the Court of Appeals in CA
G.R. SP No. 90238. This lifting is without prejudice to, and
shall not affect, the preservation orders that the lower courts
have ordered on the same properties in the cases pending
before them. Pursuant to Section 56 of A.M. No. 05-11-04-SC,
the Court of Appeals is hereby ordered to remand the case and
to transmit the records to the Regional Trial Court of Manila,
Branch 22, where the civil forfeiture proceeding is pending, for
consolidation therewith as may be appropriate.
SO ORDERED.
2.
GOVERNMENT
SYSTEM,
Petitioner,

-versus-

SERVICE

INSURANCE

DEL CASTILLO,
the payment
andof the loan from the Banks. We quote the terms of
PEREZ,the Surety Bond in its entirety.[4]
THE HONORABLE 15TH DIVISION OF THE COURT OF
APPEALS and INDUSTRIAL BANK OF KOREA, TONG
YANG MERCHANT BANK, HANAREUM BANKING
CORP., LAND BANK OF THE PHILIPPINES, WESTMONT
BANK and DOMSAT HOLDINGS, INC.,
Respondents.
Promulgated:
June 8, 2011

Republic of the Philippines

GOVERNMENT
SERVICE
INSURANCE SYSTEM
GENERAL INSURANCE FUND
GSIS Headquarters, Financial
Center
Roxas Boulevard, Pasay City
G(16) GIF Bond 027461

x ------------------------------------------------------------x
DECISION

SURETYBOND

PEREZ, J.:

KNOW ALL MEN BY THESE PRESENTS:

The subject of this petition for certiorari is the

Decision[1] of the Court of Appeals in CA-G.R. SP No. 82647
allowing the quashal by the Regional Trial Court (RTC) of
Makati of a subpoena for the production of bank ledger. This
case is incident to Civil Case No. 99-1853, which is the main
case for collection of sum of money with damages filed by
Industrial Bank of Korea, Tong Yang Merchant Bank, First
Merchant Banking Corporation, Land Bank of the Philippines,
and Westmont Bank (now United Overseas Bank), collectively
known
as the Banks against Domsat Holdings, Inc. (Domsat)
G.R. No.
189206
and the Government Service Insurance System (GSIS). Said
case stemmed from a Loan Agreement,[2] whereby the Banks
agreed to lend United States (U.S.) $11 Million to Domsat for
Present:the purpose of financing the lease and/or purchase of a
Gorizon Satellite from the International Organization of Space
Communications (Intersputnik).[3]
CORONA,
Chairperson
VELASCO, JR., The controversy originated from a surety agreement
by which Domsat
obtained a surety bond from GSIS to secure
LEONARDO-DE
CASTRO,

That we, DOMSAT HOLDINGS,

INC., represented by its President as
PRINCIPAL, and the GOVERNMENT
SERVICE INSURANCE SYSTEM, as
Administrator of the GENERAL INSURANCE
FUND, a corporation duly organized and
existing under and by virtue of the laws of
the Philippines, with principal office in the
City of Pasay, Metro Manila, Philippines as
SURETY, are held and firmly bound unto the
OBLIGEES: LAND BANK OF THE
PHILIPPINES, 7thFloor, Land Bank Bldg. IV.
313 Sen. Gil J. Puyat Avenue, Makati City;
WESTMONT BANK, 411 Quintin Paredes
St., Binondo, Manila: TONG YANG
MERCHANT BANK, 185, 2-Ka, Ulchi-ro,
Chungk-ku, Seoul, Korea; INDUSTRIAL
BANK OF KOREA, 50, 2-Ga, Ulchi-ro,
Chung-gu, Seoul, Korea; and FIRST

MERCHANT BANKING CORPORATION,

199-40, 2-Ga, Euliji-ro, Jung-gu, Seoul,
Korea, in the sum, of US $ ELEVEN
MILLION DOLLARS ($11,000,000.00) for the
payment of which sum, well and truly to be
made, we bind ourselves, our heirs,
executors, administrators, successors and
assigns, jointly and severally, firmly by these
presents.
THE CONDITIONS OF
OBLIGATION ARE AS FOLLOWS:

THE

WHEREAS, the above bounden

PRINCIPAL, on the 12th day of December,
1996 entered into a contract agreement with
the aforementioned OBLIGEES to fully and
faithfully
Guarantee the repayment
of the principal and
interest on the loan
granted the PRINCIPAL to
be used for the financing
of the two (2) year lease of
a Russian Satellite from
INTERSPUTNIK,
in
accordance with the terms
and conditions of the credit
package entered into by
the parties.
This bond shall remain
valid and effective until the
loan including interest has

been fully
liquidated,

paid

and

a copy of which contract/agreement is hereto

attached and made part hereof;
WHEREAS, the aforementioned
OBLIGEES require said PRINCIPAL to give
a good and sufficient bond in the above
stated sum to secure the full and faithful
performance on his part of said
contract/agreement.
NOW, THEREFORE, if the PRINCIPAL shall
well and truly perform and fulfill all the
undertakings, covenants, terms, conditions,
and agreements stipulated in said
contract/agreements, then this obligation
shall be null and void; otherwise, it shall
remain in full force and effect.
WITNESS OUR HANDS AND SEALS this
13th day of December 1996 at Pasay City,
Philippines.
DOMSAT HOLDINGS, INC GOVERNMENT
SERVIC
E
INSURA
NCE
Principal SYSTEM
General Insurance Fund
By: By:
CAPT. RODRIGO A. SILVERIO AMALIO A.
MALLARI
President Senior Vice-President

General Insurance Group

When Domsat failed to pay the loan, GSIS refused to
comply with its obligation reasoning that Domsat did not use
the loan proceeds for the payment of rental for the
satellite. GSIS alleged that Domsat, with Westmont Bank as
the conduit, transferred the U.S. $11 Million loan proceeds
from the Industrial Bank of Korea to Citibank New York account
of Westmont Bank and from there to the Binondo Branch of
Westmont Bank.[5] The Banks filed a complaint before the RTC
of Makati against Domsat and GSIS.
In the course of the hearing, GSIS requested for the
issuance of a subpoena duces tecum to the custodian of
records of Westmont Bank to produce the following
documents:
1.
Ledger covering the account of
DOMSAT Holdings, Inc. with Westmont Bank
(now United Overseas Bank), any and all
documents, records, files, books, deeds,
papers, notes and other data and materials
relating to the account or transactions of
DOMSAT Holdings, Inc. with or through the
Westmont Bank (now United Overseas
Bank) for the period January 1997 to
December 2002, in his/her direct or indirect
possession, custody or control (whether
actual or constructive), whether in his/her
capacity as Custodian of Records or
otherwise;
2.
All applications for cashiers/
managers checks and bank transfers funded
by the account of DOMSAT Holdings, Inc.
with or through the Westmont Bank (now

United Overseas Bank) for the period

January 1997 to December 2002, and all
other data and materials covering said
applications, in his/her direct or indirect
possession, custody or control (whether
actual or constructive), whether in his/her
capacity as Custodian of Records or
otherwise;
3.
Ledger covering the account of
Philippine Agila Satellite, Inc. with Westmont
Bank (now United Overseas Bank), any and
all documents, records, files, books, deeds,
papers, notes and other data and materials
relating to the account or transactions of
Philippine Agila Satellite, Inc. with or through
the Westmont bank (now United Overseas
Bank) for the period January 1997 to
December 2002, in his/her direct or indirect
possession, custody or control (whether
actual or constructive), whether in his/her
capacity as Custodian of Records or
otherwise;
4.
All
applications
for
cashiers/managers checks funded by the
account of Philippine Agila Satellite, Inc. with
or through the Westmont Bank (now United
Overseas Bank) for the period January 1997
to December 2002, and all other data and
materials covering said applications, in
his/her direct or indirect possession, custody
or control (whether actual or constructive),
whether in his/her capacity as Custodian of
Records or otherwise.[6]

The RTC issued a subpoena decus tecum on 21

November 2002.[7] A motion to quash was filed by the banks on
three grounds: 1) the subpoena is unreasonable, oppressive
and does not establish the relevance of the documents sought;
2) request for the documents will violate the Law on Secrecy of
Bank Deposits; and 3) GSIS failed to advance the reasonable
cost of production of the documents.[8] Domsat also joined the
banks motion to quash through its Manifestation/Comment.
[9]
On 9 April 2003, the RTC issued an Order denying the
motion to quash for lack of merit. We quote the pertinent
portion of the Order, thus:
After a careful consideration of the
arguments of the parties, the Court did not
find merit in the motion.
The serious objection appears to be
that the subpoena is violative of the Law on
Secrecy of Bank Deposit, as amended. The
law declares bank deposits to be absolutely
confidential except: x x x (6) In cases where
the money deposited or invested is the
subject matter of the litigation.
The case at bench is for the
collection of a sum of money from
defendants that obtained a loan from the
plaintiff. The loan was secured by defendant
GSIS which was the surety. It is the
contention of defendant GSIS that the
proceeds of the loan was deviated to
purposes other than to what the loan was
extended. The quashal of the subpoena
would deny defendant GSIS its right to prove
its defenses.

WHEREFORE, for lack of merit the

motion is DENIED.[10]
On 26 June 2003, another Order was issued by the RTC
denying the motion for reconsideration filed by the banks.[11] On
1 September 2003 however, thetrial court granted the
second motion for reconsideration filed by the banks. The
previous subpoenas issued were consequently quashed.
[12]
The trial court invoked the ruling in Intengan v. Court of
Appeals,[13] where it was ruled that foreign currency deposits
are absolutely confidential and may be examined only when
there is a written permission from the depositor. The motion for
reconsideration filed by GSIS was denied on 30 December
2003.
Hence, these assailed orders are the subject of the petition
for certiorari before the Court of Appeals. GSIS raised the
following arguments in support of its petition:
I.
Respondent Judge acted with grave abuse
of discretion when it favorably considered
respondent banks (second) Motion for
Reconsideration dated July 9, 2003 despite
the fact that it did not contain a notice of
hearing and was therefore a mere scrap of
paper.
II.
Respondent judge capriciously and arbitrarily
ignored Section 2 of the Foreign Currency
Deposit Act (RA 6426) in ruling in his Orders
dated September 1 and December 30, 2003
that the US$11,000,000.00 deposit in the
account of respondent Domsat in Westmont

Bank is covered by the secrecy of bank

deposit.
III.
Since both respondent banks and
respondent Domsat have disclosed during
the trial the US$11,000,000.00 deposit, it is
no longer secret and confidential, and
petitioner GSIS right to inquire into what
happened to such deposit can not be
suppressed.[14]
The Court of Appeals addressed these issues
in seriatim.
The Court of Appeals resorted to a liberal interpretation of the
rules to avoid miscarriage of justice when it allowed the filing
and acceptance of the second motion for reconsideration. The
appellate court also underscored the fact that GSIS did not
raise the defect of lack of notice in its opposition to the second
motion for reconsideration. The appellate court held that failure
to timely object to the admission of a defective motion is
considered a waiver of its right to do so.
The Court of Appeals declared that Domsats deposit in
Westmont Bank is covered by Republic Act No. 6426 or the
Bank Secrecy Law. We quote the pertinent portion of the
Decision:
It is our considered opinion that Domsats
deposit of $11,000,000.00 in Westmont Bank
is covered by the Bank Secrecy Law, as
such it cannot be examined, inquired or
looked into without the written consent of its
owner. The ruling in Van Twest vs. Court of

Appeals was rendered during the effectivity

of CB Circular No. 960, Series of 1983,
under Sec. 102 thereof, transfer to foreign
currency deposit account or receipt from
another foreign currency deposit account,
whether for payment of legitimate obligation
or otherwise, are not eligible for deposit
under the System.
CB Circular No. 960 has since been
superseded by CB Circular 1318 and later by
CB Circular 1389. Section 102 of Circular
960 has not been re-enacted in the later
Circulars. What is applicable now is the
decision in Intengan vs. Court of
Appeals where the Supreme Court has ruled
that the under R.A. 6426 there is only a
single exception to the secrecy of foreign
currency deposits, that is, disclosure is
allowed only upon the written permission of
the depositor. Petitioner, therefore, had
inappropriately invoked the provisions of
Central Bank (CB) Circular Nos. 343 which
has already been superseded by more
recently issued CB Circulars. CB Circular
343 requires the surrender to the banking
system of foreign exchange, including
proceeds of foreign borrowings. This
requirement, however, can no longer be
found in later circulars.
In its Reply to respondent banks comment,
petitioner appears to have conceded that
what is applicable in this case is CB Circular
1389. Obviously, under CB 1389, proceeds

of foreign borrowings are no longer required

to be surrendered to the banking system.
Undaunted, petitioner now argues that
paragraph 2, Section 27 of CB Circular 1389
is
applicable
because
Domsats
$11,000,000.00 loan from respondent banks
was intended to be paid to a foreign supplier
Intersputnik and, therefore, should have
been paid directly to Intersputnik and not
deposited into Westmont Bank. The fact that
it was deposited to the local bank Westmont
Bank, petitioner claims violates the circular
and makes the deposit lose its confidentiality
status under R.A. 6426.However, a reading
of the entire Section 27 of CB Circular 1389
reveals that the portion quoted by the
petitioner
refers
only
to
the
procedure/conditions of drawdown for
service of debts using foreign exchange. The
above-said provision relied upon by the
petitioner does not in any manner prescribe
the conditions before any foreign currency
deposit can be entitled to the confidentiality
provisions of R.A. 6426.[15]
Anent the third issue, the Court of Appeals ruled that
the testimony of the incumbent president of Westmont Bank is
not the written consent contemplated by Republic Act No.
6426.
The Court of Appeals however upheld the issuance
of subpoena praying for the production of applications for
cashiers or managers checks by Domsat through Westmont
Bank, as well as a copy of an Agreement and/or Contract
and/or Memorandum between Domsat and/or Philippine Agila
Satellite and Intersputnik for the acquisition and/or lease of a
Gorizon Satellite. The appellate court believed that the

production of these documents does not involve the

examination of Domsats account since it will never be known
how much money was deposited into it or withdrawn therefrom
and how much remains therein.
On 29 February 2008, the Court of Appeals rendered the
assailed Decision, the decretal portion of which reads:
WHEREFORE, the petition is partially
GRANTED. Accordingly, the assailed Order
dated December 30, 2003 is hereby
modified in that the quashal of the subpoena
for the production of Domsats bank ledger in
Westmont Bank is upheld while respondent
court is hereby ordered to issue subpoena
duces tecum ad testificandum directing the
records custodian of Westmont Bank to bring
to court the following documents:
a)

b)

c)

applications for cashiers or managers

checks by respondent Domsat through
Westmont Bank from January 1997 to
December 2002;
bank transfers by respondent Domsat
through Westmont Bank from January
1997 to December 2002; and
copy of an agreement and/or contract
and/or
memorandum
between
respondent Domsat and/or Philippine
Agila Satellite and Intersputnik for the
acquisition and/or lease of a Gorizon
satellite.

No pronouncement as to costs.[16]

GSIS filed a motion for reconsideration which the

Court of Appeals denied on 19 June 2009. Thus, the instant
petition ascribing grave abuse of discretion on the part of the
Court of Appeals in ruling that Domsats deposit with Westmont
Bank cannot be examined and in finding that the banks second
motion for reconsideration in Civil Case No. 99-1853 is
procedurally acceptable.[17]
This Court notes that GSIS filed a petition
for certiorari under Rule 65 of the Rules of Court to assail the
Decision and Resolution of the Court of Appeals. Petitioner
availed of the improper remedy as the appeal from a final
disposition of the Court of Appeals is a petition for review
under Rule 45 and not a special civil action under Rule 65.
[18]
Certiorari under Rule 65 lies only when there is no appeal,
nor plain, speedy and adequate remedy in the ordinary course
of law. That action is not a substitute for a lost appeal in
general; it is not allowed when a party to a case fails to appeal
a judgment to the proper forum.[19] Where an appeal is
available, certiorari will not prosper even if the ground therefor
is grave abuse of discretion. Accordingly, when a party adopts
an improper remedy, his petition may be dismissed outright.[20]
Yet, even if this procedural infirmity is discarded for
the broader interest of justice, the petition sorely lacks merit.
GSIS insists that Domsats deposit with Westmont
Bank can be examined and inquired into. It anchored its
argument on Republic Act No. 1405 or the Law on Secrecy of
Bank Deposits, which allows the disclosure of bank deposits in
cases where the money deposited is the subject matter of the
litigation. GSIS asserts that the subject matter of the litigation
is the U.S. $11 Million obtained by Domsat from the Banks to
supposedly finance the lease of a Russian satellite from
Intersputnik. Whether or not it should be held liable as a surety

for the principal amount of U.S. $11 Million, GSIS contends, is

contingent upon whether Domsat indeed utilized the amount to
lease a Russian satellite as agreed in the Surety Bond
Agreement. Hence, GSIS argues that the whereabouts of the
U.S. $11 Million is the subject matter of the case and the
disclosure of bank deposits relating to the U.S. $11 Million
should be allowed.
GSIS also contends that the concerted refusal of
Domsat and the banks to divulge the whereabouts of the U.S.
$11 Million will greatly prejudice and burden the GSIS pension
fund considering that a substantial portion of this fund is
earmarked every year to cover the surety bond issued.
Lastly, GSIS defends the acceptance by the trial court
of the second motion for reconsideration filed by the banks on
the grounds that it is pro formaand did not conform to the
notice requirements of Section 4, Rule 15 of the Rules of Civil
Procedure.[21]
Domsat denies the allegations of GSIS and reiterates that it did
not give a categorical or affirmative written consent or
permission to GSIS to examine its bank statements with
Westmont Bank.
The Banks maintain that Republic Act No. 1405 is not
the applicable law in the instant case because the Domsat
deposit is a foreign currency deposit, thus covered by Republic
Act No. 6426. Under said law, only the consent of the depositor
shall serve as the exception for the disclosure of his/her
deposit.
The Banks counter the arguments of GSIS as a mere
rehash of its previous arguments before the Court of
Appeals. They justify the issuance of thesubpoena as an
interlocutory matter which may be reconsidered anytime and

that the pro forma rule has no application to interlocutory

orders.
It appears that only GSIS appealed the ruling of the
Court of Appeals pertaining to the quashal of the subpoena for
the production of Domsats bank ledger with Westmont
Bank. Since neither Domsat nor the Banks interposed an
appeal from the other portions of the decision, particularly for
the production of applications for cashiers or managers checks
by Domsat through Westmont Bank, as well as a copy of an
agreement and/or contract and/or memorandum between
Domsat and/or Philippine Agila Satellite and Intersputnik for
the acquisition and/or lease of a Gorizon satellite, the latter
became final and executory.
GSIS invokes Republic Act No. 1405 to justify the
issuance of the subpoena while the banks cite Republic Act
No. 6426 to oppose it. The core issue is which of the two laws
should apply in the instant case.
Republic Act No. 1405 was enacted in 1955. Section
2 thereof was first amended by Presidential Decree No. 1792
in 1981 and further amended by Republic Act No. 7653 in
1993. It now reads:
Section 2. All deposits of whatever
nature with banks or banking institutions in
the Philippines including investments in
bonds issued by the Government of the
Philippines, its political subdivisions and its
instrumentalities, are hereby considered as
of an absolutely confidential nature and may
not be examined, inquired or looked into by
any person, government official, bureau or
office, except upon written permission of the
depositor, or in cases of impeachment, or

upon order of a competent court in cases of

bribery or dereliction of duty of public
officials, or in cases where the money
deposited or invested is the subject matter of
the litigation.
Section 8 of Republic Act No. 6426, which was
enacted in 1974, and amended by Presidential Decree No.
1035 and later by Presidential Decree No. 1246, provides:
Section 8. Secrecy of Foreign
Currency Deposits. All foreign currency
deposits authorized under this Act, as
amended by Presidential Decree No. 1035,
as well as foreign currency deposits
authorized under Presidential Decree No.
1034, are hereby declared as and
considered of an absolutely confidential
nature and, except upon the written
permission of the depositor, in no instance
shall foreign currency deposits be examined,
inquired or looked into by any person,
government official, bureau or office whether
judicial or administrative or legislative or any
other
entity
whether
public
or
private; Provided, however, That said foreign
currency deposits shall be exempt from
attachment, garnishment, or any other order
or process of any court, legislative body,
government agency or any administrative
body whatsoever. (As amended by PD No.
1035, and further amended by PD No. 1246,
prom. Nov. 21, 1977.)
On the one hand, Republic Act No. 1405 provides for
four (4) exceptions when records of deposits may be
disclosed. These are under any of the following instances: a)

upon written permission of the depositor, (b) in cases of

impeachment, (c) upon order of a competent court in the case
of bribery or dereliction of duty of public officials or, (d) when
the money deposited or invested is the subject matter of the
litigation, and e) in cases of violation of the Anti-Money
Laundering Act (AMLA), the Anti-Money Laundering Council
(AMLC) may inquire into a bank account upon order of any
competent court.[22] On the other hand, the lone exception to
the non-disclosure of foreign currency deposits, under
Republic Act No. 6426, is disclosure upon the written
permission of the depositor.
These two laws both support the confidentiality of
bank deposits. There is no conflict between them. Republic Act
No. 1405 was enacted for the purpose of giving
encouragement to the people to deposit their money in
banking institutions and to discourage private hoarding so that
the same may be properly utilized by banks in authorized loans
to assist in the economic development of the country. [23] It
covers all bank deposits in the Philippines and no distinction
was made between domestic and foreign deposits. Thus,
Republic Act No. 1405 is considered a law of general
application. On the other hand, Republic Act No. 6426 was
intended to encourage deposits from foreign lenders and
investors.[24] It is a special law designed especially for foreign
currency deposits in the Philippines. A general law does not
nullify a specific or special law. Generalia specialibus non
derogant.[25] Therefore, it is beyond cavil that Republic Act No.
6426 applies in this case.
Intengan v. Court of Appeals affirmed the above-cited principle
and categorically declared that for foreign currency
deposits, such as U.S. dollar deposits, the applicable law
is Republic Act No. 6426.

In said case, Citibank filed an action against its

officers for persuading their clients to transfer their dollar
deposits to competitor banks. Bank records, including dollar
deposits of petitioners, purporting to establish the deception
practiced by the officers, were annexed to the
complaint. Petitioners now complained that Citibank violated
Republic Act No. 1405. This Court ruled that since the
accounts in question are U.S. dollar deposits, the applicable
law therefore is not Republic Act No. 1405 but Republic Act
No. 6426.
The above pronouncement was reiterated in China
Banking Corporation v. Court of Appeals,[26] where respondent
accused his daughter of stealing his dollar deposits with
Citibank. The latter allegedly received the checks from Citibank
and deposited them to her account in China Bank. The subject
checks were presented in evidence. A subpoena was issued to
employees of China Bank to testify on these checks. China
Bank argued that the Citibank dollar checks with both
respondent and/or her daughter as payees, deposited with
China Bank, may not be looked into under the law on secrecy
of foreign currency deposits. This Court highlighted the
exception to the non-disclosure of foreign currency
deposits, i.e., in the case of a written permission of the
depositor, and ruled that respondent, as owner of the funds
unlawfully taken and which are undisputably now deposited
with China Bank, he has the right to inquire into the said
deposits.
Applying Section 8 of Republic Act No. 6426, absent
the written permission from Domsat, Westmont Bank cannot
be legally compelled to disclose the bank deposits of Domsat,
otherwise, it might expose itself to criminal liability under the
same act.[27]

The basis for the application of subpoena is to prove

that the loan intended for Domsat by the Banks and
guaranteed by GSIS, was diverted to a purpose other than that
stated in the surety bond. The Banks, however, argue that
GSIS is in fact liable to them for the proper applications of the
loan proceeds and not vice-versa. We are however not
prepared to rule on the merits of this case lest we pre-empt the
findings of the lower courts on the matter.
The third issue raised by GSIS was properly
addressed by the appellate court. The appellate court
maintained that the judge may, in the exercise of his sound
discretion, grant the second motion for reconsideration despite
its being pro forma. The appellate court correctly relied on
precedents where this Court set aside technicality in favor of
substantive justice. Furthermore, the appellate court accurately
pointed out that petitioner did not assail the defect of lack of
notice in its opposition to the second motion of reconsideration,
thus it can be considered a waiver of the defect.
WHEREFORE, the
petition
for certiorari is DISMISSED. The Decision dated 29 February
2008 and 19 June 2009 Resolution of the Court of Appeals are
hereby AFFIRMED.
SO ORDERED.
II. RA 8484
1. G.R. No. 155076

February 27, 2006

LUIS
MARCOS
P.
LAUREL, Petitioner,
vs.
HON. ZEUS C. ABROGAR, Presiding Judge of the
Regional Trial Court, Makati City, Branch 150, PEOPLE OF

THE PHILIPPINES& PHILIPPINE LONG

TELEPHONE COMPANY, Respondents.

DISTANCE

DECISION
CALLEJO, SR., J.:
Before us is a Petition for Review on Certiorari of the
Decision1 of the Court of Appeals (CA) in CA-G.R. SP No.
68841 affirming the Order issued by Judge Zeus C. Abrogar,
Regional Trial Court (RTC), Makati City, Branch 150, which
denied the "Motion to Quash (With Motion to Defer
Arraignment)" in Criminal Case No. 99-2425 for theft.
Philippine Long Distance Telephone Company (PLDT) is the
holder of a legislative franchise to render local and
international telecommunication services under Republic Act
No. 7082.2 Under said law, PLDT is authorized to establish,
operate, manage, lease, maintain and purchase
telecommunication systems, including transmitting, receiving
and switching stations, for both domestic and international
calls. For this purpose, it has installed an estimated 1.7 million
telephone lines nationwide. PLDT also offers other services as
authorized by Certificates of Public Convenience and
Necessity (CPCN) duly issued by the National
Telecommunications Commission (NTC), and operates and
maintains an International Gateway Facility (IGF). The PLDT
network is thus principally composed of the Public Switch
Telephone Network (PSTN), telephone handsets and/or
telecommunications equipment used by its subscribers, the
wires and cables linking said telephone handsets and/or
telecommunications equipment, antenna, the IGF, and other

telecommunications
equipment
3
interconnections. 1avvphil.net

which

provide

PLDT alleges that one of the alternative calling patterns that

constitute network fraud and violate its network integrity is that
which is known as International Simple Resale (ISR). ISR is a
method of routing and completing international long distance
calls using International Private Leased Lines (IPL), cables,
antenna or air wave or frequency, which connect directly to the
local or domestic exchange facilities of the terminating country
(the country where the call is destined). The IPL is linked to
switching equipment which is connected to a PLDT telephone
line/number. In the process, the calls bypass the IGF found at
the terminating country, or in some instances, even those from
the originating country.4
One such alternative calling service is that offered by Baynet
Co., Ltd. (Baynet) which sells "Bay Super Orient Card" phone
cards to people who call their friends and relatives in the
Philippines. With said card, one is entitled to a 27-minute call
to the Philippines for about 37.03 per minute. After dialing the
ISR access number indicated in the phone card, the ISR
operator requests the subscriber to give the PIN number also
indicated in the phone card. Once the callers identity (as
purchaser of the phone card) is confirmed, the ISR operator
will then provide a Philippine local line to the requesting caller
via the IPL. According to PLDT, calls made through the IPL
never pass the toll center of IGF operators in the Philippines.
Using the local line, the Baynet card user is able to place a call
to any point in the Philippines, provided the local line is
National Direct Dial (NDD) capable.5

PLDT asserts that Baynet conducts its ISR activities by utilizing

an IPL to course its incoming international long distance calls
from Japan. The IPL is linked to switching equipment, which is
then connected to PLDT telephone lines/numbers and
equipment, with Baynet as subscriber. Through the use of the
telephone lines and other auxiliary equipment, Baynet is able
to connect an international long distance call from Japan to
any part of the Philippines, and make it appear as a call
originating from Metro Manila. Consequently, the operator of
an ISR is able to evade payment of access, termination or
bypass charges and accounting rates, as well as compliance
with the regulatory requirements of the NTC. Thus, the ISR
operator offers international telecommunication services at a
lower rate, to the damage and prejudice of legitimate operators
like PLDT.6
PLDT pointed out that Baynet utilized the following equipment
for its ISR activities: lines, cables, and antennas or equipment
or device capable of transmitting air waves or frequency, such
as an IPL and telephone lines and equipment; computers or
any equipment or device capable of accepting information
applying the prescribed process of the information and
supplying the result of this process; modems or any equipment
or device that enables a data terminal equipment such as
computers to communicate with other data terminal equipment
via a telephone line; multiplexers or any equipment or device
that enables two or more signals from different sources to pass
through a common cable or transmission line; switching
equipment, or equipment or device capable of connecting
telephone lines; and software, diskettes, tapes or equipment or
device used for recording and storing information.7

PLDT also discovered that Baynet subscribed to a total of 123

PLDT telephone lines/numbers.8 Based on the Traffic Study
conducted on the volume of calls passing through Baynets
ISR network which bypass the IGF toll center, PLDT incurred
an estimated monthly loss of P10,185,325.96.9 Records at the
Securities and Exchange Commission (SEC) also revealed
that Baynet was not authorized to provide international or
domestic long distance telephone service in the country. The
following are its officers: Yuji Hijioka, a Japanese national
(chairman of the board of directors); Gina C. Mukaida, a
Filipina (board member and president); Luis Marcos P. Laurel,
a Filipino (board member and corporate secretary); Ricky
Chan Pe, a Filipino (board member and treasurer); and
Yasushi Ueshima, also a Japanese national (board member).
Upon complaint of PLDT against Baynet for network fraud, and
on the strength of two search warrants10 issued by the RTC of
Makati, Branch 147, National Bureau of Investigation (NBI)
agents searched its office at the 7th Floor, SJG Building,
Kalayaan Avenue, Makati City on November 8, 1999. Atsushi
Matsuura, Nobuyoshi Miyake, Edourd D. Lacson and Rolando
J. Villegas were arrested by NBI agents while in the act of
manning the operations of Baynet. Seized in the premises
during the search were numerous equipment and devices used
in its ISR activities, such as multiplexers, modems, computer
monitors, CPUs, antenna, assorted computer peripheral cords
and microprocessors, cables/wires, assorted PLDT statement
of accounts, parabolic antennae and voltage regulators.
State Prosecutor Ofelia L. Calo conducted an inquest
investigation and issued a Resolution11 on January 28, 2000,
finding probable cause for theft under Article 308 of the

Revised Penal Code and Presidential Decree

40112 against the respondents therein, including Laurel.

No.

On February 8, 2000, State Prosecutor Calo filed an

Information with the RTC of Makati City charging Matsuura,
Miyake, Lacson and Villegas with theft under Article 308 of the
Revised Penal Code. After conducting the requisite preliminary
investigation, the State Prosecutor filed an Amended
Information impleading Laurel (a partner in the law firm of
Ingles, Laurel, Salinas, and, until November 19, 1999, a
member of the board of directors and corporate secretary of
Baynet), and the other members of the board of directors of
said corporation, namely, Yuji Hijioka, Yasushi Ueshima,
Mukaida, Lacson and Villegas, as accused for theft under
Article 308 of the Revised Penal Code. The inculpatory portion
of the Amended Information reads:
On or about September 10-19, 1999, or prior thereto, in Makati
City, and within the jurisdiction of this Honorable Court, the
accused, conspiring and confederating together and all of them
mutually helping and aiding one another, with intent to gain
and without the knowledge and consent of the Philippine Long
Distance Telephone (PLDT), did then and there willfully,
unlawfully and feloniously take, steal and use the international
long distance calls belonging to PLDT by conducting
International Simple Resale (ISR), which is a method of routing
and completing international long distance calls using lines,
cables, antennae, and/or air wave frequency which connect
directly to the local or domestic exchange facilities of the
country where the call is destined, effectively stealing this
business from PLDT while using its facilities in the estimated

amount of P20,370,651.92 to the damage and prejudice of

PLDT, in the said amount.
CONTRARY TO LAW.13
Accused Laurel filed a "Motion to Quash (with Motion to Defer
Arraignment)" on the ground that the factual allegations in the
Amended Information do not constitute the felony of theft
under Article 308 of the Revised Penal Code. He averred that
the Revised Penal Code, or any other special penal law for
that matter, does not prohibit ISR operations. He claimed that
telephone calls with the use of PLDT telephone lines, whether
domestic or international, belong to the persons making the
call, not to PLDT. He argued that the caller merely uses the
facilities of PLDT, and what the latter owns are the
telecommunication infrastructures or facilities through which
the call is made. He also asserted that PLDT is compensated
for the callers use of its facilities by way of rental; for an
outgoing overseas call, PLDT charges the caller per minute,
based on the duration of the call. Thus, no personal property
was stolen from PLDT. According to Laurel, the
P20,370,651.92 stated in the Information, if anything,
represents the rental for the use of PLDT facilities, and not the
value of anything owned by it. Finally, he averred that the
allegations in the Amended Information are already subsumed
under the Information for violation of Presidential Decree (P.D.)
No. 401 filed and pending in the Metropolitan Trial Court of
Makati City, docketed as Criminal Case No. 276766.
The prosecution, through private complainant PLDT, opposed
the motion,14 contending that the movant unlawfully took
personal property belonging to it, as follows: 1) intangible

telephone services that are being offered by PLDT and other

telecommunication companies, i.e., the connection and
interconnection to their telephone lines/facilities; 2) the use of
those facilities over a period of time; and 3) the revenues
derived in connection with the rendition of such services and
the use of such facilities.15
The prosecution asserted that the use of PLDTs intangible
telephone services/facilities allows electronic voice signals to
pass through the same, and ultimately to the called partys
number. It averred that such service/facility is akin to electricity
which, although an intangible property, may, nevertheless, be
appropriated and be the subject of theft. Such service over a
period of time for a consideration is the business that PLDT
provides to its customers, which enables the latter to send
various messages to installed recipients. The service rendered
by PLDT is akin to merchandise which has specific value, and
therefore, capable of appropriation by another, as in this case,
through the ISR operations conducted by the movant and his
co-accused.
The prosecution further alleged that "international business
calls and revenues constitute personal property envisaged in
Article 308 of the Revised Penal Code." Moreover, the
intangible telephone services/facilities belong to PLDT and not
to the movant and the other accused, because they have no
telephone services and facilities of their own duly authorized
by the NTC; thus, the taking by the movant and his co-accused
of PLDT services was with intent to gain and without the
latters consent.

The prosecution pointed out that the accused, as well as the

movant, were paid in exchange for their illegal appropriation
and use of PLDTs telephone services and facilities; on the
other hand, the accused did not pay a single centavo for their
illegal ISR operations. Thus, the acts of the accused were akin
to the use of a "jumper" by a consumer to deflect the current
from the house electric meter, thereby enabling one to steal
electricity. The prosecution emphasized that its position is
fortified by the Resolutions of the Department of Justice in
PLDT v. Tiongson, et al. (I.S. No. 97-0925) and in PAOCTFPLDT v. Elton John Tuason, et al. (I.S. No. 2000-370) which
were issued on August 14, 2000 finding probable cause for
theft against the respondents therein.
16

On September 14, 2001, the RTC issued an Order denying

the Motion to Quash the Amended Information. The court
declared that, although there is no law that expressly prohibits
the use of ISR, the facts alleged in the Amended Information
"will show how the alleged crime was committed by conducting
ISR," to the damage and prejudice of PLDT.
Laurel filed a Motion for Reconsideration17 of the Order,
alleging that international long distance calls are not personal
property, and are not capable of appropriation. He maintained
that business or revenue is not considered personal property,
and that the prosecution failed to adduce proof of its existence
and the subsequent loss of personal property belonging to
another. Citing the ruling of the Court in United States v. De
Guzman,18Laurel averred that the case is not one with
telephone calls which originate with a particular caller and
terminates with the called party. He insisted that telephone
calls are considered privileged communications under the

Constitution and cannot be considered as "the property of

PLDT." He further argued that there is no kinship between
telephone calls and electricity or gas, as the latter are forms of
energy which are generated and consumable, and may be
considered as personal property because of such
characteristic. On the other hand, the movant argued, the
telephone business is not a form of energy but is an activity.
In its Order19 dated December 11, 2001, the RTC denied the
movants Motion for Reconsideration. This time, it ruled that
what was stolen from PLDT was its "business" because, as
alleged in the Amended Information, the international long
distance calls made through the facilities of PLDT formed part
of its business. The RTC noted that the movant was charged
with stealing the business of PLDT. To support its ruling, it cited
Strochecker v. Ramirez,20 where the Court ruled that interest in
business is personal property capable of appropriation. It
further declared that, through their ISR operations, the movant
and his co-accused deprived PLDT of fees for international
long distance calls, and that the ISR used by the movant and
his co-accused was no different from the "jumper" used for
stealing electricity.
Laurel then filed a Petition for Certiorari with the CA, assailing
the Order of the RTC. He alleged that the respondent judge
gravely abused his discretion in denying his Motion to Quash
the Amended Information.21 As gleaned from the material
averments of the amended information, he was charged with
stealing the international long distance calls belonging to
PLDT, not its business. Moreover, the RTC failed to distinguish
between the business of PLDT (providing services for
international long distance calls) and the revenues derived

therefrom. He opined that a "business" or its revenues cannot

be considered as personal property under Article 308 of the
Revised Penal Code, since a "business" is "(1) a commercial
or mercantile activity customarily engaged in as a means of
livelihood and typically involving some independence of
judgment and power of decision; (2) a commercial or industrial
enterprise; and (3) refers to transactions, dealings or
intercourse of any nature." On the other hand, the term
"revenue" is defined as "the income that comes back from an
investment (as in real or personal property); the annual or
periodical rents, profits, interests, or issues of any species of
real or personal property."22
Laurel further posited that an electric companys business is
the production and distribution of electricity; a gas companys
business is the production and/or distribution of gas (as fuel);
while a water companys business is the production and
distribution of potable water. He argued that the "business" in
all these cases is the commercial activity, while the goods and
merchandise are the products of such activity. Thus, in
prosecutions for theft of certain forms of energy, it is the
electricity or gas which is alleged to be stolen and not the
"business" of providing electricity or gas. However, since a
telephone company does not produce any energy, goods or
merchandise and merely renders a service or, in the words of
PLDT, "the connection and interconnection to their telephone
lines/facilities," such service cannot be the subject of theft as
defined in Article 308 of the Revised Penal Code.23
He further declared that to categorize "business" as personal
property under Article 308 of the Revised Penal Code would
lead to absurd consequences; in prosecutions for theft of gas,

electricity or water, it would then be permissible to allege in the

Information that it is the gas business, the electric business or
the water business which has been stolen, and no longer the
merchandise produced by such enterprise.24
Laurel further cited the Resolution of the Secretary of Justice in
Piltel v. Mendoza,25 where it was ruled that the Revised Penal
Code, legislated as it was before present technological
advances were even conceived, is not adequate to address
the novel means of "stealing" airwaves or airtime. In said
resolution, it was noted that the inadequacy prompted the filing
of Senate Bill 2379 (sic) entitled "The Anti-Telecommunications
Fraud of 1997" to deter cloning of cellular phones and other
forms of communications fraud. The said bill "aims to protect in
number (ESN) (sic) or Capcode, mobile identification number
(MIN), electronic-international mobile equipment identity
(EMEI/IMEI), or subscriber identity module" and "any attempt
to duplicate the data on another cellular phone without the
consent of a public telecommunications entity would be
punishable by law."26 Thus, Laurel concluded, "there is no
crime if there is no law punishing the crime."
On August 30, 2002, the CA rendered judgment dismissing the
petition.27 The appellate court ruled that a petition for certiorari
under Rule 65 of the Rules of Court was not the proper remedy
of the petitioner. On the merits of the petition, it held that while
business is generally an activity
which is abstract and intangible in form, it is nevertheless
considered "property" under Article 308 of the Revised Penal
Code. The CA opined that PLDTs business of providing
international calls is personal property which may be the object

of theft, and cited United States v. Carlos 28 to support such

conclusion. The tribunal also cited Strochecker v.
Ramirez,29 where this Court ruled that one-half interest in a
days business is personal property under Section 2 of Act No.
3952, otherwise known as the Bulk Sales Law. The appellate
court held that the operations of the ISR are not subsumed in
the charge for violation of P.D. No. 401.
Laurel, now the petitioner, assails the decision of the CA,
contending that THE COURT OF APPEALS ERRED IN RULING
THAT THE PERSONAL PROPERTY ALLEGEDLY
STOLEN PER THE INFORMATION IS NOT THE
"INTERNATIONAL LONG DISTANCE CALLS" BUT
THE "BUSINESS OF PLDT."
THE COURT OF APPEALS ERRED IN RULING
THAT THE TERM "BUSINESS" IS PERSONAL
PROPERTY WITHIN THE MEANING OF ART. 308
OF THE REVISED PENAL CODE.30
Petitioner avers that the petition for a writ of certiorari may be
filed to nullify an interlocutory order of the trial court which was
issued with grave abuse of discretion amounting to excess or
lack of jurisdiction. In support of his petition before the Court,
he reiterates the arguments in his pleadings filed before the
CA. He further claims that while the right to carry on a
business or an interest or participation in business is
considered property under the New Civil Code, the term
"business," however, is not. He asserts that the Philippine
Legislature, which approved the Revised Penal Code way

back in January 1, 1932, could not have contemplated to

include international long distance calls and "business" as
personal property under Article 308 thereof.
In its comment on the petition, the Office of the Solicitor
General (OSG) maintains that the amended information clearly
states all the essential elements of the crime of theft.
Petitioners interpretation as to whether an "international long
distance call" is personal property under the law is
inconsequential, as a reading of the amended information
readily reveals that specific acts and circumstances were
alleged charging Baynet, through its officers, including
petitioner, of feloniously taking, stealing and illegally using
international long distance calls belonging to respondent PLDT
by conducting ISR operations, thus, "routing and completing
international long distance calls using lines, cables, antenna
and/or airwave frequency which connect directly to the local or
domestic exchange facilities of the country where the call is
destined." The OSG maintains that the international long
distance calls alleged in the amended information should be
construed to mean "business" of PLDT, which, while abstract
and intangible in form, is personal property susceptible of
appropriation.31 The OSG avers that what was stolen by
petitioner and his co-accused is the business of PLDT
providing international long distance calls which, though
intangible, is personal property of the PLDT.32
For its part, respondent PLDT asserts that personal property
under Article 308 of the Revised Penal Code comprehends
intangible property such as electricity and gas which are
valuable articles for merchandise, brought and sold like other
personal property, and are capable of appropriation. It insists

that the business of international calls and revenues constitute

personal property because the same are valuable articles of
merchandise. The respondent reiterates that international calls
involve (a) the intangible telephone services that are being
offered by it, that is, the connection and interconnection to the
telephone network, lines or facilities; (b) the use of its
telephone network, lines or facilities over a period of time; and
(c) the income derived in connection therewith.33
PLDT further posits that business revenues or the income
derived in connection with the rendition of such services and
the use of its telephone network, lines or facilities are personal
properties under Article 308 of the Revised Penal Code; so is
the use of said telephone services/telephone network, lines or
facilities which allow electronic voice signals to pass through
the same and ultimately to the called partys number. It is akin
to electricity which, though intangible property, may
nevertheless be appropriated and can be the object of theft.
The use of respondent PLDTs telephone network, lines, or
facilities over a period of time for consideration is the business
that it provides to its customers, which enables the latter to
send various messages to intended recipients. Such use over
a period of time is akin to merchandise which has value and,
therefore, can be appropriated by another. According to
respondent PLDT, this is what actually happened when
petitioner Laurel and the other accused below conducted
illegal ISR operations.34
The petition is meritorious.
The issues for resolution are as follows: (a) whether or not the
petition for certiorari is the proper remedy of the petitioner in

the Court of Appeals; (b) whether or not international telephone

calls using Bay Super Orient Cards through the
telecommunication services provided by PLDT for such calls,
or, in short, PLDTs business of providing said
telecommunication services, are proper subjects of theft under
Article 308 of the Revised Penal Code; and (c) whether or not
the trial court committed grave abuse of discretion amounting
to excess or lack of jurisdiction in denying the motion of the
petitioner to quash the amended information.
On the issue of whether or not the petition for certiorari
instituted by the petitioner in the CA is proper, the general rule
is that a petition for certiorari under Rule 65 of the Rules of
Court, as amended, to nullify an order denying a motion to
quash the Information is inappropriate because the aggrieved
party has a remedy of appeal in the ordinary course of law.
Appeal and certiorari are mutually exclusive of each other. The
remedy of the aggrieved party is to continue with the case in
due course and, when an unfavorable judgment is rendered,
assail the order and the decision on appeal. However, if the
trial court issues the order denying the motion to quash the
Amended Information with grave abuse of discretion
amounting to excess or lack of jurisdiction, or if such order is
patently erroneous, or null and void for being contrary to the
Constitution, and the remedy of appeal would not afford
adequate and expeditious relief, the accused may resort to the
extraordinary remedy of certiorari.35 A special civil action for
certiorari is also available where there are special
circumstances clearly demonstrating the inadequacy of an
appeal. As this Court held in Bristol Myers Squibb (Phils.), Inc.
v. Viloria:36

Nonetheless, the settled rule is that a writ of certiorari may be

granted in cases where, despite availability of appeal after trial,
there is at least a prima facie showing on the face of the
petition and its annexes that: (a) the trial court issued the order
with grave abuse of discretion amounting to lack of or in
excess of jurisdiction; (b) appeal would not prove to be a
speedy and adequate remedy; (c) where the order is a patent
nullity; (d) the decision in the present case will arrest future
litigations; and (e) for certain considerations such as public
welfare and public policy.37
In his petition for certiorari in the CA, petitioner averred that the
trial court committed grave abuse of its discretion amounting to
excess or lack of jurisdiction when it denied his motion to
quash the Amended Information despite his claim that the
material allegations in the Amended Information do not charge
theft under Article 308 of the Revised Penal Code, or any
offense for that matter. By so doing, the trial court deprived him
of his constitutional right to be informed of the nature of the
charge against him. He further averred that the order of the
trial court is contrary to the constitution and is, thus, null and
void. He insists that he should not be compelled to undergo the
rigors and tribulations of a protracted trial and incur expenses
to defend himself against a non-existent charge.
Petitioner is correct.
An information or complaint must state explicitly and directly
every act or omission constituting an offense38 and must allege
facts establishing conduct that a penal statute makes
criminal;39 and describes the property which is the subject of
theft to advise the accused with reasonable certainty of the

accusation he is called upon to meet at the trial and to enable

him to rely on the judgment thereunder of a subsequent
prosecution for the same offense.40 It must show, on its face,
that if the alleged facts are true, an offense has been
committed. The rule is rooted on the constitutional right of the
accused to be informed of the nature of the crime or cause of
the accusation against him. He cannot be convicted of an
offense even if proven unless it is alleged or necessarily
included in the Information filed against him.
As a general prerequisite, a motion to quash on the ground
that the Information does not constitute the offense charged, or
any offense for that matter, should be resolved on the basis of
said allegations whose truth and veracity are hypothetically
committed;41 and on additional facts admitted or not denied by
the prosecution.42 If the facts alleged in the Information do not
constitute an offense, the complaint or information should be
quashed by the court.43
We have reviewed the Amended Information and find that, as
mentioned by the petitioner, it does not contain material
allegations charging the petitioner of theft of personal property
under Article 308 of the Revised Penal Code. It, thus,
behooved the trial court to quash the Amended Information.
The Order of the trial court denying the motion of the petitioner
to quash the Amended Information is a patent nullity.
On the second issue, we find and so hold that the international
telephone calls placed by Bay Super Orient Card holders, the
telecommunication services provided by PLDT and its
business of providing said services are not personal properties
under Article 308 of the Revised Penal Code. The construction

by the respondents of Article 308 of the said Code to include,

within its coverage, the aforesaid international telephone calls,
telecommunication services and business is contrary to the
letter and intent of the law.
The rule is that, penal laws are to be construed strictly. Such
rule is founded on the tenderness of the law for the rights of
individuals and on the plain principle that the power of
punishment is vested in Congress, not in the judicial
department. It is Congress, not the Court, which is to define a
crime, and ordain its punishment.44 Due respect for the
prerogative of Congress in defining crimes/felonies constrains
the Court to refrain from a broad interpretation of penal laws
where a "narrow interpretation" is appropriate. The Court must
take heed to language, legislative history and purpose, in order
to strictly determine the wrath and breath of the conduct the
law forbids.45 However, when the congressional purpose is
unclear, the court must apply the rule of lenity, that is,
ambiguity concerning the ambit of criminal statutes should be
resolved in favor of lenity.46
Penal statutes may not be enlarged by implication or intent
beyond the fair meaning of the language used; and may not be
held to include offenses other than those which are clearly
described, notwithstanding that the Court may think that
Congress
should
have
made
them
more
47
comprehensive. Words and phrases in a statute are to be
construed according to their common meaning and accepted
usage.

As Chief Justice John Marshall declared, "it would be

dangerous, indeed, to carry the principle that a case which is
within the reason or
mischief of a statute is within its provision, so far as to punish a
crime not enumerated in the statute because it is of equal
atrocity, or of kindred character with those which are
enumerated.48 When interpreting a criminal statute that does
not explicitly reach the conduct in question, the Court should
not base an expansive reading on inferences from subjective
and variable understanding.49
Article 308 of the Revised Penal Code defines theft as follows:
Art. 308. Who are liable for theft. Theft is committed by any
person who, with intent to gain but without violence, against or
intimidation of persons nor force upon things, shall take
personal property of another without the latters consent.
The provision was taken from Article 530 of the Spanish Penal
Code which reads:
1. Los que con nimo de lucrarse, y sin violencia o
intimidacin en las personas ni fuerza en las cosas, toman las
cosas muebles ajenas sin la voluntad de su dueo.50
For one to be guilty of theft, the accused must have an intent
to steal (animus furandi) personal property, meaning the intent
to deprive another of his ownership/lawful possession of
personal property which intent is apart from and concurrently
with the general criminal intent which is an essential element of
a felony of dolo (dolus malus).

An information or complaint for simple theft must allege the

following elements: (a) the taking of personal property; (b) the
said property belongs to another; (c) the taking be done with
intent to gain; and (d) the taking be accomplished without the
use of violence or intimidation of person/s or force upon
things.51
One is apt to conclude that "personal property" standing alone,
covers both tangible and intangible properties and are subject
of theft under the Revised Penal Code. But the words
"Personal property" under the Revised Penal Code must be
considered in tandem with the word "take" in the law. The
statutory definition of "taking" and movable property indicates
that, clearly, not all personal properties may be the proper
subjects of theft. The general rule is that, only movable
properties which have physical or material existence and
susceptible of occupation by another are proper objects of
theft.52 As explained by Cuelo Callon: "Cosa juridicamente es
toda sustancia corporal, material, susceptible de ser
aprehendida que tenga un valor cualquiera."53
According to Cuello Callon, in the context of the Penal Code,
only those movable properties which can be taken and carried
from the place they are found are proper subjects of theft.
Intangible properties such as rights and ideas are not subject
of theft because the same cannot be "taken" from the place it
is found and is occupied or appropriated.
Solamente las cosas muebles y corporales pueden ser objeto
de hurto. La sustraccin de cosas inmuebles y la cosas
incorporales (v. gr., los derechos, las ideas) no puede integrar
este delito, pues no es posible asirlas, tomarlas, para

conseguir su apropiacin. El Codigo emplea la expresin

"cosas mueble" en el sentido de cosa que es susceptible de
ser llevada del lugar donde se encuentra, como dinero, joyas,
ropas, etctera, asi que su concepto no coincide por completo
con el formulado por el Codigo civil (arts. 335 y 336).54
Thus, movable properties under Article 308 of the Revised
Penal Code should be distinguished from the rights or interests
to which they relate. A naked right existing merely in
contemplation of law, although it may be very valuable to the
person who is entitled to exercise it, is not the subject of theft
or larceny.55 Such rights or interests are intangible and cannot
be "taken" by another. Thus, right to produce oil, good will or
an interest in business, or the right to engage in business,
credit or franchise are properties. So is the credit line
represented by a credit card. However, they are not proper
subjects of theft or larceny because they are without form or
substance, the mere "breath" of the Congress. On the other
hand, goods, wares and merchandise of businessmen and
credit cards issued to them are movable properties with
physical and material existence and may be taken by another;
hence, proper subjects of theft.
There is "taking" of personal property, and theft is
consummated when the offender unlawfully acquires
possession of personal property even if for a short time; or if
such property is under the dominion and control of the thief.
The taker, at some particular amount, must have obtained
complete and absolute possession and control of the property
adverse to the rights of the owner or the lawful possessor
thereof.56 It is not necessary that the property be actually
carried away out of the physical possession of the lawful

possessor or that he should have made his escape with

it.57 Neither asportation nor actual manual possession of
property is required. Constructive possession of the thief of the
property is enough.58
The essence of the element is the taking of a thing out of the
possession of the owner without his privity and consent and
without animus revertendi.59
Taking may be by the offenders own hands, by his use of
innocent persons without any felonious intent, as well as any
mechanical device, such as an access device or card, or any
agency, animate or inanimate, with intent to gain. Intent to gain
includes the unlawful taking of personal property for the
purpose of deriving utility, satisfaction, enjoyment and
pleasure.60
We agree with the contention of the respondents that
intangible properties such as electrical energy and gas are
proper subjects of theft. The reason for this is that, as
explained by this Court in United States v. Carlos 61 and United
States v. Tambunting,62 based on decisions of the Supreme
Court of Spain and of the courts in England and the United
States of America, gas or electricity are capable of
appropriation by another other than the owner. Gas and
electrical energy may be taken, carried away and appropriated.
In People v. Menagas,63 the Illinois State Supreme Court
declared that electricity, like gas, may be seen and felt.
Electricity, the same as gas, is a valuable article of
merchandise, bought and sold like other personal property and
is capable of appropriation by another. It is a valuable article of
merchandise, bought and sold like other personal property,

susceptible of being severed from a mass or larger quantity

and of being transported from place to place. Electrical energy
may, likewise, be taken and carried away. It is a valuable
commodity, bought and sold like other personal property. It
may be transported from place to place. There is nothing in the
nature of gas used for illuminating purposes which renders it
incapable of being feloniously taken and carried away.
In People ex rel Brush Electric Illuminating Co. v.
Wemple,64 the Court of Appeals of New York held that electric
energy is manufactured and sold in determinate quantities at a
fixed price, precisely as are coal, kerosene oil, and gas. It may
be conveyed to the premises of the consumer, stored in cells
of different capacity known as an accumulator; or it may be
sent through a wire, just as gas or oil may be transported
either in a close tank or forced through a pipe. Having reached
the premises of the consumer, it may be used in any way he
may desire, being, like illuminating gas, capable of being
transformed either into heat, light, or power, at the option of the
purchaser. In Woods v. People,65 the Supreme Court of Illinois
declared that there is nothing in the nature of gas used for
illuminating purposes which renders it incapable of being
feloniously taken and carried away. It is a valuable article of
merchandise, bought and sold like other personal property,
susceptible of being severed from a mass or larger quantity
and of being transported from place to place.
Gas and electrical energy should not be equated with business
or services provided by business entrepreneurs to the public.
Business does not have an exact definition. Business is
referred as that which occupies the time, attention and labor of
men for the purpose of livelihood or profit. It embraces

everything that which a person can be employed.66 Business

may also mean employment, occupation or profession.
Business is also defined as a commercial activity for gain
benefit or advantage.67 Business, like services in business,
although are properties, are not proper subjects of theft under
the Revised Penal Code because the same cannot be "taken"
or "occupied." If it were otherwise, as claimed by the
respondents, there would be no juridical difference between
the taking of the business of a person or the services provided
by him for gain, vis--vis, the taking of goods, wares or
merchandise, or equipment comprising his business. 68 If it was
its intention to include "business" as personal property under
Article 308 of the Revised Penal Code, the Philippine
Legislature should have spoken in language that is clear and
definite: that business is personal property under Article 308 of
the Revised Penal Code.69
We agree with the contention of the petitioner that, as gleaned
from the material averments of the Amended Information, he is
charged of "stealing the international long distance calls
belonging to PLDT" and the use thereof, through the ISR.
Contrary to the claims of the OSG and respondent PLDT, the
petitioner is not charged of stealing P20,370,651.95 from said
respondent. Said amount of P20,370,651.95 alleged in the
Amended Information is the aggregate amount of access,
transmission or termination charges which the PLDT expected
from the international long distance calls of the callers with the
use of Baynet Super Orient Cards sold by Baynet Co. Ltd.
In defining theft, under Article 308 of the Revised Penal Code,
as the taking of personal property without the consent of the
owner thereof, the Philippine legislature could not have

contemplated the human voice which is converted into

electronic impulses or electrical current which are transmitted
to the party called through the PSTN of respondent PLDT and
the ISR of Baynet Card Ltd. within its coverage. When the
Revised Penal Code was approved, on December 8, 1930,
international telephone calls and the transmission and routing
of electronic voice signals or impulses emanating from said
calls, through the PSTN, IPL and ISR, were still non-existent.
Case law is that, where a legislative history fails to evidence
congressional awareness of the scope of the statute claimed
by the respondents, a narrow interpretation of the law is more
consistent with the usual approach to the construction of the
statute. Penal responsibility cannot be extended beyond the
fair scope of the statutory mandate.70
Respondent PLDT does not acquire possession, much less,
ownership of the voices of the telephone callers or of the
electronic voice signals or current emanating from said calls.
The human voice and the electronic voice signals or current
caused thereby are intangible and not susceptible of
possession, occupation or appropriation by the respondent
PLDT or even the petitioner, for that matter. PLDT merely
transmits the electronic voice signals through its facilities and
equipment. Baynet Card Ltd., through its operator, merely
intercepts, reroutes the calls and passes them to its toll center.
Indeed, the parties called receive the telephone calls from
Japan.
In this modern age of technology, telecommunications systems
have become so tightly merged with computer systems that it
is difficult to know where one starts and the other finishes. The
telephone set is highly computerized and allows computers to

communicate across long distances.71 The instrumentality at

issue in this case is not merely a telephone but a telephone
inexplicably linked to a computerized communications system
with the use of Baynet Cards sold by the Baynet Card Ltd. The
corporation uses computers, modems and software, among
others, for its ISR.72
The conduct complained of by respondent PLDT is reminiscent
of "phreaking" (a slang term for the action of making a
telephone system to do something that it normally should not
allow by "making the phone company bend over and grab its
ankles"). A "phreaker" is one who engages in the act of
manipulating phones and illegally markets telephone
services.73 Unless the phone company replaces all its
hardware, phreaking would be impossible to stop. The phone
companies in North America were impelled to replace all their
hardware and adopted full digital switching system known as
the Common Channel Inter Office Signaling. Phreaking
occurred only during the 1960s and 1970s, decades after the
Revised Penal Code took effect.
The petitioner is not charged, under the Amended Information,
for theft of telecommunication or telephone services offered by
PLDT. Even if he is, the term "personal property" under Article
308 of the Revised Penal Code cannot be interpreted beyond
its seams so as to include "telecommunication or telephone
services" or computer services for that matter. The word
"service" has a variety of meanings dependent upon the
context, or the sense in which it is used; and, in some
instances, it may include a sale. For instance, the sale of food
by restaurants is usually referred to as "service," although an
actual sale is involved.74 It may also mean the duty or labor to

be rendered by one person to another; performance of labor

for the benefit of another.75 In the case of PLDT, it is to render
local and international telecommunications services and such
other services as authorized by the CPCA issued by the NTC.
Even at common law, neither time nor services may be taken
and occupied or appropriated.76A service is generally not
considered property and a theft of service would not, therefore,
constitute theft since there can be no caption or
asportation.77 Neither is the unauthorized use of the equipment
and facilities of PLDT by the petitioner theft under the
aforequoted provision of the Revised Penal Code.78
If it was the intent of the Philippine Legislature, in 1930, to
include services to be the subject of theft, it should have
incorporated the same in Article 308 of the Revised Penal
Code. The Legislature did not. In fact, the Revised Penal Code
does not even contain a definition of services.
If taking of telecommunication services or the business of a
person, is to be proscribed, it must be by special statute79 or an
amendment of the Revised Penal Code. Several states in the
United States, such as New York, New Jersey, California and
Virginia, realized that their criminal statutes did not contain any
provisions penalizing the theft of services and passed laws
defining and penalizing theft of telephone and computer
services. The Pennsylvania Criminal Statute now penalizes
theft of services, thus:
(a) Acquisition of services. -(1) A person is guilty of theft if he intentionally obtains services
for himself or for another which he knows are available only for

compensation, by deception or threat, by altering or tampering

with the public utility meter or measuring device by which such
services are delivered or by causing or permitting such altering
or tampering, by making or maintaining any unauthorized
connection, whether physically, electrically or inductively, to a
distribution or transmission line, by attaching or maintaining the
attachment of any unauthorized device to any cable, wire or
other component of an electric, telephone or cable television
system or to a television receiving set connected to a cable
television system, by making or maintaining any unauthorized
modification or alteration to any device installed by a cable
television system, or by false token or other trick or artifice to
avoid payment for the service.
In the State of Illinois in the United States of America, theft of
labor or services or use of property is penalized:
(a) A person commits theft when he obtains the temporary use
of property, labor or services of another which are available
only for hire, by means of threat or deception or knowing that
such use is without the consent of the person providing the
property, labor or services.
In 1980, the drafters of the Model Penal Code in the United
States of America arrived at the conclusion that labor and
services, including professional services, have not been
included within the traditional scope of the term "property" in
ordinary theft statutes. Hence, they decided to incorporate in
the Code Section 223.7, which defines and penalizes theft of
services, thus:

(1) A person is guilty of theft if he purposely obtains services

which he knows are available only for compensation, by
deception or threat, or by false token or other means to avoid
payment for the service. "Services" include labor, professional
service, transportation, telephone or other public service,
accommodation in hotels, restaurants or elsewhere, admission
to exhibitions, use of vehicles or other movable property.
Where compensation for service is ordinarily paid immediately
upon the rendering of such service, as in the case of hotels
and restaurants, refusal to pay or absconding without payment
or offer to pay gives rise to a presumption that the service was
obtained by deception as to intention to pay; (2) A person
commits theft if, having control over the disposition of services
of others, to which he is not entitled, he knowingly diverts such
services to his own benefit or to the benefit of another not
entitled thereto.
Interestingly, after the State Supreme Court of Virginia
promulgated its decision in Lund v. Commonwealth,80declaring
that neither time nor services may be taken and carried away
and are not proper subjects of larceny, the General Assembly
of Virginia enacted Code No. 18-2-98 which reads:
Computer time or services or data processing services or
information or data stored in connection therewith is hereby
defined to be property which may be the subject of larceny
under 18.2-95 or 18.2-96, or embezzlement under 18.2111, or false pretenses under 18.2-178.
In the State of Alabama, Section 13A-8-10(a)(1) of the Penal
Code of Alabama of 1975 penalizes theft of services:

"A person commits the crime of theft of services if: (a) He

intentionally obtains services known by him to be available
only for compensation by deception, threat, false token or
other means to avoid payment for the services "
In the Philippines, Congress has not amended the Revised
Penal Code to include theft of services or theft of business as
felonies. Instead, it approved a law, Republic Act No. 8484,
otherwise known as the Access Devices Regulation Act of
1998, on February 11, 1998. Under the law, an access device
means any card, plate, code, account number, electronic serial
number, personal identification number and other
telecommunication services, equipment or instrumentalitiesidentifier or other means of account access that can be used to
obtain money, goods, services or any other thing of value or to
initiate a transfer of funds other than a transfer originated
solely by paper instrument. Among the prohibited acts
enumerated in Section 9 of the law are the acts of obtaining
money or anything of value through the use of an access
device, with intent to defraud or intent to gain and fleeing
thereafter; and of effecting transactions with one or more
access devices issued to another person or persons to receive
payment or any other thing of value. Under Section 11 of the
law, conspiracy to commit access devices fraud is a crime.
However, the petitioner is not charged of violation of R.A.
8484.
Significantly, a prosecution under the law shall be without
prejudice to any liability for violation of any provisions of the
Revised Penal Code inclusive of theft under Rule 308 of the
Revised Penal Code and estafa under Article 315 of the
Revised Penal Code. Thus, if an individual steals a credit card

and uses the same to obtain services, he is liable of the

following: theft of the credit card under Article 308 of the
Revised Penal Code; violation of Republic Act No. 8484; and
estafa under Article 315(2)(a) of the Revised Penal Code with
the service provider as the private complainant. The petitioner
is not charged of estafa before the RTC in the Amended
Information.
Section 33 of Republic Act No. 8792, Electronic Commerce Act
of 2000 provides:
Sec. 33. Penalties. The following Acts shall be penalized by
fine and/or imprisonment, as follows:
a) Hacking or cracking which refers to unauthorized access
into or interference in a computer system/server or information
and communication system; or any access in order to corrupt,
alter, steal, or destroy using a computer or other similar
information and communication devices, without the
knowledge and consent of the owner of the computer or
information and communications system, including the
introduction of computer viruses and the like, resulting on the
corruption, destruction, alteration, theft or loss of electronic
data messages or electronic documents shall be punished by a
minimum fine of One hundred thousand pesos (P100,000.00)
and a maximum commensurate to the damage incurred and a
mandatory imprisonment of six (6) months to three (3) years.
IN LIGHT OF ALL THE FOREGOING, the petition is
GRANTED. The assailed Orders of the Regional Trial Court
and the Decision of the Court of Appeals are REVERSED and
SET ASIDE. The Regional Trial Court is directed to issue an

order granting the motion of the petitioner to quash the

Amended Information.
SO ORDERED.
POLO S. PANTALEON, G.R. No. 174269
Petitioner,
Present:
CARPIO MORALES, J.,*
Acting Chairperson,
- versus
TINGA,
VELASCO,
LEONARDO-DE CASTRO,** and
BRION, JJ.
AMERICAN EXPRESS
INTERNATIONAL, INC., Promulgated:
Respondent.
May 8, 2009
x---------------------------------------------------------------------------x
DECISION
TINGA, J.:
The petitioner, lawyer Polo Pantaleon, his wife Julialinda,
daughter Anna Regina and son Adrian Roberto, joined an
escorted tour of Western Europeorganized by Trafalgar Tours
of Europe, Ltd., in October of 1991. The tour group arrived
in Amsterdam in the afternoon of 25 October 1991, the second
to the last day of the tour. As the group had arrived late in the
city, they failed to engage in any sight-seeing. Instead, it was
agreed upon that they would start early the next day to see the
entire city before ending the tour.

The following day, the last day of the tour, the group
arrived at the Coster Diamond House in Amsterdam around 10
minutes before 9:00 a.m. The group had agreed that the visit
to Coster should end by 9:30 a.m. to allow enough time to take
in a guided city tour of Amsterdam. The group was ushered
into Coster shortly before 9:00 a.m., and listened to a lecture
on the art of diamond polishing that lasted for around ten
minutes.[1] Afterwards, the group was led to the stores
showroom to allow them to select items for purchase. Mrs.
Pantaleon had already planned to purchase even before the
tour began a 2.5 karat diamond brilliant cut, and she found a
diamond close enough in approximation that she decided to
buy.[2] Mrs. Pantaleon also selected for purchase a pendant
and a chain,[3] all of which totaled U.S. $13,826.00.
To pay for these purchases, Pantaleon presented his
American Express credit card together with his passport to the
Coster sales clerk. This occurred at around 9:15 a.m., or 15
minutes before the tour group was slated to depart from the
store. The sales clerk took the cards imprint, and asked
Pantaleon to sign the charge slip. The charge purchase was
then referred electronically to respondents Amsterdam office
at 9:20 a.m.
Ten minutes later, the store clerk informed Pantaleon
that his AmexCard had not yet been approved. His son, who
had already boarded the tour bus, soon returned to Coster and
informed the other members of the Pantaleon family that the
entire tour group was waiting for them. As it was already 9:40
a.m., and he was already worried about further
inconveniencing the tour group, Pantaleon asked the store
clerk to cancel the sale. The store manager though asked
plaintiff to wait a few more minutes. After 15 minutes, the store
manager informed Pantaleon that respondent had demanded
bank references. Pantaleon supplied the names of his
depositary banks, then instructed his daughter to return to the
bus and apologize to the tour group for the delay.

At around 10:00 a.m, or around 45 minutes after

Pantaleon had presented his AmexCard, and 30 minutes after
the tour group was supposed to have left the store, Coster
decided to release the items even without respondents
approval of the purchase. The spouses Pantaleon returned to
the bus. It is alleged that their offers of apology were met by
their tourmates with stony silence.[4] The tour groups visible
irritation was aggravated when the tour guide announced that
the city tour of Amsterdam was to be canceled due to lack of
remaining time, as they had to catch a 3:00 p.m. ferry
at Calais,Belgium to London.[5] Mrs. Pantaleon ended up
weeping, while her husband had to take a tranquilizer to calm
his nerves.
It later emerged that Pantaleons purchase was first
transmitted for approval to respondents Amsterdam office at
9:20 a.m., Amsterdam time, then referred to respondents
Manila office at 9:33 a.m, then finally approved at 10:19
a.m., Amsterdam time.[6] The Approval Code was transmitted to
respondents Amsterdam office at 10:38 a.m., several minutes
after petitioner had already left Coster, and 78 minutes from
the time the purchases were electronically transmitted by the
jewelry store to respondents Amsterdam office.
After the star-crossed tour had ended, the Pantaleon family
proceeded
to
the United
States before
returning
to Manila on 12 November 1992. While in theUnited States,
Pantaleon continued to use his AmEx card, several times
without hassle or delay, but with two other incidents similar to
the Amsterdambrouhaha. On 30 October 1991, Pantaleon
purchased golf equipment amounting to US $1,475.00 using
his AmEx card, but he cancelled his credit card purchase and
borrowed money instead from a friend, after more than 30
minutes had transpired without the purchase having been
approved. On 3 November 1991, Pantaleon used the card to
purchase childrens shoes worth $87.00 at a store in Boston,

and it took 20 minutes before this transaction was approved by

respondent.

Pantaleon, holding that respondent had not breached its

obligations to petitioner. Hence, this petition.

obligation to him as to approve purchases instantaneously or

in a matter of seconds.

On 4 March 1992, after coming back to Manila, Pantaleon sent

a letter[7] through counsel to the respondent, demanding an
apology for the inconvenience, humiliation and embarrassment
he and his family thereby suffered for respondents refusal to
provide credit authorization for the aforementioned purchases.
[8]
In response, respondent sent a letter dated 24 March 1992,
[9]
stating among others that the delay in authorizing the
purchase from Coster was attributable to the circumstance that
the charged purchase of US $13,826.00 was out of the usual
charge purchase pattern established.[10] Since respondent
refused to accede to Pantaleons demand for an apology, the
aggrieved cardholder instituted an action for damages with the
Regional Trial Court (RTC) of Makati City, Branch 145.
[11]
Pantaleon prayed that he be awarded P2,000,000.00, as
moral
damages; P500,000.00,
as
exemplary
damages; P100,000.00, as attorneys fees; and P50,000.00
as litigation expenses.[12]

The key question is whether respondent, in connection with the

aforementioned transactions, had committed a breach of its
obligations to Pantaleon. In addition, Pantaleon submits that
even assuming that respondent had not been in breach of its
obligations, it still remained liable for damages under Article 21
of the Civil Code.

Petitioner correctly cites that under mora solvendi, the

three requisites for a finding of default are that the obligation is
demandable and liquidated; the debtor delays performance;
and the creditor judicially or extrajudicially requires the debtors
performance.[18] Petitioner asserts that the Court of Appeals
had wrongly applied the principle of mora accipiendi, which
relates to delay on the part of the obligee in accepting the
performance of the obligation by the obligor. The requisites
of mora accipiendi are: an offer of performance by the debtor
who has the required capacity; the offer must be to comply
with the prestation as it should be performed; and the creditor
refuses the performance without just cause.[19] The error of the
appellate court, argues petitioner, is in relying on the invocation
by respondent of just cause for the delay, since while just
cause is determinative of mora accipiendi, it is not so with the
case of mora solvendi.

On 5 August 1996, the Makati City RTC rendered a

decision[13] in favor of Pantaleon, awarding him P500,000.00 as
moral
damages, P300,000.00
as
exemplary
damages, P100,000.00 as attorneys fees, and P85,233.01 as
expenses of litigation. Respondent filed a Notice of Appeal,
while Pantaleon moved for partial reconsideration, praying that
the trial court award the increased amount of moral and
exemplary damages he had prayed for.[14] The RTC denied
Pantaleons motion for partial reconsideration, and thereafter
gave due course to respondents Notice of Appeal.[15]
On 18 August 2006, the Court of Appeals rendered a
decision[16] reversing the award of damages in favor of

The RTC had concluded, based on the testimonial

representations of Pantaleon and respondents credit
authorizer, Edgardo Jaurigue, that the normal approval time for
purchases was a matter of seconds. Based on that standard,
respondent had been in clear delay with respect to the three
subject transactions. As it appears, the Court of Appeals
conceded that there had been delay on the part of respondent
in approving the purchases. However, it made two critical
conclusions in favor of respondent. First, the appellate court
ruled that the delay was not attended by bad faith, malice, or
gross negligence. Second, it ruled that respondent had
exercised diligent efforts to effect the approval of the
purchases, which were not in accordance with the charge
pattern petitioner had established for himself, as exemplified
by the fact that at Coster, he was making his very first single
charge purchase of US$13,826, and the record of [petitioner]s
past spending with [respondent] at the time does not favorably
support his ability to pay for such purchase.[17]
On the premise that there was an obligation on the part of
respondent to approve or disapprove with dispatch the charge
purchase, petitioner argues that the failure to timely approve or
disapprove the purchase constituted mora solvendi on the part
of respondent in the performance of its obligation. For its part,
respondent characterizes the depiction by petitioner of its

We can see the possible source of confusion as to

which type of mora to appreciate. Generally, the relationship
between a credit card provider and its card holders is that of
creditor-debtor,[20] with the card company as the creditor
extending loans and credit to the card holder, who as debtor is
obliged to repay the creditor. This relationship already takes
exception to the general rule that as between a bank and its
depositors, the bank is deemed as the debtor while the
depositor is considered as the creditor.[21] Petitioner is asking
us, not baselessly, to again shift perspectives and again see
the credit card company as the debtor/obligor, insofar as it has
the obligation to the customer as creditor/obligee to act
promptly on its purchases on credit.

Ultimately, petitioners perspective appears more

sensible than if we were to still regard respondent as the
creditor in the context of this cause of action. If there was delay
on the part of respondent in its normal role as creditor to the
cardholder, such delay would not have been in the acceptance
of the performance of the debtors obligation (i.e., the
repayment of the debt), but it would be delay in the extension
of the credit in the first place. Such delay would not fall
under mora accipiendi, which contemplates that the obligation
of the debtor, such as the actual purchases on credit, has
already been constituted. Herein, the establishment of the debt
itself (purchases on credit of the jewelry) had not yet been
perfected, as it remained pending the approval or consent of
the respondent credit card company.
Still, in order for us to appreciate that respondent
was in mora solvendi, we will have to first recognize that there
was indeed an obligation on the part of respondent to act on
petitioners purchases with timely dispatch, or for the purposes
of this case, within a period significantly less than the one hour
it apparently took before the purchase at Coster was finally
approved.
The findings of the trial court, to our mind, amply
established that the tardiness on the part of respondent in
acting on petitioners purchase at Coster did constitute culpable
delay on its part in complying with its obligation to act promptly
on its customers purchase request, whether such action be
favorable or unfavorable. We quote the trial court, thus:
As to the first issue, both parties
have testified that normal approval time for
purchases was a matter of seconds.
Plaintiff testified that his personal
experience with the use of the card was that
except for the three charge purchases

subject of this case, approvals of his charge

purchases were always obtained in a matter
of seconds.

conditional as it directed in computerese

[sic] Positive Identification of Card holder
necessary further charges require bank
information due to high exposure. By Jack
Manila.

Defendants
credit
authorizer
Edgardo Jaurique likewise testified:
Q. You also testified
that on normal occasions,
the normal approval time for
charges would be 3 to 4
seconds?
A. Yes, Maam.
Both parties likewise presented
evidence that the processing and approval of
plaintiffs charge purchase at the Coster
Diamond House was way beyond the normal
approval time of a matter of seconds.
Plaintiff testified that he presented
his AmexCard to the sales clerk at Coster,
at 9:15 a.m. and by the time he had to leave
the store at 10:05 a.m., no approval had yet
been received. In fact, the Credit
Authorization System (CAS) record of
defendant at Phoenix Amex shows that
defendants Amsterdam office received the
request to approve plaintiffs charge
purchase at 9:20 a.m., Amsterdam time or
01:20, Phoenix time, and that the defendant
relayed its approval to Coster at 10:38 a.m.,
Amsterdam time, or 2:38, Phoenix time, or a
total time lapse of one hour and [18]
minutes. And even then, the approval was

The delay in the processing is

apparent to be undue as shown from the
frantic successive queries of Amexco
Amsterdam which reads: US$13,826.
Cardmember buying jewels. ID seen. Advise
how long will this take? They were sent
at 01:33, 01:37, 01:40, 01:45, 01:52 and 02:
08, all times Phoenix. Manila Amexco could
be unaware of the need for speed in
resolving the charge purchase referred to it,
yet it sat on its hand, unconcerned.
xxx
To repeat, the Credit Authorization
System
(CAS)
record
on
the Amsterdam transaction shows how
Amexco Netherlands viewed the delay as
unusually frustrating. In sequence expressed
in Phoenix time from 01:20 when the charge
purchased was referred for authorization,
defendants own record shows:
01:22 the authorization is referred
to Manila Amexco
01:32 Netherlands giv
es
information
that
the

identificati
on of the
cardmemb
er
has
been
presented
and he is
buying
jewelries
worth US
$13,826.

01:33 Netherlands as
ks
How
long will
this take?

02:08 Netherlands is
still asking
How long
will
this
take?
The Court is convinced that
defendants delay constitute[s] breach of its
contractual obligation to act on his use of the
card abroad with special handling.[22]
(Citations omitted)
Notwithstanding the popular notion that credit card purchases
are approved within seconds, there really is no strict, legally
determinative point of demarcation on how long must it take for
a credit card company to approve or disapprove a customers
purchase, much less one specifically contracted upon by the

parties. Yet this is one of those instances when youd know it

when youd see it, and one hour appears to be an awfully long,
patently unreasonable length of time to approve or disapprove
a credit card purchase. It is long enough time for the customer
to walk to a bank a kilometer away, withdraw money over the
counter, and return to the store.

Notably, petitioner frames the obligation of respondent

as to approve or disapprove the purchase in timely dispatch,
and not to approve the purchase instantaneously or within
seconds. Certainly, had respondent disapproved petitioners
purchase within seconds or within a timely manner, this
particular action would have never seen the light of day.
Petitioner and his family would have returned to the bus
without delay internally humiliated perhaps over the rejection of
his card yet spared the shame of being held accountable by
newly-made friends for making them miss the chance to tour
the city ofAmsterdam.
We do not wish do dispute that respondent has the
right, if not the obligation, to verify whether the credit it is
extending upon on a particular purchase was indeed
contracted by the cardholder, and that the cardholder is within
his means to make such transaction. The culpable failure of
respondent herein is not the failure to timely approve
petitioners purchase, but the more elemental failure to timely
act on the same, whether favorably or unfavorably. Even
assuming that respondents credit authorizers did not have
sufficient basis on hand to make a judgment, we see no
reason why respondent could not have promptly informed
petitioner the reason for the delay, and duly advised him that
resolving the same could take some time. In that way,
petitioner would have had informed basis on whether or not to
pursue the transaction at Coster, given the attending
circumstances. Instead, petitioner was left uncomfortably

dangling in the chilly autumn winds in a foreign land and soon

forced to confront the wrath of foreign folk.
Moral damages avail in cases of breach of contract
where the defendant acted fraudulently or in bad faith, and the
court should find that under the circumstances, such damages
are due. The findings of the trial court are ample in establishing
the bad faith and unjustified neglect of respondent, attributable
in particular to the dilly-dallying of respondents Manila credit
authorizer, Edgardo Jaurique.[23] Wrote the trial court:
While it is true that the
Cardmembership
Agreement,
which
defendant prepared, is silent as to the
amount of time it should take defendant to
grant authorization for a charge purchase,
defendant acknowledged that the normal
time for approval should only be three to four
seconds. Specially so with cards used
abroad which requires special handling,
meaning with priority. Otherwise, the object
of credit or charge cards would be lost; it
would be so inconvenient to use that buyers
and consumers would be better off carrying
bundles of currency or travellers checks,
which can be delivered and accepted
quickly. Such right was not accorded to
plaintiff in the instances complained off for
reasons known only to defendant at that
time. This, to the Courts mind, amounts to a
wanton and deliberate refusal to comply with
its contractual obligations, or at least abuse
of its rights, under the contract.[24]
The delay committed by defendant
was clearly attended by unjustified neglect
and bad faith, since it alleges to have

consumed more than one hour to simply go

over plaintiffs past credit history with
defendant, his payment record and his credit
and bank references, when all such data are
already stored and readily available from its
computer. This Court also takes note of the
fact that there is nothing in plaintiffs billing
history that would warrant the imprudent
suspension of action by defendant in
processing the purchase. Defendants
witness Jaurique admits:
Q. But did you discover
that he did not have
any
outstanding
account?
A. Nothing in arrears at that time.
Q. You were well aware of
this fact on this very
date?
A. Yes, sir.
Mr. Jaurique further testified that
there were no delinquencies in plaintiffs
account.[25]
It should be emphasized that the reason why
petitioner is entitled to damages is not simply because
respondent incurred delay, but because the delay, for which
culpability lies under Article 1170, led to the particular injuries
under Article 2217 of the Civil Code for which moral damages
are remunerative.[26] Moral damages do not avail to soothe the
plaints of the simply impatient, so this decision should not be
cause for relief for those who time the length of their credit
card transactions with a stopwatch. The somewhat unusual

attending circumstances to the purchase at Coster that there

was a deadline for the completion of that purchase by
petitioner before any delay would redound to the injury of his
several traveling companions gave rise to the moral shock,
mental anguish, serious anxiety, wounded feelings and social
humiliation sustained by the petitioner, as concluded by the
RTC.[27]Those circumstances are fairly unusual, and should not
give rise to a general entitlement for damages under a more
mundane set of facts.
We sustain the amount of moral damages awarded to
petitioner by the RTC. There is no hard-and-fast rule in
determining what would be a fair and reasonable amount of
moral damages, since each case must be governed by its own
peculiar facts, however, it must be commensurate to the loss
or
injury
suffered.[28] Petitioners
original
prayer
for P5,000,000.00 for moral damages is excessive under the
circumstances, and the amount awarded by the trial court
of P500,000.00 in moral damages more seemly.
Likewise, we deem exemplary damages available
under the circumstances, and the amount of P300,000.00
appropriate. There is similarly no cause though to disturb the
determined award of P100,000.00 as attorneys fees,
and P85,233.01 as expenses of litigation.
WHEREFORE, the petition is GRANTED. The
assailed
Decision
of
the
Court
of
Appeals
is REVERSED and SET ASIDE. The Decision of the Regional
Trial Court of Makati, Branch 145 in Civil Case No. 92-1665 is
hereby REINSTATED. Costs against respondent.
SO ORDERED.
III. DOSRI
HILARIO P. SORIANO and ROSALINDA ILAHAN v PP, BSP
and PDIC, GR 159517-28, JUNE 30, 2009

DECISION
NACHURA, J.:
Petitioners Hilario P. Soriano and Rosalinda Ilagan
(petitioners) appeal by certiorari the August 5, 2003
Decision[1] of the Court of Appeals (CA) in the consolidated
cases CA-G.R. SP. Nos. 64648 and 64649.
The antecedents.
Hilario P. Soriano (Soriano) and Rosalinda Ilagan
(Ilagan) were the President and General Manager,
respectively, of the Rural Bank of San Miguel (Bulacan), Inc.
(RBSM). Allegedly, on June 27, 1997 and August 21, 1997,
during their incumbency as president and manager of the
bank, petitioners indirectly obtained loans from RBSM. They
falsified the loan applications and other bank records, and
made it appear that Virgilio J. Malang and Rogelio Maaol
obtained loans of P15,000,000.00 each, when in fact they did
not.
Accordingly, on May 4, 2000, State Prosecutor
Josefino A. Subia charged Soriano in the Regional Trial Court
(RTC) of Malolos, Bulacan, with violation of Section 83 of
Republic Act No. 337 (R.A. No. 337) or the General Banking
Act, as amended by Presidential Decree No. 1795, or Violation
of the Director, Officer, Stockholder or Related Interest
(DOSRI) Rules (DOSRI Rules). The inculpatory portion of the
Information reads:
That on or about June 27, 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, unlawfully, feloniously, and indirectly
borrow or secure a loan with Rural Bank of

San Miguel-San Miguel Branch amounting to

Php15 million, without the consent and
written approval of the majority of the
directors of the bank, by using the name of
one depositor VIRGILIO J. MALANG of San
Miguel Bulacan who have no knowledge of
the said loan, and once in possession of the
said amount of Php14,775,000.00, net of
interest converted the same to his own
personal use and benefit, in flagrant violation
of the said law.[2]
On the same date, an information for estafa thru falsification of
commercial document was also filed against Soriano and
Ilagan, viz.:
That on or about June 27, 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 Rural Bank of San
Miguel (Bulacan), Inc. and Manager of Rural
Bank of San Miguel-San Miguel Branch, a
duly organized banking institutions under
Philippine Laws, conspiring, confederating
and mutually helping one another, did then
and there, willfully and feloniously falsify loan
documents
consisting
of
loan
application/information
sheet,
and
promissory note dated June 27, 1997,
disclosure statement on loan/credit
transaction, credit proposal report, managers
check no. 06514 dated June 27, 1997 and
undated RBSM-San Miguel Branch check

voucher, by making it appear that

one VIRGILIO J. MALANG filed the
aforementioned documents when in truth
and in fact, VIRGILIO J. MALANG did not
participate in the execution of said loan
document and that by virtue of said
falsification and with deceit and intent to
cause damage, the accused credited the
loan proceeds of the loan amounting to
Php14,775,000.00, net of interest, to the
account ofVIRGILIO J. MALANG with the
RBSM and 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 Miguel
Branch, its creditors and the Bangko Sentral
Ng Pilipinas in the amount of
Php14,775,000.00.
CONTRARY TO LAW.

[3]

The informations were docketed as Criminal Case Nos. 1719M-2000 and 1720-M-2000, respectively, and were raffled to
Branch 14, presided by Judge Petrita Braga Dime.
Another information for violation of Section 83 of R.A.
No. 337, as amended, was filed against Soriano, this time,
covering the P15,000,000.00 loan obtained in the name of
Rogelio Maaol. The information reads:
That on or about August 21, 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, unlawfully,
feloniously, and indirectly borrow or secure a loan with Rural
Bank of San Miguel-San Miguel Branch, a domestic rural
ba[n]king institution created, organized and existing under

Philippine laws, amounting to Php15.0 million, knowing fully

well that the same has been done by him without the written
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
record 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, by using the name of one
depositor ROGELIO MAAOL of San Jose, San Miguel Bulacan
who have no knowledge of the said loan, and once in
possession of the said amount of Php 15.0 million, converted
the same to his own personal use and benefit, in flagrant
violation of the said law.[4]
Soriano and Ilagan were also indicted for estafa thru
falsification of commercial document for obtaining said loan.
Thus:
That on or about August 21, 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 Rural Bank of San Miguel
(Bulacan), Inc. and Manager of Rural Bank
of San Miguel-San Miguel Branch, a duly
organized banking institutions under
Philippine Laws, conspiring confederating
and mutually helping one another, did then
and there, willfully and feloniously falsify loan
documents
consisting
of
loan
application/information sheet and promissory
note dated August 21, 1997, by making it
appear that one ROGELIO MAAOL filled up

the application/information sheet and filed

the aforementioned loan documents when in
truth and in fact, ROGELIO MAAOL did not
participate in the execution of said loan
document 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 Php15.0
million, from Rural Bank of San Miguel-San
Miguel Branch in the name of ROGELIO
MAAOL, which amount of Php 15.0 million
representing loan proceeds the accused
deposited to the account of ROGELIO
MAAOL maintained with Rural Bank of San
Miguel and 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 Miguel
Branch, its creditors, the Bangko Sentral Ng
Pilipinas and the Philippine Deposit
Insurance Corporation in the amount of Php
15.0 million.
CONTRARY TO LAW.[5]
The cases were docketed as 1980-M-2000 and 1981-M-2000,
respectively, and were raffled to Branch 77, presided by Judge
Aurora Santiago-Lagman.
Petitioners moved to quash the informations in
Criminal Case Nos. 1719-M-2000 and 1720-M-2000 (pending
before Branch 14), and also in Criminal Case Nos. 1980-M2000 and 1981-M-2000 (pending with Branch 77), on grounds
that: (i) more than one (1) offense is charged; and (ii) the facts
charged do not constitute an offense. Specifically, petitioners
argued that the prosecutor charged more than one offense for
a single act. Soriano was charged with violation of DOSRI

rules and estafa thru falsification of commercial document for

allegedly securing fictitious loans. They further argued that the
facts as alleged in the information do not constitute an offense.

In an Order[6] dated November 15, 2000, RTC Branch

77 denied the motion to quash. Rejecting petitioners
arguments, it held:
Section 13 of Rule 110 of the
Revised Rules of Criminal Procedure
provides that the complaint or information
must charge but only one offense, except
only in those cases in which existing laws
prescribe a single punishment for various
offenses. Under this Rule, the Information is
defective when it charges two (2) or more
offenses. The rule enjoining the charging of
two (2) or more offenses in one information
has for its aim to give the defendant the
necessary knowledge of the charge to
enable him to prove his defense (People vs.
Ferrer, 101 Phil. 234, cited in Herrera
Remedial Law IV., p. 72). While Section 3 (e)
of Rule 117 of the Revised Rules of Court
provides as one of the grounds where the
accused may move to quash the complaint
or information, considering Sec. 13 of Rule
110 of the Rules as aforestated, it is
apparent that the said ground refers to a
situation where the accused is being
charged in one information or criminal
complaint for more than one offense. The
record shows that two (2) Informations were
filed against the herein accused, one in
Criminal Case No. 1980-M-2000 against

accused Hilario P. Soriano for Violation of

Sec. 83 of R.A. No. 337, as amended by PD
1795, and another one in Criminal Case No.
1981-M-2000 against accused Hilario P.
Soriano and Rosalinda Ilagan for Estafa
Thru
Falsification
of
Commercial
Documents. Thus, each Information charges
only one offense.
Even assuming that the two (2)
cases arose from the same facts, if they
violate two (2) or more provisions of the law,
a prosecution under one will not bar a
prosecution under another (Pp. vs. Tac-an,
182 SCRA 601; Lamera v. Court of Appeals,
198 SCRA 186, cited in Herrera Criminal
Procedure, Vol. 4, p. 453).
Upon the foregoing, this Court finds
that there is no basis to quash the
Informations filed in these two (2) cases as
the accused are being charged therein with
only one offense in each Information. As to
the assertion of the accused that the facts
charged do not constitute an offense, this
Court finds that the allegations of both
parties are evidentiary and the same can
only be determined after a full blown trial on
the merits of these cases where both parties
will be given a chance to present their
evidence in support of their respective
positions.
WHEREFORE, the instant motion is
DISMISSED and the arraignment of both
accused and the pre-trial of these cases
scheduled on December 4, 2000 at 10:00 o

clock in the morning, shall proceed as

scheduled.[7]

Petitioners motion to quash informations in Criminal

Case Nos. 1719-M-2000 and 1720-M-2000 before Branch 14
likewise suffered the same fate, as Judge Braga Dime denied
the same in an Order[8] dated November 27, 2000, holding that:
Duplicity in criminal pleading is the
joinder of two or more distinct and separate
offenses in the same court of an indictment
or
information. (41
Am.
Jur.
2d
1011). Whether two offenses are charged in
an information, or otherwise, must not be
made to depend upon the evidence
presented at the trial court but upon the facts
alleged in the information (Provincial Fiscal
of Nueva Ecija vs. CFI, 79 Phil. 165). Where
an offense may be committed in any of the
different modes provided by law and the
offense is alleged to have been committed in
two or more modes specified, the indictment
is sufficient. The allegations in the
information of the various ways of
committing the offense should be considered
as a description of only one offense and the
information cannot be dismissed on the
ground of multifariousness (Jurado v. Suy
Yan, L-30714, April 30, 1971)
A perusal of the criminal information filed in
the above-entitled cases indubitably show
that each information charges only but one
offense. Thus, in Criminal Case No. 1719-M-

2000, Accused Hilario P. Soriano is charged

only with violation of Sec. 83 of RA 337, as
amended by PD 1796, while in Criminal
Case No. 1720-M-2000, Accused Hilario P.
Soriano and Rosalinda Ilagan are charged
only with Estafa thru falsification of
commercial document.
On the ground that the facts
charged do not constitute an
offense xxx xxx xxx
[b]y simply reading the information
filed against the Accused Hilario P. Soriano,
in Crim. Case No. 1719-M-2000 it is clear
that the allegations, which is hypothetically
admitted by said accused, in the same
information set out an offense for violation of
Sec. 83 of RA 337 as amended by PD No.
1795.
Finally, Accused, in addition to the
two (2) grounds aforesaid, cited prematurity
and lack of probable cause which would
warrant the quashal of the two (2)
informations.
These additional grounds relied
upon by the Accused for the quashal of the
two (2) informations must necessarily fail
because they are not one of the grounds
enumerated in Sec. 3, Rule 117 of the
Revised Rules of Court which this Court
shall not consider, in accordance with Sec. 2,
Rule 117 of the Revised Rules of Court.
WHEREFORE,
premises
considered, the Motion to Quash, dated

September 1, 2000 filed by both Accused is

hereby DENIED, for lack of merit.
SO ORDERED.[9]
Petitioners went up to the Court of Appeals
via certiorari, assailing the Orders of Branch 77 and Branch
14. The petitions were docketed as CA-G.R. SP. Nos. 64648
and 64649. By decision[10] of August 5, 2003, the CA, which
priorly consolidated the petitions, sustained the denial of
petitioners separate motions to quash:
WHEREFORE, FOREGOING PREMISES
CONSIDERED, these petitions are DENIED
DUE
COURSE and
accordingly DISMISSED. The
assailed
Orders dated November 15, 2000 and
February 12, 2001 of the Regional Trial
Court, Branch 77, Malolos, Bulacan in
Criminal Case Nos. 1980-M-2000 and 1981M-2000, entitled, People of the Philippines
vs. Hilario P. Soriano and People of the
Philippines vs. Hilario P. Soriano and
Rosalinda Ilagan, respectively, in CA-G.R.
SP. No. 64648 and the Orders dated
November 27, 2000 and March 9, 2001 of
the Regional Trial Court, Branch 14, Malolos,
Bulacan in Criminal Case Nos. 1719-M-2000
and 1720-M-2000, entitled People of the
Philippines vs. Hilario P. Soriano and People
of the Philippines vs. Hilario P. Soriano and
Rosalinda Ilagan, respectively, in CA-G.R.
SP. No. 64649 are affirmed.[11]
Petitioners are now before this Court, submitting for
resolution the same matters argued before the RTC and the
CA. They insist that RTC Branch 14 and Branch 77 abused

their discretion in denying their motions to quash

informations. Thus, they posit that the CA committed reversible
error in dismissing their petitions for certiorari.
The appeal should be denied.
The term grave abuse of discretion, in its juridical
sense, connotes capricious, despotic, oppressive or whimsical
exercise of judgment as is equivalent to lack of
jurisdiction. The abuse must be of such degree as to amount to
an evasion of positive duty or a virtual refusal to perform a duty
enjoined by law, as where the power is exercised in an
arbitrary and capricious manner by reason of passion and
hostility. The word capricious, usually used in tandem with the
term arbitrary, conveys the notion of willful and unreasoning
action. Thus, when seeking the corrective hand of certiorari, a
clear showing of caprice and arbitrariness in the exercise of
discretion is imperative.[12]
We reviewed the records before us, and we discerned
no caprice or arbitrariness on the part of the RTC in denying
the motions.
Petitioners assail the validity of the informations
against them on the ground that more than one (1) offense is
charged. They point that Soriano was charged with violation of
DOSRI Rules and with estafa thru falsification of commercial
document for allegedly obtaining loans from RBSM. Thus, they
claim that the informations were duplicitous; hence, they
should be quashed.
Indisputably, duplicity of offenses in a single
information is a ground to quash the Information under Section
3(e), Rule 117[13] of the 1985 Rules of Criminal Procedure. The
Rules prohibit the filing of a duplicitous information to avoid
confusing the accused in preparing his defense.[14]

By duplicity of charges is meant a single complaint or

information that charges more than one offense.[15] Section 13
of Rule 110 of the 1985 Rules on Criminal Procedure clearly
states:

obtaining fictitious loans. Thus, Soriano argues that he cannot

be charged with estafa thru falsification of commercial
document, considering that he is already being prosecuted for
obtaining a DOSRI loan.
The contention has no merit.

Duplicity of Offense. A complaint

or information must charge but one offense,
except only in those cases in which existing
laws prescribe a single punishment for
various offenses.

Jurisprudence teems with pronouncements that a

single act or incident might offend two or more entirely distinct
and unrelated provisions
of law,[17] thus justifying the filing of several charges against the
accused.

Otherwise stated, there is duplicity (or multiplicity) of charges

when a single Information charges more than one offense.[16]
In Loney v. People,[18] this Court, in upholding the filing
of multiple charges against the accused, held:
In this case, however, Soriano was faced not with one
information charging more than one offense, but with more
than one information, eachcharging a different offense violation of DOSRI rules in one, and estafa thru falsification of
commercial documents in the others. Ilagan, on the other
hand, was charged with estafa thru falsification of commercial
documents in separate informations. Thus, petitioners
erroneously invoke duplicity of charges as a ground to
quash the Informations.
Petitioners also contend that Soriano should be
charged with one offense only, because all the charges filed
against him proceed from and are based on a single act of

As early as the start of the last

century, this Court had ruled that a single act
or incident might offend against two or more
entirely distinct and unrelated provisions of
law thus justifying the prosecution of the
accused for more than one offense. The only
limit to this rule is the Constitutional
prohibition that no person shall be twice put
in jeopardy of punishment for the same

offense. In People v. Doriquez, we held

that two (or more) offenses arising from the
same act are not the same

x x x if one provision [of law]

requires proof of an additional fact
or element which the other does
not, x x x. Phrased elsewise,
where two different laws (or
articles of the same code) define
two crimes, prior jeopardy as to
one of them is no obstacle to a
prosecution of the other, although
both offenses arise from the same
facts, if each crime involves
some important act which is
not an essential element of the
other.

Consequently, the filing of the multiple

charges against petitioners, although based
on the same incident, is consistent with
settled doctrine.

As aptly pointed out by the BSP in its memorandum,

there are differences between the two (2) offenses. A DOSRI
violation consists in the failure to observe and comply with
procedural, reportorial or ceiling requirements prescribed by
law in the grant of a loan to a director, officer, stockholder and
other related interests in the bank, i.e. lack of written approval
of the majority of the directors of the bank and failure to enter
such approval into corporate records and to transmit a copy
thereof to the BSP supervising department. The elements of
abuse of confidence, deceit, fraud or false pretenses, and
damage, which are essential to the prosecution for estafa, are
not elements of a DOSRI violation. The filing of several
charges against Soriano was, therefore, proper.

Petitioners next question the sufficiency of the

allegations in the informations, contending that the same do
not constitute an offense.

The fundamental test in considering a motion to

quash anchored on Section 3 (a),[19] Rule 117 of the1985 Rules
on Criminal Procedure, 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 charged as defined by law. [20] 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 petitioners against the charge under the information must
be proved by them 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.[21]

We have reviewed the informations and find that they

contain material allegations charging Soriano with violation of
DOSRI rules and estafa thru falsification of commercial
documents.

In Criminal Case Nos. 1719 & 1980 for violation of

DOSRI rules, the informations alleged that Soriano was the
president of RBSMI, while Ilagan was then its general
manager; that during their tenure, Soriano, with the direct
participation of Ilagan, and by using the names of Virgilio
Malang and Rogelio Maaol, was able to indirectly obtain loans
without complying with the requisite board approval, reportorial
and ceiling requirements, in violation of Section 83 of R.A. No.
377[22] as amended.
Similarly, the informations in Criminal Case Nos. 1720
& 1981 charge petitioners with estafa thru falsification of
commercial document. They allege that petitioners made it
appear that Virgilio J. Malang and Rogelio Maaol obtained
loans and received the proceeds thereof when they did not in
fact secure said loans or receive the amounts reflected in the
promissory notes and other bank records.
The information in Criminal Case No. 1720 further
alleges the elements of estafa under Article 315 (1)(b)[23] of the
RPC to wit: (i) that money, goods or other personal property be
received by the offender in trust, or on commission, or for

administration, or under any other obligation involving the duty

to make delivery of or to return the same; (ii) that there be
misappropriation or conversion of such money or property by
the offender, or denial on his part of such receipt; (iii) that such
misappropriation or conversion or denial is to the prejudice of
another; and (iv) that there is demand made by the offended
party to the offender.
The information in Criminal Case No. 1981, on the
other hand, further alleged the following essential elements
of estafa under Article 315 (2) (a)[24] of the RPC: (i) that there
must be a false pretense, fraudulent act or fraudulent means;
(ii) that such false pretense, fraudulent act or fraudulent means
must be made or executed prior to or simultaneously with the
commission of the fraud; (iii) that the offended party must have
relied on the false pretense, fraudulent act, or fraudulent
meansthat is, he was induced to part with his money or
property because of the false pretense, fraudulent act, or
fraudulent means; and (iv) that, as a result thereof, the
offended party suffered damage. The informations in Criminal
Case Nos. 1720 & 1981, thus, charge petitioners with the
complex crime of estafa thru falsification of commercial
documents.
Verily, there is no justification for the quashal of the
Information filed against petitioners. The RTC committed no
grave abuse of discretion in denying the motions.

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.
WHEREFORE, the petition for review is DENIED and the
assailed Decision of the Court of Appeals is AFFIRMED. Costs
against the petitioners.

SO ORDERED.

x-------------------------------------------------x
DECISION
DEL CASTILLO, J.:

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.[25] Thus, petitioners

A bank officer violates the DOSRI[2] law when he acquires bank funds
for his personal benefit, even if such acquisition was facilitated by a
fraudulent loan application. Directors, officers, stockholders, and their
related interests cannot be allowed to interpose the fraudulent nature
of the loan as a defense to escape culpability for their circumvention
of Section 83 of Republic Act (RA) No. 337.[3]

Before us is a Petition for Review on Certiorari[4] under Rule

45 of the Rules of Court, assailing the September 26,
2003 Decision[5] and the February 5, 2004 Resolution[6] of the Court
of Appeals (CA) in CA-G.R. SP No. 67657. The challenged Decision
disposed as follows:
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 letter[9] 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
HILARIO P. SORIANO,
Petitioner,

G.R. No. 162336

- versus -

Present:

PEOPLE OF
THE PHILIPPINES,
BANGKO SENTRAL NG
PILIPINAS (BSP),
PHILIPPINE
DEPOSIT INSURANCE
CORPORATION (PDIC),
PUBLIC
PROSECUTOR ANTONIO
C.
BUAN, and STATE
PROSECUTOR ALBERTO
R.
FONACIER,
Respondents. [1]

CARPIO, J., Chairperson,

CORONA,*
BRION,
DEL CASTILLO, and
PEREZ, JJ.

Promulgated:
February 1, 2010

and Amalia Carlos appeared to have an outstanding loan of P8

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 P8 million loan had
never been authorized by RBSM's Board of Directors and no report
thereof had ever been submitted to the Department of Rural Banks,
Supervision and Examination Sector of the BSP. The letter of the
OSI, which was not subscribed under oath, ended with a request that
a preliminary investigation be conducted and the corresponding
criminal charges be filed against petitioner at his last known address.
Acting on the letter-request and its annexes, State Prosecutor Albert
R. Fonacier proceeded with the preliminary investigation. He issued a
subpoena with the witnesses affidavits and supporting documents
attached, and required petitioner to file his counter-affidavit. In due
course, the investigating officer issued a Resolution finding probable
cause and correspondingly filed two separate informations against
petitioner before the Regional Trial Court (RTC) of Malolos, Bulacan.
[13]

The first Information,[14] dated November 14, 2000 and docketed as

Criminal Case No. 237-M-2001, was for estafa through falsification of
commercial documents, under Article 315, paragraph 1(b), of the
Revised Penal Code (RPC), in relation to Article 172 of the RPC and
PD 1689. It basically alleged that petitioner and his co-accused, in
abuse of the confidence reposed in them as RBSM officers, caused
the falsification of a number of loan documents, making it appear that
one Enrico Carlos filled up the same, and thereby succeeded in
securing a loan and converting the loan proceeds for their personal
gain and benefit.[15] The information reads:
That in or about the month of April,
1997, and thereafter, in San Miguel, Bulacan, and
within the jurisdiction of this Honorable Court, the
said
accused HILARIO
P.
SORIANO and ROSALINDA ILAGAN, as

principals by direct participation, with

unfaithfulness or abuse of confidence and taking
advantage of their position as President of the
Rural Bank of San Miguel (Bulacan), Inc. and
Branch Manager of the Rural Bank of San Miguel
San Miguel Branch [sic], a duly organized
banking institution under Philippine Laws,
conspiring, confederating and mutually helping
one another, did then and there, willfully and
feloniously falsify loan documents consisting of
undated loan application/information sheet, credit
proposal dated April 14, 1997, credit proposal
dated April 22, 1997, credit investigation report
dated April 15, 1997, promissory note dated April
23, 1997, disclosure statement on loan/credit
transaction dated April 23, 1997, and other
related documents, by making it appear that one
Enrico Carlos filled up the application/information
sheet and filed the aforementioned loan
documents when in truth and in fact Enrico Carlos
did not participate in the execution of said loan
documents and that by virtue of said falsification
and with deceit and intent to cause damage, the
accused succeeded in securing a loan in the
amount
of
eight
million
pesos
(PhP8,000,000.00)from the Rural Bank of San
Miguel San Ildefonso branch in the name of
Enrico Carlos which amount of PhP8 million
representing the loan proceeds the accused
thereafter converted the same amount to their
own personal gain and benefit, to the damage
and prejudice of the Rural Bank of San Miguel
San Ildefonso branch, its creditors, the Bangko
Sentral ng Pilipinas, and the Philippine Deposit
Insurance Corporation.
CONTRARY TO LAW.[16]

The other Information[17] dated November 10, 2000 and docketed as

Criminal Case No. 238-M-2001, was for violation of Section 83 of RA
337, as amended by PD 1795. The said provision refers to the
prohibition against the so-called DOSRI loans. The information
alleged that, in his capacity as President of RBSM, petitioner indirectly
secured an P8 million loan with RBSM, for his personal use and
benefit, without the written consent and approval of the bank's Board
of Directors, without entering the said transaction in the bank's
records, and without transmitting a copy of the transaction to the
supervising department of the bank. His ruse was facilitated by
placing the loan in the name of an unsuspecting RBSM depositor,
one Enrico Carlos.[18] The information reads:

That in or about the month of April,

1997, and thereafter, and within the jurisdiction of
this Honorable Court, the said accused, in his
capacity as President of the Rural Bank of San
Miguel (Bulacan), Inc., did then and there, willfully
and feloniously indirectly borrow or secure a loan
with the Rural Bank of San Miguel San Ildefonso
branch, a domestic rural banking institution
created, organized and existing under Philippine
laws, amounting to eight million pesos
(PhP8,000,000.00), knowing fully well that the
same has been done by him without the written
consent and approval of the majority of the board
of directors of the said bank, and which consent
and approval the said accused deliberately failed
to obtain and enter the same upon the records of
said banking institution and to transmit a copy
thereof to the supervising department of the said
bank, as required by the General Banking Act, by

using the name of one depositor Enrico Carlos of

San Miguel, Bulacan, the latter having no
knowledge of the said loan, and one in
possession of the said amount of eight million
pesos (PhP8,000,000.00), accused converted
the same to his own personal use and benefit, in
flagrant violation of the said law.

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 quash[21] 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 lettercomplaint, 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
83[23] of RA 337, as amended by PD 1795),[24] hence a person cannot
be charged for both offenses. He argued that a violation of DOSRI
law requires the offender to obtain a loan from his bank, without
complying with procedural, reportorial, or ceiling requirements. On the
other hand, estafa under par. 1(b), Article 315 of the RPC requires the
offender to misappropriate or convert something that he holds in
trust, or on commission, or for administration, or under any other
obligation involving the duty to return the same.[25]

Essentially, the petitioner theorized that the characterization

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

Ruling of the Regional Trial Court

In an Order[26] dated August 8, 2001, the trial court denied petitioner's

Motion to Quash for lack of merit. The lower court agreed with the
prosecution that the assailed OSI letter was not the complaintaffidavit 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 Certiorari[29] with the CA,

reiterating his arguments before the trial court.

Ruling of the Court of Appeals

The CA denied the petition on both issues presented by petitioner.
On the first issue, the CA determined that the BSP letter, which
petitioner characterized to be a fatally infirm complaint, was not
actually a complaint, but a transmittal or cover letter only. This
transmittal letter merely contained a summary of the affidavits which
were attached to it. It did not contain any averment of personal

knowledge of the events and transactions that constitute the elements

of the offenses charged. Being a mere transmittal letter, it need not
comply with the requirements of Section 3(a) of Rule 112 of the Rules
of Court.[30]
The CA further determined that the five affidavits attached to the
transmittal letter should be considered as the complaint-affidavits that
charged petitioner with violation of Section 83 of RA 337 and for
Estafa thru Falsification of Commercial Documents. These complaintaffidavits 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]

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

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]
[33]

Petitioners Motion for Reconsideration was likewise denied for lack

of merit.
Hence, this petition.
Issues
Restated, petitioner raises the following issues[34] for our
consideration:

Is a petition for certiorari under Rule 65 the proper

remedy against an Order denying a Motion to
Quash?
IV
Whether petitioner is entitled to a writ of injunction.
Our Ruling
The petition lacks merit.
First Issue:
Whether the complaint complied with the
mandatory requirements provided under
Section 3(a), Rule 112 of the Rules of Court
and Section 18, paragraphs (c) and (d) of
Republic Act No. 7653

Petitioner moved to withdraw the first issue from the instant

petition
On March 5, 2007, the Court noted[35] petitioner's Manifestation and
Motion for Partial Withdrawal of the Petition[36] dated February 7,
2007. In the said motion, petitioner informed the Court of the
promulgation of a Decision entitled Soriano v. Hon. Casanova,
[37]
which also involved petitioner and similar BSP letters to the
DOJ. According to petitioner, the said Decision allegedly ruled
squarely on the nature of the BSP letters and the validity of the sworn
affidavits attached thereto. For this reason, petitioner moved for the
partial withdrawal of the instant petition insofar as it involved the issue
of whether or not a court can legally acquire jurisdiction over a
complaint which failed to comply with the mandatory requirements
provided under Section 3(a), Rule 112 of the Rules of Court and
Section 18, paragraphs (c) and (d) of RA 7653.[38]
Given that the case had already been submitted for resolution of the
Court when petitioner filed his latest motion, and that all respondents
had presented their positions and arguments on the first issue, the
Court deems it proper to rule on the same.
In Soriano v. Hon. Casanova, the Court held that the affidavits
attached to the BSP transmittal letter complied with the
mandatory requirements under the Rules of Court.
To be sure, the BSP letters involved in Soriano v. Hon.
Casanova[39] are not the same as the BSP letter involved in the
instant case. However, the BSP letters inSoriano 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]

validity of the witnesses sworn affidavits as bases for a preliminary

investigation, we held:

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.

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:

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

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 P8 million from RBSM; that petitioner succeeded in
obtaining the loan proceeds; that he later converted the loan
proceeds to his own personal gain and benefit; and that his action
caused damage and prejudice to RBSM, its creditors, the BSP, and
the PDIC.
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 P8 million) which came to
the possession of petitioner was money held in trust or administration
by him for the bank, in his
fiduciary capacity as the President of said bank.[47] It is not accurate to
say that petitioner became the owner of the P8 million because it was
the proceeds of a loan.That would have been correct if the
bank knowingly extended the loan to petitioner himself. But that is not
the case here. According to the information for estafa, the loan was
supposed to be for another person, a certain Enrico Carlos; petitioner,
through falsification, made it appear that said Enrico Carlos applied for
the loan when in fact he (Enrico Carlos) did not. Through such
fraudulent device, petitioner obtained the loan proceeds and
converted the same. Under these circumstances, it cannot be said
that petitioner became the legal owner of the P8 million. Thus,

petitioner remained the banks fiduciary with respect to that money,

which makes it capable of misappropriation or conversion in his
hands.
The next question is whether there can also be, at the same
time, a charge for DOSRI violation in such a situation wherein the
accused bank officer did notsecure 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 238M-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 (P8 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 elements[54] for a violation of Section
83, even if petitioner did not secure the loan in his own name.
The broad interpretation of the prohibition in Section 83 is
justified by the fact that it even expressly covers loans to third parties

where the third parties are aware of the transaction (such as

principals represented by the DOSRI), and where the DOSRIs
interest does not appear to be beneficial but even burdensome (such
as in cases when the DOSRI acts as a mere guarantor or surety). If
the law finds it necessary to protect the bank and the banking system
in such situations, it will surely be illogical for it to exclude a case like
this where the DOSRI acted for his own benefit, using the name of
an unsuspecting person. A contrary interpretation will effectively allow
a DOSRI to use dummies to circumvent the requirements of the law.
In sum, the informations filed against petitioner do not
negate each other.
Third Issue:
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 forcertiorari 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.

FIRST 3 CASES
G.R. No. 71479 October 18, 1990
MELLON
vs.

BANK,

N.A., petitioner,

HON. CELSO L. MAGSINO, in his capacity as Presiding

Judge of Branch CLIX of the Regional Trial Court at Pasig;
MELCHOR JAVIER, JR., VICTORIA JAVIER; HEIRS OF
HONORIO POBLADOR, JR., namely: Elsa Alunan
Poblador, Honorio Poblador III, Rafael Poblador, Manuel
Poblador, Ma. Regina Poblador, Ma. Concepcion Poblador
& Ma. Dolores Poblador; F.C. HAGEDORN & CO., INC.;
DOMINGO JHOCSON, JR.; JOSE MARQUEZ; ROBERTO
GARINO; ELNOR INVESTMENT CO., INC.; PARAMOUNT
FINANCE CORPORATION; RAFAEL CABALLERO; and TRIARC
INVESTMENT
and
MANAGEMENT
CO.,
INC.respondents.
FERNAN, C.J.:
The issue in the instant special civil action of certiorari is
whether or not, by virtue of the principle of election of
remedies, an action filed in California, U.S.A., to recover real
property located therein and to constitute a constructive trust
on said property precludes the filing in our jurisdiction of an
action to recover the purchase price of said real property.
On May 27, 1977, Dolores Ventosa requested the transfer of
$1,000 from the First National Bank of Moundsville, West
Virginia, U.S.A. to Victoria Javier in Manila through the
Prudential Bank. Accordingly, the First National Bank
requested the petitioner, Mellon Bank, to effect the transfer.
Unfortunately the wire sent by Mellon Bank to Manufacturers
Hanover Bank, a correspondent of Prudential Bank, indicated
the amount transferred as "US$1,000,000.00" instead of
US$1,000.00. Hence Manufacturers Hanover Bank transferred

one million dollars less bank charges of $6.30 to the Prudential

Bank for the account of Victoria Javier.
On June 3, 1977, Javier opened a new dollar account (No.
343) in the Prudential Bank and deposited $999,943.70.
Immediately their, Victoria Javier and her husband, Melchor
Javier, Jr., made withdrawals from the account, deposited them
in several banks only to withdraw them later in an apparent
plan to conceal, "launder" and dissipate the erroneously sent
amount.
On June 14, 1977, Javier withdrew $475,000 from account No.
343 and converted it into eight cashier's checks made out to
the following: (a) F.C. Hagedorn & Co., Inc., two cheeks for the
total amount of P1,000,000; (b) Elnor Investment Co., Inc., two
checks for P1,000,000; (c) Paramount Finance Corporation,
two checks for P1,000,000; and (d) M. Javier, Jr., two checks
for P496,000. The first six checks were delivered to Jose
Marquez and Honorio Poblador, Jr.
It appears that Melchor Javier, Jr. had requested Jose
Marquez, a realtor, to look for properties for sale in the United
States. Marquez offered a 160-acre lot in the Mojave desert in
California City which was owned by Honorio Poblador, Jr.
Javier, without having seen the property, agreed to buy it for
P3,236,800 (US$437,405) although it was actually appraised
at around $38,500. Consequently, as Poblador's agent,
Marquez executed in Makati a deed of absolute sale in favor of
the Javiers and had the document notarized in Manila before
an associate of Poblador. Marquez executed another deed of
sale indicating receipt of the purchase price and sent the deed
to the Kern County Registrar in California for registration.

Inasmuch as Poblador had requested that the purchase price

should not be paid directly to him, the payment of P3,000,000
was coursed through Elnor Investment Co., Inc., allegedly
Poblador's personal holding company; Paramount Finance,
allegedly headed by Poblador's brother, and F.C. Hagedorn,
allegedly a stock brokerage with extensive dealings with
Poblador. The payment was made through the aforementioned
six cashier's checks while the balance of P236,000 was paid in
cash by Javier who did not even ask for a receipt.
The two checks totalling P1,000,000 was delivered by
Poblador to F.C. Hagedorn with specific instructions to
purchase Atlas, SMC and Philex shares. The four checks for
P2,000,000 with Elnor Investment and Paramount Finance as
payees were delivered to the latter to purchase "bearer" notes.
Meanwhile, in July, 1977, Mellon Bank filed a complaint
docketed as No. 148056 in the Superior Court of California,
County of Kern, against Melchor Javier, Jane Doe Javier,
Honorio Poblador, Jrn, and Does I through V. In its first
amended complaint to impose constructive trust dated July 14,
1977, 1 Mellon Bank alleged that it had mistakenly and
inadvertently cause the transfer of the sum of $999,000.00 to
Jane Doe Javier; that it believes that the defendants had
withdrawn said funds; that "the defendants and each of them
have used a portion of said funds to purchase real property
located in Kern County, California"; and that because of
defendants' knowledge of Mellon Bank's mistake and
inadvertence and their use of the funds to purchase the
property, they and "each of them are involuntary or
constructive trustees of the real property and of any profits
therefrom, with a duty to convey the same to plaintiff forthwith."

It prayed that the defendants and each of them be declared as

holders of the property in trust for the plaintiff; that defendants
be compelled to transfer legal title and possession of the
property to the plaintiff; that defendants be made to pay the
costs of the suit, and that other reliefs be granted them.
On July 29, 1977, Mellon Bank also filed in the Court of First
Instance of Rizal, Branch X, a complaint against the Javier
spouses, Honorio Poblador, Jr., Domingo L. Jhocson, Jr., Jose
Marquez, Roberto Gario, Elnor Investment Co., Inc., F.C.
Hagedorn & Co., Inc. and Paramount Finance Corporation.
After its amendment, Rafael Caballero and Tri-Arc Investment
& Management Company, Inc. were also named defendants. 2
The amended and supplemental complaint alleged the facts
set forth above and added that Roberto Gario, chief
accountant of Prudential Bank, and who was the reference of
Mrs. Ventosa's dollar remittances to Victoria Javier,
immediately informed the Javiers of the receipt of
US$1,000,000.00; that knowing the financial circumstances of
Mrs. Ventosa and the fact that a mistake had been committed,
the Javiers, with undue haste, took unlawful advantage of the
mistake, withdrew the whole amount and transferred the same
to a "343 dollar account"; that, aided and abetted by Poblador
and Domingo L. Jhocson, the Javiers "compounded and
completed the conversion" of the funds by withdrawing from
the account dollars or pesos equivalent to US $975,000; that
by force of law, the Javiers had been constituted trustees of an
implied trust for the benefit of Mellon Bank with a clear duty to
return to said bank the moneys mistakenly paid to them; that,
upon request of Mellon Bank and Manufacturers Hanover
Bank, Prudential Bank informed the Javiers of the erroneous

transmittal of one million dollars first orally and later by letterdemand; that conferences between the representatives of the
Javiers, led by Jhocson and Poblador, in the latter's capacity
as legal and financial counsel, and representatives of Mellon
Bank, proved futile as the Javiers claimed that most of the
moneys had been irretrievably spent; that the Javiers could
only return the amount if the Mellon Bank should agree to
make an absolute quitclaim and waiver of future rights against
them, and that in a scheme to conceal and dissipate the funds,
through the active participation of Jose Marquez, the Javiers
bought the California property of Poblador.
It further alleged that trust fund moneys totalling P3,000,000.00
were made payable to Hagedorn Paramount and Elnor; that
Hagedorn on instructions of Poblador, purchased shares of
stock at a stock exchange for P1,000,000.00 but later, it hastily
sold said shares at a loss of approximately P150,000.00 to the
prejudice of the plaintiff; that proceeds of the sale were
deposited by Hagedorn in the name of Poblador and/or the law
office of Poblador, Nazareno, Azada, Tomacruz and Paredes;
that dividends declared on the shares were delivered by
Hagedorn to Caballero after the complaint had been filed and
thereafter, Caballero deposited the dividends in his personal
account; that after receiving the P1,000,000.00 trust money,
Paramount issued promissory notes upon maturity of which
Paramount released the amount to unknown persons; that
Elnor also invested P1,000,000.00 in Paramount for which the
latter also issued promissory notes; that after the filing of the
complaint, counsel for plaintiff requested Paramount not to
release the amount after maturity; that in evident bad faith,
Elnor transferred the non-negotiable Paramount promissory
notes to Tri-Arc. that when the notes matured, Paramount

delivered the proceeds of P1,000,000.00 to Tri-Arc; that

Poblador knew or should have known that the attorney's fees
he received from the Javiers came from the trust funds; and
that despite formal demands even after the filing of the
complaint, the defendants refused to return the trust funds
which they continued concealing and dissipating.

F.C. Hagedorn & Co., Inc. then sold the shares for
P874,490.75 as evidenced by HSBC check No. 339736 for
P400,000 and HSBC check No. 339737 for P474,490.75
payable to "cash". Mellon Bank traced these checks to Account
2825-1 of the Philippine Veterans Bank in the name of Cipriano
Azada, Poblador's law partner and counsel to the Javiers. 4

It prayed that: (a) the Javiers, Poblador, Elnor, Jhocson and

Gario be ordered to account for and pay jointly and severally
unto the plaintiff US$999,000.00 plus increments, additions,
fruits and interests earned by the funds from receipt thereof
until fully paid; (b) the other defendants be ordered to account
for and pay unto the plaintiff jointly and severally with the
Javiers to the extent of the amounts which each of them may
have received directly or indirectly from the US$999,000.00
plus increments, additions, fruits and interests; (c) Marquez be
held jointly and severally liable with Poblador for the amount
received by the latter for the sale of the 160-acre lot in
California City; and (d) defendants be likewise held liable
jointly and severally for attomey's fees and litigation expenses
plus exemplary damages.

An employee of the Philippine Veterans Bank thereafter

introduced the specimen signature cards for Account No.
2825-1 thereby confirming Azada's ownership of the account.
Defendants objected to this testimony on the grounds of
Azada's absence, the confidentiality of the bank account, and
the best evidence rule. The court overruled the objection.
Another employee of the Philippine Veterans Bank then
presented the ledger card for Account No. 2825-1, a check
deposit slip and a daily report of returned items. The
defendants objected but they were again overruled by the
court.

In due course, the defendants filed their answers and hearing

of the case ensued. In his testimony, Jose Marquez stated that
Prudential Bank and Trust Company checks Nos. 2530 and
2531 in the respective amounts of P100,000 and P900,000
payable to F. C. Hagedorn were delivered to him by Melchor
Javier, Jr. as partial consideration for the sale of Poblador's
property in California. After receiving the checks, Hagedorn
purchased shares of Atlas Mining, Philex, Marcopper and San
Miguel Corporation for Account No. 3000, which, according to
Fred Hagedorn belonged to the law office of Poblador. 3

Mellon Bank then subpoenaed Erlinda Baylosis of the

Philippine Veterans Bank to show that Azada deposited HSBC
checks No. 339736 and 339737 amounting to P874,490.75 in
his personal current account with said bank. It also
subpoenaed Pilologo Red, Jr. of Hongkong & Shanghai
Banking Corporation to prove that said amount was returned
by Azada to Hagedorn.
The testimonies of these witnesses were objected to by the
defense on the grounds of res inter alios acta, immateriality,
irrelevancy and confidentiality. To resolve the matter, the court
ordered the parties to submit memoranda. The defendants'
objections were also discussed at the hearing on July 13,

1982. For the first time, Poblador's counsel raised the matter of
"election of remedies." 5
At the July 20, 1982 hearing, the lower court, then presided by
Judge Eficio Acosta, conditionally allowed the testimonies of
Baylosis and Red. Baylosis afffirmed that Azada deposited
checks Nos. 339736 and 339737 in the total amount of
P874,490.75 in his personal account with the Philippine
Veterans Bank but almost simultaneously, Azada issued his
PVB check for the same amount in favor of Hagedorn
Consequently, Azada's check initially bounced. For his part,
Red testified that Azada's check for P874,490.75 was received
by the Hongkong & Shanghai Banking Corporation and
credited to the account of Hagedorn .
The defendants then moved to strike off the testimonies of
Baylosis and Red from the record. Defendant Paramount
Finance Corporation, which is not a party to the California
case, thereafter filed its memorandum raising the matter of
"election of remedies". It averred that inasmuch as the Mellon
Bank had filed in California an action to impose constructive
trust on the California property and to recover the same,
Mellon Bank can no longer try to regain the purchase price of
the same property through Civil Case No. 26899. The other
defendants adopted Paramount's stand.
After Mellon Bank filed its reply to the memorandum of
Paramount, on September 10, 1982, Judge Acosta issued a
resolution ordering that the testimonies of Baylosis and Red
and the documents they testified on, which were conditionally
allowed, be stricken from the records. 6 Judge Acosta
explained:

After a judicious evaluation of the arguments

of the parties the Court is of the view that in
cases where money held in trust was
diverted by the trustee, under the "rule of
trust pursuit" the beneficiary "may elect
whether to accept the trust estate in its new
form or hold the trustee responsible for it in
its original condition" (Lathrop vs. Hampton,
31 Cal. 17; Zodos vs. Marefalos 48 Idaho
291; Bahle vs. Hasselbrach 64 NW Eq. 334,
51 Sections 508-76 Am Jur. 2d p. 475), and
that "an election to pursue one remedy
waives and bars pursuit of any inconsistent
remedy"(76 Am Jur. 2d S253). The instant
complaint among others is for the recovery
of the purchase price of the Kern property as
held in trust for the plaintiff while in the
California case the plaintiff maintains that the
Kern property is held in trust for the plaintiff,
which positions are inconsistent with each
other. Neither can the plaintiff now abandon
his complaint for the recovery of the Kern
property and pursue his complaint for the
recovery of the purchase price of said
property for "if he has first sought to follow
the res, the plaintiff cannot thereafter hold
the trustee personally responsible" and
"when once there has been an election to do
one of two things, you cannot retract it and
do the other thing. The election once made
is finally made." (Fowler vs. Bowvery
Savings Bank 113 N.Y. 450, 21 N.E. 172, 4

LRA 145, 10 Am. S.R. 479. 2 Silv. 280, 23,

Abb. N. Cos. 133065 C. J. p. 980 Note 32).
The fact that the California case has been
stayed pending determination of the instant
case only means that should this case be
dismissed, the California case can proceed
to its final determination.
Furthermore, when the plaintiff filed the
California case for the transfer of legal title
and possession of the Kern property to the
plaintiff it in effect ratified the transaction for
"by taking the proceeds or product of a
wrongful transfer of trust property or funds,
the beneficiary ratifies the transaction"
(Board of Commissioner vs. Strawn [CA6
Ohio] 157 F. 49, 76 Am Jur. 2d Section 253).
Consequently the purchase price of the
California property received by defendant
Poblador from Javier is no longer the proper
subject matter of litigation and the movement
and disposition of the purchase price is
therefore within the scope of the absolutely
confidential nature of bank deposits as
provided by Sec. 2, R.A. 1405 as amended
by PD No. 1792.
Mellon Bank moved for reconsideration, alleging that said
order prevented the presentation of evidence on the purchase
price of the California property; that the California case cannot
be considered a waiver of the pursuit of the purchase price as

even if said case was filed fifteen days prior to the filing of the
original complaint in this case, except for the Javiers, no other
defendants raised in their answers the affirmative defense of
the filing of the California case; that after the amendment of the
complaint, none of the defendants raised the matter of
"election of remedies" in their answers; that realizing this
procedural error, Paramount sought the amendment of its
answer to reflect the "defence" of "election of remedies"; that,
disregarding its previous orders allowing evidence and
testimonies on Account No. 2825-1, the court made a
turnabout and ruled that the testimonies on said account were
irrelevant and confidential under Republic Act No. 1405; that
Philippine law and jurisprudence does not require the election
of remedies for they favor availment of all remedies; that even
United States jurisprudence frowns upon election of remedies
if it will lead to an inequitable result; that, as held by this Court
in Radiowealth vs. Javier, 7 there can be no binding election of
remedies before the decision on the merits is had; that until
Mellon Bank gets full recovery of the trust moneys, any
contention of election of remedy is premature, and that, the
purchase price being the subject of litigation, inquiring into its
movement, including its deposit in banks, is allowed under
Republic Act No. 1405.

action." The motion to stay proceedings was "granted until

determination of the Philippine action." 8

Defendants filed their respective comments and oppositions to

the motion for reconsideration. In its reply, the Mellon Bank
presented proof to the effect that in the California case,
defendants filed motions to stake out the cross-complaint of
Mellon Bank, for summary judgment and to stay or dismiss the
action on the ground of inconvenient forum but the first two
motions and the motion to dismiss were denied "without
prejudice to renew upon determination of the Philippine

The adjudication in the Order of September

10, 1982 and the Order of October 28, 1983,
which has the effect of declaring that plaintiff
has no cause of action against the
defendants for the recovery of the proceeds
of the sale of Kern property in the amount of
Three Million Three Hundred Fifty Thousand
Pesos (P3,500,000.00 [sic]) for having filed a

On October 28, 1983, the lower court, through Judge Acosta,

denied the motion for reconsideration and ordered the
continuation of the hearing (Rollo, p. 182). The plaintiff filed a
motion for the reconsideration of both the September 10, 1982
and October 28, 1983 orders. After the parties had filed
comments, opposition and reply, the court, through Judge
Celso L. Magsino, denied Mellon Bank's second motion for
reconsideration on the ground that it was "prescribed by the
1983 Interim Rules of Court" in an order dated July 9, 1985. 9
The court ruled that the determination of the relevancy of the
testimonies of Baylosis and Red was "premised directly and
principally" on whether or not Mellon Bank could still recover
the purchase price of the California property notwithstanding
the filing of the case in California to recover title and
possession of the said property. After quoting the resolution of
September 10, 1982, the Court ruled that it was a "final order
or a definitive judgment with respect to the claim of plaintiff for
the recovery" of the purchase price of the California property. It
stated:

complaint for the recovery of the Kern

property in the Superior Court of California,
County of Kern is a final and definitive
disposition of the claim of the plaintiff to
recover in the instant action the proceeds of
sale of said property against the defendants.
The issue of "election of remedy" by the
plaintiff was lengthily and thoroughly
discussed and argued by the parties before
the rendition of the resolution of September
10, 1982, and in the motion for
reconsideration and oppositions thereto
before its resolution in the Order of October
28, 1983. Such issue is a substantive one as
it refers to the existence of plaintiffs cause of
action to recover the proceeds of the sale of
the Kern property in this action, and that
issue was presented to the Court as if a
motion to dismiss or a preliminary hearing of
an affirmative defense on the ground that
plaintiff has no cause of action, and was
resolved against plaintiff in the Order of
September 10, 1982, after a full hearing of
all the parties. Said Order of September 10,
1982 has the effect of putting an end to the
controversy between the parties as to the
right of plaintiff to claim or recover the
proceeds of the sale of the Kern property
from the defendants. It is therefore an
adjudication upon the merits. 10

Hence, Mellon Bank filed the instant petition for certiorari

claiming that the resolution of September 10, 1982 and the
orders of October 28, 1983 and July 9, 1985 are void for being
unlawful and oppressive exercises of legal authority,
subversive of the fair administration of justice, and in excess of
jurisdiction. The petition is founded on its allegations that: (a)
the resolution of September 10, 1982 is interlocutory as it does
not dispose of Civil Case No. 26899 completely: (b) the
evidence stricken from the records is relevant on the basis of
the allegations of the amended and supplemental complaint,
and (c) the doctrine of election of remedies, which has long
been declared obsolete in the United States, is not applicable
in this case.
With the exception of the Javiers, all the respondents filed their
respective comments on the petition. Having failed to file said
comment, the Javiers' counsel of record, Azada, Tomacruz &
Cacanindin, 11 was required to show cause why disciplinary
action should not be taken against it. And, having also failed to
show cause, it was fined P300.
In his motion for reconsideration of the resolution imposing
said fine, Cipriano Azada alleged that in Civil Case No. 26899,
the Javiers were indeed represented by the law firm of
Poblador, Azada, Tomacruz & Cacanindin but he was never
the lawyer of the Javiers' in his personal capacity; that after the
death of Honorio Poblador, Jr., he had withdrawn from the
partnership; that he is the counsel of the Administratrix of the
Estate of Honorio Poblador, Jr. for which he had filed a
comment, and that should the Court still require him to file
comment for the Javiers despite the lack of client-lawyer

relationship, he would adopt the comment he had filed for the

said Administratrix.12
In its effort to locate the Javiers so that their side could be
heard, we required the petitioner to furnish us with the Javiers'
address as well as the name and address of their counsel. 13 In
compliance therewith, counsel for petitioner manifested that
the Javiers had two known addresses in San Juan, Metro
Manila and in Sampaloc, Manila; that since their conviction in
Crim. Case No. CCC-VII 2369-P.C. of the Pasig Regional Trial
Court, the Javiers had gone into hiding and warrants for their
arrest still remain unserved; 14 that the Javiers' counsel of
record in Civil Case No. 26899 is Atty. Cipriano Azada; that the
same counsel appeared for the Javiers in Criminal Case No.
39851 of the Pasig Regional Trial Court which is a tax evasion
case filed by the Republic of the Philippines, and that during
the hearings of the civil and tax evasion cases against the
Javiers, Atty. Cipriano Azada, Jr. represented them. 15
Inasmuch as copies of the resolution requiring comment on the
petition and the petition itself addressed to Melchor Javier
were returned with the notations "moved" and "deceased", the
Court required that said copies be sent to Mrs. Javier herself
and that petitioner should inform the Court of the veracity of
Javier's death. 16 A copy of the resolution addressed to Mrs.
Javier was returned also with the notation "deceased." 17
Counsel for petitioner accordingly informed the Court that he
learned that the Javiers had fled the country and that he had
no way of verifying whether Melchor Javier had indeed died. 18

In view of these circumstances, the Javiers' comment on the

petition shall be dispensed with as the Court deems the
pleadings filed by the parties sufficient bases for resolving this
case. The Javiers shall be served copies of this decision in
accordance with Section 6, Rule 13 of the Rules of Court by
delivering said copies to the clerk of court of the lower court,
with proof of failure of both personal service and service by
mail.
We hold that the lower court gravely abused its discretion in
ruling that the resolution of September 10, 1982 is a "final and
definitive disposition" of petitioner's claim for the purchase
price of the Kern property. The resolution is interlocutory and
means no more than what it states in its dispositive portion-the
testimonies of Baylosis and Red and the documents they
testified on, should be stricken from the record.
That the resolution discusses the common-law principle of
election of remedies, a subject matter which shall be dealt with
later, is beside the point. It is interlocutory because the issue
resolved therein is merely the admissibility of the plaintiff's
evidence. 19 As such, it does not dispose of the case
completely but leaves something more to be done upon its
merits. 20 There are things left undone in Civil Case No. 26899
after the issuance of the September 10, 1982 resolution not
only because of its explicit dispositive portion but also due to
the fact that even until now, the case is still pending and being
heard. 21
Furthermore, the lower court's holding in its July 9, 1985 order
that petitioner's second motion for reconsideration is
proscribed by the 1983 Interim Rules of Court which disallows

such motion on a final order or judgment, should be rectified.

As explained above, the resolution of September 10, 1982 is
not a final one. It also contains conclusions on procedural
matters which, if left unchecked, would prejudice petitioner's
substantive rights.
In effect, therefore, the July 9, 1985 order is a shortcut
disposition of Civil Case No. 26899 in total disregard of
petitioner's right to a thorough ventilation of its claims. By
putting a premium on procedural technicalities over the
resolution of the merits of the case, the lower court rode
roughshod over the basic judicial tenet that litigations should,
as much as possible, be decided on their merits and not on
technicalities. 22 The trial court's patent grave abuse of
discretion therefore forces us to exercise supervisory authority
to correct its errors notwithstanding the fact that ordinarily, this
Court would not entertain a petition for certiorari questioning
the legality and validity of an interlocutory order.23
Respondents' principal objection to the testimonies of Baylosis
and Red is their alleged irrelevance to the issues raised in Civil
Case No. 26899. The fallacy of this objection comes to fore
upon a scrutiny of the complaint. Petitioner's theory therein is
that after the Javiers had maliciously appropriated unto
themselves $999,000, the other private respondents conspired
and participated in the concealment and dissipation of said
amount. The testimonies of Baylosis and Red are therefore
needed to establish the scheme to hide the erroneously sent
amount.
Private respondents' protestations that to allow the questioned
testimonies to remain on record would be in violation of the

provisions of Republic Act No. 1405 on the secrecy of bank

deposits, is unfounded. Section 2 of said law allows the
disclosure of bank deposits in cases where the money
deposited is the subject matter of the litigation. 24 Inasmuch as
Civil Case No. 26899 is aimed at recovering the amount
converted by the Javiers for their own benefit, necessarily, an
inquiry into the whereabouts of the illegally acquired amount
extends to whatever is concealed by being held or recorded in
the name of persons other than the one responsible for the
illegal acquisition. 25
We view respondents' reliance on the procedural principle of
election of remedies as part of their ploy to terminate Civil
Case No. 26899 prematurely. With the exception of the
Javiers, respondents failed to raise it as a defense in their
answers and therefore, by virtue of Section 2, Rule 9 of the
Rules
of
Court,
such
defense
is
deemed
26
waived. Notwithstanding its lengthy and thorough discussion
during the hearing and in pleadings subsequent to the
answers, the issue of election of remedies has not, contrary to
the lower court's assertion, been elevated to a "substantive
one." Having been waived as a defense, it cannot be treated
as if it has been raised in a motion to dismiss based on the
nonexistence of a cause of action.
Moreover, granting that the defense was properly raised, it is
inapplicable in this case. In its broad sense, election of
remedies refers to the choice by a party to an action of one of
two or more coexisting remedial rights, where several such
rights arise out of the same facts, but the term has been
generally limited to a choice by a party between inconsistent
remedial rights, the assertion of one being necessarily

repugnant to, or a repudiation of, the other. In its technical and

more restricted sense, election of remedies is the adoption of
one of two or more coexisting remedies, with the effect of
precluding a resort to the others. 27
As a technical rule of procedure, the purpose of the doctrine of
election of remedies is not to prevent recourse to any remedy,
but to prevent double redress for a single wrong. 28 It is
regarded as an application of the law of estoppel, upon the
theory that a party cannot, in the assertion of his right occupy
inconsistent positions which form the basis of his respective
remedies. However, when a certain state of facts under the law
entitles a party to alternative remedies, both founded upon the
Identical state of facts, these remedies are not considered
inconsistent remedies. In such case, the invocation of one
remedy is not an election which will bar the other, unless the
suit upon the remedy first invoked shall reach the stage of final
adjudication or unless by the invocation of the remedy first
sought to be enforced, the plaintiff shall have gained an
advantage thereby or caused detriment or change of situation
to the other. 29 It must be pointed out that ordinarily, election of
remedies is not made until the judicial proceedings has gone to
judgment on the merits. 30
Consonant with these rulings, this Court, through Justice J.B.L.
Reyes, opined that while some American authorities hold that
the mere initiation of proceedings constitutes a binding choice
of remedies that precludes pursuit of alternative courses, the
better rule is that no binding election occurs before a decision
on the merits is had or a detriment to the other party
supervenes. 31 This is because the principle of election of
remedies is discordant with the modern procedural concepts

embodied in the Code of Civil Procedure which Permits a party

to seek inconsistent remedies in his claim for relief without
being required to elect between them at the pleading stage of
the litigation. 32
It should be noted that the remedies pursued in the California
case and in Civil Case No. 26899 are not exactly repugnant or
inconsistent with each other. If ever, they are merely alternative
in view of the inclusion of parties in the latter case who are not
named defendants in the former. The causes of action,
although they all stem from the erroneous transmittal of
dollars, are distinct as shown by the complaints lengthily set
out above. The bar of an election of remedies does not apply
to the assertion of distinct causes of action against different
persons arising out of independent transactions. 33
As correctly pointed out by the petitioner, the doctrine of
election of remedies is not favored in the United States for
being harsh. 34 Its application with regard to two cases filed in
two different jurisdictions is also circumscribed by
jurisprudence on abatement of suits. Thus, in Brooks Erection
Co. v. William R. Montgomery & Associates, Inc., 35 it is held:
The pendency of an action in the courts of
one state or country is not a bar to the
institution of another action between the
same parties and for the same cause of
action in a court of another state or country,
nor is it the duty of the court in which the
latter action is brought to stay the same
pending a determination of the earlier action,
even though the court in which the earlier

action is brought has jurisdiction sufficient to

dispose of the entire controversy.
Nevertheless, sometimes stated as a matter
of comity not of right, it is usual for the court
in which the later action is brought to stay
proceedings under such circumstances until
the earlier action is determined.
However, in view of the fact that the California court wherein
the case for recovery of the Kern property was first filed
against the Javiers had stayed proceedings therein until after
the termination of Civil Case No. 26899, the court below can
do no less than expedite the disposition of said case.
We cannot dispose of this case without condemning in the
strongest terms possible the acts of chicanery so apparent
from the records. The respective liabilities of the respondents
are still being determined by the court below. We must warn,
however, against the use of technicalities and obstructive
tactics to delay a just settlement of this case. The taking
advantage of the petitioner's mistake to gain sudden and
undeserved wealth is marked by circumstances so brazen and
shocking that any further delay will reflect poorly on the kind of
justice our courts dispense. The possible involvement of
lawyers in this sorry scheme stamps a black mark on the legal
profession. The Integrated Bar of the Philippines (IBP) must be
made aware of the ostensible participation, if not instigation, in
the spiriting away of the missing funds. The IBP must take the
proper action at the appropriate time against all lawyers
involved in any misdeeds arising from this case.

WHEREFORE, the resolution of September 10, 1982 and the

orders of October 28, 1982 and July 9, 1985 are hereby
annulled. The lower court is ordered to proceed with dispatch
in the disposition of Civil case No. 26899, considering that
thirteen (13) years have gone by since the original erroneous
remittance.
Service of this decision on the Javier spouses shall be in
accordance with Section 6, Rule 13 of the Rules of Court. A
copy of this decision shall be served on the Integrated Bar of
the Philippines.
The decision is immediately executory. Costs against private
respondents.
SO ORDERED.
G.R. No. L-60033 April 4, 1984
TEOFISTO GUINGONA, JR., ANTONIO I. MARTIN, and
TERESITA
SANTOS, petitioners,
vs.
THE CITY FISCAL OF MANILA, HON. JOSE B.
FLAMINIANO, ASST. CITY FISCAL FELIZARDO N. LOTA
and CLEMENT DAVID, respondents.
MAKASIAR, Actg. C.J.:+.wph!1
This is a petition for prohibition and injunction with a prayer for
the immediate issuance of restraining order and/or writ of
preliminary injunction filed by petitioners on March 26, 1982.

On March 31, 1982, by virtue of a court resolution issued by

this Court on the same date, a temporary restraining order was
duly issued ordering the respondents, their officers, agents,
representatives and/or person or persons acting upon their
(respondents') orders or in their place or stead to refrain from
proceeding with the preliminary investigation in Case No.
8131938 of the Office of the City Fiscal of Manila (pp. 47-48,
rec.). On January 24, 1983, private respondent Clement David
filed a motion to lift restraining order which was denied in the
resolution of this Court dated May 18, 1983.
As can be gleaned from the above, the instant petition seeks to
prohibit public respondents from proceeding with the
preliminary investigation of I.S. No. 81-31938, in which
petitioners were charged by private respondent Clement
David, with estafa and violation of Central Bank Circular No.
364 and related regulations regarding foreign exchange
transactions principally, on the ground of lack of jurisdiction in
that the allegations of the charged, as well as the testimony of
private respondent's principal witness and the evidence
through said witness, showed that petitioners' obligation is civil
in nature.
For purposes of brevity, We hereby adopt the antecedent facts
narrated by the Solicitor General in its Comment dated June
28,1982, as follows:t.hqw
On December 23,1981, private respondent
David filed I.S. No. 81-31938 in the Office of
the City Fiscal of Manila, which case was
assigned to respondent Lota for preliminary
investigation (Petition, p. 8).

In I.S. No. 81-31938, David charged

petitioners (together with one Robert
Marshall and the following directors of the
Nation Savings and Loan Association, Inc.,
namely Homero Gonzales, Juan Merino,
Flavio Macasaet, Victor Gomez, Jr., Perfecto
Manalac, Jaime V. Paz, Paulino B. Dionisio,
and one John Doe) with estafa and violation
of Central Bank Circular No. 364 and related
Central Bank regulations on foreign
exchange transactions, allegedly committed
as follows (Petition, Annex "A"):t.hqw
"From March 20, 1979 to
March,
1981,
David
invested with the Nation
Savings
and
Loan
Association, (hereinafter
called NSLA) the sum of
P1,145,546.20 on nine
deposits, P13,531.94 on
savings account deposits
(jointly with his sister,
Denise
Kuhne),
US$10,000.00 on time
deposit,
US$15,000.00
under a receipt and
guarantee of payment and
US$50,000.00 under a
receipt dated June 8, 1980
(au jointly with Denise
Kuhne), that David was

induced into making the

aforestated investments by
Robert
Marshall
an
Australian national who
was allegedly a close
associate of petitioner
Guingona Jr., then NSLA
President,
petitioner
Martin,
then
NSLA
Executive Vice-President
of NSLA and petitioner
Santos,
then
NSLA
General Manager; that on
March 21, 1981 N LA was
placed under receivership
by the Central Bank, so
that David filed claims
therewith
for
his
investments and those of
his sister; that on July 22,
1981 David received a
report from the Central
Bank
that
only
P305,821.92 of those
investments were entered
in the records of NSLA;
that,
therefore,
the
respondents in I.S. No. 8131938 misappropriated the
balance
of
the
investments, at the same
time violating Central Bank

Circular No. 364 and

related Central Bank
regulations on foreign
exchange
transactions;
that
after
demands,
petitioner Guingona Jr.
paid only P200,000.00,
thereby reducing the
amounts misappropriated
to
P959,078.14
and
US$75,000.00."
Petitioners, Martin and Santos, filed a joint
counter-affidavit (Petition, Annex' B') in which
they stated the following.t.hqw
"That Martin became
President of NSLA in
March 1978 (after the
resignation of Guingona,
Jr.) and served as such
until October 30, 1980,
while Santos was General
Manager up to November
1980; that because NSLA
was urgently in need of
funds and at David's
insistence, his investments
were treated as specialaccounts with interest
above the legal rate, an
recorded in separate

confidential
documents
only a portion of which
were to be reported
because he did not want
the Australian government
to tax his total earnings
(nor) to know his total
investments;
that
all
transactions with David
were recorded except the
sum of US$15,000.00
which was a personal loan
of Santos; that David's
check for US$50,000.00
was cleared through
Guingona, Jr.'s dollar
account because NSLA
did not have one, that a
draft of US$30,000.00 was
placed in the name of one
Paz Roces because of a
pending transaction with
her; that the Philippine
Deposit
Insurance
Corporation had already
reimbursed David within
the legal limits; that
majority
of
the
stockholders of NSLA had
filed Special Proceedings
No. 82-1695 in the Court
of First Instance to contest

its (NSLA's) closure; that

after NSLA was placed
under receivership, Martin
executed a promissory
note in David's favor and
caused the transfer to him
of a nine and on behalf (9
1/2) carat diamond ring
with a net value of
P510,000.00; and, that the
liabilities of NSLA to David
were civil in nature."
Petitioner, Guingona, Jr., in his counteraffidavit (Petition, Annex' C') stated the
following:t.hqw
"That he had no hand
whatsoever
in
the
transactions
between
David and NSLA since he
(Guingona
Jr.)
had
resigned
as
NSLA
president in March 1978,
or
prior
to
those
transactions; that he
assumed a portion o; the
liabilities of NSLA to David
because of the latter's
insistence that he placed
his investments with NSLA
because of his faith in

Guingona, Jr.; that in a

Promissory Note dated
June 17, 1981 (Petition,
Annex "D") he (Guingona,
Jr.) bound himself to pay
David the sums of
P668.307.01
and
US$37,500.00 in stated
installments; that he
(Guingona, Jr.) secured
payment of those amounts
with second mortgages
over two (2) parcels of
land under a deed of
Second
Real
Estate
Mortgage (Petition, Annex
"E") in which it was
provided that the mortgage
over one (1) parcel shall
be
cancelled
upon
payment of one-half of the
obligation to David; that he
(Guingona,
Jr.)
paid
P200,000.00 and tendered
another
P300,000.00
which David refused to
accept,
hence,
he
(Guingona, Jr.) filed Civil
Case No. Q-33865 in the
Court of First Instance of
Rizal at Quezon City, to
effect the release of the

mortgage over one (1) of

the two parcels of land
conveyed to David under
second mortgages."

Petitioners alleged that they did not exhaust

available administrative remedies because to
do so would be futile (Petition, p. 9) [pp. 153157, rec.].

At the inception of the preliminary

investigation before respondent Lota,
petitioners moved to dismiss the charges
against them for lack of jurisdiction because
David's claims allegedly comprised a purely
civil obligation which was itself novated.
Fiscal Lota denied the motion to dismiss
(Petition, p. 8).

As correctly pointed out by the Solicitor General, the sole issue

for resolution is whether public respondents acted without
jurisdiction when they investigated the charges (estafa and
violation of CB Circular No. 364 and related regulations
regarding foreign exchange transactions) subject matter of I.S.
No. 81-31938.

But, after the presentation of David's

principal witness, petitioners filed the instant
petition because: (a) the production of the
Promisory Notes, Banker's Acceptance,
Certificates of Time Deposits and Savings
Account allegedly showed that the
transactions between David and NSLA were
simple loans, i.e., civil obligations on the part
of NSLA which were novated when
Guingona, Jr. and Martin assumed them;
and (b) David's principal witness allegedly
testified that the duplicate originals of the
aforesaid instruments of indebtedness were
all on file with NSLA, contrary to David's
claim that some of his investments were not
record (Petition, pp. 8-9).

There is merit in the contention of the petitioners that their

liability is civil in nature and therefore, public respondents have
no jurisdiction over the charge of estafa.
A casual perusal of the December 23, 1981 affidavit. complaint
filed in the Office of the City Fiscal of Manila by private
respondent David against petitioners Teopisto Guingona, Jr.,
Antonio I. Martin and Teresita G. Santos, together with one
Robert Marshall and the other directors of the Nation Savings
and Loan Association, will show that from March 20, 1979 to
March, 1981, private respondent David, together with his
sister, Denise Kuhne, invested with the Nation Savings and
Loan Association the sum of P1,145,546.20 on time deposits
covered by Bankers Acceptances and Certificates of Time
Deposits and the sum of P13,531.94 on savings account
deposits covered by passbook nos. 6-632 and 29-742, or a
total of P1,159,078.14 (pp. 15-16, roc.). It appears further that
private respondent David, together with his sister, made
investments in the aforesaid bank in the amount of
US$75,000.00 (p. 17, rec.).

Moreover, the records reveal that when the aforesaid bank was
placed under receivership on March 21, 1981, petitioners
Guingona and Martin, upon the request of private respondent
David, assumed the obligation of the bank to private
respondent David by executing on June 17, 1981 a joint
promissory note in favor of private respondent acknowledging
an indebtedness of Pl,336,614.02 and US$75,000.00 (p. 80,
rec.). This promissory note was based on the statement of
account as of June 30, 1981 prepared by the private
respondent (p. 81, rec.). The amount of indebtedness
assumed appears to be bigger than the original claim because
of the added interest and the inclusion of other deposits of
private respondent's sister in the amount of P116,613.20.
Thereafter, or on July 17, 1981, petitioners Guingona and
Martin agreed to divide the said indebtedness, and petitioner
Guingona executed another promissory note antedated to
June 17, 1981 whereby he personally acknowledged an
indebtedness of P668,307.01 (1/2 of P1,336,614.02) and
US$37,500.00 (1/2 of US$75,000.00) in favor of private
respondent (p. 25, rec.). The aforesaid promissory notes were
executed as a result of deposits made by Clement David and
Denise Kuhne with the Nation Savings and Loan Association.
Furthermore, the various pleadings and documents filed by
private respondent David, before this Court indisputably show
that he has indeed invested his money on time and savings
deposits with the Nation Savings and Loan Association.
It must be pointed out that when private respondent David
invested his money on nine. and savings deposits with the
aforesaid bank, the contract that was perfected was a contract

of simple loan or mutuum and not a contract of deposit. Thus,

Article 1980 of the New Civil Code provides that:t.hqw
Article 1980. Fixed, savings, and current
deposits of-money in banks and similar
institutions shall be governed by the
provisions concerning simple loan.
In the case of Central Bank of the Philippines vs. Morfe (63
SCRA 114,119 [1975], We said:t.hqw
It should be noted that fixed, savings, and
current deposits of money in banks and
similar institutions are hat true deposits. are
considered simple loans and, as such, are
not preferred credits (Art. 1980 Civil Code; In
re Liquidation of Mercantile Batik of China
Tan Tiong Tick vs. American Apothecaries
Co., 66 Phil 414; Pacific Coast Biscuit Co.
vs. Chinese Grocers Association 65 Phil.
375; Fletcher American National Bank vs.
Ang Chong UM 66 PWL 385; Pacific
Commercial Co. vs. American Apothecaries
Co., 65 PhiL 429; Gopoco Grocery vs.
Pacific Coast Biscuit CO.,65 Phil. 443)."
This Court also declared in the recent case of Serrano vs.
Central Bank of the Philippines (96 SCRA 102 [1980]) that:t.
hqw
Bank deposits are in the nature of irregular
deposits. They are really 'loans because

they earn interest. All kinds of bank deposits,

whether fixed, savings, or current are to be
treated as loans and are to be covered by
the law on loans (Art. 1980 Civil Code Gullas
vs. Phil. National Bank, 62 Phil.
519). Current and saving deposits, are loans
to a bank because it can use the same. The
petitioner here in making time deposits that
earn interests will respondent Overseas
Bank of Manila was in reality a creditor of the
respondent Bank and not a depositor. The
respondent Bank was in turn a debtor of
petitioner. Failure of the respondent Bank to
honor the time deposit is failure to pay its
obligation as a debtor and not a breach of
trust arising from a depositary's failure to
return the subject matter of the
deposit (Emphasis supplied).
Hence, the relationship between the private respondent and
the Nation Savings and Loan Association is that of creditor
and debtor; consequently, the ownership of the amount
deposited was transmitted to the Bank upon the perfection of
the contract and it can make use of the amount deposited for
its banking operations, such as to pay interests on deposits
and to pay withdrawals. While the Bank has the obligation to
return the amount deposited, it has, however, no obligation to
return or deliver the same money that was deposited. And, the
failure of the Bank to return the amount deposited will not
constitute estafa through misappropriation punishable under
Article 315, par. l(b) of the Revised Penal Code, but it will only

give rise to civil liability over which the public respondents have
no- jurisdiction.
WE have already laid down the rule that:t.hqw
In order that a person can be convicted
under the above-quoted provision, it must be
proven that he has the obligation to deliver
or return the some money, goods or
personal property that he receivedPetitioners
had no such obligation to return the same
money, i.e., the bills or coins, which they
received from private respondents. This is so
because as clearly as stated in criminal
complaints, the related civil complaints and
the supporting sworn statements, the sums
of money that petitioners received were
loans.
The nature of simple loan is defined in
Articles 1933 and 1953 of the Civil Code.t.
hqw
"Art. 1933. By the
contract of loan, one of the
parties delivers to another,
either something not
consumable so that the
latter may use the same
for a certain time- and
return it, in which case the
contract is called a

commodatum; or money
or other consumable thing,
upon the condition that the
same amount of the same
kind and quality shall he
paid in which case the
contract is simply called a
loan or mutuum.
"Commodatum
essentially gratuitous.

is

"Simple loan may be

gratuitous or with a
stipulation to pay interest.
"In commodatum the bailor
retains the ownership of
the thing loaned while in
simple loan, ownership
passes to the borrower.
"Art. 1953. A person
who receives a loan of
money or any other
fungible thing acquires the
ownership thereof, and is
bound to pay to the
creditor an equal amount
of the same kind and
quality."

It can be readily noted from the abovequoted provisions that in simple loan
(mutuum), as contrasted to commodatum
the borrower acquires ownership of the
money, goods or personal property
borrowed Being the owner, the borrower can
dispose of the thing borrowed (Article 248,
Civil Code) and his act will not be
considered misappropriation thereof' (Yam
vs. Malik, 94 SCRA 30, 34 [1979]; Emphasis
supplied).
But even granting that the failure of the bank to pay the time
and savings deposits of private respondent David would
constitute a violation of paragraph 1(b) of Article 315 of the
Revised Penal Code, nevertheless any incipient criminal
liability was deemed avoided, because when the aforesaid
bank was placed under receivership by the Central Bank,
petitioners Guingona and Martin assumed the obligation of the
bank to private respondent David, thereby resulting in the
novation of the original contractual obligation arising from
deposit into a contract of loan and converting the original trust
relation between the bank and private respondent David into
an ordinary debtor-creditor relation between the petitioners and
private respondent. Consequently, the failure of the bank or
petitioners Guingona and Martin to pay the deposits of private
respondent would not constitute a breach of trust but would
merely be a failure to pay the obligation as a debtor.
Moreover, while it is true that novation does not extinguish
criminal liability, it may however, prevent the rise of criminal
liability as long as it occurs prior to the filing of the criminal

information in court. Thus, in Gonzales vs. Serrano ( 25 SCRA

64, 69 [1968]) We held that:t.hqw

Gaz. 2898; People vs. Velasco, 42 Phil. 76;

U.S. vs. Montanes, 8 Phil. 620).

As pointed out in People vs. Nery, novation

prior to the filing of the criminal information
as in the case at bar may convert the
relation between the parties into an ordinary
creditor-debtor relation, and place the
complainant in estoppel to insist on the
original transaction or "cast doubt on the true
nature" thereof.

It may be observed in this regard that

novation is not one of the means recognized
by the Penal Code whereby criminal liability
can be extinguished; hence, the role of
novation may only be to either prevent the
rise of criminal habihty or to cast doubt on
the true nature of the original basic
transaction, whether or not it was such that
its breach would not give rise to penal
responsibility, as when money loaned is
made to appear as a deposit, or other similar
disguise is resorted to (cf. Abeto vs. People,
90 Phil. 581; U.S. vs. Villareal, 27 Phil. 481).

Again, in the latest case of Ong vs. Court of Appeals (L-58476,

124 SCRA 578, 580-581 [1983] ), this Court reiterated the
ruling in People vs. Nery ( 10 SCRA 244 [1964] ), declaring
that:t.hqw
The novation theory may perhaps apply prior
to the filling of the criminal information in
court by the state prosecutors because up to
that time the original trust relation may be
converted by the parties into an ordinary
creditor-debtor situation, thereby placing the
complainant in estoppel to insist on the
original trust. But after the justice authorities
have taken cognizance of the crime and
instituted action in court, the offended party
may no longer divest the prosecution of its
power to exact the criminal liability, as
distinguished from the civil. The crime being
an offense against the state, only the latter
can renounce it (People vs. Gervacio, 54 Off.

In the case at bar, there is no dispute that petitioners Guingona

and Martin executed a promissory note on June 17, 1981
assuming the obligation of the bank to private respondent
David; while the criminal complaint for estafa was filed on
December 23, 1981 with the Office of the City Fiscal. Hence, it
is clear that novation occurred long before the filing of the
criminal complaint with the Office of the City Fiscal.
Consequently, as aforestated, any incipient criminal liability
would be avoided but there will still be a civil liability on the part
of petitioners Guingona and Martin to pay the assumed
obligation.
Petitioners herein were likewise charged with violation of
Section 3 of Central Bank Circular No. 364 and other related

regulations regarding foreign exchange transactions by

accepting foreign currency deposit in the amount of
US$75,000.00 without authority from the Central Bank. They
contend however, that the US dollars intended by respondent
David for deposit were all converted into Philippine currency
before acceptance and deposit into Nation Savings and Loan
Association.
Petitioners' contention is worthy of behelf for the following
reasons:
1. It appears from the records that when respondent David was
about to make a deposit of bank draft issued in his name in the
amount of US$50,000.00 with the Nation Savings and Loan
Association, the same had to be cleared first and converted
into Philippine currency. Accordingly, the bank draft was
endorsed by respondent David to petitioner Guingona, who in
turn deposited it to his dollar account with the Security Bank
and Trust Company. Petitioner Guingona merely
accommodated the request of the Nation Savings and loan
Association in order to clear the bank draft through his dollar
account because the bank did not have a dollar account.
Immediately after the bank draft was cleared, petitioner
Guingona authorized Nation Savings and Loan Association to
withdraw the same in order to be utilized by the bank for its
operations.
2. It is safe to assume that the U.S. dollars were converted first
into Philippine pesos before they were accepted and deposited
in Nation Savings and Loan Association, because the bank is
presumed to have followed the ordinary course of the business
which is to accept deposits in Philippine currency only, and that

the transaction was regular and fair, in the absence of a clear

and convincing evidence to the contrary (see
paragraphs p and q,Sec. 5, Rule 131, Rules of Court).
3. Respondent David has not denied the aforesaid contention
of herein petitioners despite the fact that it was raised. in
petitioners' reply filed on May 7, 1982 to private respondent's
comment and in the July 27, 1982 reply to public respondents'
comment and reiterated in petitioners' memorandum filed on
October 30, 1982, thereby adding more support to the
conclusion that the US$75,000.00 were really converted into
Philippine currency before they were accepted and deposited
into Nation Savings and Loan Association. Considering that
this might adversely affect his case, respondent David should
have promptly denied petitioners' allegation.
In conclusion, considering that the liability of the petitioners is
purely civil in nature and that there is no clear showing that
they engaged in foreign exchange transactions, We hold that
the public respondents acted without jurisdiction when they
investigated the charges against the petitioners. Consequently,
public respondents should be restrained from further
proceeding with the criminal case for to allow the case to
continue, even if the petitioners could have appealed to the
Ministry of Justice, would work great injustice to petitioners and
would render meaningless the proper administration of justice.
While as a rule, the prosecution in a criminal offense cannot be
the subject of prohibition and injunction, this court has
recognized the resort to the extraordinary writs of prohibition
and injunction in extreme cases, thus:t.hqw

On the issue of whether a writ of injunction

can restrain the proceedings in Criminal
Case No. 3140, the general rule is that
"ordinarily, criminal prosecution may not be
blocked by court prohibition or injunction."
Exceptions, however, are allowed in the
following instances:t.hqw
"1. for the orderly
administration of justice;
"2. to prevent the use of
the strong arm of the law
in an oppressive and
vindictive manner;
"3. to avoid multiplicity of
actions;
"4. to afford adequate
protection to constitutional
rights;
"5. in proper cases,
because the statute relied
upon is unconstitutional or
was
held
invalid"
( Primicias vs. Municipality
of Urdaneta, Pangasinan,
93 SCRA 462, 469-470
[1979]; citing Ramos vs.
Torres, 25 SCRA 557

[1968]; and Hernandez vs.

Albano, 19 SCRA 95, 96
[1967]).
Likewise, in Lopez vs. The City Judge, et al. ( 18 SCRA 616,
621-622 [1966]), We held that:t.hqw
The writs of certiorari and prohibition, as
extraordinary legal remedies, are in the
ultimate analysis, intended to annul void
proceedings; to prevent the unlawful and
oppressive exercise of legal authority and to
provide for a fair and orderly administration
of justice. Thus, in Yu Kong Eng vs. Trinidad,
47 Phil. 385, We took cognizance of a
petition for certiorari and prohibition although
the accused in the case could have
appealed in due time from the order
complained of, our action in the premises
being based on the public welfare policy the
advancement of public policy. In Dimayuga
vs. Fajardo, 43 Phil. 304, We also admitted a
petition to restrain the prosecution of certain
chiropractors although, if convicted, they
could have appealed. We gave due course
to their petition for the orderly administration
of justice and to avoid possible oppression
by the strong arm of the law. And inArevalo
vs. Nepomuceno, 63 Phil. 627, the petition
for certiorari challenging the trial court's
action admitting an amended information

was sustained despite the availability of

appeal at the proper time.
WHEREFORE, THE PETITION IS HEREBY GRANTED; THE
TEMPORARY RESTRAINING ORDER PREVIOUSLY ISSUED
IS MADE PERMANENT. COSTS AGAINST THE PRIVATE
RESPONDENT.
SO ORDERED.

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 135.655 metric tons under the 9 January 1980 contract and,
to compensate Reliance therefor, 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 was not
consummated and was later superseded by still another
contract dated 31 July 1980.

G.R. No. L-100831 December 17, 1993

RELIANCE COMMODITIES, INC., petitioner,
vs.
DAEWOO INDUSTRIAL CO., LTD., respondent.
Ongkiko & Dizon Law Offices for petitioner.
Lao, Veloso-Lao & Lao for private respondent.
FELICIANO, J.:
On 9 January 1980, petitioner Reliance Commodities, Inc.
("reliance") and private respondent 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 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 of Lading No.
PIP-1 for carriage to and delivery in Manila to its consignee,
Reliance. The 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 31 July 1980 contract read as follows:

CONFIRMATION
OF
ORDER
SALES NOTE No. HSB-SN/S001-R
To Messrs: Reliance Commodities, Inc.
161,
9th
Street,
10th
Avenue
Caloocan
City
Reference:
HSB-PI/8019-R
Contracted through:
Order
No.:
Commodity:
Foundry
Pig
Iron
Spec.: JIS G 2202 Class 1-1C
Quantity:
2,000MT
Price: US $190.30/MT C&F Manila
Amount:
US
$380,600.00
Packing:
Bare
Loose
Shipment:
August
Destination:
Manila
Payment: By an irrevocable of sight letter of

credit in favor of Daewoo Industrial Co., Ltd.,

541 5th Street, namdaemunro, Jung-Gu,
Seoul, Korea.
Remarks: Other terms and conditions as per
attached sheet.
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.
Read and agreed to:
Name of addressee: Daewoo Industrial Co.,
Ltd.
By: (SGD) MR SAMUEL CHUASON By:
(SGD)
JA-HYUNG
RYU
Date: July 31, 1980 Date: July 31, 1980 1
The attached sheet referred to above set out the
following:

Reliance
Commodities,
Our Reference No. HSB-PI/SO19-R

Inc.

1. Invoicing: Actual Weight

2.
Chemical
Composition
(%):
Carbon: 3.30 min. (aiming 3.80 min.)
Silicon:
2.21-2.60
(aiming
2.60)
Manganese:
0.30-1.00
Phosphorous: 0.45 max. (aiming 0.25 max.)
Sulfur: 0.05 max.
3. Quantity Tolerance: +10 percent of total
quantity should be allowed.
4. Unit Weight: 5 kgs. + 1 kg. (one notch)
5. Broken pieces of twenty (20%) percent
should be allowed.
6. All disputes, controversies, or differences
which may arise between the parties, out of
or in relation to or in connection with this
contract, or for the breach thereof, shall be
finally settled by arbitration in Korea in
accordance with the rules and regulations of
Korea commercial arbitration association or
in the Philippines in accordance with the
Philippine arbitration rules.
7. Letter of credit should be opened on or
before August 7, 1980.

8. Other terms and conditions, if necessary,

are to be solved later by mutual agreement.
9. Mill sheets and copies of non-negotiable
documents to be sent to buyer by airmail
immediately after shipment.
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.

in the appeal and in affirming the decision of the trial court

ruled that:

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.

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

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

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 notsimply 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.

Philippine
Standard
Commodity Classification
statistical code;

The Central Bank of the Philippines has established the

following requirements for opening a letter of credit:

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)

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

c) permits/clearances from
the
appropriate
government
agencies,
whenever applicable;and

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.

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

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

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.

We hold, further, that the Court of Appeals committed no

reversible error when it ruled that the damages incurred by

SO ORDERED.