cred trans digest

7/23/2019 Cred Trans Digest

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PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL BANK), petitioner, vs HONCOURT OF APPEALS AND FRANKLIN !I!ES, respon"ents

FACTS:

Sometime in 1979, private respondent Franklin Vives was asked by Angeles Sance! to elp er "riend and

townmate, Col# Art$ro %oronilla, in incorporating is b$siness, te Sterela &arketing and Services # Speci"ically,Sance! asked private respondent to deposit in a bank a certain amo$nt o" money in te bank acco$nt o" Sterela "or

p$rposes o" its incorporation#

'n &ay 9, 1979, private respondent, Sance!, %oronilla and a certain (strella %$magpi, %oronilla)s privatesecretary, met and disc$ssed te matter# Terea"ter, relying on te ass$rances and representations o" Sance! and%oronilla, private respondent iss$ed a ceck in te amo$nt o" Two *$ndred To$sand +esos +-..,...#../ in "avoro" Sterela and deposited in a savings acco$nt in te name o" Sterela in te +rod$cers 0ank o" te +ilippines#

S$bse$ently, private respondent learned tat Sterela was no longer olding o""ice in te address previo$sly given to

im# Alarmed, e and is wi"e went to te 0ank to veri"y i" teir money was still intact# Tey learned "rom &r#Atien!a tat part o" teir money as already been witdrawn and tat only +9.,...#.. remained terein#

+rivate respondent re"erred te matter to a lawyer, wo made a written demand $pon %oronilla "or te ret$rn o" isclient)s money# %oronilla iss$ed anoter ceck "or +-1-,...#.. in private respondent)s "avor b$t te ceck wasagain disonored "or ins$""iciency o" "$nds#

+rivate respondent instit$ted an action "or recovery o" s$m o" money in te 2egional Trial Co$rt 2TC/ in +asig,

&etro &anila against %oronilla, Sance!, %$magpi and petitioner# Te 2TC o" +asig prom$lgated its decisionsentencing de"endants Art$ro 3# %oronila, (strella %$magpi and +rod$cers 0ank o" te +ilippines to pay plainti""Franklin Vives 4ointly and severally #

+etitioner contends tat te transaction between private respondent and %oronilla is a simple loan m$t$$m/ sinceall te elements o" a m$t$$m are present: "irst, wat was delivered by private respondent to %oronilla was money, a

cons$mable ting5 and second, te transaction was onero$s as %oronilla was obliged to pay interest, as evidenced byte ceck iss$ed by %oronilla in te amo$nt o" +-1-,...#.., or +1-,... more tan wat private respondentdeposited in Sterela)s bank acco$nt#16 &oreover, te "act tat private respondent s$ed is good "riend Sance! "or

is "ail$re to recover is money "rom %oronilla sows tat te transaction was not merely grat$ito$s b$t ad a b$siness angle to it# *ence, petitioner arg$es tat it cannot be eld liable "or te ret$rn o" private respondent)s+-..,...#.. beca$se it is not privy to te transaction between te latter and %oronilla# +etitioner also asserts tat teCo$rt o" Appeals erred in a""irming te trial co$rt)s decision since te "indings o" "act terein were not accord wit

te evidence presented by petitioner d$ring trial to prove tat te transaction between private respondent and%oronilla was a m$t$$m, and tat it committed no wrong in allowing %oronilla to witdraw "rom Sterela)s savingsacco$nt#

+rivate respondent, on te oter and, arg$es tat te transaction between im and %oronilla is not a m$t$$m b$t an

accommodation since e did not act$ally part wit te ownersip o" is +-..,...#.. and in "act asked is wi"e todeposit said amo$nt in te acco$nt o" Sterela so tat a certi"ication can be iss$ed to te e""ect tat Sterela ads$""icient "$nds "or p$rposes o" its incorporation b$t at te same time, e retained some degree o" control over ismoney tro$g is wi"e wo was made a signatory to te savings acco$nt and in wose possession te savings

acco$nt passbook was given#

+etitioner appealed te trial co$rt)s decision to te Co$rt o" Appeals# 8n its %ecision dated 3$ne -6, 1991, teappellate co$rt a""irmed in toto te decision o" te 2TC#



8SS(:

Te onorable co$rt o" appeals erred in $polding tat te transaction between te de"endant doronilla andrespondent vives was one o" simple loan and not accommodation#

28;<:

Tere is no merit in te petition#

;o error was committed by te Co$rt o" Appeals wen it r$led tat te transaction between private respondent and%oronilla was a commodat$m and not a m$t$$m# A circ$mspect e=amination o" te records reveals tat tetransaction between tem was a commodat$m# Article 19>> o" te Civil Code disting$ises between te two kinds

o" loans in tis wise:

0y te contract o" loan, one o" te parties delivers to anoter, eiter someting not cons$mable so tat te latter may$se te same "or a certain time and ret$rn it, in wic case te contract is called a commodat$m5 or money or otercons$mable ting, $pon te condition tat te same amo$nt o" te same kind and $ality sall be paid, in wic casete contract is simply called a loan or m$t$$m#

Commodat$m is essentially grat$ito$s#

Simple loan may be grat$ito$s or wit a stip$lation to pay interest#

8n commodat$m, te bailor retains te ownersip o" te ting loaned, wile in simple loan, ownersip passes to te

borrower#

Te "oregoing provision seems to imply tat i" te s$b4ect o" te contract is a cons$mable ting, s$c as money, te

contract wo$ld be a m$t$$m# *owever, tere are some instances were a commodat$m may ave "or its ob4ect acons$mable ting# Article 19>? o" te Civil Code provides:

Cons$mable goods may be te s$b4ect o" commodat$m i" te p$rpose o" te contract is not te cons$mption o" te

ob4ect, as wen it is merely "or e=ibition#

T$s, i" cons$mable goods are loaned only "or p$rposes o" e=ibition, or wen te intention o" te parties is to lend

cons$mable goods and to ave te very same goods ret$rned at te end o" te period agreed $pon, te loan is acommodat$m and not a m$t$$m#

Te r$le is tat te intention o" te parties tereto sall be accorded primordial consideration in determining teact$al caracter o" a contract#-7 8n case o" do$bt, te contemporaneo$s and s$bse$ent acts o" te parties sall beconsidered in s$c determination#-@

As correctly pointed o$t by bot te Co$rt o" Appeals and te trial co$rt, te evidence sows tat private respondent

agreed to deposit is money in te savings acco$nt o" Sterela speci"ically "or te p$rpose o" making it appear tatsaid "irm ad s$""icient capitali!ation "or incorporation, wit te promise tat te amo$nt sall be ret$rned witintirty >./ days#-9 +rivate respondent merely accommodated %oronilla by lending is money wito$tconsideration, as a "avor to is good "riend Sance!# 8t was owever clear to te parties to te transaction tat te

money wo$ld not be removed "rom Sterela)s savings acco$nt and wo$ld be ret$rned to private respondent a"tertirty >./ days#

%oronilla)s attempts to ret$rn to private respondent te amo$nt o" +-..,...#.. wic te latter deposited inSterela)s acco$nt togeter wit an additional +1-,...#.., allegedly representing interest on te m$t$$m, did notconvert te transaction "rom a commodat$m into a m$t$$m beca$se s$c was not te intent o" te parties and



beca$se te additional +1-,...#.. corresponds to te "r$its o" te lending o" te +-..,...#..# Article 19>6 o" teCivil Code e=pressly states tat tBe bailee in commodat$m ac$ires te $se o" te ting loaned b$t not its "r$its#*ence, it was only proper "or %oronilla to remit to private respondent te interest accr$ing to te latter)s moneydeposited wit petitioner#

;eiter does te Co$rt agree wit petitioner)s contention tat it is not solidarily liable "or te ret$rn o" private

respondent)s money beca$se it was not privy to te transaction between %oronilla and private respondent# Tenat$re o" said transaction, tat is, weter it is a m$t$$m or a commodat$m, as no bearing on te $estion o" petitioner)s liability "or te ret$rn o" private respondent)s money beca$se te "act$al circ$mstances o" te caseclearly sow tat petitioner, tro$g its employee &r# Atien!a, was partly responsible "or te loss o" private

respondent)s money and is liable "or its restit$tion#

To begin wit, te deposit was made in de"endant)s 0$endia branc precisely beca$se Atien!a was a key o""icerterein# Te records sow tat plainti"" ad s$ggested tat te +-..,...#.. be deposited in is bank, te &anila0anking Corporation, b$t %oronilla and %$magpi insisted tat it m$st be in de"endant)s branc in &akati "or it will

be easier "or tem to get a certi"ication# 8n "act be"ore e was introd$ced to plainti"", %oronilla ad already prepareda letter addressed to te 0$endia branc manager a$tori!ing Angeles 0# Sance! and company to open a savingsacco$nt "or Sterela in te amo$nt o" +-..,...#.., as per coordination wit &r# 2$"o Atien!a, Assistant &anager o"

te 0ank = = = (=# 1/# Tis is a clear mani"estation tat te oter de"endants ad been in cons$ltation witAtien!a "rom te inception o" te sceme# Signi"icantly, tere were testimonies and admission tat Atien!a is te broterinlaw o" a certain 2omeo &irasol, a "riend and b$siness associate o" %oronilla#

D*(2(F'2(, te petition is ereby %(;8(%# Te assailed %ecision and 2esol$tion o" te Co$rt o" Appeals areAFF82&(%# S' '2%(2(%#

#ON$ CHAN KI%, petitioner, vs PEOPLE OF THE PHILIPPINES, HON ED$AR D $USTILO

FACTS:

As *ead o" te (conomics nit o" te 2esearc %ivision o" te A$ac$lt$re %epartment o" te So$teast Asian

Fiseries %evelopment Center S(AF%(C/, petitioner Eong Can im cond$cted prawn s$rveys wic re$iredim to travel to vario$s selected provinces in te co$ntry were tere are potentials "or prawn c$lt$re#

Two travel orders were iss$ed to im# 'ne is T' ;o# --- covering is travel in $!on "or a period o" >6 days weree received +?G>@#.. and te second T' ;o# --?@ covering is travel to "rom 8loilo to 2o=as City "or a period o""ive days were e received +G96#..#

Den te Travel (=pense 2eports were a$dited, it was discovered tat tere was an overlap o" "o$r G/ days >.3$ne to > 3$ly 19@-/ in te two -/ travel orders "or wic petitioner collected per diems twice#

8n September 19@>, two -/ complaints "or (sta"a were "iled against te petitioner be"ore te &$nicipal Circ$it Trial

Co$rt at <$imbal, 8loilo, docketed as Criminal Case ;os# ?-@ and ?>1#

A"ter trial in Criminal Case ;o# ?-@, te &$nicipal Circ$it Trial Co$rt rendered a decision "inding te acc$sedg$ilty "or te said crime# 2TC a""irmed# CA dismissed te petition "or aving been "iled o$t o" time# +etitionerHsmotion "or reconsideration was denied "or lack o" merit# *ence, te present reco$rse#

'n >. 'ctober 19@7, petitioner "iled wit te appellate co$rt a petition "or review# As earlier stated, on -9 April19@@, te Co$rt o" Appeals dismissed te petition "or aving been "iled o$t o" time# +etitionerHs motion "or

reconsideration was denied "or lack o" merit#



*ence, te present reco$rse#

8SS(:

8# Deter or not te decision sic/ o" te m$nicipal circ$it trial co$rt g$imbal, iloilo/ and te regional trial co$rt, branc -@ iloilo city/ are s$pported by te "acts and evidence or contrary to law and tat te two co$rts a $o ave

acted wit grave ab$se o" discretion amo$nting to lack o" 4$risdiction or ave acted wito$t or in e=cess o" 4$risdiction#

28;<:

De "ind merit in te petition#

8t is $ndisp$ted tat petitioner received a cas advance "rom private respondent S(AF%(C to de"ray is travel

e=penses $nder T#'# ----# 8t is likewise admitted tat witin te period covered by T#'# ----, petitioner wasrecalled to te ead station in 8loilo and given anoter assignment wic was covered by T#'# --?@# Te disp$tearose wen petitioner allegedly "ailed to ret$rn +1,->.#.. o$t o" te cas advance wic e received $nder T#'#----#

For te alleged "ail$re o" petitioner to ret$rn te amo$nt o" +1,->.#.., e was carged wit te crime o" (sta"a$nder Article >16, par# 1b/ o" te 2evised +enal Code# 8n order tat a person can be convicted $nder te provision,it m$st be proven tat e ad te obligation to deliver or ret$rn te same money, good or personal property tat ead received#

Das petitioner $nder obligation to ret$rn te same money cas advance/ wic e ad receivedI De believe not#(=ec$tive 'rder ;o# 1., dated 1- Febr$ary 19@. provides as "ollows:

0# Cas Advance "or Travel

G# All cas advances m$st be li$idated witin >. days a"ter date o" pro4ected ret$rn o" te person# 'terwise,

corresponding salary ded$ction sall be made immediately "ollowing te e=piration day#

i$idation simply means te settling o" an indebtedness# An employee, s$c as erein petitioner, wo li$idates acas advance is in "act paying back is debt in te "orm o" a loan o" money advanced to im by is employer, asperdiems and allowances# Similarly, as stated in te assailed decision o" te lower co$rt, i" te amo$nt o" te casadvance e received is less tan te amo$nt e spent "or act$al travel # # # e as te rigt to demand reimb$rsement

"rom is employer te amo$nt e spent coming "rom is personal "$nds# 1- 8n oter words, te money advanced byeiter party is act$ally a loan to te oter# *ence, petitioner was $nder no legal obligation to ret$rn te same cas ormoney, i#e#, te bills or coins, wic e received "rom te private respondent#

Article 19>> and Article 196> o" te Civil Code de"ine te nat$re o" a simple loan#

Art# 19>># 0y te contract o" loan, one o" te parties delivers to anoter, eiter someting not cons$mable so tat te

latter may $se te same "or a certain time and ret$rn it, in wic case te contract is called a commodat$m5 ormoney or oter cons$mable ting, $pon te condition tat te same amo$nt o" te same kind and $ality sall be paid, in wic case te contract is simply called a loan or m$t$$m#

Commodat$m is essentially grat$ito$s#

Simple loan may be grat$ito$s or wit a stip$lation to pay interest#



8n commodat$m te bailor retains te ownersip o" te ting loaned, wile in simple loan, ownersip passes to te borrower#

Art# 196>#J A person wo receives a loan o" money or any oter "$ngible ting ac$ires te ownersip tereo", andis bo$nd to pay to te creditor an e$al amo$nt o" te same kind and $ality#

Te r$ling o" te trial 4$dge tat ownersip o" te cas advanced to te petitioner by private respondent was nottrans"erred to te latter is erroneo$s# 'wnersip o" te money was trans"erred to te petitioner#

(ven te prosec$tion witness, Virgilio *ierro, testi"ied t$s:

K Den yo$ gave cas advance to te acc$sed in tis Travel 'rder ;o# ---- s$b4ect to li$idation, wo owns te

"$nds, acc$sed or S(AF%(CI *ow do yo$ consider te "$nds in te possession o" te acc$sed at te time wentere is an act$al trans"er o" casI # # #

A Te one drawing cas advance already owns te money b$t s$b4ect to li$idation# 8" e will not li$idate, be isobliged to ret$rn te amo$nt#

K 8n oter words, it is a trans"er o" ownersip s$b4ect to a s$spensive condition tat e li$idates te amo$nt o" cas

advance $pon ret$rn to station and completion o" te travelI

A Ees, sir#

Since ownersip o" te money cas advance/ was trans"erred to petitioner, no "id$ciary relationsip was created#

Absent tis "id$ciary relationsip between petitioner and private respondent, wic is an essential element o" tecrime o" esta"a by misappropriation or conversion, petitioner co$ld not ave committed esta"a#

Additionally, it as been te policy o" private respondent tat all cas advances not li$idated are to be ded$ctedcorrespondingly "rom te salary o" te employee concerned# Te evidence sows tat te corresponding salaryded$ction was made in te case o" petitioner visavis te cas advance in $estion#

D*(2(F'2(, te decision o" &TC and 2TC are bot ereby S(T AS8%(# +etitioner is ACK8TT(% o" criminalcarge "iled against im# S' '2%(2(%#

CELESTINA T NA$UIAT, petitioner, vs COURT OF APPEALS &n" AURORA 'UEAO, respon"ents

FACTS:

K$eaLo applied wit ;ag$iat "or a loan in te amo$nt o" Two *$ndred To$sand +esos +-..,...#../, wic

;ag$iat granted# 'n 11 A$g$st 19@., ;ag$iat indorsed to K$eaLo Associated 0ank Ceck ;o# .9.99. dated 11A$g$st 19@./ "or te amo$nt o" ;inety Five To$sand +esos +96,...#../, wic was earlier iss$ed to ;ag$iat byte Corporate 2eso$rces Financing Corporation# Se also iss$ed er own Filmanbank Ceck ;o# .?6>1G, to te

order o" K$eaLo, also dated 11 A$g$st 19@. and "or te amo$nt o" ;inety Five To$sand +esos +96,...#../# Te proceeds o" tese cecks were to constit$te te loan granted by ;ag$iat to K$eaLo#>

To sec$re te loan, K$eaLo e=ec$ted a %eed o" 2eal (state &ortgage dated 11 A$g$st 19@. in "avor o" ;ag$iat, ands$rrendered to te latter te owner)s d$plicates o" te titles covering te mortgaged properties#G 'n te same day,te mortgage deed was notari!ed, and K$eaLo iss$ed to ;ag$iat a promissory note "or te amo$nt o" TD'

*;%2(% T*'SA;% +(S'S +-..,...#../, wit interest at 1-M per ann$m, payable on 11 September19@.#6K$eaLo also iss$ed a Sec$rity 0ank and Tr$st Company ceck, postdated 11 September 19@., "or te amo$nto" TD' *;%2(% T*'SA;% +(S'S +-..,...#../ and payable to te order o" ;ag$iat#



pon presentment on its mat$rity date, te Sec$rity 0ank ceck was disonored "or ins$""iciency o" "$nds# 'n te"ollowing day, 1- September 19@., K$eaLo re$ested Sec$rity 0ank to stop payment o" er postdated ceck, b$t te bank re4ected te re$est p$rs$ant to its policy not to onor s$c re$ests i" te ceck is drawn against ins$""icient"$nds#?

'n 1? 'ctober 19@., K$eaLo received a letter "rom ;ag$iat)s lawyer, demanding settlement o" te loan# Sortly

terea"ter, K$eaLo and one 2$by 2$eben"eldt 2$eben"eldt/ met wit ;ag$iat# At te meeting, K$eaLo told ;ag$iattat se did not receive te proceeds o" te loan, adding tat te cecks were retained by 2$eben"eldt, wo p$rportedly was ;ag$iat)s agent#7

;ag$iat applied "or te e=tra4$dicial "oreclos$re o" te mortgage wit te Seri"" o" 2i!al +rovince, wo tensced$led te "oreclos$re sale on 1G A$g$st 19@1# Tree days be"ore te sced$led sale, K$eaLo "iled te case

be"ore te +asay City 2TC,@ seeking te ann$lment o" te mortgage deed# Te trial co$rt event$ally stopped tea$ction sale#9

'n @ &arc 1991, te 2TC rendered 4$dgment, declaring te %eed o" 2eal (state &ortgage n$ll and void, andordering ;ag$iat to ret$rn to K$eaLo te owner)s d$plicates o" er titles to te mortgaged lots#1. ;ag$iat appealed

te decision be"ore te Co$rt o" Appeals, making no less tan eleven assignments o" error# Te Co$rt o" Appeals

prom$lgated te decision now assailed be"ore $s tat a""irmed in toto te 2TC decision# *ence, te present petition#

;ag$iat $estions te "indings o" "acts made by te Co$rt o" Appeals, especially on te iss$e o" weter K$eaLo adact$ally received te loan proceeds wic were s$pposed to be covered by te two cecks ;ag$iat ad iss$ed orindorsed# ;ag$iat claims tat being a notarial instr$ment or p$blic doc$ment, te mortgage deed en4oys te

pres$mption tat te recitals terein are tr$e# ;ag$iat also $estions te admissibility o" vario$s representations and prono$ncements o" 2$eben"eldt, invoking te r$le on te nonbinding e""ect o" te admissions o" tird persons#11

Te resol$tion o" te iss$es presented be"ore tis Co$rt by ;ag$iat involves te determination o" "acts, a "$nctionwic tis Co$rt does not e=ercise in an appeal by certiorari# nder 2$le G6 wic governs appeal by certiorari,only $estions o" law may be raised1- as te S$preme Co$rt is not a trier o" "acts#1> Te resol$tion o" "act$al iss$es

is te "$nction o" lower co$rts, wose "indings on tese matters are received wit respect and are in "act generally

binding on te S$preme Co$rt#1G A $estion o" law wic te Co$rt may pass $pon m$st not involve ane=amination o" te probative val$e o" te evidence presented by te litigants#16 Tere is a $estion o" law in a givencase wen te do$bt or di""erence arises as to wat te law is on a certain state o" "acts5 tere is a $estion o" "act

wen te do$bt or di""erence arises as to te tr$t or te "alseood o" alleged "acts#1?

S$rely, tere are establised e=ceptions to te r$le on te concl$siveness o" te "indings o" "acts o" te lowerco$rts#17 0$t ;ag$iat)s case does not "all $nder any o" te e=ceptions# 8n any event, bot te decisions o" teappellate and trial co$rts are s$pported by te evidence on record and te applicable laws#

Against te common "inding o" te co$rts below, ;ag$iat vigoro$sly insists tat K$eaLo received te loan proceeds#Capitali!ing on te stat$s o" te mortgage deed as a p$blic doc$ment, se cites te r$le tat a p$blic doc$ment

en4oys te pres$mption o" validity and tr$t"$lness o" its contents# Te Co$rt o" Appeals, owever, is correct in

r$ling tat te pres$mption o" tr$t"$lness o" te recitals in a p$blic doc$ment was de"eated by te clear andconvincing evidence in tis case tat pointed to te absence o" consideration#1@ Tis Co$rt as eld tat te

pres$mption o" tr$t"$lness engendered by notari!ed doc$ments is reb$ttable, yielding as it does to clear andconvincing evidence to te contrary, as in tis case#19

'n te oter and, absol$tely no evidence was s$bmitted by ;ag$iat tat te cecks se iss$ed or endorsed wereact$ally encased or deposited# Te mere iss$ance o" te cecks did not res$lt in te per"ection o" te contract o"loan# For te Civil Code provides tat te delivery o" bills o" e=cange and mercantile doc$ments s$c as cecks



sall prod$ce te e""ect o" payment only wen tey ave been cased#-. 8t is only a"ter te cecks ave prod$cedte e""ect o" payment tat te contract o" loan may be deemed per"ected# Art# 19>G o" te Civil Code provides:

An accepted promise to deliver someting by way o" commodat$m or simple loan is binding $pon te parties, b$tte commodat$m or simple loan itsel" sall not be per"ected $ntil te delivery o" te ob4ect o" te contract#

A loan contract is a real contract, not consens$al, and, as s$c, is per"ected only $pon te delivery o" te ob4ect o"te contract#-1 8n tis case, te ob4ects o" te contract are te loan proceeds wic K$eaLo wo$ld en4oy only $pon

te encasment o" te cecks signed or indorsed by ;ag$iat# 8" indeed te cecks were encased or deposited, ;ag$iat wo$ld ave certainly presented te corresponding doc$mentary evidence, s$c as te ret$rned cecks andte pertinent bank records# Since ;ag$iat presented no s$c proo", it "ollows tat te cecks were not encased orcredited to K$eaLo)s acco$nt#1awpi1#nNt

;ag$iat $estions te admissibility o" te vario$s written representations made by 2$eben"eldt on te gro$nd tat

tey co$ld not bind er "ollowing te res inter alia acta alteri nocere non debet r$le# Te Co$rt o" Appeals re4ectedte arg$ment, olding tat since 2$eben"eldt was an a$tori!ed representative or agent o" ;ag$iat te sit$ation "alls$nder a recogni!ed e=ception to te r$le#-- Still, ;ag$iat insists tat 2$eben"eldt was not er agent#

S$""ice to say, owever, te e=istence o" an agency relationsip between ;ag$iat and 2$eben"eldt is s$pported byample evidence# As correctly pointed o$t by te Co$rt o" Appeals, 2$eben"eldt was not a stranger or an

$na$tori!ed person# ;ag$iat instr$cted 2$eben"eldt to witold "rom K$eaLo te cecks se iss$ed or indorsed toK$eaLo, pending delivery by te latter o" additional collateral# 2$eben"eldt served as agent o" ;ag$iat on te loanapplication o" K$eaLo)s "riend, &arilo$ Farralese, and it was in connection wit tat transaction tat K$eaLo came

to know ;ag$iat#-> 8t was also 2$eben"eldt wo accompanied K$eaLo in er meeting wit ;ag$iat and on tatoccasion, on er own and wito$t K$eaLo asking "or it, 2e$ben"eldt act$ally drew a ceck "or te s$mo"+--.,...#.. payable to ;ag$iat, to cover "or K$eaLo)s alleged liability to ;ag$iat $nder te loan agreement#-G

Te Co$rt o" Appeals recogni!ed te e=istence o" an agency by estoppel-6 citing Article 1@7> o" te CivilCode#-?Apparently, it considered tat at te very least, as a conse$ence o" te interaction between ;ag$iat and

2$eben"eldt, K$eaLo got te impression tat 2$eben"eldt was te agent o" ;ag$iat, b$t ;ag$iat did noting to

correct K$eaLo)s impression# 8n tat sit$ation, te r$le is clear# 'ne wo clotes anoter wit apparent a$tority asis agent, and olds im o$t to te p$blic as s$c, cannot be permitted to deny te a$tority o" s$c person to act asis agent, to te pre4$dice o" innocent tird parties dealing wit s$c person in good "ait, and in te onest belie"

tat e is wat e appears to be#-7 Te Co$rt o" Appeals is correct in invoking te said r$le on agency byestoppel#1awpi1#nNt

&ore "$ndamentally, watever was te tr$e relationsip between ;ag$iat and 2$eben"eldt is irrelevant in te "ace o" te "act tat te cecks iss$ed or indorsed to K$eaLo were never encased or deposited to er acco$nt o" ;ag$iat#

All told, we "ind no compelling reason to dist$rb te "inding o" te co$rts a $o tat te lender did not remit and te borrower did not receive te proceeds o" te loan# Tat being te case, it "ollows tat te mortgage wic is

s$pposed to sec$re te loan is n$ll and void# Te consideration o" te mortgage contract is te same as tat o" te

principal contract "rom wic it receives li"e, and wito$t wic it cannot e=ist as an independent contract#-@ Amortgage contract being a mere accessory contract, its validity wo$ld depend on te validity o" te loan sec$red by

it#-9

D*(2(F'2(, te petition is denied and te assailed decision is a""irmed# Costs against petitioner#

S' '2%(2(%#



<#2# ;o# 1>>?>-# Febr$ary 16, -..-B

0+8 8;V(ST&(;T C'2+'2AT8';, petitioner, vs# *';# C'2T 'F A++(AS and AS &A;A<(&(;T O%(V('+&(;T C'2+'2AT8';, respondents#

% ( C 8 S 8 ' ;

K8S&08;<, 3#:

Tis petition "or certiorari assails te decision dated Febr$ary -@, 1997, o" te Co$rt o" Appeals and its resol$tiondated April -1, 199@, in CA<#2# CV ;o# >@@@7# Te appellate co$rt a""irmed te 4$dgment o" te 2egional TrialCo$rt o" +asig City, 0ranc 161, in a/ Civil Case ;o# 11@>1, "or "oreclos$re o" mortgage by petitioner 0+8

8nvestment Corporation 0+88C "or brevity/ against private respondents AS &anagement and %evelopmentCorporation and Antonio # iton4$a,1B consolidated wit b/ Civil Case ;o# 6-.9>, "or damages wit prayer "orte iss$ance o" a writ o" preliminary in4$nction by te private respondents against said petitioner#

Te trial co$rt ad eld tat private respondents were not in de"a$lt in te payment o" teir montly amorti!ation,ence, te e=tra4$dicial "oreclos$re cond$cted by 0+88C was premat$re and made in bad "ait# 8t awarded private

respondents te amo$nt o" +>..,... "or moral damages, +6.,... "or e=emplary damages, and +6.,... "or attorneys"ees and e=penses "or litigation# 8t likewise dismissed te "oreclos$re s$it "or being premat$re#

Te "acts are as "ollows:

Frank 2oa obtained a loan at an interest rate o" 1? 1PGM per ann$m "rom Ayala 8nvestment and %evelopmentCorporation A8%C/, te predecessor o" petitioner 0+88C, "or te constr$ction o" a o$se on is lot in ;ew AlabangVillage, &$ntinl$pa# Said o$se and lot were mortgaged to A8%C to sec$re te loan# Sometime in 19@., 2oa sold

te o$se and lot to private respondents AS and Antonio iton4$a "or+@6.,...# Tey paid +>6.,... in cas andass$med te +6..,... balance o" 2oas indebtedness wit A8%C# Te latter, owever, was not willing to e=tend teold interest rate to private respondents and proposed to grant tem a new loan o" +6..,... to be applied to 2oasdebt and sec$red by te same property, at an interest rate o" -.M per ann$m and service "ee o" 1M per ann$m on te

o$tstanding principal balance payable witin ten years in e$al montly amorti!ation o" +9,99?#6@ and penaltyinterest at te rate o" -1M per ann$m per day "rom te date te amorti!ation became d$e and payable#

Conse$ently, in &arc 19@1, private respondents e=ec$ted a mortgage deed containing te above stip$lations witte provision tat payment o" te montly amorti!ation sall commence on &ay 1, 19@1#

'n A$g$st 1>, 19@-, AS and iton4$a $pdated 2oas arrearages by paying 0+88C te s$m o" +19.,?.1#>6# Tis

red$ced 2oas principal balance to +G67,-.G#9. wic, in t$rn, was li$idated wen 0+88C applied tereto te proceeds o" private respondents loan o"+6..,...#

'n September 1>, 19@-, 0+88C released to private respondents +7,1G?#@7, p$rporting to be wat was le"t o" teirloan a"ter "$ll payment o" 2oas loan#

8n 3$ne 19@G, 0+88C instit$ted "oreclos$re proceedings against private respondents on te gro$nd tat tey "ailed to pay te mortgage indebtedness wic "rom &ay 1, 19@1 to 3$ne >., 19@G, amo$nted to Fo$r *$ndred Seventy Five

To$sand Five *$ndred (igty Five and >1P1.. +esos +G76,6@6#>1/# A notice o" seri""s sale was p$blised onA$g$st 1>, 19@G#

'n Febr$ary -@, 19@6, AS and iton4$a "iled Civil Case ;o# 6-.9> against 0+88C# Tey alleged, among oters,tat tey were not in arrears in teir payment, b$t in "act made an overpayment as o" 3$ne >., 19@G# Teymaintained tat tey so$ld not be made to pay amorti!ation be"ore te act$al release o" te +6..,... loan in

A$g$st and September 19@-# F$rter, o$t o" te +6..,... loan, only te total amo$nt o" +G?G,>61#77 was released



to private respondents# *ence, applying te e""ects o" legal compensation, te balance o"+>6,?G@#-> so$ld beapplied to te initial montly amorti!ation "or te loan#

'n A$g$st >1, 19@@, te trial co$rt rendered its 4$dgment in Civil Case ;os# 11@>1 and 6-.9>, t$s:

D*(2(F'2(, 4$dgment is ereby rendered in "avor o" AS &anagement and %evelopment Corporation and

Antonio # iton4$a and against 0+8 8nvestment Corporation, olding tat te amo$nt o" loan granted by 0+8 toAS and iton4$a was only in te principal s$m o" +G?G,>61#77, wit interest at -.M pl$s service carge o" 1M per

ann$m, payable on e$al montly and s$ccessive amorti!ations at +9,-@>#@> "or ten 1./ years or one $ndredtwenty 1-./ monts# Te amorti!ation sced$le attaced as Anne= A to te %eed o" &ortgage is correspondinglyre"ormed as a"orestated#

Te Co$rt "$rter "inds tat AS and iton4$a s$""ered compensable damages wen 0+8 ca$sed teir p$blication ina newspaper o" general circ$lation as de"a$lting debtors, and tere"ore orders 0+8 to pay AS and iton4$a te

"ollowing s$ms:

a/ +>..,...#.. "or and as moral damages5

b/ +6.,...#.. as and "or e=emplary damages5

c/ +6.,...#.. as and "or attorneys "ees and e=penses o" litigation#

Te "oreclos$re s$it Civil Case ;o# 11@>1/ is ereby %8S&8SS(% "or being premat$re#

Costs against 0+8#

S' '2%(2(%#-B

0ot parties appealed to te Co$rt o" Appeals# *owever, private respondents appeal was dismissed "or nonpayment

o" docket "ees#

'n Febr$ary -@, 1997, te Co$rt o" Appeals prom$lgated its decision, te dispositive portion reads:

D*(2(F'2(, "inding no error in te appealed decision te same is ereby AFF82&(% in toto#

S' '2%(2(%#>B

8n its decision, te Co$rt o" Appeals reasoned tat a simple loan is per"ected only $pon te delivery o" te ob4ect o"te contract# Te contract o" loan between 0+88C and AS O iton4$a was per"ected only on September 1>, 19@-,te date wen 0+88C released te p$rported balance o" te +6..,... loan a"ter ded$cting tere"rom te val$e o"2oas indebtedness# T$s, payment o" te montly amorti!ation so$ld commence only a mont a"ter te said date,

as can be in"erred "rom te stip$lations in te contract# Tis, despite te e=press agreement o" te parties tat payment sall commence on &ay 1, 19@1# From 'ctober 19@- to 3$ne 19@G, te total amorti!ation d$e was only+19G,9?.#G># (vidence sowed tat private respondents ad an overpayment, beca$se as o" 3$ne 19@G, tey already

paid a total amo$nt o" +-.1,791#9?# Tere"ore, tere was no basis "or 0+88C to e=tra4$dicially "oreclose temortgage and ca$se te p$blication in newspapers concerning private respondents delin$ency in te payment o"teir loan# Tis "act constit$ted s$""icient gro$nd "or moral damages in "avor o" private respondents#

Te motion "or reconsideration "iled by petitioner 0+88C was likewise denied, ence tis petition, were 0+88Cs$bmits "or resol$tion te "ollowing iss$es:

8# D*(T*(2 '2 ;'T A C';T2ACT 'F 'A; 8S A C';S(;SA C';T2ACT 8; T*( 8<*T 'F T*(

2( A8% %'D; 8;0';;(V8( VS# C'2T 'F A++(AS, 1-6 SC2A 1--#



88# D*(T*(2 '2 ;'T 0+8 S*'% 0( *(% 8A0( F'2 &'2A A;% (Q(&+A2E %A&A<(S A;%ATT'2;(ES F((S 8; T*( FAC( 'F 822(<A2 +AE&(;TS &A%( 0E AS A;% '++'S(% T' T*(2( A8% %'D; 8; S'C8A S(C28TE SEST(& VS# C'2T 'F A++(AS, 1-. SC2A 7.7#

'n te "irst iss$e, petitioner contends tat te Co$rt o" Appeals erred in r$ling tat beca$se a simple loan is per"ected $pon te delivery o" te ob4ect o" te contract, te loan contract in tis case was per"ected only on

September 1>, 19@-# +etitioner claims tat a contract o" loan is a consens$al contract, and a loan contract is per"ected at te time te contract o" mortgage is e=ec$ted con"ormably wit o$r r$ling in 0onnevie v# Co$rt o"Appeals, 1-6 SC2A 1--# 8n te present case, te loan contract was per"ected on &arc >1, 19@1, te date wen temortgage deed was e=ec$ted, ence, te amorti!ation and interests on te loan so$ld be comp$ted "rom said date#

+etitioner also arg$es tat wile te doc$ments sowed tat te loan was released only on A$g$st 19@-, te loan

was act$ally released on &arc >1, 19@1, wen 0+88C iss$ed a cancellation o" mortgage o" Frank 2oas loan# Tis"inds s$pport in te registration on &arc >1, 19@1 o" te %eed o" Absol$te Sale e=ec$ted by 2oa in "avor o" AS,trans"erring te title o" te property to AS, and AS e=ec$ting te &ortgage %eed in "avor o" 0+88C# &oreover,

petitioner claims, te delay in te release o" te loan so$ld be attrib$ted to private respondents# As 0+88C onlyagreed to e=tend a +6..,... loan, private respondents were re$ired to red$ce Frank 2oas loan below said amo$nt#According to petitioner, private respondents were only able to do so in A$g$st 19@-#

8n teir comment, private respondents assert tat based on Article 19>G o" te Civil Code,GB a simple loan is per"ected $pon te delivery o" te ob4ect o" te contract, ence a real contract# 8n tis case, even to$g te loan

contract was signed on &arc >1, 19@1, it was per"ected only on September 1>, 19@-, wen te "$ll loan wasreleased to private respondents# Tey s$bmit tat petitioner misread0onnevie# To give meaning to Article 19>G,according to private respondents, 0onnevie m$st be constr$ed to mean tat te contract to e=tend te loan was per"ected on &arc >1, 19@1 b$t te contract o" loan itsel" was only per"ected $pon te delivery o" te "$ll loan to

private respondents on September 1>, 19@-#

+rivate respondents "$rter maintain tat even granting, arg$endo, tat te loan contract was per"ected on &arc >1,19@1, and teir payment did not start a mont terea"ter, still no de"a$lt took place# According to privaterespondents, a per"ected loan agreement imposes reciprocal obligations, were te obligation or promise o" eac

party is te consideration o" te oter party# 8n tis case, te consideration "or 0+88C in entering into te loancontract is te promise o" private respondents to pay te montly amorti!ation# For te latter, it is te promise o"0+88C to deliver te money# 8n reciprocal obligations, neiter party inc$rs in delay i" te oter does not comply or isnot ready to comply in a proper manner wit wat is inc$mbent $pon im# Tere"ore, private respondents concl$de,

tey did not inc$r in delay wen tey did not commence paying te montly amorti!ation on &ay 1, 19@1, as it wasonly on September 1>, 19@- wen petitioner "$lly complied wit its obligation $nder te loan contract#

De agree wit private respondents# A loan contract is not a consens$al contract b$t a real contract# 8t is per"ectedonly $pon te delivery o" te ob4ect o" te contract#6B +etitioner misapplied 0onnevie# Te contract in 0onneviedeclared by tis Co$rt as a per"ected consens$al contract "alls $nder te "irst cla$se o" Article 19>G, Civil Code# 8t is

an accepted promise to deliver someting by way o" simple loan#

8n Sa$ra 8mport and (=port Co# 8nc# vs# %evelopment 0ank o" te +ilippines, GG SC2A GG6, petitioner applied "ora loan o"+6..,... wit respondent bank# Te latter approved te application tro$g a board resol$tion# Terea"ter,te corresponding mortgage was e=ec$ted and registered# *owever, beca$se o" acts attrib$table to petitioner, teloan was not released# ater, petitioner instit$ted an action "or damages# De recogni!ed in tis case, a per"ected

consens$al contract wic $nder normal circ$mstances co$ld ave made te bank liable "or not releasing te loan#*owever, since te "a$lt was attrib$table to petitioner terein, te co$rt did not award it damages#



A per"ected consens$al contract, as sown above, can give rise to an action "or damages# *owever, said contractdoes not constit$te te real contract o" loan wic re$ires te delivery o" te ob4ect o" te contract "or its per"ectionand wic gives rise to obligations only on te part o" te borrower#?B

8n te present case, te loan contract between 0+8, on te one and, and AS and iton4$a, on te oter, was per"ected only onSeptember 1>, 19@-, te date o" te second release o" te loan# Following te intentions o" te

parties on te commencement o" te montly amorti!ation, as "o$nd by te Co$rt o" Appeals, private respondentsobligation to pay commenced only on 'ctober 1>, 19@-, a mont a"ter te per"ection o" te contract#7B

De also agree wit private respondents tat a contract o" loan involves a reciprocal obligation, werein teobligation or promise o" eac party is te consideration "or tat o" te oter#@B As averred by private respondents,te promise o" 0+88C to e=tend and deliver te loan is $pon te consideration tat AS and iton4$a sall pay te

montly amorti!ation commencing on &ay 1, 19@1, one mont a"ter te s$pposed release o" te loan# 8t is a basic principle in reciprocal obligations tat neiter party inc$rs in delay, i" te oter does not comply or is not ready tocomply in a proper manner wit wat is inc$mbent $pon im#9B 'nly wen a party as per"ormed is part o" te

contract can e demand tat te oter party also "$l"ills is own obligation and i" te latter "ails, de"a$lt sets in#Conse$ently, petitioner co$ld only demand "or te payment o" te montly amorti!ation a"ter September 1>, 19@-"or it was only ten wen it complied wit its obligation $nder te loan contract# Tere"ore, in comp$ting te

amo$nt d$e as o" te date wen 0+88C e=tra4$dicially ca$sed te "oreclos$re o" te mortgage, te starting date is'ctober 1>, 19@- and not &ay 1, 19@1#

'ter points raised by petitioner in connection wit te "irst iss$e, s$c as te date o" act$al release o" te loan andweter private respondents were te ca$se o" te delay in te release o" te loan, are "act$al# Since petitioner asnot sown tat te instant case is one o" te e=ceptions to te basic r$le tat only $estions o" law can be raised in a petition "or review $nder 2$le G6 o" te 2$les o" Co$rt,1.B"act$al matters need not tarry $s now# 'n tese points

we are bo$nd by te "indings o" te appellate and trial co$rts#

'n te second iss$e, petitioner claims tat it so$ld not be eld liable "or moral and e=emplary damages "or it didnot act malicio$sly wen it initiated te "oreclos$re proceedings# 8t merely e=ercised its rigt $nder te mortgagecontract beca$se private respondents were irreg$lar in teir montly amorti!ation# 8t invoked o$r r$ling in Social

Sec$rity System vs# Co$rt o" Appeals, 1-. SC2A 7.7, were we said:

;or can te SSS be eld liable "or moral and temperate damages# As concl$ded by te Co$rt o" Appeals te

negligence o" te appellant is not so gross as to warrant moral and temperate damages, e=cept tat, said Co$rtred$ced tose damages by only +6,...#.. instead o" eliminating tem# ;eiter can we agree wit te "indings o" bot te Trial Co$rt and respondent Co$rt tat te SSS ad acted malicio$sly or in bad "ait# Te SSS was o" te

belie" tat it was acting in te legitimate e=ercise o" its rigt $nder te mortgage contract in te "ace o" irreg$lar payments made by private respondents and placed reliance on te a$tomatic acceleration cla$se in te contract# Te"iling alone o" te "oreclos$re application so$ld not be a gro$nd "or an award o" moral damages in te same waytat a clearly $n"o$nded civil action is not among te gro$nds "or moral damages#

+rivate respondents co$nter tat 0+88C was g$ilty o" bad "ait and so$ld be liable "or said damages beca$se it

insisted on te payment o" amorti!ation on te loan even be"ore it was released# F$rter, it did not make tecorresponding ded$ction in te montly amorti!ation to con"orm to te act$al amo$nt o" loan released, and itimmediately initiated "oreclos$re proceedings wen private respondents "ailed to make timely payment#

0$t as admitted by private respondents temselves, tey were irreg$lar in teir payment o" montly amorti!ation#Con"ormably wit o$r r$ling in SSS, we can not properly declare 0+88C in bad "ait# Conse$ently, we so$ld r$le

o$t te award o" moral and e=emplary damages#11B



*owever, in o$r view, 0+88C was negligent in relying merely on te entries "o$nd in te deed o" mortgage, wito$tcecking and correspondingly ad4$sting its records on te amo$nt act$ally released to private respondents and tedate wen it was released# S$c negligence res$lted in damage to private respondents, "or wic an award o"nominal damages so$ld be given in recognition o" teir rigts wic were violated by 0+88C#1-B For tis p$rpose,

te amo$nt o" +-6,... is s$""icient#

astly, as in SSS were we awarded attorneys "ees beca$se private respondents were compelled to litigate, wes$stain te award o"+6.,... in "avor o" private respondents as attorneys "ees#

D*(2(F'2(, te decision dated Febr$ary -@, 1997, o" te Co$rt o" Appeals and its resol$tion dated April -1,199@, are AFF82&(% D8T* &'%8F8CAT8'; as to te award o" damages# Te award o" moral and e=emplarydamages in "avor o" private respondents is %((T(%, b$t te award to tem o" attorneys "ees in te amo$nt o"

+6.,... is +*(%# Additionally, petitioner is '2%(2(% to pay private respondents +-6,... as nominaldamages# Costs against petitioner#

S' '2%(2(%#

COLITO T. PAJUYO, petitioner, vs. COURT OF APPEALS and EDDIE GUEVARRA,respondents.

FACTSIn June 1979, petitioner Colito T. Pajuyo (Pajuyo) paid P400 to a certain Pedro Perez for teri!t" o#er a $%0&"'uare eter lot in arrio Payata", *uezon City. Pajuyo ten con"tructed aou"e ade of li!t aterial" on te lot. Pajuyo and i" faily li#ed in te ou"e fro 1979to 7 +eceer 19-%.In 19-%, Pajuyo ten entru"ted te ou"e to ddie /ue#ara e#idenced y a a"unduan ora!reeent for te latter" u"e pro#ided e "ould return te "ae upon deand and 2itte condition tat /ue#ara "ould e re"pon"ile of te aintenance of te property. 3pondeand in 1994, /ue#ara refu"ed to return te property to Pajuyo. Te petitioner ten ledan ejectent ca"e a!ain"t /ue#ara 2it te 5TC. In i" 6n"2er, /ue#arra claied tatPajuyo ad no #alid title or ri!t of po""e""ion o#er te lot 2ere te ou"e "tand" ecau"ete lot i" 2itin te 1%0 ectare" "et a"ide y Proclaation o. 187 for "ocialized ou"in!.

Te 5TC ruled tat te "uject of te a!reeent et2een Pajuyo and /ue#arra i" te ou"eand not te lot. Pajuyo i" te o2ner of te ou"e, and e allo2ed /ue#arra to u"e te ou"eonly y tolerance. Tu", /ue#arra" refu"al to #acate te ou"e on Pajuyo" deand ade/ue#arra" continued po""e""ion of te ou"e ille!al.

n appeal 2it te C6, te appellate court re#er"ed te jud!ent of te lo2er court on te!round tat ot partie" are ille!al "ettler" on te property tu" a#e no le!al ri!t "o tatte Court "ould lea#e te pre"ent "ituation 2it re"pect to po""e""ion of te property a" iti", and rulin! furter tat te contractual relation"ip of Pajuyo and /ue#ara 2a" tat of acoodatu ecau"e te a!reeent i" not for a price certain.

ISSUE: C6 erred in re#er"in! and "ettin! a"ide te deci"ion of te ;TC in rulin! tat tea"unduan #oluntarily entered into y te partie" 2a" in fact a coodatu, in"tead of aContract of <ea"e a" found y te 5etropolitan Trial Court and in oldin! tat te ejectentca"e led a!ain"t defendant&appellant i" 2itout le!al and factual a"i".

RULI!G



:e do not "u"crie to te Court of 6ppeal" teory tat te a"unduan i" one ofcoodatu.In a contract of coodatu, one of te partie" deli#er" to anoter "oetin! notcon"uale "o tat te latter ay u"e te "ae for a certain tie and return it. =>8? 6ne""ential feature of coodatu i" tat it i" !ratuitou". 6noter feature of coodatu i"tat te u"e of te tin! elon!in! to anoter i" for a certain period. =>4? Tu", te ailor

cannot deand te return of te tin! loaned until after e@piration of te period "tipulated,or after accopli"ent of te u"e for 2ic te coodatu i" con"tituted. =>%? If teailor "ould a#e ur!ent need of te tin!, e ay deand it" return for teporary u"e.=>>? If te u"e of te tin! i" erely tolerated y te ailor, e can deand te return of tetin! at 2ill, in 2ic ca"e te contractual relation i" called a precariu. =>7? 3nder te Ci#ilCode, precariu i" a Aind of coodatu. =>-?

Te a"unduan re#eal" tat te accoodation accorded y Pajuyo to /ue#arra 2a" note""entially !ratuitou". :ile te a"unduan did not re'uire /ue#arra to pay rent, itoli!ated i to aintain te property in !ood condition. Te ipo"ition of ti" oli!ationaAe" te a"unduan a contract diBerent fro a coodatu. Te eBect" of tea"unduan are al"o diBerent fro tat of a coodatu. Ca"e la2 on ejectent a"treated relation"ip a"ed on tolerance a" one tat i" aAin to a landlord&tenant relation"ip2ere te 2itdra2al of peri""ion 2ould re"ult in te terination of te lea"e. =>9? Tetenant" 2itoldin! of te property 2ould ten e unla2ful. Ti" i" "ettled juri"prudence.

#en a""uin! tat te relation"ip et2een Pajuyo and /ue#arra i" one of coodatu,/ue#arra a" ailee 2ould "till a#e te duty to turn o#er po""e""ion of te property toPajuyo, te ailor. Te oli!ation to deli#er or to return te tin! recei#ed attace" tocontract" for "afeAeepin!, or contract" of coi""ion, adini"tration and coodatu.=70? Te"e contract" certainly in#ol#e te oli!ation to deli#er or return te tin! recei#ed.=71?

/ue#arra turned i" acA on te a"unduan on te "ole !round tat liAe i, Pajuyo i" al"o a"'uatter. 'uatter", /ue#arra pointed out, cannot enter into a contract in#ol#in! te landtey ille!ally occupy. /ue#arra in"i"t" tat te contract i" #oid.

/ue#arra "ould Ano2 tat tere u"t e onor e#en et2een "'uatter". /ue#arra freelyentered into te a"unduan. /ue#arra cannot no2 ipu!n te a"unduan after e adeneted fro it. Te a"unduan ind" /ue#arra.

:D;E;, 2e /;6T te petition. Te +eci"ion of te Court of 6ppeal" are T 6I+. Te +eci"ion of te ;e!ional Trial Court of *uezon City aFrin! te +eci"ion of te5etropolitan Trial Court of *uezon City i" ;IT6T+ 2it 5+IEIC6TI. ;+;+.

AS(A; +AC8F8C +A;;(2S, A++

C';ST2CT8'; A;%

%(V('+&(;T C'2+'2AT8';R

A;% C(SA2 <'C',

+etitioners,



vers$s

<#2# ;o# 1?-6-6

+resent:

K8S&08;<, 3#, Cairperson,

CA2+8' &'2A(S,

T8;<A,

V(ASC', 32#, and

028';, 33#

C8TE 'F 2%A;(TA, C(F(28;' 3# CA+AA%, DA%' C# %( CAST8', ;'20(2T' &# %( +2A%',3(SS A# '2%';' A;% AK88;' &A<8SA,R

2espondents#

+rom$lgated:

September ->, -..@

= =

%(C8S8';

K8S&08;<, 3#:

Te instant petition seeks to set aside te 2esol$tions1B dated April 16, -..> and Febr$ary G, -..G o" te Co$rt o"Appeals in CA<#2# S+ ;o# 7?17.#

Tis case stemmed "rom a Complaint-B "or ann$lment o" contracts wit prayer "or preliminary proibitory

in4$nction and temporary restraining order "iled by respondent Daldo C# %el Castillo, in is capacity as ta=payer,against respondents City o" rdaneta and Ce"erino 3# Capalad doing b$siness $nder te name 33(FDA 0$ilders, and



petitioners Asean +aci"ic +lanners A++/ represented by 2onilo <# <oco and Asean +aci"ic +lanners Constr$ctionand %evelopment Corporation A++C%C/ represented by Cesar %# <oco#

%el Castillo alleged tat ten rdaneta City &ayor 2odol"o (# +arayno entered into "ive contracts "or te preliminary design, constr$ction and management o" a "o$rstorey twin cinema commercial center and otelinvolving a massive e=pendit$re o" p$blic "$nds amo$nting to +-6. million, "$nded by a loan "rom te +ilippine

;ational 0ank +;0/# For minimal work, te contractor was allegedly paid +96 million# %el Castillo also claimedtat all te contracts are void beca$se te ob4ect is o$tside te commerce o" men# Te ob4ect is a piece o" land belonging to te p$blic domain and wic remains devoted to a p$blic p$rpose as a p$blic elementary scool#Additionally, e claimed tat te contracts, "rom te "easibility st$dy to management and lease o" te "$t$re

b$ilding, are also void beca$se tey were all awarded solely to te <oco "amily#

8n teir Answer,>B A++ and A++C%C claimed tat te contracts are valid# rdaneta City &ayor Amadeo 2# +ere!,3r#, wo "iled te citys Answer,GB 4oined in te de"ense and asserted tat te contracts were properly e=ec$ted byten &ayor +arayno wit prior a$tority "rom te Sangg$niang +anl$ngsod# &ayor +ere! also stated tat %el

Castillo as no legal capacity to s$e and tat te complaint states no ca$se o" action# For respondent Ce"erino 3#Capalad, Atty# 'scar C# Saag$n "iled an Answer6B wit comp$lsory co$nterclaim and motion to dismiss on tegro$nd tat %el Castillo as no legal standing to s$e#

2espondents ;orberto &# %el +rado, 3es$s A# 'rdono and A$ilino &ag$isa became parties to te case wen tey 4ointly "iled, also in teir capacity as ta=payers, a Complaintin8ntervention?B adopting te allegations o" %el

Castillo#

A"ter pretrial, te a!aro aw Firm entered its appearance as co$nsel "or rdaneta City and "iled an 'mnib$s&otion7Bwit prayer to 1/ witdraw rdaneta Citys Answer5 -/ drop rdaneta City as de"endant and be 4oined as plainti""5 >/ admitrdaneta Citys complaint5 and G/ cond$ct a new pretrial# rdaneta City allegedly wanted torecti"y its position and claimed tat inade$ate legal representation ca$sed its inability to "ile te necessary

pleadings in representation o" its interests#

8n its 'rder@B dated September 11, -..-, te 2egional Trial Co$rt 2TC/ o" rdaneta City, +angasinan, 0ranc G6,

admitted te entry o" appearance o" te a!aro aw Firm and granted te witdrawal o" appearance o" te City+rosec$tor# 8t also granted te prayer to drop te city as de"endant and admitted its complaint "or consolidation wit%el Castillos complaint, and directed te de"endants to answer te citys complaint#

8n its Febr$ary 1G, -..> 'rder,9B te 2TC denied reconsideration o" te September 11, -..- 'rder# 8t also

grantedCapalads motion to e=p$nge all pleadings "iled by Atty# Saag$n in is beal"# Capalad was dropped asde"endant, and is complaint "iled by Atty# 3orito C# +eralta was admitted and consolidated wit te complaints o"%el Castillo and rdaneta City# Te 2TC also directed A++ and A++C%C to answer Capalads complaint#

Aggrieved, A++ and A++C%C "iled a petition "or certiorari be"ore te Co$rt o" Appeals# 8n its April 16, -..>2esol$tion, te Co$rt o" Appeals dismissed te petition on te "ollowing gro$nds: 1/ de"ective veri"ication and

certi"ication o" non"or$m sopping, -/ "ail$re o" te petitioners to s$bmit certi"ied tr$e copies o" te 2TCs assailed

orders as mere potocopies were s$bmitted, and >/ lack o" written e=planation wy service o" te petition toadverse parties was not personal#1.B Te Co$rt o" Appeals also denied A++ and A++C%Cs motion "or

reconsideration in its Febr$ary G, -..G 2esol$tion#11B

*ence, tis petition, wic we treat as one "or review on certiorari $nder 2$le G6, te proper remedy to assail teresol$tions o" te Co$rt o" Appeals#1-B

+etitioners arg$e tat:



8#

T*( A++(AT( C'2T +A+A0E (22(% A;% <2AV(E A0S(% 8TS 3%8C8A +2(2'<AT8V(S0E S&&A28E %8S&8SS8;< T*( +(T8T8'; '; T*( 0AS8S 'F +2'C(%2A T(C*;8CA8T8(S%(S+8T( S0STA;T8A C'&+8A;C( T*(2(D8T*B

88#

T*( T28A C'2T +A+A0E (22(% A;% <2AV(E A0S(% 8TS 3%8C8A +2(2'<AT8V(S 0ECA+28C8'SE

a#/ (ntertaining te ta=payers s$its o" private respondents del Castillo, del +rado, 'rdono and &ag$isa despite teir

clear lack o" legal standing to "ile te same#

b#/ Allowing te entry o" appearance o" a private law "irm to represent te City o" rdaneta despite te clearstat$tory and 4$rispr$dential proibitions tereto#

c#/ Allowing Ce"erino 3# Capalad and te City o" rdaneta to switc sides, by permitting te witdrawal o" teirrespective answers and admitting teir complaints as well as allowing te appearance o" Atty# 3orito C# +eralta to

represent Capalad alto$g Atty# 'scar C# Saag$n, is co$nsel o" record, ad not witdrawn "rom te case, in grossviolation o" well settled r$les and case law on te matter#1>B

De "irst resolve weter te Co$rt o" Appeals erred in denying reconsideration o" its April 16, -..> 2esol$tiondespite A++ and A++C%Cs s$bse$ent compliance#

+etitioners arg$e tat te Co$rt o" Appeals so$ld not ave dismissed te petition on mere tecnicalities since teyave attaced te proper doc$ments in teir motion "or reconsideration and s$bstantially complied wit te r$les#

2espondent rdaneta City maintains tat te Co$rt o" Appeals correctly dismissed te petition beca$se Cesar <ocoad no proo" e was a$tori!ed to sign te certi"ication o" non"or$m sopping in beal" o" A++C%C#

8ndeed, Cesar <oco ad no proo" o" is a$tority to sign te veri"ication and certi"ication o" non"or$m sopping o"te petition "or certiorari "iled wit te Co$rt o" Appeals#1GB T$s, te Co$rt o" Appeals is allowed by te r$les tediscretion to dismiss te petition since only individ$als vested wit a$tority by a valid board resol$tion may signte certi"icate o" non"or$m sopping in beal" o" a corporation# +roo" o" said a$tority m$st be attaced5 oterwise,te petition is s$b4ect to dismissal#16B

*owever, it m$st be pointed o$t tat in several cases,1?B tis Co$rt ad considered as s$bstantial compliance wit

te proced$ral re$irements te s$bmission in te motion "or reconsideration o" te a$tority to sign te veri"icationand certi"ication, as in tis case# Te Co$rt notes tat te attacments in te motion "or reconsideration sow tat on&arc 6, -..>, te 0oard o" %irectors o" A++C%C a$tori!ed Cesar <oco to instit$te te petition be"ore te Co$rto" Appeals#17B 'n &arc --, -..>, 2onilo <oco doing b$siness $nder te name A++, also appointed is "ater,

Cesar <oco, as is attorneyin"act to "ile te petition#1@B Den te petition was "iled on &arc -?, -..>19B

be"ore te Co$rt o" Appeals, Cesar <oco was d$ly a$tori!ed to sign te veri"ication and certi"ication e=cept tat te proo" o" is a$tority was not s$bmitted togeter wit te petition#

Similarly, petitioners s$bmitted in te motion "or reconsideration certi"ied tr$e copies o" te assailed 2TC orders and

we may also consider te same as s$bstantial compliance#-.B +etitioners also incl$ded in te motion "orreconsideration teir e=planation-1B tat copies o" te petition were personally served on te a!aro aw Firm andmailed to te 2TC and Atty# +eralta beca$se o" distance# Te a""idavit o" service--B s$pported te e=planation#Considering te s$bstantial iss$es involved, it was t$s error "or te appellate co$rt to deny reinstatement o" te

petition#



*aving disc$ssed te proced$ral iss$es, we sall now proceed to address te s$bstantive iss$es raised by petitioners,rater tan remand tis case to te Co$rt o" Appeals# 8n o$r view, te iss$e, simply p$t, is: %id te 2TC err andcommit grave ab$se o" discretion in a/ entertaining te ta=payers s$its5 b/ allowing a private law "irm to representrdaneta City5 c/ allowing respondents Capalad and rdaneta City to switc "rom being de"endants to becoming

complainants5 and d/ allowing Capalads cange o" attorneysI

'n te "irst point at iss$e, petitioners arg$e tat a ta=payer may only s$e were te act complained o" directlyinvolves illegal disb$rsement o" p$blic "$nds derived "rom ta=ation# Te allegation o" respondents %el Castillo, %el+rado, 'rdono and &ag$isa tat te constr$ction o" te pro4ect is "$nded by te +;0 loan contradicts te claimregarding illegal disb$rsement since te "$nds are not directly derived "rom ta=ation#

2espondents %el Castillo, %el +rado, 'rdono and &ag$isa co$nter tat teir personality to s$e was not raised by

petitioners A++ and A++C%C in teir Answer and tat tis iss$e was not even disc$ssed in te 2TCs assailed orders#

+etitioners contentions lack merit# Te 2TC properly allowed te ta=payers s$its# 8n +$blic 8nterest Center, 8nc# v#2o=as,->B we eld:

8n te case o" ta=payers s$its, te party s$ing as a ta=payer m$st prove tat e as s$""icient interest in preventing

te illegal e=pendit$re o" money raised by ta=ation# T$s, ta=payers ave been allowed to s$e were tere is a claimtat p$blic "$nds are illegally disb$rsed or tat p$blic money is being de"lected to any improper p$rpose, or tat

p$blic "$nds are wasted tro$g te en"orcement o" an invalid or $nconstit$tional law#

= = = =

+etitioners allegations in teir Amended Complaint tat te loan contracts entered into by te 2ep$blic and ;+C areserviced or paid tro$g a disb$rsement o" p$blic "$nds are not disp$ted by respondents, ence, tey are investedwit personality to instit$te te same#-GB

*ere, te allegation o" ta=payers %el Castillo, %el +rado, 'rdono and &ag$isa tat +96 million o" te +-6. million+;0 loan ad already been paid "or minimal work is s$""icient allegation o" overpayment, o" illegal disb$rsement,

tat invests tem wit personality to s$e# +etitioners do not disp$te te allegation as tey merely insist, albeiterroneo$sly, tat p$blic "$nds are not involved# nder Article 196>-6B o" te Civil Code, te city ac$iredownersip o" te money loaned "rom +;0, making te money p$blic "$nd# Te city will ave to pay te loan by

reven$es raised "rom local ta=ation or by its internal reven$e allotment#

8n addition, A++ and A++C%Cs lack o" ob4ection in teir Answer on te personality to s$e o" te "o$r complainantsconstit$tes waiver to raise te ob4ection $nder Section 1, 2$le 9 o" te 2$les o" Co$rt#-?B

'n te second point, petitioners contend tat only te City +rosec$tor can represent rdaneta City and tat law and 4$rispr$dence proibit te appearance o" te a!aro aw Firm as te citys co$nsel#

Te a!aro aw Firm, as te citys co$nsel, co$nters tat te city was in$tile de"ending its ca$se be"ore te 2TC "orlack o" needed legal advice# Te city as no legal o""icer and bot City +rosec$tor and +rovincial egal '""icer are

b$sy# +ractical considerations also dictate tat te city and &ayor +ere! m$st ave te same co$nsel since e "acesrelated criminal cases#Citing &ancenido v# Co$rt o" Appeals,-7B te law "irm states tat iring private co$nsel is proper were rigid aderence to te law on representation wo$ld deprive a party o" is rigt to redress a validgrievance#-@B

De cannot agree wit te a!aro aw Firm# 8ts appearance as rdaneta Citys co$nsel is against te law as it

provides e=pressly wo so$ld represent it# Te City +rosec$tor so$ld contin$e to represent te city#



Section G@1a/-9B o" te ocal <overnment Code <C/ o" 1991>.B mandates te appointment o" a city legalo""icer#nder Section G@1b/>/i/>1B o" te <C, te city legal o""icer is s$pposed to represent te city in all civilactions, as in tis case, and special proceedings werein te city or any o" its o""icials is a party# 8n 2amos v# Co$rto" Appeals,>-B we cited tat $nder Section 19>>B o" 2ep$blic Act ;o# 61@6,>GB city governments may already

create te position o" city legal o""icer to wom te "$nction o" te city "iscal now prosec$tor/ as legal adviser ando""icer "or civil cases o" te city sall be trans"erred#>6B 8n te case o" rdaneta City, owever, te position o" city

legal o""icer is still vacant, alto$g its carter>?Bwas enacted way back in 199@#

0eca$se o" s$c vacancy, te City +rosec$tors appearance as co$nsel o" rdaneta City is proper# Te City+rosec$tor remains as te citys legal adviser and o""icer "or civil cases, a "$nction tat co$ld not yet be trans"erred to

te city legal o""icer#nder te circ$mstances, te 2TC so$ld not ave allowed te entry o" appearance o" tea!aro aw Firm vice te City +rosec$tor# ;otably, te citys Answer was sworn to be"ore te City +rosec$tor by&ayor +ere!# Te City +rosec$tor prepared te citys pretrial brie" and represented te city in te pretrial

con"erence# ;o $estion was raised against te City +rosec$tors actions $ntil te a!aro aw Firm entered itsappearance and claimed tat te city lacked ade$ate legal representation#

&oreover, te appearance o" te a!aro aw Firm as co$nsel "or rdaneta City is against te law# Section G@1b/>/i/ o" te <C provides wen a special legal o""icer may be employed, tat is, in actions or proceedings were a

component city or m$nicipality is a party adverse to te provincial government# 0$t tis case is not betweenrdaneta City and te +rovince o"+angasinan# And we ave consistently eld tat a local government $nit cannot berepresented by private co$nsel>7B as only p$blic o""icers may act "or and in beal" o" p$blic entities and p$blic"$nds so$ld not be spent to ire private lawyers#>@B +ro bono representation in collaboration wit te m$nicipalattorney and prosec$tor as not even been allowed#>9B

;eiter is te law "irms appearance 4$sti"ied $nder te instances listed in &ancenido wen local government

o""icials can be represented by private co$nsel, s$c as wen a claim "or damages co$ld res$lt in personal liability# ;o s$c claim against said o""icials was made in tis case# ;ote tat be"ore it 4oined te complainants, te city waste one s$ed, not its o""icials# Tat te "irm represents &ayor +ere! in criminal cases, s$its in is personal capacity,

G.B is o" no moment#

'n te tird point, petitioners claim tat rdaneta City is estopped to reverse admissions in its Answer tat tecontracts are valid and, in its pretrial brie", tat te e=ec$tion o" te contracts was in good "ait#

De disagree# Te co$rt may allow amendment o" pleadings#

Section 6,G1B 2$le 1. o" te 2$les o" Co$rt pertinently provides tat i" evidence is ob4ected to at te trial on tegro$nd tat it is not witin te iss$es raised by te pleadings, te co$rt may allow te pleadings to be amended andsall do so wit liberality i" te presentation o" te merits o" te action and te ends o" s$bstantial 4$stice will be

s$bserved tereby# 'b4ections need not even arise in tis case since te +retrial 'rderG-B dated April 1, -..-already de"ined as an iss$e weter te contracts are valid# T$s, wat is needed is presentation o" te partiesevidence on te iss$e# Any evidence o" te city "or or against te validity o" te contracts will be relevant andadmissible# ;ote also tat $nder Section 6, 2$le 1., necessary amendments to pleadings may be made to ca$se tem

to con"orm to te evidence#

8n addition, despite rdaneta Citys 4$dicial admissions, te trial co$rt is still given leeway to consider oter evidenceto be presented "or said admissions may not necessarily prevail over doc$mentary evidence,G>B e#g#, te contractsassailed# A partys testimony in open co$rt may also override admissions in te Answer#GGB

As regards te 2TCs order admitting Capalads complaint and dropping im as de"endant, we "ind te same inorder#Capalad insists tat Atty# Saag$n as no a$tority to represent im# Atty# Saag$n claims oterwise# De note,

owever, tat Atty# Saag$n represents petitioners wo claim tat te contracts are valid# 'n te oter and, Capalad



"iled a complaint "or ann$lment o" te contracts# Certainly, Atty# Saag$n cannot represent totally con"lictinginterests# T$s, we so$ld e=p$nge all pleadings "iled by Atty# Saag$n in beal" o" Capalad#

2elatedly, we a""irm te order o" te 2TC in allowing Capalads cange o" attorneys, i" we can properly call it ass$c, considering Capalads claim tat Atty# Saag$n was never is attorney#

0e"ore we close, notice is taken o" te o""ensive lang$age $sed by Attys# 'scar C# Saag$n and Antonio 0#(scalante in teir pleadings be"ore $s and te Co$rt o" Appeals# Tey $n"airly called te Co$rt o" Appeals a co$rt o"

tecnicalitiesG6B "or validly dismissing teir de"ectively prepared petition# Tey also acc$sed te Co$rt o" Appealso" protecting, in teir view, an incompetent 4$dge#G?B 8n e=plaining te concededly strong lang$age, Atty# Saag$n"$rter indicted imsel"# *e said tat te Co$rt o" Appeals dismissal o" te case sows its impatience and readinessto p$nis petitioners "or a perceived sligt on its dignity and s$c dismissal smacks o" retaliation and does not a$g$r

"or te cold ne$trality and impartiality demanded o" te appellate co$rt#G7B

Accordingly, we impose $pon Attys# 'scar C# Saag$n and Antonio 0# (scalante a "ine o" +-,...G@B eac payableto tis Co$rt witin ten days "rom notice and we remind tem tat tey so$ld observe and maintain te respect d$eto te Co$rt o" Appeals and 4$dicial o""icers5G9B abstain "rom o""ensive lang$age be"ore te co$rts56.B and not

attrib$te to a 3$dge motives not s$pported by te record#61B Similar acts in te "$t$re will be dealt wit more

severely#

D*(2(F'2(, we 1/ <2A;T te petition5 -/ S(T AS8%( te 2esol$tions dated April 16, -..> and Febr$ary G,-..G o" te Co$rt o" Appeals in CA<#2# S+ ;o# 7?17.5 >/ %(;E te entry o" appearance o" te a!aro aw Firmin Civil Case ;o# 7>@@ and (Q+;<( all pleadings it "iled as co$nsel o" rdaneta City5 G/ '2%(2 te City

+rosec$tor to represent rdaneta City in Civil Case ;o# 7>@@5 6/ AFF82& te 2TC in admitting te complaint o" Capalad5 and ?/+2'*808T Atty# 'scar C# Saag$n "rom representing Capalad and (Q+;<( all pleadings tat e"iled in beal" o" Capalad#

et te records o" Civil Case ;o# 7>@@ be remanded to te trial co$rt "or "$rter proceedings#

Finally, we 8&+'S( a "ine o" +-,... eac on Attys# 'scar C# Saag$n and Antonio 0# (scalante "or teir $se o"

o""ensive lang$age, payable to tis Co$rt witin ten 1./ days "rom receipt o" tis %ecision#

S' '2%(2(%#

+('+( 'F T*( +*88++8;(S,

+etitioners,

vers$s



T(2(S8TA +8< and 2'&(' +'22AS,

2espondent# <#2# ;o# 17>?6G7?6

+resent:

E;A2(SSA;T8A<', 3#,

Cairperson,

AST28A&A2T8;(,

C*8C';AA28',

2(E(S, and

%( CAST2',R 33#

+rom$lgated:

A$g$st -@, -..@

= =

% ( C 8 S 8 ' ;

C*8C';AA28', 3#:



Tis is a +etition "or 2eview $nder 2$le G6 o" te 2evised 2$les o" Co$rt wit petitioner +eople o" te +ilippines,represented by te '""ice o" te Solicitor <eneral, praying "or te reversal o" te 'rders dated >. 3an$ary -..? and

9 3$ne -..? o" te 2egional Trial Co$rt 2TC/ o" te ?t 3$dicial 2egion, 0ranc ?@, %$mangas, 8loilo, dismissingte 11- cases o" K$ali"ied Te"t "iled against respondents Teresita +$ig and 2omeo +orras, and denying petitioners

&otion "or 2econsideration, in Criminal Cases ;o# .6>.6G to .6>1?6#

Te "ollowing are te "act$al antecedents:

'n 7 ;ovember -..6, te 8loilo +rovincial +rosec$tors '""ice "iled be"ore 0ranc ?@ o" te 2TC in %$mangas,

8loilo, 11- cases o" K$ali"ied Te"t against respondents Teresita +$ig +$ig/ and 2omeo +orras +orras/ wo werete Casier and 0ookkeeper, respectively, o" private complainant 2$ral 0ank o" +ototan, 8nc# Te cases were

docketed as Criminal Cases ;o# .6>.6G to .6>1?6#

Te allegations in te 8n"ormations1B "iled be"ore te 2TC were $ni"orm and pro"orma, e=cept "or te amo$nts,

date and time o" commission, to wit:

8;F'2&AT8';

Tat on or abo$t te 1st day o" A$g$st, -..-, in te &$nicipality o" +ototan, +rovince o" 8loilo, +ilippines, and

witin te 4$risdiction o" tis *onorable Co$rt, abovenamed respondentsB, conspiring, con"ederating, and elpingone anoter, wit grave ab$se o" con"idence, being te Casier and 0ookkeeper o" te 2$ral 0ank o" +ototan, 8nc#,+ototan, 8loilo, wito$t te knowledge andPor consent o" te management o" te 0ank and wit intent o" gain, didten and tere will"$lly, $nlaw"$lly and "elonio$sly take, steal and carry away te s$m o" F8FT((; T*'SA;%

+(S'S +16,...#../, +ilippine C$rrency, to te damage and pre4$dice o" te said bank in te a"oresaid amo$nt#

A"ter per$sing te 8n"ormations in tese cases, te trial co$rt did not "ind te e=istence o" probable ca$se tat wo$ldave necessitated te iss$ance o" a warrant o" arrest based on te "ollowing gro$nds:

1/ te element o" taking wito$t te consent o" te owners was missing on te gro$nd tat it is te depositorsclients, and not te 0ank, wic "iled te complaint in tese cases, wo are te owners o" te money allegedly taken by respondents and ence, are te real partiesininterest5 and



-/ te 8n"ormations are bere"t o" te prase alleging dependence, g$ardiansip or vigilance between terespondents and te o""ended party tat wo$ld ave created a ig degree o" con"idence between tem wic terespondents co$ld ave ab$sed#

8t added tat allowing te 11- cases "or K$ali"ied Te"t "iled against te respondents to p$s tro$g wo$ld beviolative o" te rigt o" te respondents $nder Section 1G-/, Article 888 o" te 19@7 Constit$tion wic states tat in

all criminal prosec$tions, te acc$sed sall en4oy te rigt to be in"ormed o" te nat$re and ca$se o" te acc$sationagainst im# Following Section ?, 2$le 11- o" te 2evised 2$les o" Criminal +roced$re, te 2TC dismissed tecases on >. 3an$ary -..? and re"$sed to iss$e a warrant o" arrest against +$ig and +orras#

A &otion "or 2econsideration-B was "iled on 17 April -..?, by te petitioner#

'n 9 3$ne -..?, an 'rder>B denying petitioners &otion "or 2econsideration was iss$ed by te 2TC, "inding as"ollows:

Accordingly, te prosec$tions &otion "or 2econsideration so$ld be, as it ereby, %(;8(%# Te 'rder dated3an$ary >., -..? STA;%S in all respects#

+etitioner went directly to tis Co$rt via +etition "or 2eview on Certiorari $nder 2$le G6, raising te sole legal iss$e

o":

D*(T*(2 '2 ;'T T*( 11- 8;F'2&AT8';S F'2 KA8F8(% T*(FT SFF8C8(;TE A(<( T*(((&(;T 'F TA8;< D8T*'T T*( C';S(;T 'F T*( 'D;(2, A;% T*( KA8FE8;<C82C&STA;C( 'F <2AV( A0S( 'F C';F8%(;C(#

+etitioner prays tat 4$dgment be rendered ann$lling and setting aside te 'rders dated >. 3an$ary -..? and 9 3$ne-..? iss$ed by te trial co$rt, and tat it be directed to proceed wit Criminal Cases ;o# .6>.6G to .6>1?6#

+etitioner e=plains tat $nder Article 19@. o" te ;ew Civil Code, "i=ed, savings, and c$rrent deposits o" money in

banks and similar instit$tions sall be governed by te provisions concerning simple loans# Corollary tereto, Article



196> o" te same Code provides tat a person wo receives a loan o" money or any oter "$ngible ting ac$ires teownersip tereo", and is bo$nd to pay to te creditor an e$al amo$nt o" te same kind and $ality# T$s, it positstat te depositors wo place teir money wit te bank are considered creditors o" te bank# Te bank ac$iresownersip o" te money deposited by its clients, making te money taken by respondents as belonging to te bank#

+etitioner also insists tat te 8n"ormations s$""iciently allege all te elements o" te crime o" $ali"ied te"t, citing

tat a per$sal o" te 8n"ormations will sow tat tey speci"ically allege tat te respondents were te Casier and0ookkeeper o" te 2$ral 0ank o" +ototan, 8nc#, respectively, and tat tey took vario$s amo$nts o" money witgrave ab$se o" con"idence, and wito$t te knowledge and consent o" te bank, to te damage and pre4$dice o" te bank#

+arentetically, respondents raise proced$ral iss$es# Tey callenge te petition on te gro$nd tat a +etition "or

2eview onCertiorari via 2$le G6 is te wrong mode o" appeal beca$se a "inding o" probable ca$se "or te iss$anceo" a warrant o" arrest pres$pposes eval$ation o" "acts and circ$mstances, wic is not proper $nder said 2$le#

2espondents "$rter claim tat te %epartment o" 3$stice %'3/, tro$g te Secretary o" 3$stice, is te principal party to "ile a +etition "or 2eview on Certiorari, considering tat te incident was indorsed by te %'3#

De "ind merit in te petition#

Te dismissal by te 2TC o" te criminal cases was allegedly d$e to ins$""iciency o" te 8n"ormations and,tere"ore, beca$se o" tis de"ect, tere is no basis "or te e=istence o" probable ca$se wic will 4$sti"y te iss$ance

o" te warrant o" arrest# +etitioner assails te dismissal contending tat te 8n"ormations "or K$ali"ied Te"ts$""iciently state "acts wic constit$te a/ te $ali"ying circ$mstance o" grave ab$se o" con"idence5 and b/ teelement o" taking, wit intent to gain and wito$t te consent o" te owner, wic is te 0ank#

8n determining te e=istence o" probable ca$se to iss$e a warrant o" arrest, te 2TC 4$dge "o$nd te allegations inte 8n"ormation inade$ate# *e r$led tat te 8n"ormation "ailed to state "acts constit$ting te $ali"ying

circ$mstance o" grave ab$se o" con"idence and te element o" taking wito$t te consent o" te owner, since teowner o" te money is not te 0ank, b$t te depositors terein# *e also cites +eople v# oc Song,GB in wic tisCo$rt eld:

Tere m$st be allegation in te in"ormation and proo" o" a relation, by reason o" dependence, g$ardiansip orvigilance, between te respondents and te o""ended party tat as created a ig degree o" con"idence between

tem, wic te respondents ab$sed#

At tis point, it needs stressing tat te 2TC 3$dge based is concl$sion tat tere was no probable ca$se simply onte ins$""iciency o" te allegations in te 8n"ormations concerning te "acts constit$tive o" te elements o" teo""ense carged#Tis, tere"ore, makes te iss$e o" s$""iciency o" te allegations in te 8n"ormations te "ocal pointo" disc$ssion#



K$ali"ied Te"t, as de"ined and p$nised $nder Article >1. o" te 2evised +enal Code, is committed as "ollows, vi!:

A2T# >1.# K$ali"ied Te"t# Te crime o" te"t sall be p$nised by te penalties ne=t iger by two degrees tantose respectively speci"ied in te ne=t preceding article, i" committed by a domestic servant, or wit grave ab$se o"

con"idence, or i" te property stolen is motor veicle, mail matter or large cattle or consists o" cocon$ts taken "romte premises o" a plantation, "is taken "rom a "ispond or "isery or i" property is taken on te occasion o" "ire,

eart$ake, typoon, volcanic er$ption, or any oter calamity, veic$lar accident or civil dist$rbance#(mpasiss$pplied#/

Te"t, as de"ined in Article >.@ o" te 2evised +enal Code, re$ires te pysical taking o" anoters property wito$tviolence or intimidation against persons or "orce $pon tings# Te elements o" te crime $nder tis Article are:

1# 8ntent to gain5

-# nlaw"$l taking5

># +ersonal property belonging to anoter5

G# Absence o" violence or intimidation against persons or "orce $pon tings#

To "all $nder te crime o" K$ali"ied Te"t, te "ollowing elements m$st conc$r:

1# Taking o" personal property5

-# Tat te said property belongs to anoter5

># Tat te said taking be done wit intent to gain5

G# Tat it be done wito$t te owners consent5



6# Tat it be accomplised wito$t te $se o" violence or intimidation against persons, nor o" "orce $pon tings5

?# Tat it be done wit grave ab$se o" con"idence#

'n te s$""iciency o" te 8n"ormation, Section ?, 2$le 11. o" te 2$les o" Co$rt re$ires, inter alia, tat te

in"ormation m$st state te acts or omissions complained o" as constit$tive o" te o""ense#

'n te manner o" ow te 8n"ormation so$ld be worded, Section 9, 2$le 11. o" te 2$les o" Co$rt, is enligtening:

Section 9# Ca$se o" te acc$sation# Te acts or omissions complained o" as constit$ting te o""ense and te$ali"ying and aggravating circ$mstances m$st be stated in ordinary and concise lang$age and not necessarily in telang$age $sed in te stat$te b$t in terms s$""icient to enable a person o" common $nderstanding to know wato""ense is being carged as well as its $ali"ying and aggravating circ$mstances and "or te co$rt to prono$nce

4$dgment#

8t is evident tat te 8n"ormation need not $se te e=act lang$age o" te stat$te in alleging te acts or omissions

complained o" as constit$ting te o""ense# Te test is weter it enables a person o" common $nderstanding to knowte carge against im, and te co$rt to render 4$dgment properly#6B

Te portion o" te 8n"ormation relevant to tis disc$ssion reads:

ABbovenamed respondentsB, conspiring, con"ederating, and elping one anoter, wit grave ab$se o" con"idence, being te Casier and 0ookkeeper o" te 2$ral 0ank o" +ototan, 8nc#, +ototan, 8loilo, wito$t te knowledge andPor

consent o" te management o" te 0ank = = =#

8t is beyond do$bt tat tellers, Casiers, 0ookkeepers and oter employees o" a 0ank wo come into possession o"

te monies deposited terein en4oy te con"idence reposed in tem by teir employer# 0anks, on te oter and,were monies are deposited, are considered te owners tereo"# Tis is very clear not only "rom te e=press provisions o" te law, b$t "rom establised 4$rispr$dence# Te relationsip between banks and depositors as been



eld to be tat o" creditor and debtor#Articles 196> and 19@. o" te ;ew Civil Code, as appropriately pointed o$t by petitioner, provide as "ollows:

Article 196># A person wo receives a loan o" money or any oter "$ngible ting ac$ires te ownersip tereo", and

is bo$nd to pay to te creditor an e$al amo$nt o" te same kind and $ality#

Article 19@.# Fi=ed, savings, and c$rrent deposits o" money in banks and similar instit$tions sall be governed byte provisions concerning loan#

8n a long line o" cases involving K$ali"ied Te"t, tis Co$rt as "irmly establised te nat$re o" possession by te0ank o" te money deposits terein, and te d$ties being per"ormed by its employees wo ave c$stody o" te

money or ave come into possession o" it# Te Co$rt as consistently considered te allegations in te 8n"ormationtat s$c employees acted wit grave ab$se o" con"idence, to te damage and pre4$dice o" te 0ank, wito$t partic$larly re"erring to it as owner o" te money deposits, as s$""icient to make o$t a case o" K$ali"ied Te"t# For a

grapic ill$stration, we cite 2o$e v# +eople,?B were te acc$sed teller was convicted "or K$ali"ied Te"t based ontis 8n"ormation:

Tat on or abo$t te 1?t day o" ;ovember, 19@9, in te m$nicipality o" Floridablanca, province o" +ampanga,+ilippines and witin te 4$risdiction o" is *onorable Co$rt, te abovenamed acc$sed AS;C8'; <AA;<2'K(, being ten employed as teller o" te 0asa Air 0ase Savings and oan Association 8nc# 0A0SA/ wit

o""ice address at 0asa Air 0ase, Floridablanca, +ampanga, and as s$c was a$tori!ed and reposed wit te

responsibility to receive and collect capital contrib$tions "rom its memberPcontrib$tors o" said corporation, andaving collected and received in er capacity as teller o" te 0A0SA te s$m o" T(; T*'SA;% +(S'S+1.,...#../, said acc$sed, wit intent o" gain, wit grave ab$se o" con"idence and wito$t te knowledge and

consent o" said corporation, did ten and tere will"$lly, $nlaw"$lly and "elonio$sly take, steal and carry away teamo$nt o" +1.,...#.., +ilippine c$rrency, by making it appear tat a certain depositor by te name o" AntonioSala!ar witdrew "rom is Savings Acco$nt ;o# 1>69, wen in tr$t and in "act said Antonio Sala!ar did not

witdraBw te said amo$nt o" +1.,...#.. to te damage and pre4$dice o" 0A0SA in te total amo$nt o"+1.,...#.., +ilippine c$rrency#

8n convicting te terein appellant, te Co$rt eld tat:

SBince te teller occ$pies a position o" con"idence, and te bank places money in te tellers possession d$e to tecon"idence reposed on te teller, te "elony o" $ali"ied te"t wo$ld be committed#7B



Also in +eople v# Sison,@B te 0ranc 'perations '""icer was convicted o" te crime o" K$ali"ied Te"t based onte 8n"ormation as erein cited:

Tat in or abo$t and d$ring te period compressed between 3an$ary -G, 199- and Febr$ary 1>, 199-, bot datesincl$sive, in te City o" &anila, +ilippines, te said acc$sed did ten and tere wil"$lly, $nlaw"$lly and "elonio$sly,wit intent o" gain and wito$t te knowledge and consent o" te owner tereo", take, steal and carry away te

"ollowing, to wit:

Cas money amo$nting to +?,...,...#.. in di""erent denominations belonging to te +*88++8;( C'&&(2C8A8;T(2;AT8';A 0A; +C80ank "or brevity/, $neta 0ranc, &anila represented by its 0ranc &anager,*((; # FA2<AS, to te damage and pre4$dice o" te said owner in te a"oresaid amo$nt o" +?,...,...#..,+ilippine C$rrency#

Tat in te commission o" te said o""ense, erein acc$sed acted wit grave ab$se o" con"idence and $n"ait"$lness,

e being te 0ranc 'peration '""icer o" te said complainant and as s$c e ad "ree access to te place were tesaid amo$nt o" money was kept#

Te 4$dgment o" conviction elaborated t$s:

Te crime perpet$ated by appellant against is employer, te +ilippine Commercial and 8nd$strial 0ank +C80/, isK$ali"ied Te"t# Appellant co$ld not ave committed te crime ad e not been olding te position o" $neta0ranc 'peration '""icer wic gave im not only sole access to te bank va$lt ===# Te management o" te +C80reposed its tr$st and con"idence in te appellant as its $neta 0ranc 'peration '""icer, and it was tis tr$st and

con"idence wic e e=ploited to enric imsel" to te damage and pre4$dice o" +C80 = = =#9B

From anoter end, +eople v# ocson,1.B in addition to +eople v# Sison, described te nat$re o" possession by te

0ank# Te money in tis case was in te possession o" te de"endant as receiving teller o" te bank, and te possession o" te de"endant was te possession o" te 0ank# Te Co$rt eld terein tat wen te de"endant, witgrave ab$se o" con"idence, removed te money and appropriated it to is own $se wito$t te consent o" te 0ank,

tere was taking as contemplated in te crime o" K$ali"ied Te"t#11B

Conspic$o$sly, in all o" te "oregoing cases, were te 8n"ormations merely alleged te positions o" te respondents5tat te crime was committed wit grave ab$se o" con"idence, wit intent to gain and wito$t te knowledge and



consent o" te 0ank, wito$t necessarily stating te prase being assid$o$sly insisted $pon by respondents, o" arelation by reason o" dependence, g$ardiansip or vigilance, between te respondents and te o""ended party tatas created a ig degree o" con"idence between tem, wic respondents ab$sed,1-B and wito$t employing teword owner in lie$ o" te 0ank were considered to ave satis"ied te test o" s$""iciency o" allegations#

As regards te respondents wo were employed as Casier and 0ookkeeper o" te 0ank in tis case, tere is even no

reason to $ibble on te allegation in te 8n"ormations tat tey acted wit grave ab$se o" con"idence# 8n "act, te8n"ormation wic alleged grave ab$se o" con"idence by acc$sed erein is even more precise, as tis is e=actly tere$irement o" te law in $ali"ying te crime o" Te"t#

8n s$mmary, te 0ank ac$ires ownersip o" te money deposited by its clients5 and te employees o" te 0ank,wo are entr$sted wit te possession o" money o" te 0ank d$e to te con"idence reposed in tem, occ$py

positions o" con"idence#Te 8n"ormations, tere"ore, s$""iciently allege all te essential elements constit$ting tecrime o" K$ali"ied Te"t#

'n te teory o" te de"ense tat te %'3 is te principal party wo may "ile te instant petition, te r$ling in&obilia +rod$cts, 8nc# v# *a4ime me!awa1>B is instr$ctive# Te Co$rt t$s en$nciated:

8n a criminal case in wic te o""ended party is te State, te interest o" te private complainant or te o""ended party is limited to te civil liability arising tere"rom# *ence, i" a criminal case is dismissed by te trial co$rt or i"

tere is an ac$ittal, a reconsideration o" te order o" dismissal or ac$ittal may be $ndertaken, wenever legally"easible, inso"ar as te criminal aspect tereo" is concerned and may be made only by te p$blic prosec$tor5 or in tecase o" an appeal, by te State only, tro$g te 'S<# = = =#

'n te alleged wrong mode o" appeal by petitioner, s$""ice it to state tat te r$le is wellsettled tat in appeals bycertiorari$nder 2$le G6 o" te 2$les o" Co$rt, only errors o" law may be raised,1GB and erein petitioner certainly

raised a $estion o" law#

As an aside, even i" we go beyond te allegations o" te 8n"ormations in tese cases, a closer look at te records o"te preliminary investigation cond$cted will sow tat, indeed, probable ca$se e=ists "or te indictment o" ereinrespondents#+$rs$ant to Section ?, 2$le 11- o" te 2$les o" Co$rt, te 4$dge sall iss$e a warrant o" arrest only $pona "inding o" probable ca$se a"ter personally eval$ating te resol$tion o" te prosec$tor and its s$pporting evidence#

Soliven v# &akasiar,16B as reiterated in Allado v# %riokno,1?B e=plained tat probable ca$se "or te iss$ance o" awarrant o" arrest is te e=istence o" s$c "acts and circ$mstances tat wo$ld lead a reasonably discreet and pr$dent person to believe tat an o""ense as been committed by te person so$gt to be arrested#17B Te recordsreasonably indicate tat te respondents may ave, indeed, committed te o""ense carged#



0e"ore closing, let it be stated tat wile it is tr$ly imperative $pon te "iscal or te 4$dge, as te case may be, torelieve te respondents "rom te pain o" going tro$g a trial once it is ascertained tat no probable ca$se e=ists to"orm a s$""icient belie" as to te g$ilt o" te respondents, conversely, it is also e$ally imperative $pon te 4$dge to proceed wit te case $pon a sowing tat tere is a prima "acie case against te respondents#

D*(2(F'2(, premises considered, te +etition "or 2eview on Certiorari is ereby <2A;T(%# Te 'rders

dated>. 3an$ary -..? and 9 3$ne -..? o" te 2TC dismissing Criminal Cases ;o# .6>.6G to .6>1?6 are2(V(2S(% and S(T AS8%(# et te corresponding Darrants o" Arrest iss$e against erein respondentsT(2(S8TA +8< and 2'&(' +'22AS#Te 2TC 3$dge o" 0ranc ?@, in %$mangas, 8loilo, is directed to proceedwit te trial o" Criminal Cases ;o# .6>.6G to .6>1?6, incl$sive, wit reasonable dispatc# ;o prono$ncement as

to costs#

S' '2%(2(%#

&A28A;' ; 'CA&+' 888, <#2# ;os# 16?6G761

+etitioner,

vers$s

+('+( 'F T*( +*88++8;(S,

2espondent#

Q Q

A;%2(S S# F'2(S, <#2# ;os# 16?>@G@6

+etitioner,

+resent:

vers$s +;', C#3#, Cairperson,

SA;%'VA<T8(22(,

C'2';A,

AC;A, and

(';A2%'%( CAST2', 33#

+('+( 'F T*( +*88++8;(S,

2espondent# +rom$lgated:



Febr$ary G, -..@

Q Q

%(C8S8';

AC;A, 3#:

Tese are consolidated petitions "or review on certiorari1B o" te Sandiganbayans %ecision prom$lgated on &arc

@, -..- and its 2esol$tion prom$lgated on 3an$ary ?, -..>#

Te %ecision and 2esol$tion o" te Sandiganbayan eld petitioners &ariano n 'campo 888 and Andres S# Floresg$ilty o" malversation o" p$blic "$nds in Crim# Case ;os# 1?79G and 1?796#

Te "acts are as "ollows:

%$ring te inc$mbency o" +resident Cora!on C# A$ino, Tarlac +rovince was cosen as one o" te "o$r provincestat wo$ld serve as a test case on decentrali!ation o" local government administration#

For tis p$rpose, te %epartment o" 0$dget and &anagement %0&/ released ;ational Aid "or ocal <overnmentnits ;A</ "$nds in te total amo$nt o" +1.. million to te +rovince o" Tarlac# Te ;A< is a "$nd set asidein te <eneral Appropriations Act to assist local governments in teir vario$s pro4ects and services# Te distrib$tion

o" tis "$nd is entirely vested wit te Secretary o" te %0&#

+etitioner 'campo, provincial governor o" Tarlac "rom Febr$ary --, 19@@ $p to 3$ne >., 199-, loaned o$t +6?#?million o" te +1.. million to te ingkod Tarlac Fo$ndation, 8nc# TF8/ "or te implementation o" vario$sliveliood pro4ects# Te loan was made p$rs$ant to a &emorand$m o" Agreement &'A/ entered into by te

+rovince o" Tarlac, represented by petitioner 'campo, and TF8, represented by petitioner Flores, on A$g$st @,19@@#

TF8 is a private nonstock corporation wit petitioner 'campo as its "irst cairperson and petitioner Andres S#Flores as its e=ec$tive director# Te Sandiganbayan, in its 2esol$tion dated 3an$ary ?, -..., admitted te anne=es-Bs$bmitted by petitioner 'campo, wic anne=es proved tat petitioner 'campo resigned as cairperson and tr$stee

o" te TF8 prior toA$g$st @, 19@@, te date wen petitioner 'campo and TF8 entered into te &'A#



*ow te +6?#? million released to TF8 was $tili!ed became te s$b4ect matter o" -6 criminal cases# 8n a 2esol$tionin <#2# ;os# 1.>76G7@ dated 'ctober --, 199-,>B tis Co$rt $ased 19 o" te -6 8n"ormations "iled against petitioner 'campo#Te Fi"t %ivision o" te Sandiganbayan dismissed one caseGB on dem$rrer to evidence# 8n its%ecision prom$lgated on &arc @, -..-, te Fi"t %ivision o" te Sandiganbayan dismissed two6B o" "ive criminal

cases "or malversation o" p$blic "$nds against petitioners# 'n motion "or reconsideration, te Sandiganbayandismissed one?B more case in a 2esol$tion prom$lgated on3an$ary ?, -..># Te two remaining cases are te s$b4ect

matters in te instant consolidated petitions#

Te 8n"ormations o" te remaining two cases "iled on &ay -@, 1991 state:

Crim# Case ;o# 1?79G

Tat on or abo$t te periods between ;ovember -, 19@@ to Febr$ary -7, 19@9, or sometime s$bse$ent tereto, in

te +rovince o"Tarlac, +ilippines and witin te 4$risdiction o" tis *onorable Co$rt, acc$sed &ariano n 'campo888, ten te <overnor o" te province o" Tarlac and at te same time +residentCairman o" te 0oard o" Tr$stees o" te ingkod Tarlac Fo$ndation, 8nc# TF8/, a private entity, aving received by reason o" is position, p$blic "$ndsamo$nting to more tan Fi"ty Two &illion +esos +6-,...,.../ = = = "rom te ;ational Aid "or ocal <overnmentnit ;A</ "$nds, wic e is acco$ntable by reason o" is o""icial d$ties, did ten and tere wit intent to

de"ra$d te government a"oreto$gt release o$t o" te a"oresaid "$nds tr$ te said TF8, te amo$nt o" (8<*T&88'; (8<*T *;%2(% S8QTE T*'SA;% +(S'S +@,@?.,.../ = = = "or te payment o" te importationo" 3$ki (mbroidery &acines wic act$ally cost S(V(; &88'; S8Q *;%2(% S(V(;TE ;8;(

T*'SA;% F8V( *;%2(% T*82TE +(S'S A;% F8FTE TD' C(;TAV'S +7,?79,6>.#6-/ = = = terebyleaving a balance o" +1,1@.,G?>#G@ wic o$gt to ave been ret$rned, b$t "ar "rom ret$rning te said amo$nt,acc$sed &ariano n 'campo 888, in connivance wit is coacc$sed, Andres S# Flores and Dilliam y wil"$lly,

$nlaw"$lly and "elonio$sly misapply, misappropriate and convert "or teir own personal $se and bene"it te saidamo$nt res$lting to te damage and pre4$dice o" te government in te a"oresaid s$m o" 'ne &illion 'ne *$ndred(igty To$sand Fo$r *$ndred Si=ty Tree +esos and Forty (igt Centavos +1,1@.,G?>#G@/#

C';T2A2E T' AD#

Crim# Case ;o# 1?796

Tat on or abo$t te periods between ;ovember -, 19@@ to Febr$ary -7, 19@9, or sometime s$bse$ent tereto, inte +rovince o" Tarlac, +ilippines and witin te 4$risdiction o" tis *onorable Co$rt, acc$sed &ariano n 'campo888, ten te <overnor o" te province o" Tarlac, and at te same time +residentCairman o" te 0oard o" Tr$stees

o" te ingkod Tarlac Fo$ndation, 8nc# TF8/, a private entity, aving received by reason o" is position, p$blic"$nds amo$nting to more tan Fi"ty Two &illion +esos +6-,...,...#../ = = = "rom te ;ational Aid "or ocal<overnment nit ;A</ F$nds, wic e is acco$ntable by reason o" is o""icial d$ties, ca$sed te witdrawal by coacc$sed Andres S# Flores on April -@, 19@9, ten (=ec$tive '""icer, TF8, "rom te +*88++8;( ;AT8';A

0A; TF8 acco$nt te s$m o" F8FTE (8<*T T*'SA;% +(S'S +6@,...#../, portion o" te said ;A<



"$nds deposited by TF8 $nder Acco$nt ;o# G9.6667GG, bot acc$sed conniving and con"ederating wit oneanoter, wit intent to gain and to de"ra$d te government, did ten and tere, wil"$lly, $nlaw"$lly and "elonio$slymisappropriate, misapply and convert te same to teir own personal $se and bene"it to te damage and pre4$dice o"te government in te a"oresaid amo$nt o" +6@,...#.., +ilippine C$rrency#

C';T2A2E T' AD#7B

Te +rosec$tion relied mainly on an a$dit cond$cted by te Commission on A$dit on TF8 "rom Febr$ary 1-, 199.

$p toApril -, 199.# Te a$dit covered te period "rom 3$ly 1, 19@@ to %ecember >1, 19@9 and was con"ined to tee=amination o" te loans granted by te +rovincial <overnment o" Tarlac "or te implementation o" its 2$ral8nd$striali!ation Can *appen +rogram#Te res$lt o" te a$dit was embodied in Special A$dit 2eport ;o# 9.91,o""ered as (=ibit 0 by te prosec$tion#

According to te Sandiganbayan, te money trail wit respect to te two cases, as proven by te prosec$tion, is as

"ollows:

1/ Acc$sed 'campo released +11#6 &illion to TF8, +7,.->,@>?#.. o" wic was intended "or te

p$rcase o" G.. embroidery macines5

-/ Te total amo$nt released was deposited by TF8 to te 2$ral 0ank o" Tarlac, 8nc#5

>/ Ditin two -/ monts "rom te deposit, a total o" +6,G?6,...#.. was witdrawn and given to Dilliamy TF8s broker "or te importation o" te macines/5

G/ Tis amo$nt +6,G?6,.../ was terea"ter deposited to te personal acco$nt o" Dillam y andPor AndresFlores $nder SPA ;o# -?1-75

6/ Anoter acco$nt +;0 SPA ;o# G9.6667GG?/ was opened by TF8 by Andres Flores, tis time wit+;0, intended solely "or te p$rcase o" te macines5

?/ A ceck in te amo$nt o" +>,>96,...#.. dated Febr$ary -7, 19@9, was remitted "or te payment o" te

macines5



7/ Tis amo$nt, togeter wit te +6,G?6,...#.. placed on te personal acco$nt o" Dilliam y andPorAndres Flores, made $p te cost o" e macines or a total o" +@,@?.,...#.. as recorded in te books o" TF85

@/ To te +;0 acco$nt was added a total o" +G,>>-,-?1#.. deposited on di""erent dates "rom &arc ? to

April 17, 19@9 wic "$nds came "rom SPA ;o# -?1-75

9/ T$s, te total amo$nt on deposit wit +;0 was +7,7-7,-?1#.. pl$s interest5

1./ '" tis amo$nt, +7,?79,6>.#6- was $sed "or te opening o" te C "or te payment o" te macines/leaving a balance o"+G7,7>.,G@#.. pl$s interest5

11/ 0etween te amo$nt listed in te books o" te corporation +@,@?.,.../ and te amo$nt o" te C+7,?79,6>./, a discrepancy o"+1,1@.,G9?#G@ e=isted#

1-/ 0etween te total amo$nt deposited in +;0 SPA ;o# G9.6667GG? +7,7-7,-?1#../ and te total amo$nt

witdrawn "rom te acco$nt "or te payment o" te macines +7,?79,6>.#6-/, a balance o" +G7,7>.#G@ remained#Tis balance pl$s interest/, in te amo$nt o" +6@,...#.., was later witdrawn $pon a$tori!ation o" acc$sed Flores#@B

+etitioner 'campo did not testi"y regarding te s$b4ect cases on te gro$nd tat e was not competent to testi"y onte disb$rsements made by TF8 b$t only as to te receipt o" te ;A< "$nds "rom te government#

Te Sandiganbayan declared tat petitioner 'campo as governor o" Tarlac, wo personally received te ;A<

"$nds "rom te %0& and terea"ter released some o" tem to te TF8, was d$ty bo$nd to p$t $p reg$lar ande""ective meas$res "or te monitoring o" te pro4ects approved by im#

According to te Sandiganbayan, Sec# -.>t/ o" te ocal <overnment Code obligated provincial governors to adoptmeas$res to sa"eg$ard all te lands, b$ildings, records, monies, credits and oter property rigts o" te province#*owever, petitioner 'campo, as governor o" Tarlac, neglected to set $p sa"eg$ards "or te proper andling o" te

;A< "$nds in te ands o" TF8 wic res$lted in te disappearance o" +1,1>-,7>9 and +6@,... o" te said"$nds# Te Sandiganbayan eld:



For s$c gross and ine=c$sable negligence, acc$sed is liable "or malversation# 8n so r$ling, we are g$ided by te o"trepeated principle tat malversation may be committed tro$g a positive act o" misappropriation o" p$blic "$nds or passively to$g negligence by allowing anoter to commit s$c misappropriation Cabello vs# Sandiganbayan, 197SC2A 9G 1991B/# Alto$g acc$sed was carged wit will"$l malversation, e can validly be convicted o"

malversation tro$g negligence were te evidence s$stains te latter mode o" committing te o""ense Cabello,s$pra/#9B

F$rter, te Sandiganbayan stated tat $nder Sec# -.>"/ o" te ocal <overnment Code o" 19@>,1.B te provincialgovernor, as cie" e=ec$tive o" te provincial government, as te power to represent te province in all its b$sinesstransactions and sign on its beal" all bonds, contracts and obligations and oter o""icial doc$ments made in

accordance wit law or ordinance#

Sec# - c/ o" 2$le Q811B o" te 2$les and 2eg$lations 8mplementing te ocal <overnment Code o" 19@> providestat te local cie" e=ec$tive o" a local government $nit sall rBepresent te respective local $nits in all teir b$siness transactions and sign on its beal" all bonds, contracts and obligations and oter o""icial doc$ments made inaccordance wit law or ordinance# Sec# - o" 2$le V81-B states tat tBe power to s$e, to ac$ire and convey real or

personal property, and to enter into contracts sall be e=ercised by te local cie" e=ec$tive $pon a$tority o" teSangg$nian concerned# T$s, te Sandiganbayan declared tat since te re$ired a$tority "rom te Sangg$niang+anlalawigan was not sown to ave been obtained by petitioner 'campo, te &'A is ine""ective as "ar as te

+rovince o" Tarlac is concerned#

+etitioner Flores, as e=ec$tive director o" TF8, was carged wit malversation o" p$blic "$nds in connivance wit a

p$blic o""icer# *owever, te Sandiganbayan "o$nd tat tere was no conspiracy between te petitioners, and eld petitioner Flores g$ilty o" malversation tro$g is independent acts $nder Art# --- o" te 2evised +enal Code,1>Bsince te p$rpose o" Art# --- is to e=tend te provisions o" te +enal Code on malversation to private individ$als#

According to te Sandiganbayan, petitioner Flores bo$nd imsel", as a signatory o" te &'A representing TF8, toreceive ;A< "$nds "rom te province o"Tarlac# 8n s$c capacity, e ad carge o" tese "$nds#

8n Crim# Case ;o# 1?79G, petitioner Flores was "o$nd to ave carge o" missing ;A< "$nds deposited in is personal acco$nt in te amo$nt o" +1,1>-,7>9, wic "ormed part o" te discrepancy o" te act$al cost o" teembroidery macines and te ;A< "$nds released "or payment o" te said macines#

8n de"ense, petitioner Flores claimed tat te broker "or te importation o" te macines made an initial payment to

te s$pplier o" te macines, wic initial payment wo$ld e=plain te discrepancy between te reported cost asstated in te books o" te corporation and te letter o" credit# *owever, te Sandiganbayan stated tat tee=planation was earsay as te broker was not presented in co$rt, and tere was no proo" o" te initial payment#

8n Crim# Case ;o# 1?796, te Sandiganbayan eld tat petitioner Flores "ail$re to e=plain te p$rpose o" tewitdrawal onApril -@, 19@9 o" +6@,... $pon is a$tori!ation, considering tat e was in carge o" te +;0

savings acco$nt, made im liable "or malversation o" p$blic "$nds#



+etitioners presented "ive doc$ments to sow tat TF8s obligations to te +rovince o" Tarlac, in te amo$nt o"+6?#? million, ave been e=ting$ised# Te doc$ments are as "ollows:

1/ Te Tripartite &emorand$m o" Agreement T&'A/ dated &ay ->, 199. e=ec$ted by te +rovince o"Tarlac, TF8 and te 0arangay nity "or 8nd$strial and eadersip %evelopment 08%/ Fo$ndation wereby teliability o" TF8 in "avor o" te +rovince o" Tarlac was trans"erred and ass$med by 08% in te total amo$nt o"

+G. million#

-/ 2esol$tion ;o# 7? o" te Sangg$niang +anlalawigan o" Tarlac dated April 6, 199. sowing tat tea$tority o" petitioner 'campo in entering into te T&'A was wit prior approval o" te Sangg$niang+anlalawigan#

>/ A %eed o" Assignment between Tarlac and TF8 wereby te latter assigned its loan port"oliosincl$ding interests and certi"icates o" time deposit/, te 3$ki embroidery macines and oter assignable doc$ments

to te +rovince o" Tarlac in te total amo$nt o" +1?,?1@,G.>#

G/ 2esol$tion ;o# 199 o" te Sangg$niang +anlalawigan o" Tarlac dated 'ctober 1@, 199. a$tori!ing

petitioner 'campo to enter into te %eed o" Assignment wit TF8#

6/ A certi"ied potocopy o" a doc$ment dated 3$ne 1?, 199- iss$ed by te '8C provincial treas$rer o"Tarlac wereby te treas$rer a""irmed te e=istence o" te above doc$ments#

Te Sandiganbayan declared tat te doc$ments sowing te e=ting$isment o" TF8s obligations to te +rovinceo"Tarlace do not mitigate te liability o" petitioners since te crime is cons$mmated as o" asportation, akin to tetaking o" anoters property in te"t# 8t eld tat te ret$rn o" te amo$nt malversed is neiter an e=empting

circ$mstance nor a gro$nd "or e=ting$ising te criminal liability o" petitioners#

'n &arc @, -..-, te Fi"t %ivision o" te Sandiganbayan rendered a %ecision ac$itting petitioners o" te crime

o" malversation o" p$blic "$nds in Crim# Case ;os# 1?79? and [email protected], b$t "inding tem g$ilty o" te crime in Crim#Case ;os# 1?7@7, 1?79G and 1?796# Te dispositive portion o" te %ecision reads:

D*(2(F'2(, premises considered, acc$sed &ariano n 'campo 888 and Andres S# Flores are ereby "o$nd<8TE beyond reasonable do$bt o" te crime o" malversation o" +$blic F$nds $nder Crim# Case ;o# 1?7@7 and

are sentenced to s$""er te indeterminate penalty o" 1./ years, and one 1/ day o" prision mayor, as minim$m, toeigteen 1@/ years, eigt @/ monts and one 1/ day o" recl$sion temporal as ma=im$m and to pay a "ine o" si=tysi= to$sand nine $ndred tirtytwo pesos and seventy centavos +??,9>-#7./# Tey sall also s$""er te penalty o"

perpet$al special dis$ali"ication# Costs against te acc$sed#



For Crim# Case ;o# 1?79G, acc$sed &ariano n 'campo 888 and Andres S# Flores are ereby "o$nd <8TE beyond reasonable do$bt o" te crime o" &alversation o" +$blic F$nds and are sentenced to s$""er te indeterminate penalty o" 1./ years, and one 1/ day o"prision mayor, as minim$m, to eigteen 1@/ years, eigt @/ monts andone 1/ day o" recl$sion temporal as ma=im$m and to pay a "ine o" one million one $ndred tirtytwo to$sand

seven $ndred tirtynine pesos +1,1>-,7>9#../# Tey sall also s$""er te penalty o" perpet$al specialdis$ali"ication# Costs against te acc$sed#

For Crim# Case ;o# 1?796, acc$sed &ariano n 'campo 888 and Andres S# Flores are ereby "o$nd <8TE beyond reasonable do$bt o" te crime o" &alversation o" +$blic F$nds and are sentenced to s$""er te indeterminate penalty o" 1./ years, and one 1/ day o"prision mayor, as minim$m, to eigteen 1@/ years, eigt @/ monts and

one 1/ day o" recl$sion temporal as ma=im$m and to pay a "ine o" "i"tyeigt to$sand pesos +6@,...#../# Teysall also s$""er te penalty o" perpet$al special dis$ali"ication# Costs against te acc$sed#

For Crim# Case ;o# 1?79?, on gro$nd tat te crime was not committed by te acc$sed, acc$sed &ariano n'campo 888 and Andres S# Flores are ereby ACK8TT(% o" te crime carged# Te s$rety bonds posted by tem"or teir provisional liberty are cancelled#

For Crim# Case ;o# [email protected], on gro$nd o" reasonable do$bt, acc$sed &ariano n 'campo 888 and Andres S# Flores

are ereby ACK8TT(% o" te crime carged# Te s$rety bonds posted by tem "or teir provisional liberty arecancelled#

S' '2%(2(%#1GB

+etitioners separately "iled a motion "or reconsideration o" te %ecision#

8n a 2esol$tion prom$lgated on 3an$ary ?, -..>, te Sandiganbayan reconsidered its %ecision in Crim# Case ;o#1?7@7, and ac$itted petitioners o" te crime carged# 8n tat case, te prosec$tion alleged tat +6 million o" te ;A< "$nds loaned to TF8 were placed in time deposits wit te 2$ral 0ank o" Tarlac and earned a total interesto" +11?,9>-#77, o" wic amo$nt only +6.,...#.. was recorded in te books o" TF8# Te $nrecorded interest o"

+??,9>-#77 was said to ave been witdrawn "rom %ecember -7, 19@@ to Febr$ary -, 19@9 and allegedly malversed by petitioners# Te Sandiganbayan eld tat as tis Co$rt as already labeled te s$b4ect agreement as one o" loan,te said interest are private "$nds, ence, not te proper s$b4ect "or malversation o" p$blic "$nds# T$s, petitioners

were ac$itted in Crim# Case ;o# 1?7@7#



+etitioners terea"ter "iled teir respective petitions, wic were consolidated by te Co$rt in a 2esol$tion datedFebr$ary -., -..?#

Te pertinent iss$es raised by petitioners may be s$mmari!ed as "ollows:

1/ Deter or not petitioners 'campo and Flores are g$ilty o" te crime o" malversation o" p$blic "$nds $nder Art#-17 and Art# --. respectively o" te 2evised +enal Code5

-/ Deter or not te Sandiganbayan erred in olding tat te &'A is void and did not bind te +rovince o"Tarlac on te gro$nd tat te &'A was entered into by petitioner 'campo wito$t a$tority "rom te Sangg$niang+anlalawigan in violation o" te ocal <overnment Code o" 19@>#

First 8ss$e: Deter or not petitioners 'campo and Flores are g$ilty o" te crime o" malversation o" p$blic "$nds

$nder Art# -17 and Art# --. respectively o" te 2evised +enal CodeI

Cr$cial to te resol$tion o" te "irst iss$e is te nat$re o" te transaction entered into by te +rovince o" Tarlac andTF8#

+etitioners claim tat in te instant cases, te p$blic "$nds alleged to ave been malversed were loaned by te+rovince o"Tarlac to TF8 per te &'A5 ence, TF8 ac$ired ownersip o" te "$nds wic t$s sed teir p$bliccaracter and became private "$nds#

+etitioner 'campo also asserts tat te Sandiganbayan impliedly r$led tat te "$nds were private in caracter and

owned by TF8 wen it r$led in Crim# Case ;o# 1?7@7 tat since tis Co$rt as already labeled te s$b4ectagreement as one o" loan, te interests "rom te loan are private "$nds5 ence, not te proper s$b4ect "or malversationo" p$blic "$nds# *aving declared te interests earned by te "$nds loaned to TF8 as private "$nds, teSandiganbayan so$ld ave also declared te "$nds loaned as private#

+etitioners arg$ments are meritorio$s#



Te &'A states:

===

D*(2(AS, te First +arty te +rovincial <overnment o" TarlacB, in order to vigoro$sly p$rs$e its liveliood program "or r$ral development, as identi"ied te need to establis a 28C* 2$ral 8nd$striali!ation Can *appen/+rogram5

D*(2(AS, te First +arty now reali!es te e""ectivity and e""iciency o" designating a pro"essional private non pro"it organi!ation to implement te vario$s liveliood pro4ects $nder te 28C* +rogram5

D*(2(AS, te Second +arty ingkod Tarlac Fo$ndationB, as represented tat it as te tecnical e=pertisere$ired by te First +arty in te implementation o" te vario$s liveliood pro4ects $nder te 28C* +rogram5

D*(2(AS, te First +arty desires to engage te Second +arty and te latter agrees as te implementing arm o" te

+rovincial <overnment "or its liveliood pro4ects5

;'D, T*(2(F'2(, in consideration o" te m$t$al covenants erein contained, te +arties ereby agree as"ollows:

A2T8C( 8

;%(2TA8;<S 'F T*( F82ST +A2TE

1# Te First +arty sall provide all te data and in"ormation as may be re$ired by teB Second +arty in teimplementation o" te 28C* +rogram5

A2T8C( 888

%(SC28+T8'; 'F T*( +28'28TE +2'3(CTS

A# +rogram For ease +$rcase Agreements on e$ipment, macineries, b$ildings and str$ct$res:

===



0# %irect ending +ogram:

nder tis sceme, te ingkod Tarlac Fo$ndation sall engage in direct lending operations to proponents o"liveliood activities $nder te 2$ral 8nd$striali!ation Can *appen 28C* +2'<2A&/ at variable interest rates and

loan conditions depending on te viability and nat$re o" te liveliood pro4ects availing o" te loan#

C# %irect 0orrowing by ingkod Tarlac Fo$ndation:

Te ingkod Tarlac Fo$ndation sall be allowed to borrow "$nds directly "rom te +rovincial government to "$ndingkod Tarlac Fo$ndation pro4ects provided te pro4ects are liveliood pro4ects $nder te 2$ral 8nd$striali!ationCan *appen 28C* +rogram/#

%# 'ter pro4ect "inancing scemes tat may be developed "or te 28C* +rogram#

A2T8C( 8V

C';%8T8';S F'2 2((AS( 'F F;%S

Te First +arty sall release in l$mp s$m te appropriate "$nds "or te approved pro4ects covered by individ$al loan

doc$ments$pon signing o" teB respective loan agreement and approval o" te Commission on A$dit#

A2T8C( V

T(2&S 'F 2(+AE&(;T

1# Te Second +arty sall repay te First +arty only te total amo$nt o" capital wito$t interest in consideration

o" te "ollowing:

a/ Te Second +arty sall so$lder all its operating e=penses#

b/ Te Second +arty sall not carge te +rovince any management "ees or watever "ees#



c/ Te Second +arty sall, wenever necessary, ass$re te bene"iciaries o" te pro4ect interests andmanagement "ees at rates lower tan te commercial "inancial rates#

-# Te terms o" repayment sall be based on te pro4ects ability to pay wito$t sacri"icing on te pro4ects

viability#

A2T8C( V8

SCC(SS'2S A;% ASS8<;((S

(=cept as may be m$t$ally agreed in writing, neiter party can assign, s$blet, or trans"er its interest or d$ties $ndertis Agreement#

A2T8C( V88

T(2&S 'F T*( A<2((&(;T

Tis Agreement sall e=ist "or as long as te +rogram e=ists or any e=tension tereo"#

8; D8T;(SS D*(2('F, te +arties ave ere$nto set teir ands on tis @t day o" A$g$st, 19@@ in Tarlac,

Tarlac#

8;<'% TA2AC F';%AT8'; +2'V8;C( 'F TA2AC

Second +arty First +arty

Signed/ Signed/

A;%2(S S, F'2(S &A28A;' ; 'CA&+' 888

(=ec$tive %irector <overnor

C';C22(% 8; 0E:

Signed/

<8(2&' ;# CA2A<(



Secretary o" 0$dget

O &anagement

Te &'A sows tat TF8 is allowed to borrow "$nds directly "rom te +rovincial <overnment to "$nd ingkod

Tarlac Fo$ndation pro4ects provided te pro4ects are liveliood pro4ects $nder te 2$ral 8nd$striali!ation Can*appen +rogram#&oreover, te agreement stip$lates $nder te Conditions "or 2elease o" F$nds tat te +rovince o"Tarlac sall release in l$mp s$m te appropriate "$nds "or te approved pro4ects covered by individ$al loan

doc$ments $pon signing o" te respective loan agreement####16B

8n Crim# Case ;o# 1?79G, te "$nd alleged to ave been malversed in te amo$nt o" +1,1@.,G9?#G@ represents te

discrepancy o" te cost o" te 3$ki embroidery macines as listed in te books o" TF8 and te amo$nt act$ally paidto open te letter o" credit "or te payment o" te macines# 8n te books o" TF8, te cost o" te 3$ki embroidery

macines was listed as+@,@?.,..., wile te amo$nt paid to open te letter o" credit "or te payment o" temacines was +7,?79,6>.#6-# +etitionerFlores was eld liable only $p to te amo$nt o" +1,1>-,7>9#

8n Crim# Case ;o# 1?796, te "$nd alleged to ave been malversed in te amo$nt o" +6@,... is te money le"t+G7,7>./ in +;0 SPA ;o# G9.6667GG? a"ter te witdrawal o" te p$rcase price o" te 3$ki embroiderymacines, pl$s interest# Te amo$nt o" +6@,... was witdrawn $pon te a$tori!ation o" petitioner Flores# Tewitdrawal was neiter re"lected as deposit in te bank acco$nts o" TF8 nor spent by it#

8n bot cases, te money trail proven by te prosec$tion sows tat te s$b4ect "$nds or te money $sed "or te p$rcase o" te 3$ki embroidery macines came "rom te release o" te +rovince o" Tarlac tro$g petitioner'campo o" ;A< "$nds in te amo$nt o" +11#6 million to TF8 on 'ctober -G, 19@@# Te release o" te "$ndswas covered by a loan doc$ment in accordance wit te &'A wic states tat te +rovince o" Tarlac sall releasein l$mp s$m te appropriate "$nds "or te approved pro4ects covered by individ$al loan doc$ments $pon signing o"

te respective loan agreement####

Te 2eport on te Special A$dit o" TF81?B stated:

# # # For te period 3$ly 19@@ to %ecember 19@9, TF8 received a total o" +6?#? million wic consisted o" si=releases and covered by individ$al loan agreements, as "ollows:

%ate Amo$nt

.@ >. @@ +7, ..., ...

1. -G @@ 11,6.., ...



1- .@ @@ 1,6.., ...

.- -- @9 G,..., ...

.G 1- @9 1@,..., ...

.? 1G @9 1-,71@, G.>Total +6?,?1@, G.>

===

'n 'ctober -G, 19@@, te +rovincial <overnment o" Tarlac approved and released an amo$nt o" +11,6..,... to

ingkod Tarlac Fo$ndation, 8nc# TF8/ "or te 2$ral 8nd$striali!ation Can *appen 28C*/ +rogram# '" te amo$ntreleased, +7,.->,@>? was intended "or te p$rcase o" G.. sets embroidery macines "or te (mbroidery SkillsTraining +ro4ect#17B

0ased on te "oregoing, it is clear tat te "$nds released by te +rovince o" Tarlac, incl$ding te money allegedlymalversed by petitioners in Crim# Case ;os# 1?79G and 1?796, were in te nat$re o" a loan to TF8#

Art# 196> o" te Civil Code provides tat aB person wo receives a loan o" money or any oter "$ngible ting

ac$ires te ownersip tereo", and is bo$nd to pay to te creditor an e$al amo$nt o" te same kind and $ality#

*ence, petitioner 'campo correctly arg$ed tat te ;A< "$nds sed teir p$blic caracter wen tey were lent

to TF8 as it ac$ired ownersip o" te "$nds wit an obligation to repay te +rovince o" Tarlac te amo$nt borrowed# Te relationsip between te +rovince o" Tarlac and te TF8 is tat o" a creditor and debtor# Fail$re to pay te indebtedness wo$ld give rise to a collection s$it#

Te Sandiganbayan convicted petitioner 'campo o" malversation o" p$blic "$nds $nder Art# -17 o" te 2evised

+enal Code "or is gross and ine=c$sable negligence in not setting $p sa"eg$ards in accordance wit Sec# -.>t/ o"te ocal <overnment Code1@B "or te proper andling o" te ;A< "$nds in te ands o" TF8 wic res$ltedin te disappearance o" +1,1>-,7>9 allegedly malversed in Crim# Case ;o# 1?79G and te disappearance o" +6@,...in Crim# Case ;o# 1?796#

8n is petition, petitioner 'campo states tat e made s$re tat proper sa"eg$ards were in place witin TF8 to

ens$re te proper andling o" ;A< "$nds by TF8# 'n A$g$st 6, 19@@, be"ore te +rovince o" Tarlac and TF8entered into te &'A, TF8s Articles o" 8ncorporation were amended to add te "ollowing:



T(;T*: Tat no part o" te net income o" te Fo$ndation sall in$re to te bene"it o" any member o" teFo$ndation and tat at least seventy percent 7.M/ o" te "$nds sall be $sed "or te pro4ects and not more tantirty percent >.M/ o" said "$nds sall be $sed "or administrative p$rposes#

+etitioner 'campo arg$es tat since e ad resigned "rom TF8 bot as cairperson and as tr$stee on 3$ne --, 19@@,e ceased to become acco$ntable "or te andling o" te ;A< "$nds a"ter te same were loaned to TF8 p$rs$ant

to te &'A dated A$g$st @, 19@@# Conse$ently, e may not be eld criminally liable "or disb$rsements made byTF8 since e ad noting to do wit its operations a"ter is resignation#

&alversation may be committed by appropriating p$blic "$nds or property5 by taking or misappropriating te same5 by consenting, or tro$g abandonment or negligence, by permitting any oter person to take s$c p$blic "$nds or property5 or by being oterwise g$ilty o" te misappropriation or malversation o" s$c "$nds or property#19B

Te essential elements common to all acts o" malversation $nder Art# -17 o" te 2evised +enal Code-.B are:

a/ Tat te o""ender be a p$blic o""icer5

b/ Tat e ad te c$stody or control o" "$nds or property by reason o" te d$ties o" is o""ice5

c/ Tat tose "$nds or property were p$blic "$nds or property "or wic e was acco$ntable5

d/ Tat e appropriated, took, misappropriated or consented or, tro$g abandonment or negligence, permittedanoter person to take tem#-1B

Tere can be no malversation o" p$blic "$nds by petitioner 'campo in te instant cases since te loan o" +11#6

million trans"erred ownersip and c$stody o" te "$nds, wic incl$ded te s$m o" money allegedly malversed, toTF8 "or wic 'campo co$ld no longer be eld acco$ntable# T$s, contrary to te allegation o" te '""ice o" teSpecial +rosec$tor, petitioner 'campo cannot be eld c$lpable "or malversation committed tro$g negligence inadopting meas$res to sa"eg$ard te money o" te +rovince o" Tarlac, since te same were neiter in is c$stody nor

was e acco$ntable tere"or a"ter te loan to TF8#

T$s, petitioner Flores, as te e=ec$tive director o" TF8, cannot also be eld liable "or malversation o" p$blic "$nds

in a contract o" loan wic trans"erred ownersip o" te "$nds to TF8 making tem private in caracter# iwanag v#Co$rt o" Appeals--B eld:

# # # in a contract o" loan once te money is received by te debtor, ownersip over te same is trans"erred# 0eing teowner, te borrower can dispose o" it "or watever p$rpose e may deem proper#



Te Sandiganbayan erred wen it stated tat te intention o" te parties was "or te "$nds to remain p$blic, citing te&'A wic allegedly provided, t$s:

Te +rovince sall ave te rigt to ave access to all reso$rces and records o" eiter TF8B or 08% and maycond$ct C'A e=amination or a$dit on any or all matter a""ecting te loans or assets covered by tis agreement and"$nds "rom te +rovince o" Tarlac#

A review o" te &'A did not sow te presence o" s$c provision# 0$t te cited provision is contained in teT&'A, wic was later entered into by te +rovince o" Tarlac, TF8 and 08%, wereby TF8 trans"erred part o"

its obligation to 08%#

Dat is controlling in te instant cases is tat te parties entered into a contract o" loan "or eac release o" ;A<"$nds# Te second release on 'ctober -G, 19@@ incl$ded te s$b4ect "$nds in controversy# 0y virt$e o" te contracto" loan, ownersip o" te s$b4ect "$nds was trans"erred to TF8 making tem private in caracter, and tere"ore not

s$b4ect o" te instant cases o" malversation o" p$blic "$nds#

Te Co$rt notes tat te obligation o" TF8 to repay te ;A< F$nds o" +6?,?1@,G.> obtained by it "rom te

+rovinceo" Tarlac p$rs$ant to te &'A was e=ting$ised as "ollows:

1/ 08% ass$med TF8s principal loan o" +G. million5

-/ TF8 ceded, trans"erred and assigned to te +rovince o" Tarlac all te rigts and interests o" TF8 in certainloans incl$ding interests, certi"icate o" time deposit and certain 3$ki embroidery macines in te total amo$nto"+1?,?1@,G.>#

Second 8ss$e: Deter or not te Sandiganbayan erred in olding tat te &'A is void and did not bind te+rovinceo" Tarlac on te gro$nd tat te &'A was entered into by petitioner 'campo wito$t a$tority "rom te

Sangg$niang +anlalawigan in violation o" te ocal <overnment Code o" 19@>I

8n its 2esol$tion dated 3an$ary ?, -..>, te Sandiganbayan concedes tat te transaction between te +rovince o"Tarlactro$g petitioner 'campo and te TF8 was one o" loan# *owever, it stated tat since 'campo was nota$tori!ed by teSangg$niang +anlalawigan to enter into te &'A as re$ired by te ocal <overnment Code o"



19@>, te &'A did not bind te province nor did it give any bene"its to te TF8 beca$se a void contract as noe""ect watsoever#

+etitioner 'campo alleges tat e ad ample a$tority to enter into te &'A "or te "ollowing reasons:

1/ ;A< "$nds received by te +rovince o" Tarlac came straigt "rom te national government and wereintended "or a speci"ic p$rpose, tat is, te implementation o" vario$s liveliood pro4ects in te +rovince o" Tarlac,as evidenced by te e=cange o" correspondence between im petitioner 'campo/ and %0& Secretary <$illermo

;# Carag$e#->B

-/ 'n 3$ly 16, 19@@, te %0& released a revolving "$nd "or te implementation o" vario$s liveliood

pro4ects in te+rovince o" Tarlac $nder Advice Allotment ;o# 0CS.1@>@@>.1#-GB 8n A$g$st 19@@, e petitioner'campo/ in"ormed te %0& tat te +rovince o" Tarlac ad designated TF8 as te implementing arm "or its

liveliood pro4ects, and re$ested a$tority to e=tend loans to TF8, wic re$est was approved by te %0&Secretary#-6B

>/ Te %0&s approval o" petitioner 'campos re$est constit$ted te a$tority o" petitioner 'campo toenter into te &'A wit TF8#

G/ %0& also approved and conc$rred wit te terms o" te &'A as evidenced by te %0& Secretaryssignat$re on te &'A#

+etitioner 'campo also asserts tat Sec# -.>"/ o" te ocal <overnment Code o" 19@>,-?B wic a$tori!ed te provincial governor to enter into b$siness transactions on beal" o" te province, did not e=pressly re$ire teconc$rrence o" te provincial board $nlike its co$nterpart provision in te ocal <overnment Code o" 1991#-7B

F$rter, petitioner 'campo states tat in any case, te lack o" a$tority o" one wo enters into a contract in te name

o" anoter does not render te contract void $nder Art# 1G.9 o" te Civil Code,-@B as r$led by te Sandiganbayan, b$t only $nen"orceable $nder Art# 1G.>1/ o" te Civil Code# *e points o$t tat $nen"orceable contracts ares$sceptible o" rati"ication, and in tis case, te +rovincial 0oard o" Tarlac can be deemed to ave rati"ied te &'A

wen it passed te "ollowing resol$tions:

1/ 2esol$tion ;o# 7?, wic con"irmed and rati"ied te T&'A among te +rovince o" Tarlac, TF8 and te

08%, wereby te liability o" TF8 in "avor o" te +rovince o" Tarlac in te total amo$nt o" +G. million wastrans"erred to and ass$med by 08%5-9B and



-/ 2esol$tion ;o# 199, wic a$tori!ed petitioner 'campo to sign te %eed o" Assignment between te+rovince o" Tarlac and TF8, wereby TF8 assigned loans, sewing macines and oter assignable doc$ments in"avor o" te +rovince o" Tarlac to settle te balance o" its obligation in te amo$nt o" +1?,?1@,G.>#..# >.B

Te Co$rt olds tat since petitioner 'campo was not d$ly a$tori!ed by te Sangg$niang +anlalawigan to enterinto te &'A, te agreement is an $nen"orceable contract $nder Sec# 1G.> o" te Civil Code:

Art# G.># Te "ollowing contracts are $nen"orceable, $nless tey are rati"ied:

1/ Tose entered into in te name o" anoter person by one wo as been given no a$tority or legalrepresentation, or wo as acted beyond is powers5 = = =#

nen"orceable contracts are governed by te "ollowing provisions o" te Civil Code:

Art# 1G.G# na$tori!ed contracts are governed by article 1>17 and te principles o" agency in Title Q o" tis 0ook#

Art# 1>17# ;o one may contract in te name o" anoter wito$t being a$tori!ed by te latter, or $nless e as by

law or rigt to represent im#

A contract entered into in te name o" anoter by one wo as no a$tority or legal representation, or wo as acted beyond is powers, sall be $nen"orceable, $nless it is rati"ied, e=pressly or impliedly, by te person on wose beal" it as been e=ec$ted, be"ore it is revoked by te oter contracting party#>1B

Te Co$rt "inds tat te &'A as been impliedly rati"ied by te Sangg$niang +anlalawigan as it as not directlyimp$gned te validity o" te &'A despite knowledge o" tis controversy# 8mplied rati"ication is also sown by te

"ollowing acts:

1/ Te Sangg$niang +anlalawigan s$bse$ently recogni!ed te trans"er o" liabilities o" TF8 in

"avor o" te+rovince o" Tarlac to 08% in te amo$nt o" +G. million contained in a T&'A#>-B



-/ 8t a$tori!ed petitioner 'campo to sign in beal" o" te +rovince o" Tarlac te %eed o"Assignment entered into by te +rovince o" Tarlac and TF8>>B wic e=ting$ised te remaining loan obligationso" TF8 obtained $nder te &'A#

D*(2(F'2(, te consolidated petitions are <2A;T(%# Te %ecision o" te Sandiganbayan prom$lgated on&arc @, -..- and its 2esol$tion prom$lgated on 3an$ary ?, -..> are S(T AS8%(# +etitioner &ariano n 'campo

888 and petitioner Andres S# Flores are ereby ACK8TT(% o" te crime o" malversation o" p$blic "$nds in Crim#Case ;os# 1?79G and 1?796#

;o costs#

S' '2%(2(%#

S+'S(S 2A&'; &# ;8SC( <#2# ;o# 1?7G>G

and A# ;AT8V8%A% +A2AS

;8SC(,

+etitioners, +resent:

E;A2(SSA;T8A<', 3#,

Cairperson,

vers$s AST28A&A2T8;(,

CA(3', S2#, and

C*8C';AA28', 33#

(K8TA0( +C8 0A;, 8;C#,

2espondent#

+rom$lgated:

Febr$ary 19, -..7

==



% ( C 8 S 8 ' ;

CA(3', S2#, 3#:

'n ;ovember -?, -..-, ($itable +C8 0ank1B 0ank/ as creditormortgagee "iled a petition "or e=tra4$dicial

"oreclos$re be"ore te '""ice o" te Clerk o" Co$rt as (='""icio Seri"" o" te 2egional Trial Co$rt 2TC/ o"&akati City# 8t so$gt to "oreclose te "ollowing real estate mortgage contracts e=ec$ted by te spo$ses 2amon and ;atividad ;isce over two parcels o" land covered by Trans"er Certi"icate o" Title TCT/ ;os# S@>G?? and S@>G?7

o" te 2egistry o" %eeds o" 2i!al: one datedFebr$ary -?, 197G5 two -/ sets o" Additional 2eal (state &ortgagedated September -7, 197@ and 3$ne >, 199?5 and an Amendment to 2eal (state &ortgage dated Febr$ary -@, -...#Te mortgage contracts were e=ec$ted by te spo$ses ;isce to sec$re teir obligation $nder +romissory ;ote ;os#1.G-79> and 0%16.>?9, incl$ding a S$retysip Agreement e=ec$ted by ;atividad# Te obligation o" te ;isce

spo$ses totaled +>G,.@7,7-6#7? broken down as "ollows:

Spo$ses 2amon O ;atividad ;isce +17,G--,-@6#99

;atividad +# ;isce s$rety/ SU67,>.?#69

and +1?,??6,G>9#77-B

'n %ecember -, -..-, te (='""icio Seri"" set te sale at p$blic a$ction at 1.:.. a#m# on 3an$ary 1G, -..>,>B or

on 3an$ary >., -..> in te event te p$blic a$ction wo$ld not take place on te earlier setting#

'n 3an$ary -@, -..>, te ;isce spo$ses "iled be"ore te 2TC o" &akati City a complaint "or n$llity o" teS$retysip Agreement, damages and legal compensation wit prayer "or in4$nctive relie" against te 0ank and te(='""icio Seri""# Tey alleged te "ollowing: in a letterGB dated %ecember 7, -... tey ad re$ested te banktro$g teir lawyerson Atty# 2osanno +# ;isce/ to seto"" te peso e$ivalent o" teir obligation against teir S

dollar acco$nt wit +C8 Capital Asia imited *ong ong/, a s$bsidiary o" te 0ank, $nder Certi"icate %eposit ;o#.1?1-6B and Acco$nt ;o# .9..1.G +assbook ;o# @>>.G1/5?B te 0ank accepted teir o""er and re$ested "or anestimate o" te balance o" teir acco$nt5 tey complied wit te 0anks re$est and in a letter dated Febr$ary 11,

-..-, in"ormed it tat te estimated balance o" teir acco$nt as o" %ecember 1991 incl$ding te 11#@76M perann$m interest/ was SU61,...#G-,7B and tat as o" %ecember -..-, ;atividads S dollar deposit wit itamo$nted to at least +9,...,...#..5 tey were s$rprised wen tey received a letter "rom te 0ank demanding

payment o" teir loan acco$nt, and later a petition "or e=tra4$dicial "oreclos$re#

Te spo$ses ;isce also pointed o$t tat te petition "or "oreclos$re "iled by te 0ank incl$ded te alleged obligation

o" ;atividad as s$rety "or te loan o" Vista ;orte Trading Corporation, a company owned and managed by teir son%ino <iovanni +# ;isce +1?,??6,G>9#77 and SU67,>.?#69/# Tey insisted, owever, tat te s$retysip agreementwas n$ll and void "or te "ollowing reasons:



a/ = = = 8Bt was e=ec$ted wito$t te knowledge and consent o" plainti"" 2amon &# ;isce, wo is by law teadministrator o" te con4$gal partnersip5

b/ Te s$retysip agreement did not redo$nd to te bene"it o" te con4$gal partnersip and tere"ore did not bindte same5

c/ Ass$ming, arg$endo, tat te s$retysip contract was valid and binding, any obligation arising tere"rom is notcovered by plainti""s real estate mortgages wic were constit$ted to sec$re te payment o" certain speci"ic

obligations only#@B

Te spo$ses ;isce likewise alleged tat since tey and te 0ank were creditors and debtors wit respect to eac

oter, teir obligations so$ld ave been o""set by legal compensation to te e=tent o" teir acco$nt wit te 0ank#

To s$pport teir plea "or a writ o" preliminary and proibitory in4$nction, te spo$ses ;isce alleged tat te amo$nt"or wic teir property was being sold at p$blic a$ction +>G,.@7,7-6#7?/ was grossly e=cessive5 te S dollardeposit o" ;atividad wit +C8 Capital Asia td# *ong ong/, and te obligation covered by te s$retysipagreement ad not been ded$cted# Tey insisted tat teir property rigts wo$ld be violated i" te sale at p$blic

a$ction wo$ld p$s tro$g# T$s, te spo$ses ;isce prayed tat tey be granted te "ollowing relie"s:

1/ tat $pon te "iling o" tis Complaint andPor a"ter d$e notice and s$mmary earing, te *onorable Co$rtimmediately iss$e a temporary restraining order T2'/ restraining de"endants, teir representatives andPor dep$ties,and oter persons acting "or and on teir beal" "rom proceeding wit te e=tra4$dicial "oreclos$re sale o" plainti""smortgaged properties on >. 3an$ary -..> or on any oter dates s$bse$ent tereto5

-/ tat a"ter d$e notice and earing and posting o" te appropriate bond, te *onorable Co$rt convert te T2' to a

writ o" preliminary proibitory in4$nction5

>/ tat a"ter trial on te merits, te *onorable Co$rt render 4$dgment

a/ making te preliminary in4$nction "inal and permanent5



b/ ordering de"endant 0ank to set o"" te present peso val$e o" &rs# ;isces S dollar time deposit, incl$sive o"stip$lated interest, against plainti""s loan obligations wit de"endant 0ank5

c/ declaring te %eed o" S$retysip dated -6 &ay 199@ n$ll and valid and wito$t any binding e""ect as to

plainti"" spo$ses, and ordering de"endant 0ank to e=cl$de te amo$nts covered by said s$retysip contract "rom plainti""s obligations wit de"endant 0ank5

d/ ordering de"endant 0ank to pay plainti""s te "ollowing s$ms:

i/ at least +>,...,...#.. as moral damages5

ii/ at least +1,6..,...#.. as e=emplary damages5 and

iii/ at least +6..,...#.. as attorneys "ees and "or oter e=penses o" litigation#

+lainti""s "$rter pray "or costs o" s$it and s$c oter relie"s as may be deemed 4$st and e$itable#9B

'n same day, te 0ank "iled an Amended +etition wit te '""ice o" te (=ec$tive 3$dge "or e=tra4$dicial"oreclos$re o" te 2eal (state &ortgage to satis"y te spo$ses loan acco$nt o" +>.,6>>,66-#-G, e=cl$sive o"

interests, penalties and oter carges5 and te amo$nts o" +1?,??6,G>9#77 and SU67,>.?#69 covered by te

s$retysip agreement e=ec$ted by ;atividad ;isce#1.B

8n te meantime, te parties agreed to ave te sale at p$blic a$ction reset to 3an$ary >., -..>#

8n its Answer to te complaint, te 0ank alleged tat te spo$ses ad no ca$se o" action "or legal compensation since+C8 Capital was a di""erent corporation wit a separate and distinct personality5 i" at all, o""setting may occ$r onlywit respect to te spo$ses SU6..#.. deposit acco$nt in its +aseo de 2o=as branc#

8n te meantime, te (='""icio Seri"" set te sale at p$blic a$ction at 1.:.. a#m# on &arc 6 and -7, -..>#11B Te

spo$ses ;isce ten "iled a S$pplemental Complaint wit plea "or a temporary restraining order to en4oin te sale at p$blic a$ction#1-B Terea"ter, te 2TC cond$cted earings on te plainti""s plea "or a temporary restraining order,and te parties add$ced testimonial and doc$mentary evidence on teir respective arg$ments#

Te Case "or te Spo$ses ;isce



;atividad "re$ently traveled abroad and needed a "acility wit easy access to "oreign e=cange# Se in$ired "rom(#+# ;ery, te 0ank &anager "or +C8 0ank +aseo de 2o=as 0ranc, abo$t opening an acco$nt# *e ass$red er tatse wo$ld be able to access it "rom anywere in te world# Se and ;ery also agreed tat any balance o" acco$ntremaining at mat$rity date wo$ld be rolled over $ntil "$rter instr$ctions, or $ntil se terminated te "acility#1>B

Convinced, ;atividad deposited SU-.,6..#.. on 3$ly 19, 19@G, and was iss$ed +assbook ;o# @>>.G1#1GB poner re$est, te bank trans"erred te SU-.,...#.. to +C8 Capital Asia td# in *ong ong via cable order#16B

'n 3$ly 11, 199?, te spo$ses ;isce sec$red a +-.,...,...#.. loan "rom te 0ank $nder +romissory ;ote ;o# 0%16.>?9#1?B Te mat$rity date o" te loan was 3$ly 11, -..1, payable in montly installments at 1?#7>1M interest per ann$m# To sec$re te payment o" te loan acco$nt, tey e=ec$ted an Amendment to te 2eal (state &ortgage

over te properties17Blocated in &akati City covered by TCT ;os# S@>G?? and S@>G?7#1@B Tey later sec$redanoter loan o" +1>,.@9,9>?#9. on &arc 1, -... to mat$re on &arc 1, -..6/ payable $arterly at 1>#9@?9Minterest per ann$m5 tis loan agreement is evidenced by +romissory ;ote +;/ ;o# 1.G-79>19B and covered by a

2eal (state &ortgage-.B e=ec$ted on Febr$ary -@, -...# Tey made a partial payment o" +1>,@??,???#6. on te principal o" teir loan acco$nt covered by +; ;o# 0%16.>?9, and+6,>G@,->9#@- on te interests#-1B Tese payments are evidenced by receipts and cecks#--B *owever, tere were payments totaling +G,?..,...#.. received by te 0ank b$t were not covered by cecks or receipts#->B As o" September -..., te balance o" teir loan acco$nt

$nder +; ;o# 0%16.>?9 was only +G,>>>,>>>#G?#-GB Tey also made partial payment on teir loan acco$nt $nder +; ;o# 1.G-79> wic, as o" &ay >., -..1, amo$nted to +-,-1@,79>#?1#-6B

'n 3$ly -., 19@G, +C8 Capital iss$ed Certi"icate o" %eposit ;o# C%.1?1-5-?B proo" o" receipt o" teSU-.,...#.. trans"erred to it by +C8 0ank +aseo de 2o=as 0ranc as re$ested by ;atividad# Te deposit acco$ntwas to earn interest at te rate o" 11#@76M per ann$m, and wo$ld mat$re on 'ctober --, 19@G, terea"ter to be

payable at te o""ice o" te depositary in *ong ong $pon presentation o" te Certi"icate o" %eposit#

8n 3$ne 1991, two sons o" te ;isce spo$ses were stranded in *ong ong# ;atividad called te 0ank and re$ested

"or a partial release o" er dollar deposit to er sons# *owever, se was in"ormed tat according to its comp$terrecords, no s$c dollar acco$nt e=isted# Sometime in ;ovember 1991, se s$bmitted er S dollar passbook wit a=ero= copy o" te Certi"icate o" %eposit "or te +C80 to determine te wereabo$ts o" te acco$nt#-7B Se

reiterated er re$est to te 0ank on 3an$ary -7, 199--@B and September 11, -...#-9B

8n te meantime, in 199G, te ($itable 0anking Corporation and te +C80 were merged $nder te corporate name($itable +C8 0ank#

8n a letter dated %ecember 7, -..., ;atividad con"irmed to te 0ank, tro$g &s# Sellane 2# Casaysayan, er o""er to settle teir loan acco$nt by o""setting te peso e$ivalent o" er dollar acco$nt wit +C8 Capital $nder Acco$nt ;o# .9..1.G#>.B Teir son, Atty# 2osanno ;isce, later wrote te 0ank, declaring tat te estimated balance o" te

S dollar acco$nt wit +C8 Capital as o" %ecember 1991 was SU61,...#G-#>1B Atty# ;isce corroborated tis inis testimony, and stated tat &s# Casaysayan ad declared tat se wo$ld re"er te matter to er s$periors#>-B Acertain 2ene (steven also told im tat anoter o""er to seto"" is parents acco$nt ad been accepted, and e was

ass$red tat its implementation was being processed#>>B 'n cross e=amination, Atty# ;isce declared tat tere wasno response to is re$est "or seto"",>GB and tat (steven ass$red im tat te 0ank wo$ld look "or te records o"



is moters S dollar savings deposit#>6B *e was later told tat te 0ank ad accepted te o""er to seto"" teacco$nt#>?B

Te Case "or te 0ank

Te 0ank add$ced evidence tat, as o" 3an$ary >1, -..>, te balance o" te spo$ses acco$nt $nder te two promissory notes, incl$ding interest and penalties, was +>.,6>>,66-#-G#>7B 8t ad agreed to restr$ct$re teir loanson &arc >1, 199@, b$t tey neverteless "ailed to pay despite repeated demands#>@B Te spo$ses ad also been

"$rnised wit a statement o" teir acco$nt as o" 3$ne -..1# T$s, $nder te terms o" te 2eal (state &ortgage and+romissory ;otes, it ad te rigt to te remedy o" "oreclos$re# 8t insisted tat tere is no sowing in its records tatte spo$ses ad delivered cecks amo$nting to+G,?..,...#..#>9B

According to te 0ank, ;atividads SU-.,...#.. deposit wit te +C80 +aseo de 2o=as branc was trans"erred to

+C8 Capital via cable order,G.B and tat it later iss$ed Certi"icate o" %eposit ;o# .1?1- ;ontrans"errable/#G1B 8na letter dated&ay 9, -..1, it in"ormed ;atividad tat it ad acted merely as a cond$it in "acilitating te trans"er o"te "$nds, and tat er deposit was made wit +C8 Capital and not wit +C80# +C8 Capital ad a separate anddistinct personality "rom te +C80, and a claim against te "ormer cannot be made against te latter# 8t was lateradvised tat +C8 Capital ad already ceased operations#G-B

Te spo$ses ;isce presented reb$ttal doc$mentary evidence to sow tat +C8 Capital was registered in *ong ong

as a corporation $nder 2egistration ;o# @G666 on Febr$ary -7, 19@9G>B wit an a$tori!ed capital stock o"6.,...,... wit par val$e o" *%1#../5 te +C80 s$bscribed to -9,.>9,99> iss$ed sares at te par val$e o"*%1#.. per sare5GGB on 'ctober -6, -..G, te corporate name o" +C8 Capital was canged to +C8 (=press

+adala */ td#5G6B and te stockoldings o" +C80 remained at -9,.>9,999 sares#G?B

'n &arc -G, -..>, te 2TC iss$ed an 'rderG7B granting te spo$ses ;isces plea "or a writ o" preliminary

in4$nction on a bond o" +1.,...,...#..# Te dispositive portion o" te 'rder reads:

D*(2(F'2(, in order not to render te 4$dgment ine""ect$al, $pon "iling by te plainti""s and te approval tereo" by te co$rt o" a bond in te amo$nt o" +p1.,...,...#.., wic sall answer "or any damage so$ld te co$rt"inally decide tat plainti""s are not entitled tereto, let a writ o" preliminary in4$nction iss$e en4oining de"endants

($itable+C8 0ank, Atty# (ngracio &# (scasinas, 3r#, and any person or entity acting "or and in teir beal" "rom proceeding wit te e=tra4$dicial "oreclos$re sale o" TCT ;os# G>7?7@ and G>7?79 registered in te names o" te plainti""s#G@B



A"ter weiging te parties arg$ments along wit teir doc$mentary evidence, te 2TC declared tat 4$stice wo$ld be best served i" a writ o" preliminary in4$nction wo$ld be iss$ed to preserve te stat$s $o# 8t ad yet to resolve teiss$e o" seto"" since only ;atividad dealt wit te 0ank regarding er dollar acco$nt# 8t also ad to resolve te iss$eo" weter te 0ank ad "ailed to credit te amo$nt o" +G,?..,...#.. to te spo$ses ;isces acco$nt $nder +; ;o#

0%16.>?9, and teir claim tat te 0ank ad e""ectively accelerated te respective mat$rity dates o" teir loan#G9BTe spo$ses ;isce posted te re$isite bond wic was approved by te 2TC#

Te 0ank opted not to "ile a motion "or reconsideration o" te order, and instead assailed te trial co$rts order be"orete CA via petition "or certiorari $nder 2$le ?6 o" te 2$les o" Co$rt# Te 0ank alleged tat te 2TC ad actedwito$t or in e=cess o" its 4$risdiction, or wit grave ab$se o" its discretion amo$nting to lack or e=cess o"

4$risdiction wen it iss$ed te assailed order56.B te spo$ses ;isce ad "ailed to prove te re$isites "or teiss$ance o" a writ o" preliminary in4$nction5 respondents claim tat teir acco$nt wit petitioner ad beene=ting$ised by legal compensation as no "act$al and legal basis# 8t "$rter asserted tat according to te evidence,

;atividad made te SU-.,...#.. deposit wit +C8 Capital be"ore it merged wit ($itable 0ank ence, te 0ankwas not te debtor o" ;atividad relative to te dollar acco$nt# Te 0ank cited te r$ling o" tis Co$rt in (scao v#*eirs o" (scao and ;avarro61B to s$pport its arg$ments# 8t insisted tat te spo$ses ;isce ad "ailed to establis

irreparable in4$ry in case o" denial o" teir plea "or in4$nctive relie"#

Te spo$ses, "or teir part, pointed o$t tat te 0ank "ailed to "ile a motion "or reconsideration o" te trial co$rts

order, a condition sine $a non to te "iling o" a petition "or certiorari $nder 2$le ?6 o" te 2$les o" Co$rt#&oreover, te error committed by te trial co$rt is a mere error o" 4$dgment not correctible by certiorari5 ence, te petition so$ld ave been dismissed o$trigt by te CA# Tey reiterated teir claim tat tey ad made a partial payment o" +G,?..,...#.. on teir loan acco$nt wic petitioner "ailed to credit in teir "avor# Te 0ank ad agreed

to debit teir S dollar savings deposit in te +C8 Capital as payment o" teir loan acco$nt# Tey insisted tat teyad never deposited teir S dollar acco$nt wit +C8 Capital b$t wit te 0ank, and tat tey ad never de"a$ltedon teir loan acco$nt# Contrary to te 0anks claim, tey wo$ld ave s$""ered irreparable in4$ry ad te trial co$rt

not en4oined te e=tra4$dicial "oreclos$re o" te real estate mortgage#

'n %ecember --, -..G, te CA rendered 4$dgment granting te petition and n$lli"ying te assailed 'rder o" te

2TC#6-BTe appellate co$rt declared tat a petition "or certiorari $nder 2$le ?6 o" te 2$les o" Co$rt may be "ileddespite te "ail$re to "ile a motion "or reconsideration,

partic$larly in instances were te iss$e raised is one o" law5 were te error is patent5 te assailed order is void, orte $estions raised are te same as tose already r$led $pon by te lower co$rt# According to te appellate co$rt,te iss$e raised be"ore it was p$rely one o" law: weter te loan acco$nt o" te spo$ses was e=ting$ised by legal

compensation# T$s, a motion "or te reconsideration o" te assailed order was not a prere$isite to a petition "or

certiorari $nder 2$le ?6#

Te appellate co$rt "$rter declared tat te trial co$rt committed grave ab$se o" its discretion in iss$ing te assailedorder, since no pla$sible reason was given by te spo$ses ;isce to 4$sti"y te in4$nction o" te e=tra4$dicial

"oreclos$re o" te real estate mortgage# <iven teir admission tat tey ad not settled te obligations sec$red by temortgage, te 0ank ad a clear rigt to seek te remedy o" "oreclos$re#



Te CA "$rter declared as devoid o" "act$al basis te spo$ses ;isces arg$ment tat te 0ank so$ld ave applied, by way o" legal compensation, te peso e$ivalent o" teir time deposit wit +C8 Capital as partial settlement o"teir obligations# 8t eld tat "or compensation to take place, te re$irements set "ort in Articles 1-7@ and 1-79 o"te Civil Code o" te +ilippines m$st be present5 in tis case, te parties are not m$t$ally creditors and debtors o"

eac oter# 8t pointed o$t tat te time deposit wic te spo$ses ;isce so$gt to o""set against teir obligations tote 0ank is maintained wit +C8 Capital# (ven i" +C8 Capital is a s$bsidiary o" te 0ank, compensation cannotvalidly take place beca$se te 0ank and +C8 Capital are two separate and distinct corporations# 8t pointed o$t tesettled principle tat a corporation as a personality separate and distinct "rom its stockolders and "rom oter

corporations to wic it may be connected#

Te CA "$rter declared tat te alleged +G,?..,...#.. payment on +; ;o# 0%16.>?9 was not pleaded in tespo$ses complaint and s$pplemental complaint be"ore te co$rt a $o# Dat tey alleged, aside "rom legalcompensation, was tat te mortgage is not liable "or te obligation o" ;atividad ;isce as s$rety "or te loans

obtained by a trading "irm owned and managed by teir son# Te CA "$rter pointed o$t tat te 0ank preciselyamended te petition "or "oreclos$re sale by deletingte claim "or ;atividads obligation as s$rety# Te appellateco$rt concl$ded tat te in4$nctive writ was iss$ed by te 2TC wito$t "act$al and legal basis#6>B

Te spo$ses ;isce moved to ave te decision reconsidered, b$t te appellate co$rt denied te motion# Tey t$s"iled te instant petition "or review on te "ollowing gro$nds:

6#1# T*( *';'2A0( C'2T 'F A++(AS (22(% 8; TA8;< C'<;8A;C( 'F T*( +(T8T8'; F'2

C(2T8'2A28 %(S+8T( T*( 0A;S FA82( T' F8( A &'T8'; F'2 2(C';S8%(2AT8'; D8T* T*(T28A C'2T#

6#-# T*( *';'2A0( C'2T 'F A++(AS C'&&8TT(% 2(V(2S80( (22'2 D*(; 8T+2(&AT2(E 2(% '; T*( &(28TS 'F T*( &A8; CAS(#

6#># T*( *';'2A0( C'2T 'F A++(AS (22(% 8; *'%8;< T*AT 2(S+';%(;T 3%<( *A%C'&&8TT(% <2AV( A0S( 'F %8SC2(T8'; A&';T8;< T' AC '2 (QC(SS 'F 328S%8CT8';8; 8SS8;< A T(&+'2A2E 2(ST2A8;8;< '2%(2 A;% A D28T 'F +2(8&8;A2E 8;3;CT8'; 8;

FAV'2 'F T*( S+'S(S ;8SC(#6GB

+etitioners aver tat te CA erred in not dismissing respondent 0anks petition "or certiorari o$trigt beca$se o" te

absence o" a condition precedent: te "iling o" a motion "or reconsideration o" te assailed 'rder o" te 2TC be"ore"iling te petition "or certiorari in te CA# Tey insist tat respondent banks "ail$re to "ile a motion "or

reconsideration o" te assailed 'rder deprived te 2TC o" its option to resolve te iss$e o" weter it erred iniss$ing te writ o" preliminary in4$nction in teir "avor#

+etitioners insist tat in resolving weter a petition "or a writ o" preliminary in4$nction so$ld be granted, te trialco$rt and te appellate co$rt are not to resolve te merits o" te main case# 8n tis case, owever, te CA resolved



te bone o" contention o" te parties in te trial co$rt: weter te loan acco$nt o" petitioners wit respondent bankad been e=ting$ised by legal compensation against petitioner ;atividad ;isces S dollar savings acco$nt wit+C8 Capital in *ong ong# Te CA reversed te assailed order o" te trial co$rt by resolving te main iss$e in tetrial co$rt on its merits, and declaring tat te S dollar savings deposit o" te petitioner ;atividad ;isce wit te

+C8 Capital cannot be $sed to o""set te loan acco$nt o" petitioners wit respondent bank# 8n "ine, according to petitioners, te CA preempted te r$ling o" te 2TC on te main iss$e even be"ore te parties co$ld be given an

opport$nity to complete te presentation o" teir respective evidences# +etitioners point o$t tat in te assailed'rder, te 2TC declared tat to determine weter respondent ad credited petitioners "or te amo$nt o"+G,?..,...#.. $nder +; ;o# 0%16.>?9 and weter respondent as mortgageecreditor accelerated te mat$ritieso" te two -/ promissory notes e=ec$ted by petitioner, tere was a need "or a "$llblown trial and an e=a$stiveconsideration o" te evidence o" te parties#

+etitioners "$rter insist tat a petition "or a writ o" certiorari is designed solely to correct errors o" 4$risdiction and

not errors o" 4$dgment, s$c as errors in te "indings and concl$sions o" te trial co$rt# +etitioners maintain tat tetrial co$rts erroneo$s "indings and concl$sions according to respondent bank/ are not te proper s$b4ects "or a petition "or certiorari# Contrary to te "indings o" te CA, tey did not admit in te trial co$rt tat tey were in

de"a$lt in te payment o" teir loan obligations# Tey ad always maintained tat tey ad no o$tstanding obligationto respondent bank precisely beca$se teir loan acco$nt ad been o""set by te S dollar deposit o" petitioner ;atividad ;isce, and tat tey ad made ceck payments o"+G,?..,...#.. wic respondent bank ad not creditedin teir "avor# ikewise erroneo$s is te CA r$ling tat tey wo$ld not s$""er irreparable damage or in4$ry i" teir properties wo$ld be sold at p$blic a$ction "ollowing te e=tra4$dicial "oreclos$re o" te mortgage# +etitioners point

o$t tat teir con4$gal ome stands on te s$b4ect properties and wo$ld be lost i" sold at p$blic a$ction# 0esides, petitioners aver, te in4$ry to respondent bank res$lting "rom te iss$ance o" a writ o" preliminary in4$nction isamply sec$red by te +1.,...,...#.. in4$nction bond wic tey ad posted#

For its part, respondent avers tat, as eld by te CA, te re$irement o" te "iling o" a motion "or reconsideration o"

te assailed 'rder admits o" e=ceptions, s$c as were te iss$e presented in te appellate co$rt is te same iss$e presented and resolved by te trial co$rt# 8t insists tat petitioners "ailed to prove a clear legal rigt to in4$nctiverelie"5 ence, te trial co$rt committed grave ab$se o" discretion in iss$ing a writ o" preliminary in4$nction#

2espondent maintains tat te sole iss$e involved in te petition "or certiorari o" respondent in te CA was weteror not te trial co$rt committed grave ab$se o" its discretion in iss$ing te writ o" preliminary in4$nction#

;ecessarily, te CA wo$ld ave to delve into te circ$mstances beind s$c iss$ance# 8n so doing, te CA ad toconsider and calibrate te testimonial and doc$mentary evidence add$ced by te parties# *owever, te 2TC and teCA did not resolve wit "inality te tresold "act$al and legal iss$e o" weter te loan acco$nt o" petitioners ad been paid in "$ll be"ore it "iled its petition "or e=tra4$dicial "oreclos$re o" te real estate mortgage#

Te 2$ling o" te Co$rt

Te +etition in te

Co$rt o" Appeals



;ot +remat$re

Te general r$le is tat be"ore "iling a petition "or certiorari $nder 2$le ?6 o" te 2$les o" Co$rt, te petitioner ismandated to comply wit a condition precedent: te "iling o" a motion "or reconsideration o" te assailed order, and

te s$bse$ent denial o" te co$rt a $o# 8t m$st be stressed tat a petition "or certiorari is an e=traordinary remedyand so$ld be "iled only as a last resort# Te "iling o" a motion "or reconsideration is intended to a""ord te p$blic

respondent an opport$nity to correct any act$al error attrib$ted to it by way o" ree=amination o" te legal and"act$al iss$es#66B *owever, te r$le is s$b4ect to te "ollowing recogni!ed e=ceptions:

a/ were te order is a patent n$llity, as were te co$rt a $o as no 4$risdiction5 b/ were te $estions raised inte certiorariproceeding ave been d$ly raised and passed $pon by te lower co$rt, or are te same as tose raisedand passed $pon in te lower co$rt5 c/ were tere is an $rgent necessity "or te resol$tion o" te $estion and any

"$rter delay wo$ld pre4$dice te interests o" te <overnment or o" te petitioner or te s$b4ect matter o" te actionis perisable5 d/ were, $nder te circ$mstances, a motion "or reconsideration wo$ld be $seless5 e/ were

petitioner was deprived o" d$e process and tere is e=treme $rgency "or relie"5 "/ were, in a criminal case, relie""rom an order o" arrest is $rgent and te granting o" s$c relie" by te trial co$rt is improbable5 g/ were te

proceedings in te lower co$rt are a n$llity "or lack o" d$e process5 / were te proceedings was e= parte or inwic te petitioner ad no opport$nity to ob4ect5 and i/ were te iss$e raised is one p$rely o" law or p$blicinterest is involved#6?B

As will be sown later, te &arc -G, -..> 'rder o" te trial co$rt granting petitioners plea "or a writ o" preliminaryin4$nction was iss$ed wit grave ab$se o" discretion amo$nting to e=cess or lack o" 4$risdiction and t$s a n$llity# 8"

te trial co$rt iss$es a writ o" preliminary in4$nction despite te absence o" proo" o" a legal rigt and te in4$rys$stained by te plainti"", te writ is a n$llity#67B

+etitioners Are ;ot

(ntitled to a Drit o"

+reliminary +roibitory

8n4$nction

Section >, 2$le 6@ o" te 2$les o" Co$rt provides tat a preliminary in4$nction may be granted wen te "ollowingave been establised:

a/ Tat te applicant is entitled to te relie" demanded, and te wole or part o" s$c relie" consists in restrainingte commission or contin$ance o" te act or acts complained o", or in re$iring te per"ormance o" an act or acts,

eiter "or a limited period or perpet$ally5



b/ Tat te commission, contin$ance or nonper"ormance o" te act or acts complained o" d$ring te litigationwo$ld probably work in4$stice to te applicant5 or

c/ Tat a party, co$rt, agency or a person is doing, treatening, or is attempting to do, or is proc$ring or s$""ering to

be done, some act or acts probably in violation o" te rigts o" te applicant respecting te s$b4ect o" te action or proceeding, and tendering to render te 4$dgment ine""ect$al#

Te grant o" a preliminary in4$nction in a case rests on te so$nd discretion o" te co$rt wit te caveat tat it

so$ld be made wit great ca$tion# Te e=ercise o" so$nd 4$dicial discretion by te lower co$rt so$ld not beinter"ered wit e=cept in cases o" mani"est ab$se# 8n4$nction is a preservative remedy "or te protection o" te partiess$bstantive rigts and interests# Te sole aim o" a preliminary in4$nction is to preserve te stat$s $o witin te lastact$al stat$s tat preceded te pending controversy $ntil te merits o" te case can be eard "$lly# &oreover, a

petition "or a preliminary in4$nction is an e$itable remedy, and one wo comes to claim "or e$ity m$st do so witclean ands# 8t is to be resorted to by a litigant to prevent or preserve a rigt or interest were tere is a pressingnecessity to avoid in4$rio$s conse$ences wic cannot be remedied $nder any standard o" compensation# A petition"or a writ o" preliminary in4$nction rests $pon an alleged e=istence o" an emergency or o" a special reason "or s$c a

writ be"ore te case can be reg$larly tried# 0y iss$ing a writ o" preliminary in4$nction, te co$rt can tereby preventa treatened or contin$ed irreparable in4$ry to te plainti"" be"ore a 4$dgment can be rendered on te claim#6@B

Te plainti"" praying "or a writ o" preliminary in4$nction m$st "$rter establis tat e or se as a present and$nmistakable rigt to be protected5 tat te "acts against wic in4$nction is directed violate s$c rigt569B andtere is a special and paramo$nt necessity "or te writ to prevent serio$s damages# 8n te absence o" proo" o" a legal

rigt and te in4$ry s$stained by te plainti"", an order "or te iss$ance o" a writ o" preliminary in4$nction will ben$lli"ied# T$s, were te plainti""s rigt is do$bt"$l or disp$ted, a preliminary in4$nction is not proper# Te possibility o" irreparable damage wito$t proo" o" an act$al e=isting rigt is not a gro$nd "or a preliminary

in4$nction#?.B

*owever, to establis te essential re$isites "or a preliminary in4$nction, te evidence to be s$bmitted by te plainti"" need not be concl$sive and complete#?1B Te plainti""s are only re$ired to sow tat tey ave anostensible rigt to te "inal relie" prayed "or in teir complaint#?-B A writ o" preliminary in4$nction is generally based solely on initial or incomplete evidence#?>B S$c evidence need only be a sampling intended merely to give

te co$rt an evidence o" 4$sti"ication "or a preliminary in4$nction pending te decision on te merits o" te case, andis not concl$sive o" te principal action wic as yet to be decided#?GB

8t bears stressing tat "indings o" te trial co$rt granting or denying a petition "or a writ o" preliminary in4$nction based on te evidence on record are merely provisional $ntil a"ter te trial on te merits o" te case sall ave beenconcl$ded#?6B



Te trial co$rt, in granting or dismissing an application "or a writ o" preliminary in4$nction based on te pleadings o" te parties and teir respective evidence m$st state in its order te "indings and concl$sions based on te evidenceand te law# Tis is to enable te appellate co$rt to determine weter te trial co$rt committed grave ab$se o" itsdiscretion amo$nting to e=cess or lack o" 4$risdiction in resolving, one way or te oter, te plea "or in4$nctive

relie"# Te trial co$rts e=ercise o" its 4$dicial discretion weter to grant or deny an application "or a writ o" preliminary in4$nction involves te assessment and eval$ation o" te evidence, and its "indings o" "acts are ordinarily

binding and concl$sive on te appellate co$rt and tis Co$rt#??B

De agree wit respondents contention tat as creditormortgagee, it as te rigt $nder te real estate mortgagecontract and te amendment tereto to "oreclose e=tra4$dicially, te real estate mortgage and sell te property at

p$blic a$ction, considering tat petitioners ad "ailed to pay teir loans, pl$s interests and oter incrementalamo$nts as provided "or in te deeds# +etitioners contend, owever, tat i" respondent bank e=tra4$dicially"orecloses te real estate mortgage and as petitioners property sold at p$blic a$ction "or an amo$nt in e=cess o" te

balance o" teir loan acco$nt, petitioners contract$al and s$bstantive rigts $nder te real estate mortgage wo$ld beviolated5 in s$c a case, te e=tra4$dicial "oreclos$re sale may be en4oined by a writ o" preliminary in4$nction#

2espondent bank so$gt te e=tra4$dicial "oreclos$re o" te real estate mortgage and was to sell te property at p$blic a$ction "or +>.,6>>,66-#-G# Te amo$nt is based on +romissory ;otes ;o# 1.G-79> and 0%16.>?9,interests, penalty carges, and attorneys "ees, as o" 3an$ary >1, -..>, e=cl$sive o" all interests, penalties, oter

carges, and "oreclos$re costs accr$ing terea"ter#?7B +etitioners asserted be"ore te trial co$rt tat respondentsso$gt te e=tra4$dicial "oreclos$re o" te mortgaged deed "or an amo$nt "ar in e=cess o" wat tey owed, beca$sete latter "ailed to credit +G,?..,...#.. paid in cecks b$t wito$t any receipts aving been iss$ed tere"or5 and te+9,...,...#.. peso e$ivalent o" te SU-.,...#.. deposit o" petitioner ;atividad ;isce wit +C80 $nder

+assbook ;o# @>>.G1 and Certi"icate o" %eposit ;o# C%.1?1- iss$ed by +C8 Capital on3$ly ->, 19@G# +etitionersmaintain tat te SU-.,...#.. dollar deposit so$ld be seto"" against teir acco$nt wit respondent against teirloan acco$nt, on teir claim tat respondent is teir debtor inso"ar as said deposit is concerned#

8t was te b$rden o" petitioners, as plainti""s below, to add$ce preponderant evidence to prove teir claim tatrespondent bank was te debtor o" petitioner ;atividad ;isce relative to er dollar deposit wit +C80, and later

trans"erred to +C8 Capital in*ong ong, a s$bsidiary o" respondent 0ank# +etitioners, owever, "ailed to discargeteir b$rden#

nder Article 1-7@ o" te ;ew Civil Code, compensation sall take place wen two persons, in teir own rigt, arecreditors and debtors o" eac oter# 8n order tat compensation may be proper, petitioners were b$rdened to establiste "ollowing:

1/ Tat eac one o" te obligors be bo$nd principally, and tat e be at te same time a principal creditor o" te

oter5

-/ Tat bot debts consist in a s$m o" money, or i" te tings d$e are cons$mable, tey be o" te same kind, andalso o" te same $ality i" te latter as been stated5



>/ Tat te two debts be d$e5

G/ Tat tey be li$idated and demandable5

6/ Tat over neiter o" tem tere be any retention or controversy, commenced by tird persons and comm$nicated

in d$e time to te debtor#?@B

Compensation takes e""ect by operation o" law wen all te re$isites mentioned in Article 1-79 o" te ;ew CivilCode are present and e=ting$ises bot debts to te conc$rrent amo$nt even to$g te creditors and debtors are notaware o" te compensation# egal compensation operates even against te will o" te interested parties and evenwito$t teir consent#?9BS$c compensation takes place ipso 4$re5 its e""ects arise on te very day on wic all

re$isites conc$r#7.B

As its minim$m, compensation pres$pposes two persons wo, in teir own rigt and as principals, are m$t$allyindebted to eac oter respecting e$ally demandable and li$idated obligations over any o" wic no retention orcontroversy commenced and comm$nicated in d$e time to te debtor e=ists# Compensation, be it legal orconventional, re$ires con"l$ence in te parties o" te caracters o" m$t$al debtors and creditors, alto$g teir

rigts as s$c creditors or teir obligations as s$c debtors need not spring "rom one and te same contract ortransaction#71B

Article 19@. o" te ;ew Civil Code provides tat "i=ed, savings and c$rrent deposits o" money in banks and similarinstit$tions sall be governed by te provisions concerning simple loans# nder Article 196>, o" te same Code, a

person wo sec$res a loan o" money or any oter "$ngible ting ac$ires te ownersip tereo", and is bo$nd to payte creditor an e$al amo$nt o" te same kind and $ality# Te relationsip o" te depositors and te 0ank or similarinstit$tion is tat o" creditordebtor# S$c deposit may be seto"" against te obligation o" te depositor wit te bankor similar instit$tion#

Den petitioner ;atividad ;isce deposited er SU-.,6..#.. wit te +C80 on 3$ly 19, 19@G, +C80 became te

debtor o" petitioner# *owever, wen $pon petitioners re$est, te amo$nt o" SU-.,...#.. was trans"erred to +C8Capital wic "ortwit iss$ed Certi"icate o" %eposit ;o# .1?1-/, +C8 Capital, in t$rn, became te debtor o" ;atividad ;isce# 8ndeed, a certi"icate o" deposit is a written acknowledgment by a bank or borrower o" te receipt o" a s$m o" money or deposit wic te 0ank or borrower promises to pay to te depositor, to te order o" te

depositor5 or to some oter person5 or to is order wereby te relation o" debtor and creditor between te bank andte depositor is created#7-B Te iss$ance o" a certi"icate o" deposit in e=cange "or c$rrency creates a debtorcreditor relationsip#7>B



Admittedly, +C8 Capital is a s$bsidiary o" respondent 0ank# (ven ten, +C8 Capital +C8 (=press +adala */ td#Bas an independent and separate 4$ridical personality "rom tat o" te respondent 0ank, its parent company5 ence,any claim against te s$bsidiary is not a claim against te parent company and vice versa#7GB Te evidence onrecord sows tat +C80, wic ad been merged wit ($itable 0ank, owns almost all o" te stocks o" +C8 Capital#

*owever, te "act tat a corporation owns all o" te stocks o" anoter corporation, taken alone, is not s$""icient to 4$sti"y teir being treated as one entity# 8" $sed to per"orm legitimate "$nctions, a s$bsidiarys separate e=istence sall

be respected, and te liability o" te parent corporation, as well as te s$bsidiary sall be con"ined to tose arising inteir respective b$siness#76B A corporation as a separate personality distinct "rom its stockolders and "rom otercorporations to wic it may be cond$cted# Tis separate and distinct personality o" a corporation is a "iction created by law "or convenience and to prevent in4$stice#

Tis Co$rt, in &artine! v# Co$rt o" Appeals7?B eld tat, being a mere "iction o" law, pec$liar sit$ations or validgro$nds can e=ist to warrant, albeit sparingly, te disregard o" its independent being and te piercing o" te

corporate veil# Te veil o" separate corporate personality may be li"ted wen, inter alia, te corporation is merely anad4$nct, a b$siness cond$it or an alter ego o" anoter corporation or were te corporation is so organi!ed andcontrolled and its a""airs are so cond$cted as to make it merely an instr$mentality, agency, cond$it or ad4$nct o"

anoter corporation5 or wen te corporation is $sed as a cloak or cover "or "ra$d or illegality5 or to work in4$stice5or were necessary to acieve e$ity or "or te protection o" te creditors# 8n tose cases were valid gro$nds e=ist"or piercing te veil o" corporate entity, te corporation will be considered as a mere association o" persons# Teliability will directly attac to tem#77B

Te Co$rt likewise declared in te same case tat te test in determining te application o" te instr$mentality oralter ego doctrine is as "ollows:

1# Control, not mere ma4ority or complete stock control, b$t complete dominion, not only o" "inances b$t o" policy

and b$siness practice in respect to te transaction attacked so tat te corporate entity as to tis transaction ad at

te time no separate mind, will or e=istence o" its own5

-# S$c control m$st ave been $sed by te de"endant to commit "ra$d or wrong, to perpet$ate te violation o" astat$tory or oter positive legal d$ty, or disonest and $n4$st act in contravention o" plainti""s legal rigts5 and

># Te a"oresaid control and breac o" d$ty m$st pro=imately ca$se te in4$ry or $n4$st loss complaint o"#

Te Co$rt empasi!ed tat te absence o" any one o" tese elements prevents piercing te corporate veil# 8napplying te instr$mentality or alter ego doctrine, te co$rts are concerned wit reality and not "orm, wit ow te

corporation operated and te individ$al de"endants relationsip to tat operation#7@B



+etitioners "ailed to add$ce s$""icient evidence to 4$sti"y te piercing o" te veil o" corporate entity and renderrespondent 0ank liable "or te SU-.,...#.. deposit o" petitioner ;atividad ;isce as debtor#

'n indsigt, petitioners co$ld ave spared temselves te e=penses and trib$lation o" a litigation ad tey 4$st

witdrawn teir deposit "rom te +C8 Capital and remitted te same to respondent# *owever, petitioner insisted onteir contention o" seto""#

'n te +G,?..,...#.. paid in cecks allegedly remitted by petitioners to respondent in partial payment o" teir loan

acco$nt, petitioners "ailed to add$ce in evidence te cecks to sow tat, indeed, te cecks were drawn by petitioners and delivered to respondent, and tat respondent was able to cas te cecks# Te only evidence add$ced by petitioners is a piece o" paper listing te serial n$mbers o" te cecks and te amo$nt o" eac ceck:

+AE&(;TS &A%( O 2(C(8V(% 0E (0C 0T DP' 2(C(8+TS

1# %ec# -9, 1997 (0C.....>9G?- +-,...,...#..

-# 3an# --, 199@ (0C-1>.1?11@C 1,...,...#..

># Feb# -G, 199@ 0 .....7G?19 @..,...#..

G# &ar# ->, 199@ (0C-1>.1?1-1C @..,...#..

+G,?..,...#..79B

8; 8<*T 'F A T*( F'2(<'8;<, te petition is %(;8(% "or lack o" merit# Te %ecision o" te Co$rt o"Appeals is AFF82&(%# Costs against petitioners#

S' '2%(2(%#

+*8(Q &8;8;< <#2# ;o# 1G@1@7

C'2+'2AT8';,

+etitioner, +resent:

EnaresSantiago, 3# Cairperson/,



vers$s Carpio &orales, R

Cico;a!ario,;ac$ra, and,2eyes, 33#

C'&&8SS8';(2 'F

8;T(2;A 2(V(;(, +rom$lgated:2espondent#

April 1?, -..@

= =

%(C8S8';

E;A2(SSA;T8A<', 3#:

Tis is a petition "or review on certiorari o" te 3$ne >., -... %ecision1B o" te Co$rt o" Appeals in CA<#2# S+ ;o# G9>@6, wic a""irmed te %ecision-B o" te Co$rt o" Ta= Appeals in C#T#A# Case ;o# 6-..# Also assailed is

te April >, -..1 2esol$tion>Bdenying te motion "or reconsideration#

Te "acts o" te case are as "ollows:

'n April 1?, 1971, petitioner +ile= &ining Corporation +ile= &ining/, entered into an agreementGB wit 0ag$io<old &ining Company 0ag$io <old/ "or te "ormer to manage and operate te latters mining claim, known as teSto# ;ino mine, located in Atok and T$blay, 0eng$et +rovince# Te parties agreement was denominated as +ower o"Attorney and provided "or te "ollowing terms:

G# Ditin tree >/ years "rom date tereo", te +28;C8+A 0ag$io <old/ sall make available to te &A;A<(2S

+ile= &ining/ $p to ((V(; &88'; +(S'S +11,...,...#../, in s$c amo$nts as "rom time to time may be

re$ired by te &A;A<(2S witin te said >year period, "or $se in te &A;A<(&(;T o" te ST'# ;8;'&8;(# Te said ((V(; &88'; +(S'S +11,...,...#../ sall be deemed, "or internal a$dit p$rposes, as teowners acco$nt in te Sto# ;ino +2'3(CT# Any part o" any income o" te +28;C8+A "rom te ST'# ;8;'

&8;(, wic is le"t wit te Sto# ;ino +2'3(CT, sall be added to s$c owners acco$nt#



6# Denever te &A;A<(2S sall deem it necessary and convenient in connection wit te &A;A<(&(;T o"te ST'# ;8;' &8;(, tey may trans"er teir own "$nds or property to te Sto# ;ino +2'3(CT, in accordancewit te "ollowing arrangements:

a/ Te properties sall be appraised and, togeter wit te cas, sall be carried by te Sto# ;ino +2'3(CT as aspecial "$nd to be known as te &A;A<(2S acco$nt#

b/ Te total o" te &A;A<(2S acco$nt sall not e=ceed +11,...,...#.., e=cept wit prior approval o" te

+28;C8+A5 provided, owever, tat i" te compensation o" te &A;A<(2S as erein provided cannot be paid incas "rom te Sto# ;ino +2'3(CT, te amo$nt not so paid in cas sall be added to te &A;A<(2S acco$nt#

c/ Te cas and property sall not terea"ter be witdrawn "rom te Sto# ;ino +2'3(CT $ntil termination o" tisAgency#

d/ Te &A;A<(2S acco$nt sall not accr$e interest# Since it is te desire o" te +28;C8+A to e=tend to te&A;A<(2S te bene"it o" s$bse$ent appreciation o" property, $pon a pro4ected termination o" tis Agency, te

ratio wic te &A;A<(2S acco$nt as to te owners acco$nt will be determined, and te corresponding proportion o" te entire assets o" te ST'# ;8;' &8;(, e=cl$ding te claims, sall be trans"erred to te&A;A<(2S, e=cept tat s$c trans"erred assets sall not incl$de mine development, roads, b$ildings, and similar property wic will be val$eless, or o" sligt val$e, to te &A;A<(2S# Te &A;A<(2S can, on te oter and,

re$ire at teir option tat property originally trans"erred by tem to te Sto# ;ino +2'3(CT be retrans"erred totem# ntil s$c assets are trans"erred to te &A;A<(2S, tis Agency sall remain s$bsisting#

= = = =

1-# Te compensation o" te &A;A<(2 sall be "i"ty per cent 6.M/ o" te net pro"it o" te Sto# ;ino +2'3(CT be"ore income ta=# 8t is $nderstood tat te &A;A<(2S sall pay income ta= on teir compensation, wile te+28;C8+A sall pay income ta= on te net pro"it o" te Sto# ;ino +2'3(CT a"ter ded$ction tere"rom o" te

&A;A<(2S compensation#

= = = =

1?# Te +28;C8+A as c$rrent pec$niary obligation in "avor o" te &A;A<(2S and, in te "$t$re, may inc$r

oter obligations in "avor o" te &A;A<(2S# Tis +ower o" Attorney as been e=ec$ted as sec$rity "or te payment and satis"action o" all s$c obligations o" te +28;C8+A in "avor o" te &A;A<(2S and as a means to"$l"ill te same# Tere"ore, tis Agency sall be irrevocable wile any obligation o" te +28;C8+A in "avor o" te

&A;A<(2S is o$tstanding, incl$sive o" te &A;A<(2S acco$nt# A"ter all obligations o" te +28;C8+A in



"avor o" te &A;A<(2S ave been paid and satis"ied in "$ll, tis Agency sall be revocable by te +28;C8+A$pon >?mont notice to te &A;A<(2S#

17# ;otwitstanding any agreement or $nderstanding between te +28;C8+A and te &A;A<(2S to te

contrary, te &A;A<(2S may witdraw "rom tis Agency by giving ?mont notice to te +28;C8+A# Te&A;A<(2S sall not in any manner be eld liable to te +28;C8+A by reason alone o" s$c witdrawal#

+aragrap 6d/ ereo" sall be operative in case o" te &A;A<(2S witdrawal#

= = = =6B

8n te co$rse o" managing and operating te pro4ect, +ile= &ining made advances o" cas and property in

accordance wit paragrap 6 o" te agreement# *owever, te mine s$""ered contin$ing losses over te years wicres$lted to petitioners witdrawal as manager o" te mine on 3an$ary -@, 19@- and in te event$al cessation o" mine

operations on Febr$ary -., 19@-#?B

Terea"ter, on September -7, 19@-, te parties e=ec$ted a Compromise wit %ation in +ayment7B werein 0ag$io

<old admitted an indebtedness to petitioner in te amo$nt o" +179,>9G,...#.. and agreed to pay te same in treesegments by "irst assigning 0ag$io <olds tangible assets to petitioner, trans"erring to te latter 0ag$io <oldse$itable title in its +ilodrill assets and "inally settling te remaining liability tro$g properties tat 0ag$io <oldmay ac$ire in te "$t$re#

'n %ecember >1, 19@-, te parties e=ec$ted an Amendment to Compromise wit %ation in +ayment@B were te parties determined tat 0ag$io <olds indebtedness to petitioner act$ally amo$nted to +-69,1>7,-G6#.., wic s$mincl$ded liabilities o" 0ag$io <old to oter creditors tat petitioner ad ass$med as g$arantor# Tese liabilities pertained to longterm loans amo$nting to SU11,...,...#.. contracted by 0ag$io <old "rom te 0ank o" America ;T O SA and Citibank ;#A# Tis time, 0ag$io <old $ndertook to pay petitioner in two segments by "irst assigning

its tangible assets "or +1-7,@>@,.61#.. and ten trans"erring its e$itable title in its +ilodrill assets "or+1?,>.-,G-?#..# Te parties ten ascertained tat 0ag$io <old ad a remaining o$tstanding indebtedness to petitioner in te amo$nt o" +11G,99?,7?@#..#

S$bse$ently, petitioner wrote o"" in its 19@- books o" acco$nt te remaining o$tstanding indebtedness o" 0ag$io

<old by carging +11-,1>?,...#.. to allowances and reserves tat were set $p in 19@1 and +-,@?.,7?@#.. to te19@- operations#

8n its 19@- ann$al income ta= ret$rn, petitioner ded$cted "rom its gross income te amo$nt o" +11-,1>?,...#.. asloss on settlement o" receivables "rom 0ag$io <old against reserves and allowances#9B *owever, te 0$rea$ o"8nternal 2even$e 082/ disallowed te amo$nt as ded$ction "or bad debt and assessed petitioner a de"iciencyincome ta= o" +?-,@11,1?1#>9#



+etitioner protested be"ore te 082 arg$ing tat te ded$ction m$st be allowed since all re$isites "or a bad debtded$ction were satis"ied, to wit: a/ tere was a valid and e=isting debt5 b/ te debt was ascertained to be wortless5and c/ it was carged o"" witin te ta=able year wen it was determined to be wortless#

+etitioner empasi!ed tat te debt arose o$t o" a valid management contract it entered into wit 0ag$io <old# Te bad debt ded$ction represented advances made by petitioner wic, p$rs$ant to te management contract, "ormed

part o" 0ag$io <olds pec$niary obligations to petitioner# 8t also incl$ded payments made by petitioner as g$arantoro" 0ag$io <olds longterm loans wic legally entitled petitioner to be s$brogated to te rigts o" te originalcreditor#

+etitioner also asserted tat d$e to 0ag$io <olds irreversible losses, it became evident tat it wo$ld not be able torecover te advances and payments it ad made in beal" o" 0ag$io <old# For a debt to be considered wortless,

petitioner claimed tat it was neiter re$ired to instit$te a 4$dicial action "or collection against te debtor nor to sellor dispose o" collateral assets in satis"action o" te debt# 8t is eno$g tat a ta=payer e=erted diligent e""orts toen"orce collection and e=a$sted all reasonable means to collect#

'n 'ctober -@, 199G, te 082 denied petitioners protest "or lack o" legal and "act$al basis# 8t eld tat te allegeddebt was not ascertained to be wortless since 0ag$io <old remained e=isting and ad not "iled a petition "or

bankr$ptcy5 and tat te ded$ction did not consist o" a valid and s$bsisting debt considering tat, $nder temanagement contract, petitioner was to be paid "i"ty percent 6.M/ o" te pro4ects net pro"it#1.B

+etitioner appealed be"ore te Co$rt o" Ta= Appeals CTA/ wic rendered 4$dgment, as "ollows:

D*(2(F'2(, in view o" te "oregoing, te instant +etition "or 2eview is ereby %(;8(% "or lack o" merit# Teassessment in $estion, vi!: FAS1@-@@..>.?7 "or de"iciency income ta= in te amo$nt o" +?-,@11,1?1#>9 isereby AFF82&(%#

ACC'2%8;<E, petitioner +ile= &ining Corporation is ereby '2%(2(% to +AE respondent Commissioner o"

8nternal 2even$e te amo$nt o" +?-,@11,1?1#>9, pl$s, -.M delin$ency interest d$e comp$ted "rom Febr$ary 1.,1996, wic is te date a"ter te -.day grace period given by te respondent witin wic petitioner as to pay tede"iciency amo$nt = = = $p to act$al date o" payment#

S' '2%(2(%#11B



Te CTA re4ected petitioners assertion tat te advances it made "or te Sto# ;ino mine were in te nat$re o" a loan#8t instead caracteri!ed te advances as petitioners investment in a partnersip wit 0ag$io <old "or tedevelopment and e=ploitation o" te Sto# ;ino mine# Te CTA eld tat te +ower o" Attorney e=ec$ted by petitioner and 0ag$io <old was act$ally a partnersip agreement# Since te advanced amo$nt partook o" te nat$re

o" an investment, it co$ld not be ded$cted as a bad debt "rom petitioners gross income#

Te CTA likewise eld tat te amo$nt paid by petitioner "or te longterm loan obligations o" 0ag$io <old co$ldnot be allowed as a bad debt ded$ction# At te time te payments were made, 0ag$io <old was not in de"a$lt sinceits loans were not yet d$e and demandable# Dat petitioner did was to prepay te loans as evidenced by te noticesent by 0ank o" America sowing tat it was merely demanding payment o" te installment and interests d$e#

&oreover, Citibank imposed and collected a pretermination penalty "or te prepayment#

Te Co$rt o" Appeals a""irmed te decision o" te CTA#1-B *ence, $pon denial o" its motion "or reconsideration,1>Bpetitioner took tis reco$rse $nder 2$le G6 o" te 2$les o" Co$rt, alleging tat:

8#

Te Co$rt o" Appeals erred in constr$ing tat te advances made by +ile= in te management o" te Sto# ;ino&ine p$rs$ant to te +ower o" Attorney partook o" te nat$re o" an investment rater tan a loan#

88#

Te Co$rt o" Appeals erred in r$ling tat te 6.M6.M saring in te net pro"its o" te Sto# ;ino &ine indicates tat+ile= is a partner o" 0ag$io <old in te development o" te Sto# ;ino &ine notwitstanding te clear absence o"

any intent on te part o" +ile= and 0ag$io <old to "orm a partnersip#

888#

Te Co$rt o" Appeals erred in relying only on te +ower o" Attorney and in completely disregarding te

Compromise Agreement and te Amended Compromise Agreement wen it constr$ed te nat$re o" te advancesmade by +ile=#

8V#

Te Co$rt o" Appeals erred in re"$sing to delve $pon te iss$e o" te propriety o" te bad debts writeo""#1GB



+etitioner insists tat in determining te nat$re o" its b$siness relationsip wit 0ag$io <old, we so$ld not onlyrely on te +ower o" Attorney, b$t also on te s$bse$ent Compromise wit %ation in +ayment and AmendedCompromise wit %ation in +ayment tat te parties e=ec$ted in 19@-# Tese doc$ments, allegedly evinced te parties intent to treat te advances and payments as a loan and establis a creditordebtor relationsip between tem#

Te petition lacks merit#

Te lower co$rts correctly eld tat te +ower o" Attorney is te instr$ment tat is material in determining te tr$e

nat$re o" te b$siness relationsip between petitioner and 0ag$io <old# 0e"ore resort may be ad to te twocompromise agreements, te parties contract$al intent m$st "irst be discovered "rom te e=pressed lang$age o" te primary contract $nder wic te parties b$siness relations were "o$nded# 8t so$ld be noted tat te compromiseagreements were mere collateral doc$ments e=ec$ted by te parties p$rs$ant to te termination o" teir b$siness

relationsip created $nder te +ower o" Attorney# 'n te oter and, it is te latter wic establised te 4$ridicalrelation o" te parties and de"ined te parameters o" teir dealings wit one anoter#

Te e=ec$tion o" te two compromise agreements can ardly be considered as a s$bse$ent or contemporaneo$s acttat is re"lective o" te parties tr$e intent# Te compromise agreements were e=ec$ted eleven years a"ter te +owero" Attorney and merely laid o$t a plan or proced$re by wic petitioner co$ld recover te advances and payments it

made $nder te +ower o" Attorney# Te parties entered into te compromise agreements as a conse$ence o" tedissol$tion o" teir b$siness relationsip# 8t did not de"ine tat relationsip or indicate its real caracter#

An e=amination o" te +ower o" Attorney reveals tat a partnersip or 4oint vent$re was indeed intended by te parties# nder a contract o" partnersip, two or more persons bind temselves to contrib$te money, property, or

ind$stry to a common "$nd, wit te intention o" dividing te pro"its among temselves#16B Dile a corporation,like petitioner, cannot generally enter into a contract o" partnersip $nless a$tori!ed by law or its carter, it as been eld tat it may enter into a 4oint vent$re wic is akin to a partic$lar partnersip:

Te legal concept o" a 4oint vent$re is o" common law origin# 8t as no precise legal de"inition, b$t it as beengenerally $nderstood to mean an organi!ation "ormed "or some temporary p$rpose# = = = 8t is in "act ardlydisting$isable "rom te partnersip, since teir elements are similar comm$nity o" interest in te b$siness, saring

o" pro"its and losses, and a m$t$al rigt o" control# = = = Te main distinction cited by most opinions in commonlaw 4$risdictions is tat te partnersip contemplates a general b$siness wit some degree o" contin$ity, wile te 4oint vent$re is "ormed "or te e=ec$tion o" a single transaction, and is t$s o" a temporary nat$re# = = = Tis

observation is not entirely acc$rate in tis 4$risdiction, since $nder te Civil Code, a partnersip may be partic$lar or $niversal, and a partic$lar partnersip may ave "or its ob4ect a speci"ic $ndertaking# = = = 8t wo$ld seem tere"oretat $nder +ilippine law, a 4oint vent$re is a "orm o" partnersip and so$ld be governed by te law o" partnersips#Te S$preme Co$rt as owever recogni!ed a distinction between tese two b$siness "orms, and as eld tat

alto$g a corporation cannot enter into a partnersip contract, it may owever engage in a 4oint vent$re wit oters#= = = Citations omitted/ 1?B



+er$sal o" te agreement denominated as te +ower o" Attorney indicates tat te parties ad intended to create a partnersip and establis a common "$nd "or te p$rpose# Tey also ad a 4oint interest in te pro"its o" te b$sinessas sown by a 6.6. saring in te income o" te mine#

nder te +ower o" Attorney, petitioner and 0ag$io <old $ndertook to contrib$te money, property and ind$stry tote common "$nd known as te Sto# ;io mine#17B 8n tis regard, we note tat tere is a s$bstantive e$ivalence in

te respective contrib$tions o" te parties to te development and operation o" te mine# +$rs$ant to paragraps Gand 6 o" te agreement, petitioner and 0ag$io <old were to contrib$te e$ally to te 4oint vent$re assets $nder teirrespective acco$nts# 0ag$io <old wo$ld contrib$te+11& $nder its owners acco$nt pl$s any o" its income tat is le"tin te pro4ect, in addition to its act$al mining claim# &eanwile, petitioners contrib$tion wo$ld consist o" its

e=pertise in te management and operation o" mines, as well as te managers acco$nt wic is comprised o" +11&in "$nds and property and petitioners compensation as manager tat cannot be paid in cas#

*owever, petitioner asserts tat it co$ld not ave entered into a partnersip agreement wit 0ag$io <old beca$se it

did not bind itsel" to contrib$te money or property to te pro4ect5 tat $nder paragrap 6 o" te agreement, it wasonly optional "or petitioner to trans"er "$nds or property to te Sto# ;io pro4ect w/enever te &A;A<(2S sall

deem it necessary and convenient in connection wit te &A;A<(&(;T o" te ST'# ;8' &8;(#1@B

Te wording o" te parties agreement as to petitioners contrib$tion to te common "$nd does not detract "rom te"act tat petitioner trans"erred its "$nds and property to te pro4ect as speci"ied in paragrap 6, t$s renderinge""ective te oter stip$lations o" te contract, partic$larly paragrap 6c/ wic proibits petitioner "rom

witdrawing te advances $ntil termination o" te parties b$siness relations# As can be seen, petitioner became bo$nd by its contrib$tions once te trans"ers were made# Te contrib$tions ac$ired an obligatory nat$re as soon as petitioner ad cosen to e=ercise its option $nder paragrap 6#

Tere is no merit to petitioners claim tat te proibition in paragrap 6c/ against witdrawal o" advances so$ldnot be taken as an indication tat it ad entered into a partnersip wit 0ag$io <old5 tat te stip$lation only

sowed tat wat te parties entered into was act$ally a contract o" agency co$pled wit an interest wic is notrevocable at will and not a partnersip#

8n an agency co$pled wit interest, it is te agency tat cannot be revoked or witdrawn by te principal d$e to aninterest o" a tird party tat depends $pon it, or te m$t$al interest o" bot principal and agent#19B 8n tis case, tenonrevocation or nonwitdrawal $nder paragrap 6c/ applies to te advances made by petitioner wo is

s$pposedly te agent and not te principal $nder te contract# T$s, it cannot be in"erred "rom te stip$lation tat te parties relation $nder te agreement is one o" agency co$pled wit an interest and not a partnersip#

;eiter can paragrap 1? o" te agreement be taken as an indication tat te relationsip o" te parties was one o"agency and not a partnersip# Alto$g te said provision states tat tis Agency sall be irrevocable wile anyobligation o" te +28;C8+A in "avor o" te &A;A<(2S is o$tstanding, incl$sive o" te &A;A<(2S acco$nt, it



does not necessarily "ollow tat te parties entered into an agency contract co$pled wit an interest tat cannot bewitdrawn by 0ag$io <old#

8t so$ld be stressed tat te main ob4ect o" te +ower o" Attorney was not to con"er a power in "avor o" petitioner to

contract wit tird persons on beal" o" 0ag$io <old b$t to create a b$siness relationsip between petitioner and0ag$io <old, in wic te "ormer was to manage and operate te latters mine tro$g te parties m$t$al

contrib$tion o" material reso$rces and ind$stry# Te essence o" an agency, even one tat is co$pled wit interest, iste agents ability to represent is principal and bring abo$t b$siness relations between te latter and tird persons#-.B Dere representation "or and in beal" o" te principal is merely incidental or necessary "or te properdiscarge o" ones paramo$nt $ndertaking $nder a contract, te latter may not necessarily be a contract o" agency, b$t

some oter agreement depending on te $ltimate $ndertaking o" te parties#-1B

8n tis case, te totality o" te circ$mstances and te stip$lations in te parties agreement ind$bitably lead to teconcl$sion tat a partnersip was "ormed between petitioner and 0ag$io <old#

First, it does not appear tat 0ag$io <old was $nconditionally obligated to ret$rn te advances made by petitioner$nder te agreement# +aragrap 6 d/ tereo" provides tat $pon termination o" te parties b$siness relations, teratio wic te &A;A<(2S acco$nt as to te owners acco$nt will be determined, and te corresponding

proportion o" te entire assets o" te ST'# ;8;' &8;(, e=cl$ding te claims sall be trans"erred to petitioner#--BAs pointed o$t by te Co$rt o" Ta= Appeals, petitioner was merely entitled to a proportionate ret$rn o" te minesassets $pon dissol$tion o" te parties b$siness relations# Tere was noting in te agreement tat wo$ld re$ire

0ag$io <old to make payments o" te advances to petitioner as wo$ld be recogni!ed as an item o" obligation oracco$nts payable "or 0ag$io <old#

T$s, te ta= co$rt correctly concl$ded tat te agreement provided "or a distrib$tion o" assets o" te Sto# ;io mine$pon termination, a provision tat is more consistent wit a partnersip tan a creditordebtor relationsip# 8t so$ld be pointed o$t tat in a contract o" loan, a person wo receives a loan or money or any "$ngible ting ac$ires

ownersip tereo" and is bo$nd to pay te creditor an e$al amo$nt o" te same kind and $ality#->B 8n tis case,owever, tere was no stip$lation "or 0ag$io <old to act$ally repay petitioner te cas and property tat it adadvanced, b$t only te ret$rn o" an amo$nt pegged at a ratio wic te managers acco$nt ad to te owners acco$nt#

8n tis connection, we "ind no contract$al basis "or te e=ec$tion o" te two compromise agreements in wic0ag$io <old recogni!ed a debt in "avor o" petitioner, wic s$pposedly arose "rom te termination o" teir b$siness

relations over te Sto# ;ino mine# Te +ower o" Attorney clearly provides tat petitioner wo$ld only be entitled tote ret$rn o" a proportionate sare o" te mine assets to be comp$ted at a ratio tat te managers acco$nt ad to teowners acco$nt# (=cept to provide a basis "or claiming te advances as a bad debt ded$ction, tere is no reason "or0ag$io <old to old itsel" liable to petitioner $nder te compromise agreements, "or any amo$nt over and above te

proportion agreed $pon in te +ower o" Attorney#



;e=t, te ta= co$rt correctly observed tat it was $nlikely "or a b$siness corporation to lend $ndreds o" millions o" pesos to anoter corporation wit neiter sec$rity, or collateral, nor a speci"ic deed evidencing te terms andconditions o" s$c loans# Te parties also did not provide a speci"ic mat$rity date "or te advances to become d$eand demandable, and te manner o" payment was $nclear# All tese point to te inevitable concl$sion tat te

advances were not loans b$t capital contrib$tions to a partnersip#

Te strongest indication tat petitioner was a partner in te Sto ;io mine is te "act tat it wo$ld receive 6.M o" tenet pro"its as compensation $nder paragrap 1- o" te agreement# Te entirety o" te parties contract$al stip$lationssimply leads to no oter concl$sion tan tat petitioners compensation is act$ally its sare in te income o" te 4ointvent$re#

Article 17?9 G/ o" te Civil Code e=plicitly provides tat te receipt by a person o" a sare in te pro"its o" a

b$siness isprima "acie evidence tat e is a partner in te b$siness# +etitioner asserts, owever, tat no s$cin"erence can be drawn against it since its sare in te pro"its o" te Sto ;io pro4ect was in te nat$re o"

compensation or wages o" an employee, $nder te e=ception provided in Article 17?9 G/ b/#-GB

'n tis score, te ta= co$rt correctly noted tat petitioner was not an employee o" 0ag$io <old wo will be paidwages p$rs$ant to an employeremployee relationsip# To begin wit, petitioner was te manager o" te pro4ect and

ad p$t s$bstantial s$ms into te vent$re in order to ens$re its viability and pro"itability# 0y pegging itscompensation to pro"its, petitioner also stood not to be rem$nerated in case te mine ad no income# 8t is ard to believe tat petitioner wo$ld take te risk o" not being paid at all "or its services, i" it were tr$ly 4$st an ordinary

employee#

Conse$ently, we "ind tat petitioners compensation $nder paragrap 1- o" te agreement act$ally constit$tes itssare in te net pro"its o" te partnersip# 8ndeed, petitioner wo$ld not be entitled to an e$al sare in te income o"te mine i" it were 4$st an employee o" 0ag$io <old#-6B 8t is not s$rprising tat petitioner was to receive a 6.Msare in te net pro"its, considering tat te +ower o" Attorney also provided "or an almost e$al contrib$tion o" te

parties to te St# ;ino mine# Te compensation agreed $pon only serves to rein"orce te notion tat te partiesrelations were indeed o" partners and not employeremployee#

All told, te lower co$rts did not err in treating petitioners advances as investments in a partnersip known as teSto# ;ino mine# Te advances were not debts o" 0ag$io <old to petitioner inasm$c as te latter was $nder no$nconditional obligation to ret$rn te same to te "ormer $nder te +ower o" Attorney# As "or te amo$nts tat

petitioner paid as g$arantor to 0ag$io <olds creditors, we "ind no reason to depart "rom te ta= co$rts "act$al"inding tat 0ag$io <olds debts were not yet d$e and demandable at te time tat petitioner paid te same# Verily, petitioner prepaid 0ag$io <olds o$tstanding loans to its bank creditors and tis concl$sion is s$pported by teevidence on record#-?B

8n s$m, petitioner cannot claim te advances as a bad debt ded$ction "rom its gross income# %ed$ctions "or income

ta= p$rposes partake o" te nat$re o" ta= e=emptions and are strictly constr$ed against te ta=payer, wo m$st prove



by convincing evidence tat e is entitled to te ded$ction claimed#-7B 8n tis case, petitioner "ailed to s$bstantiateits assertion tat te advances were s$bsisting debts o" 0ag$io <old tat co$ld be ded$cted "rom its gross income#Conse$ently, it co$ld not claim te advances as a valid bad debt ded$ction#

D*(2(F'2(, te petition is %(;8(%# Te decision o" te Co$rt o" Appeals in CA<#2# S+ ;o# G9>@6 dated 3$ne>., -..., wic a""irmed te decision o" te Co$rt o" Ta= Appeals in C#T#A# Case ;o# 6-.. is AFF82&(%#

+etitioner +ile= &ining Corporation is '2%(2(% to +AE te de"iciency ta= on its 19@- income in te amo$nt o"+?-,@11,1?1#>1, wit -.M delin$ency interest comp$ted "rom Febr$ary 1., 1996, wic is te d$e date given "orte payment o" te de"iciency income ta=, $p to te act$al date o" payment#

S' '2%(2(%#

2(+08C 'F T*( +*88++8;(S,

+etitioner,

vers$s

SA;%8<A;0AEA; F82ST %8V8S8';/, (%A2%' &# C'3A;<C', 32#, A<28CT2AC';STA;CE S(2V8C(S, 8;C#, A2C*8+(A<' 2(ATE C'2+#, 0A(T( 2A;C*, 8;C#, 0ACSTA8'; 2A;C*, 8;C#, C*28ST(;S(; +A;TAT8'; C'&+A;E, %8SC'V(2E 2(ATE C'2+#,

%2(A& +AST2(S, 8;C#, (C*' 2A;C*, 8;C#, FA2 (AST 2A;C*, 8;C#, F8S'V S*8++8;< C'&+A;E,8;C#, F82ST ;8T(% T2A;S+'2T, 8;C#, *A0A<AT 2(ATE %(V('+&(;T, 8;C#, AADAA;2(S'2TS, 8;C#, A;A2A; A<28CT2A C'2+#, A0AE< A82 T(2&8;AS, 8;C#, A;%A828;T(2;AT8';A &A2(T8;< C'2+#, * CATT( C'2+#, C(;A '8 FACT'2E, 8;C#, &(A%'D

A2 +A;TAT8';S, 8;C#, &(T2'+(Q C'&&'%8T8(S, 8;C#, &8STE &';TA8; A<28CT2AC'2+#, ;'2T*(AST C';T2ACT T2A%(2S, 8;C#, ;'2T*(2; CA228(2S C'2+#, 'C(A;S8%(&A28T8&( (;T(2+28S(S, 8;C#, '2' V(2%( S(2V8C(S, 8;C#, +AST'2A FA2&S, 8;C#, +CE '8

&A;FACT28;< C'2+#, +*88++8;( T(C*;''<8(S, 8;C#, +28&AV(2A FA2&S, 8;C#, +;';<0AEA; *'S8;< %(V('+&(;T C'2+#, +2A ((CT28C C'&+A;E, 8;C#, 2A%8' A%8(;C(%(V('+(2S 8;T(<2AT(% '2<A;8AT8';, 8;C#, 2A%E' +88+8;' C'2+#, 2A;C*' <2A;%(, 8;C#,2(%%(( %(V('+(2S, 8;C#, SA; (ST(0A; %(V('+&(;T C'2+#, S8V(2 (AF +A;TAT8';S,

8;C#, S'T*(2; S(2V8C( T2A%(2S, 8;C#, S'T*(2; STA2 CATT( C'2+#, S+A%( ';( 2(S'2TSC'2+#, ;(Q+'2(% A;% %(V('+(2S, 8;C#, V(2%A;T +A;TAT8';S, 8;C#, V(STAA<28CT2A C'2+# A;% D8;<S 2(S'2TS C'2+#,

2espondents#



= =

2(+08C 'F T*( +*88++8;(S,+etitioner,

vers$s

SA;%8<A;0AEA; F82ST %8V8S8';/, (%A2%' &# C'3A;<C', 32#, &(A%'D A2+A;TAT8';S, 8;C#, S8V(2 (AF +A;TAT8';S, 8;C#, +28&AV(2A FA2&S, 8;C#, +AST'2AFA2&S, 8;C#, 0AC STA8'; 2A;C*, 8;C#, &8STE &';TA8;S A<28CT2A C'2+#,A2C*8+(A<' 2(ATE C'2+#, A<28CT2A C';STA;CE S(2V8C(S, 8;C#, S'T*(2; STA2CATT( C'2+#, * CATT( C'2+#, 2A;C*' <2A;%(, 8;C#, %2(A& +AST2(S, 8;C#, FA2 (AST

2A;C*, 8;C#, (C*' 2A;C*, 8;C#, A;% A82 8;T(2;AT8';A &A2(T8;< C'2+#, 2(%%((%(V('+(2S, 8;C#, +CE '8 &A;FACT28;< C'2+#, C(;A '8 FACT'2E, 8;C#, &(T2'+(QC'&&'%8T8(S, 8;C#, V(STA A<28CT2A C'2+#, V(2%A;T +A;TAT8';S, 8;C#, A;A2A;A<28CT2A C'2+#, (C3 O S';S A<28CT2A (;T(2+28S(S, 8;C#, 2A%E' +88+8;' C'2+#,

%8SC'V(2E 2(ATE C'2+#, F82ST ;8T(% T2A;S+'2T, 8;C#, 2A%8' A%8(;C( %(V('+(2S8;T(<2AT(% '2<A;8AT8';, 8;C#, A2C*8+(A<' F8;A;C( A;% (AS8;< C'2+#, SA; (ST(0A;

%(V('+&(;T C'2+#, C*28ST(;S(; +A;TAT8'; C'&+A;E, ;'2T*(2; CA228(2S C'2+#,V(;T2( S(C28T8(S, 8;C#, 0A(T( 2A;C*, 8;C#, '2' V(2%( S(2V8C(S, 8;C#, and AADAA;2(S'2TS, 8;C#,

2espondents#

= =

2(+08C 'F T*( +*88++8;(S,

+etitioner,

vers$s



(%A2%' &# C'3A;<C', 32#, F(2%8;A;% (# &A2C'S, 8&(%A 2# &A2C'S, (%<A2%' 3#A;<A2A,R 3'S( C# C';C(+C8';, AV(8;' V# C2, (%A2%' # (SC(TA, +A2A3A <# *AE%8;8,3A; +';C( (;28(, T('%'2' %# 2(<AA, %A;8' 2SA, 2'<(8' A# V8;A;,A<28CT2A C';STA;CE S(2V8C(S, 8;C#, A;<' V(;T2(S, 8;C#, A2C*8+(A<' 2(ATE

C'2+#, A+ *'%8;<S, 8;C#, A2C 8;V(ST&(;T, 8;C#, ASC 8;V(ST&(;T, 8;C#, AT';'&'S%(V('+&(;T C'2+#, 0A(T( 2A;C*, 8;C#, 0AC STA8'; 2A;C*, 8;C#, CA<AEA; %( '2''8 C'&+A;E, 8;C#, C*28ST(;S(; +A;TAT8'; C'&+A;E, C'C'A 8;V(ST'2S, 8;C#, %AVA'A<28CT2A AV8AT8';, 8;C#, %8SC'V(2E 2(ATE C'2+#, %2(A& +AST2(S, 8;C#, (C*'

2A;C*, 8;C#, (C3 O S';S A<28# (;T#, 8;C#, FA2 (AST 2A;C*, 8;C#, F8S'V S*8++8;< C'&+A;E,8;C#, F82ST &(28%8A; %(V('+&(;T, 8;C#, F82ST ;8T(% T2A;S+'2T, 8;C#, <2A;(Q+'2T&A;FACT28;< C'2+#, *A0A<AT 2(ATE %(V('+&(;T, 8;C#, *EC' A<28CT2A, 8;C#,

88<A; C'C';T 8;%ST28(S, 8;C#, AADAA; 2(S'2TS, 8;C#, A;A2A; A<28CT2AC'2+#, A0AE'< A82 T(2&8;AS, 8;C#, A;%A82 8;T(2;AT8';A &A2(T8;< C'2+#, (<AS+8'8 C'&+A;E, * CATT( C'2+#, C(;A '8 FACT'2E, 8;C#, &(A%'D A2 +A;TAT8';S,8;C#, &(T2'+(Q C'&&'%8T8(S, 8;C#, &8STE &';TA8; A<28CT2A C'2+#, ;'2T*(AST

C';T2ACT T2A%(2S, 8;C#, ;'2T*(2; CA228(2S C'2+#, 'C(A;S8%( &A28T8&( (;T(2+28S(S,8;C#, '2' V(2%( S(2V8C(S, 8;C#, +AST'2A FA2&S, 8;C#, +CE '8 &A;FACT28;< C'2+#,+*88++8;( 2A%8' C'2+#, 8;C#, +*88++8;( T(C*;''<8(S, 8;C#, +28&AV(2A FA2&S, 8;C#,+;';<0AEA; *'S8;< %(V('+&(;T C'2+#, +2A ((CT28C C'&+A;E, 8;C#, 2A%8'

A%8(;C( %(V('+(2S 8;T(<2AT(% '2<A;8AT8';, 8;C#, 2A%E' +88+8;' C'2+#, 2A;C*'<2A;%(, 8;C#, 2A;%E A8(% V(;T2(S, 8;C#, 2(%%(( %(V('+(2S, 8;C#, 2'CST((2(S'2C(S, 8;C#, 2'QAS S*A2(S, 8;C#, SA; (ST(0A; %(V('+&(;T C'2+#, SA; &8<(

C'2+'2AT8'; 'FF8C(2S, 8;C#, SA; +A0' &A;FACT28;< C'2+#, S'T*(2; '; '8&8S, 8;C#, S8V(2 (AF +A;TAT8';S, 8;C#, S'28A;' S*A2(S, 8;C#, S'T*(2; S(2V8C(T2A%(2S, 8;C#, S'T*(2; STA2 CATT( C'2+#, S+A%( 1 2(S'2TS C'2+#, TA<& A<28CT2A%(V('+&(;T C'2+#, T(%(& 2(S'2C(S, 8;C#, T*8A<2' (%80( '8 &8S, 8;C#, T'%A

*'%8;<S, 8;C#, ;(Q+'2(% A;% %(V('+(2S, 8;C#, VA*AA +2'+(2T8(S, 8;C#,

V(;T2(S S(C28T8(S, 8;C#, V(2%A;T +A;TAT8';S, 8;C#, V(STA A<28CT2A C'2+# andD8;<S 2(S'2TS C'2+#,

2espondents#

= =

3'V8T' 2# SA';<A, D8<0(2T' (# TAA%A, 'SCA2 F# SA;T'S, V82<88' &# %AV8%, 2'&(' C#2'EA;%AEA; "or imsel" and "or S28<A' %( S2 F(%(2AT8'; 'F A<28CT2A

C''+(2AT8V(S SFAC/, &'2' FA2&(2S ASS'C8AT8'; 'F A&0'A;<A %( S2 &'FAS/ andC'C';T FA2&(2S 'F S'T*(2; (ET( C''+(2AT8V( C'FAS/5 +*88++8;( 22A2(C';ST2CT8'; &'V(&(;T +22&/, represented by C';2A%' S# ;AVA22'5 C'C';T8;%ST2E 2(F'2& &'V(&(;T, 8;C# C'82/ represented by 3'S( &A28( T# FAST8;'5 V8C(;T(

FA0( "or imsel" and "or +A&0A;SA;< 8SA; ;< &<A SA&A*A; ;< &A<SASAA +A8SA&A/5 ;';8T' C(&(;T( "or imsel" and "or te ;A<AA8SA;< <;AEA; ;< &<A &A888T ;A&A<SASAA AT &A;<<A<ADA SA ;8E<A; ;8<A;/5 %8';(' &# SA;T(, S2# "or imsel" and

"or A8+;A; ;< &A888T ;A &A<;8;8E'< ;< +88+8;AS A&&+8/, 8;C#,



+etitioners8ntervenors#

% ( C 8 S 8 ' ;

0(2SA&8;, 3#:

For over two decades, te iss$e o" weter te se$estered si!able block o" sares representing -.M o" te

o$tstanding capital stock o" San &ig$el Corporation S&C/ at te time o" ac$isition belonged to teir registeredowners or to te cocon$t "armers as remained $nresolved# Tro$g tis decision, te Co$rt aims to "inally resolvete iss$e and terminate te $ncertainty tat as plag$ed tat si!able block o" sares since ten#

Tese consolidated cases were initiated on vario$s dates by te 2ep$blic o" te +ilippines 2ep$blic/ via petitions"orcertiorari in <#2# ;os# 1??@691B and 1?9.->,-B and via petition "or review on certiorari in [email protected],>B te "irst

two petitions being bro$gt to assail te "ollowing resol$tions iss$ed in Civil Case ;o# ..>>F by teSandiganbayan, and te tird being bro$gt to appeal te adverse decision prom$lgated on ;ovember -@, -..7 inCivil Case ;o# ..>>F by te Sandiganbayan#

Speci"ically, te petitions and teir partic$lar relie"s are as "ollows:

a/ <#2# ;o# 1??@69 petition "or certiorari/, to assail te resol$tion prom$lgated on %ecember 1., -..GGB

denying te 2ep$blics &otion For +artial S$mmary 3$dgment5

b/ <#2# ;o# 1?9.-> petition "or certiorari/, to n$lli"y and set aside, "irstly, te resol$tion prom$lgated on 'ctober

@, -..>,6B and, secondly, te resol$tion prom$lgated on 3$ne -G, -..6?B modi"ying te resol$tion o" 'ctober @,-..>5 and

c/ <#2# ;o# [email protected] petition "or review on certiorari/, to appeal te decision prom$lgated on ;ovember -@,-..7#7B

A;T(C(%(;TS



'n 3$ly >1, 19@7, te 2ep$blic commenced Civil Case ;o# ..>> in te Sandiganbayan by complaint, impleading asde"endants respondent (d$ardo &# Co4$angco, 3r# Co4$angco/ and 69 individ$al de"endants# 'n 'ctober -, 19@7,te 2ep$blic amended te complaint in Civil Case ;o# ..>> to incl$de two additional individ$al de"endants# 'n%ecember @, 19@7, te 2ep$blic "$rter amended te complaint tro$g its Amended Complaint (=panded per

Co$rtApproved +lainti""s &ani"estationP&otion %ated %ec# @, 19@7B albeit dated 'ctober -, 19@7#

&ore tan tree years later, on A$g$st ->, 1991, te 2ep$blic once more amended te complaint apparently to avertte n$lli"ication o" te writs o" se$estration iss$ed against properties o" Co4$angco# Te amended complaint datedA$g$st 19, 1991, designated asTird Amended Complaint (=panded +er Co$rtApproved +lainti""s&ani"estationP&otion %ated %ec# @, 19@7B,@B impleaded in addition to Co4$angco, +resident &arcos, and First

ady 8melda 2# &arcos nine oter individ$als, namely: (dgardo 3# Angara, 3ose C# Concepcion, Avelino V# Cr$!,(d$ardo # (sc$eta, +ara4a <# *ay$dini, 3$an +once (nrile, Teodoro %# 2egala, and 2ogelio Vinl$an, collectively,te ACC2A lawyers, and %anilo rs$a, and 71 corporations#

'n &arc -G, 1999, te Sandiganbayan allowed te s$bdivision o" te complaint in Civil Case ;o# ..>> into eigtcomplaints, eac pertaining to distinct transactions and properties and impleading as de"endants only te parties

alleged to ave participated in te relevant transactions or to ave owned te speci"ic properties involved# Tes$bdivision res$lted into te "ollowing s$bdivided complaints, to wit:

S$bdivided Complaint S$b4ect &atter

1# Civil Case ;o# ..>>A Anomalo$s +$rcase and se o" First nited 0ank now nited Cocon$t+lanters 0ank/

-# Civil Case ;o# ..>>0 Creation o" Companies '$t o" Coco evy F$nds

># Civil Case ;o# ..>>C Creation and 'peration o" 0$gs$k +ro4ect and Award o" +99@ &illion %amagesto Agric$lt$ral 8nvestors, 8nc#

G#

Civil Case ;o# ..>>% %isadvantageo$s +$rcases and Settlement o" te Acco$nts o" 'il &ills '$t o"

Coco evy F$nds

6#

Civil Case ;o# ..>>( nlaw"$l %isb$rsement and %issipation o" Cocoevy F$nds



?# Civil Case ;o# ..>>F Ac$isition o" S&C sares o" stock

7# Civil Case ;o# ..>>< Ac$isition o" +epsiCola

@# Civil Case ;o# ..>>* 0eest oans and Contracts

8n Civil Case ;o# ..>>F, te individ$al de"endants were Co4$angco, +resident &arcos and First ady 8melda 2#

&arcos, teACC2A lawyers, and rs$a# 8mpleaded as corporate de"endants were So$tern $!on 'il &ills,Cagayan de 'ro 'il Company, 8ncorporated, 8ligan Cocon$t 8nd$stries, 8ncorporated, San +ablo &an$"act$ringCorporation, <rane=port &an$"act$ring Corporation, egaspi 'il Company, 8ncorporated, collectively re"erred toerein as te C88F 'il &ills, and teir 1G olding companies, namely: Soriano Sares, 8ncorporated, 2o=as Sares,

8ncorporated, Arc 8nvestments, 8ncorporated, Toda *oldings, 8ncorporated, ASC 8nvestments, 8ncorporated, 2andyAllied Vent$res, 8ncorporated, A+ *oldings, 8ncorporated, San &ig$el Corporation '""icers, 8ncorporated, Te %e$m2eso$rces, 8ncorporated, Anglo Vent$res, 8ncorporated, 2ock Steel 2eso$rces, 8ncorporated, Valalla +roperties,

8ncorporated, and First &eridian %evelopment, 8ncorporated#

Allegedly, Co4$angco p$rcased a block o" >>,...,... sares o" S&C stock tro$g te 1G olding companies

owned by te C88F 'il &ills# For tis reason, te block o" >>,1>>,-?? sares o" S&C stock sall be re"erred to as teC88F block o" sares#

Also impleaded as de"endants in Civil Case ;o# ..>>F were several corporations9B alleged to ave been $nderCo4$angcos control and $sed by im to ac$ire te block o" sares o" S&C stock totaling 1?,-7?,@79 at te time o"

ac$isition representing appro=imately -.M percent o" te capital stock o" S&C/# Tese corporations are re"erredto as Co4$angco corporations or companies, to disting$is tem "rom te C88F 'il &ills# 2e"erence erea"ter toCo4$angco and te Co4$angco corporations or companies sall be as Co4$angco, et al#, $nless te conte=t re$iresindivid$ali!ation#

Te material averments o" te 2ep$blics Tird Amended Complaint S$bdivided/1.B in Civil Case ;o# ..>>F

incl$ded te "ollowing:

1-# %e"endant (d$ardo Co4$angco, 3r#, served as a p$blic o""icer d$ring te &arcos administration# %$ring te

period o" is inc$mbency as a p$blic o""icer, e ac$ired assets, "$nds, and oter property grossly and mani"estlydisproportionate to is salaries, law"$l income and income "rom legitimately ac$ired property#



1># *aving "$lly establised imsel" as te $ndisp$ted cocon$t king wit $nlimited powers to deal wit te cocon$tlevy "$nds, te stage was now set "or %e"endant (d$ardo &# Co4$angco, 3r# to la$nc is predatory "orays intoalmost all aspects o" +ilippine economic activity namely: so"tdrinks, agrib$siness, oil mills, sipping, cementman$"act$ring, te=tile, as more "$lly described below#

1G# %e"endant (d$ardo Co4$angco, 3r# taking $nd$e advantage o" is association, in"l$ence and connection, acting in

$nlaw"$l concert wit %e"endants Ferdinand (# &arcos and 8melda 2# &arcos, and te individ$al de"endants,embarked $pon devices, scemes and stratagems, incl$ding te $se o" de"endant corporations as "ronts, to $n4$stlyenric temselves at te e=pense o" +lainti"" and te Filipino people, s$c as wen e mis$sed cocon$t levy "$nds to b$y o$t ma4ority o" te o$tstanding sares o" stock o" San &ig$el Corporation in order to control te largest agri

b$siness, "oods and beverage company in te +ilippines, more partic$larly described as "ollows:

a/ *aving control over te cocon$t levy, %e"endant (d$ardo &# Co4$angco invested te "$nds in diverse activities,s$c as te vario$s b$sinesses S&C was engaged in e#g# large beer, "ood, packaging, and livestock/5

b/ *e entered S&C in early 19@> wen e bo$gt most o" te -. million sares (nri$e obel owned in teCompany# Te sares, wort UG9 million, represented -.M o" S&C5

c/ ater tat year, Co4$angco also ac$ired te Soriano stocks tro$g a series o" complicated and secretagreements, a key "eat$re o" wic was a voting tr$st agreement tat stip$lated tat Andres, 3r# or is eir wo$ld

pro=y over te vote o" te sares owned by Soriano and Co4$angco# Tis agreement, wic acco$nted "or >.M o"te o$tstanding sares o" S&C and wic lasted "or "ive 6/ years, enabled te Sorianos to retain managementcontrol o" S&C "or te same period5

d/ F$rtermore, in e=cange "or an S&C investment o" UG6 million in nonvoting pre"erred sares in C+0,Soriano served as te vicecairman o" te s$pposed bank o" te cocon$t "armers, C+0, and in ret$rn, Co4$angco,

"or investing "$nds "rom te cocon$t levy, was named vicecairman o" S&C5

e/ Conse$ently, Co4$angco en4oyed te privilege o" appointing is nominees to te S&C 0oard, to wic eappointed key members o" te ACC2A aw Firm erein %e"endants/ instead o" cocon$t "armers wose moneyreally "$nded te sale5

"/ Te sceme o" Co4$angco to $se te lawyers o" te said Firm was revealed in a doc$ment wic e signed on 19Febr$ary 19@>entitled +rinciples and Framework o" &$t$al Cooperation and Assistance wic governed te r$les

"or te cond$ct o" management o" S&C and te disposition o" te sares wic e bo$gt#

g/ All togeter, Co4$angco p$rcased >> million sares o" te S&C tro$g te "ollowing 1G olding companies:



a/ Soriano Sares, 8nc# 1,-G9,1?>

b/ ASC 8nvestors, 8nc# 1,6?-,GG9

c/ 2o=as Sares, 8nc# -,19.,@?.

d/ A2C 8nvestors, 8nc# G,G>1,79@e/ Toda *oldings, 8nc# >,G-G,?1@

"/ A+ *oldings, 8nc# 1,6@.,997

g/ Fernande! *oldings, 8nc# @>@,@>7

/ S&C '""icers Corps#, 8nc# -,>@6,9@7

i/ Te %e$m 2eso$rces, 8nc# -,?7G,@99

4/ Anglo Vent$res Corp# 1,...#...

k/ 2andy Allied Vent$res, 8nc# 1,...,...

l/ 2ock Steel 2eso$rces, 8nc# -,G>-,?-6

m/ Valalla +roperties td#, 8nc# 1,>?1,.>>

n/ First &eridian %evelopment, 8nc# 1,...,...

>>,1>>,-??

>#1# Te same "o$rteen companies were in t$rn owned by te "ollowing si= ?/ socalled C88F Companies wicwere:

a/ San +ablo &an$"act$ring Corp# 19M

b/ So$tern $!on Cocon$t 'il &ills, 8nc# 11M

c/ <rane=port &an$"act$ring Corporation 19M

d/ egaspi 'il Company, 8nc# 1@M

e/ Cagayan de 'ro 'il Company, 8nc# 1@M

"/ 8ligan Cocon$t 8nd$stries, 8nc# 16M

1..M



/ %e"endant Corporations are b$t sell corporations owned by interlocking sareolders wo ave previo$slyadmitted tat tey are 4$st nominee stockolders wo do not ave any proprietary interest over te sares in teirnames# Te respective a""idavits o" te "ollowing, namely: 3ose C# Concepcion, Florentino &# *errera 888, Teresita 3#*erbosa, Teodoro %# 2egala, Victoria C# de los 2eyes, &an$el 2# 2o=as, 2ogelio A# Vinl$an, (d$ardo # (sc$ete

and Franklin &# %rilon, wo were all, at te time tey became s$c stockolders, lawyers o" te Angara AbelloConcepcion 2egala O Cr$! ACC2A/ aw '""ices, te previo$s co$nsel wo incorporated said corporations, provetat tey were merely nominee stockolders tereo"#

i/ &r# (d$ardo &# Co4$angco, 3r#, ac$ired a total o" 1?,-7?,@79 sares o" San &ig$el Corporation "rom te Ayalagro$p: o" said sares, a total o" @,1>@,GG. broken into 7,1-@,--7 Class A and 1,.1.,-1> Class 0 sares/ were placed

in te names o" &eadowlark +lantations, 8nc# -,.>G,?1./ and +rimavera Farms, 8nc# G,.?9,--./# Te Articles o"8ncorporation o" tese tree companies sow tat Atty# 3ose C# Concepcion o" ACC2A owns 99#?M o" te entireo$tstanding stock# Te same sareolder e=ec$ted tree >/ separate %eclaration o" Tr$st and Assignment o"

S$bscription: in "avor o" a 0A; assignee pertaining to is sareoldings in +rimavera Farms, 8nc#, Silver ea"

+lantations, 8nc# and &eadowlark +lantations, 8nc#

k/ Te oter respondent Corporations are owned by interlocking sareolders wo are likewise lawyers in teACC2A aw '""ices and ad admitted teir stat$s as nominee stockolders only#

k1/ Te corporations: Agric$lt$ral Cons$ltancy Services, 8nc#, Arcipelago 2ealty Corporation, 0alete 2anc, 8nc#,0lack Stallion 2anc, 8nc#, %iscovery 2ealty Corporation, First nited Transport, 8nc#, a$nlaran Agric$lt$ralCorporation, andAir 8nternational &arketing Corporation, &isty &o$ntains Agric$lt$ral Corporation, +astoral

Farms, 8nc#, 'ro Verde Services, 8nc# 2adyo Filipino Corporation, 2eddee %evelopers, 8nc#, Verdant +lantations,8nc# and Vesta Agric$lt$ral Corporation, were incorporated by lawyers o" ACC2A aw '""ices#

k-/ Dit respect to +CE 'il &an$"act$ring Corporation and &etrople= Commodities, 8nc#, tey are controlledrespectively by *EC', 8nc# and Vent$res Sec$rities, 8nc#, bot o" wic were incorporated likewise by lawyers o"

ACC2Aaw '""ices#

k>/ Te stockolders wo appear as incorporators in most o" te oter 2espondents corporations are also lawyers

o" teACC2A aw '""ices, wo as early as 19@7 ad admitted $nder oat tat tey were acting only as nominee

stockolders#

l/ Tese companies, wic ACC2A aw '""ices organi!ed "or %e"endant Co4$angco to be able to control moretan ?.M o" S&C sares, were "$nded by instit$tions wic depended $pon te cocon$t levy s$c as te C+0,;8C'&, nited Cocon$t +lanters Ass$rance Corp# C'C'8F(/, among oters# Co4$angco and is ACC2A

lawyers $sed te "$nds "rom ? large cocon$t oil mills and 1. copra trading companies to borrow money "rom te



C+0 and p$rcase tese olding companies and te S&C stocks# Co4$angco $sed U16. million "rom te cocon$tlevy, broken down as "ollows:

Amo$nt So$rce +$rpose

in million/

U--#-? 'il &ills e$ity in olding

companies

U?6#? 'il &ills loan to olding

companies

U?1#- C+0 loan to olding

companies 1?GB

Te entire amo$nt, tere"ore, came "rom te cocon$t levy, some passing tro$g te nicom 'il mills, oters

directly "rom te C+0#

m/ Dit is entry into te said Company, it began to get "avors "rom te &arcos government, signi"icantly telowering o" te e=cise ta=es sales and speci"ic ta=es/ on beer, one o" te main prod$cts o" S&C#

n/ %e"endant Co4$angco controlled S&C "rom 19@> $ntil is code"endant &arcos was deposed in 19@?#

o/ Along wit Co4$angco, %e"endant (nrile and ACC2A also ad interests in S&C, broken down as "ollows:

M o" S&C 'wner

Co4$angco

>1#>M cocon$t levy money



1@M companies linked to Co4$angco

6#-M government

6#-M S&C employee retirement "$nd

(nrile O ACC2A

1#@M (nrile

1#@M 3aka 8nvestment Corporation

1#@M ACC2A 8nvestment Corporation

16# %e"endants (d$ardo Co4$angco, 3r#, (dgardo 3# Angara, 3ose C# Concepcion, Teodoro 2egala, Avelino Cr$!,2ogelio Vinl$an, (d$ardo # (sc$eta and +ara4a <# *ay$dini o" te Angara Concepcion Cr$! 2egala and Abello

law o""ices ACC2A/ plotted, devised, scemed, conspired and con"ederated wit eac oter in setting $p, tro$gte $se o" cocon$t levy "$nds, te "inancial and corporate "ramework and str$ct$res tat led to te establisment o"

C+0, ;8C'&, C'C'8F(, C'C'&A2# C8C, and more tan twenty oter cocon$t levy"$nded corporations,incl$ding te ac$isition o" San &ig$el Corporation sares and its instit$tionali!ation tro$g presidential directiveso" te cocon$t monopoly# Tro$g insidio$s means and macinations, ACC2A, being te wollyowned investmentarm, ACC2A 8nvestments Corporation, became te older o" appro=imately "i"teen million sares representingro$gly >#>M o" te total o$tstanding capital stock o" C+0 as o" >1 &arc 19@7# Tis ranks ACC2A 8nvestments

Corporation n$mber GG among te top 1.. biggest stockolders o" C+0 wic as appro=imately 1,G..,...sareolders# 'n te oter and, te corporate books sow te name (dgardo 3# Angara as olding appro=imately>,7GG sares as o" Febr$ary, 19@G#

1?# Te acts o" %e"endants, singly or collectively, andPor in $nlaw"$l concert wit one anoter, constit$te gross

ab$se o" o""icial position and a$tority, "lagrant breac o" p$blic tr$st and "id$ciary obligations, bra!en ab$se o"rigt and power, $n4$st enricment, violation o" te constit$tion and laws o" te 2ep$blic o" te +ilippines, to tegrave and irreparable damage o" +lainti"" and te Filipino people#11B

'n 3$ne 17, 1999, rs$a and (nrile eac "iled is separate Answer wit Comp$lsory Co$nterclaims#



0e"ore "iling teir answer, te ACC2A lawyers so$gt teir e=cl$sion as de"endants in Civil Case ;o# ..>>,averring tat even as tey admitted aving assisted in te organi!ation and ac$isition o" te companies incl$ded inCivil Case ;o# ..>>, tey ad acted as mere nomineesstockolders o" corporations involved in te se$estration proceedings p$rs$ant to o""ice practice# A"ter te Sandiganbayan denied teir motion, tey elevated teir ca$se to

tis Co$rt, wic $ltimately r$led in teir "avor in te related cases o"2egala, et al# v# Sandiganbayan, et al#1-B and*ay$dini v# Sandiganbayan, et al#,1>B as "ollows:

D*(2(F'2(, 8; V8(D 'F T*( F'2(<'8;<, te 2esol$tions o" respondent Sandiganbayan First %ivision/ prom$lgated on &arc 1@, 199- and &ay -1, 199- are ereby A;;(% and S(T AS8%(# 2espondentSandiganbayan is "$rter ordered to e=cl$de petitioners Teodoro %# 2egala, (dgardo 3# Angara, Avelino V# Cr$!,

3ose C# Concepcion, Victor +# a!atin, (d$ardo # (sc$eta and +ara4a <# *ay$dini as partiesde"endants in S0 CivilCase ;o# ..>> entitled 2ep$blic o" te +ilippines v# (d$ardo Co4$angco, 3r#, et al#

S' '2%(2(%#

Con"ormably wit te r$ling, te Sandiganbayan e=cl$ded te ACC2A lawyers "rom te case on &ay -G, -...#1GB

'n 3$ne ->, 1999, Co4$angco "iled is Answer to te Tird Amended Complaint,16B averring te "ollowinga""irmative de"enses, to wit:

7#..# Te +residential Commission on <ood <overnment +C<</ is wito$t a$tority to act in te name and in beal" o" te 2ep$blic o" te+ilippines#

7#.1# As constit$ted in (#'# ;o# 1, te +C<< was composed o" &inister 3ovito 2# Salonga, as Cairman, &r#2amon %ia!, &r# +edro # Eap, &r# 2a$l %a!a and &s# &ary Concepcion 0a$tista, as Commissioners# Den te

complaint in te instant case was "iled, &inister Salonga, &r# +edro # Eap and &r# 2a$l %a!a ad already le"t te+C<<# 0y ten te +C<< ad become "$nct$s o""icio#

7#.-# Te Sandiganbayan as no 4$risdiction over te complaint or over te transaction alleged in te complaint#

7#.># Te complaint does not allege any ca$se o" action#

7#.G# Te complaint is not bro$gt in te name o" te real parties in interest, ass$ming any ca$se o" action e=ists#



7#.6# 8ndispensable and necessary parties ave not been impleaded#

7#.?# Tere is improper 4oinder o" ca$ses o" action Sec# ?, 2$le -, 2$les o" Civil +roced$re/# Te ca$ses o" actionalleged, i" any, do not arise o$t o" te same contract, transaction or relation between te parties, nor are tey simply"or money, or are o" te same nat$re and caracter#

7#.7# Tere is improper 4oinder o" parties de"endants Sec# 11, 2$le >, 2$les o" Civil +roced$re/#Te ca$ses o"action alleged as to de"endants, i" any, do not involve a single transaction or a related series o" transactions#

%e"endant is t$s compelled to litigate in a s$it regarding matters as to wic e as no involvement# Te $estionso" "act and law involved are not common to all de"endants#

7#.@# 8n so "ar as te complaint seeks te "or"eit$re o" assets allegedly ac$ired by de"endant mani"estly o$t o" proportion to teir salaries, to teir oter law"$l income and income "rom legitimately ac$ired property, $nder 2#A#1>79, te previo$s in$iry similar to preliminary investigation in criminal cases re$ired to be cond$cted $nder Sec#

- o" tat law be"ore any s$it "or "or"eit$re may be instit$ted, was not cond$cted5 as a conse$ence, te Co$rt maynot ac$ire and e=ercise 4$risdiction over s$c a s$it#

7#.9# Te complaint in te instant s$it was "iled 3$ly >1, 19@7, or witin one year be"ore te local election eld on3an$ary 1@, 19@@# 8" tis s$it involves an action $nder 2#A# 1>79, its instit$tion was also in direct violation o" Sec# -,2#A# ;o# 1>79#

7#1.# (#'# ;o# 1, (#'# ;o# -, (#'# ;o# 1G and 1GA, are $nconstit$tional# Tey violate d$e process, e$al protection,

e= post "acto and bill o" attainder provisions o" te Constit$tion#

7#11# Acts imp$ted to de"endant wic e ad committed were done p$rs$ant to law and in good "ait#

Te Co4$angco corporations Answer1?B ad te same tenor as te Answer o" Co4$angco#

8n is own Answer wit Comp$lsory Co$nterclaims,17B rs$a averred a""irmative and special de"enses#

8n is own Answer wit Comp$lsory Co$nterclaims,1@B (nrile speci"ically denied te material averments o" te

Tird Amended Complaint and asserted a""irmative de"enses#



Te C88F 'il &ills Answer19B also contained a""irmative de"enses#

'n %ecember -., 1999, te Sandiganbayan sced$led te pretrial in Civil Case ;o# ..>>F on &arc @, -...,giving te parties s$""icient time to "ile teir +reTrial 0rie"s prior to tat date# S$bse$ently, te parties "iled teir

respective +reTrial 0rie"s, as "ollows: Co4$angco and te Co4$angco corporations, 4ointly on Febr$ary 1G, -...5(nrile, on &arc 1, -...5 te C88F 'il &ills, on&arc >, -...5 and rs$a, on &arc ?, -...# *owever, te

2ep$blic so$gt several e=tensions to "ile its own +reTrial 0rie", and event$ally did so on &ay 9, -...#

8n te meanwile, some nonparties so$gt to intervene# 'n ;ovember --, 1999, <A0AE Fo$ndation, 8nc#<A0AE/ "iled its complaintinintervention# 'n Febr$ary -G, -..., te +ilippine Cocon$t +rod$cers Federation,8nc#, &aria Clara # obregat, 3ose 2# (lea!ar, 3r#, %omingo (spina, 3ose <ome!, Celestino Sabate, &an$el del2osario, 3ose &artine!, 3r#, and (ladio Cato collectively re"erred to as C'C'F(%, considering tat te co

intervenors were its o""icers/ also so$gt to intervene, citing te 'ctober -, 19@9 r$ling in <#2# ;o# 7671> entitledC'C'F(% v# +C<< wereby te Co$rt recogni!ed C'C'F(% as te private national association o" cocon$t

prod$cers certi"ied in 1971 by te +*8C'A as aving te largest membersip among s$c prod$cers and as s$centr$sted it wit te task o" maintaining contin$ing liaison wit te di""erent sectors o" te ind$stry, te government

and its mass base# +ending resol$tion o" its motion "or intervention, C'C'F(% "iled a +reTrial 0rie" on &arc -,-...#

'n &ay -G, -..., te Sandiganbayan denied <A0AEs intervention wito$t pre4$dice beca$se it "o$nd tat teallowance o" <A0AE to enter $nder te special caracter in wic it presents itsel" wo$ld be to open te doors to

oter gro$ps o" cocon$t "armers weter o" te same kind or o" any oter kind wic co$ld be considered a s$bclass or a s$bclassi"ication o" te cocon$t planters or te cocon$t ind$stry o" tis co$ntry#-.B

C'C'F(%s intervention as de"endant was allowed on &ay -G, -..., owever, beca$se te position taken by teC'C'F(% is relevant to te proceedings erein, i" only to state tat tere is a special "$nction wic teC'C'F(% and te cocon$t planters ave in te matter o" te cocon$t levy "$nds and te $tili!ation o" tose "$nds,

part o" wic is in disp$te in te instant matter#-1B

Te pretrial was act$ally eld on &ay -G, -...,--B d$ring wic te Sandiganbayan so$gt clari"ication "rom te

parties, partic$larly te 2ep$blic, on teir respective positions, b$t at te end it "o$nd te clari"ications inade$atelyenligtening# ;oneteless, te Sandiganbayan, not disposed to reset, terminated te pretrial:

=== primarily beca$se te Co$rt is given a very clear impression tat te plainti"" does not know wat doc$mentswill be or weter tey are even available to prove te ca$ses o" action in te complaint# Te Co$rt as p$rs$ed and

as e=erted every "orm o" in$iry to see i" tere is a way by wic te plainti"" co$ld e=plain in any signi"icant partic$larity te acts and te evidence wic will s$pport its claim o" wrongdoing by te de"endants#Te plainti""as "ailed to do so#->B



Te "ollowing material portions o" te pretrial order-GB are $oted to provide a proper perspective o" wattranspired d$ring te pretrial, to wit:

pon oral in$iry "rom te Co$rt, te iss$es wic were being raised by plainti"" appear to ave been made on a

very generic caracter# Considering tat any claim "or violation or breac o" tr$st or deception cannot be made ongeneric statements b$t rater by speci"ic acts wic wo$ld demonstrate "ra$d or breac o" tr$st or deception,

togeter wit te evidence in s$pport tereo", te same was not acceptable to te Co$rt#

Te plainti"" tro$g its designated co$nsel "or tis morning, Atty# %ennis Taningco, as represented to tis Co$rttat te anne=es to its pretrial brie", more partic$larly te "indings o" te C'A in its vario$s e=aminations, copies o" wic C'A reports are attaced to te pretrial brie", wo$ld demonstrate te wrong, te act or omission attrib$ted tote de"endants or to several o" tem and te basis, tere"ore, "or te relie" tat plainti"" seeks in its complaint# 8t

wo$ld appear, owever, tat te plainti"" tro$g its co$nsel at tis time is not prepared to go into te speci"ics o"te identi"ication o" tese wrongs or omissions attrib$ted to plainti""#

Te Co$rt as reminded te plainti"" tat a C'A report proves itsel" only in proceedings were te iss$e arises "roma review o" te acco$ntability o" partic$lar o""icers and, tere"ore, to sow te e=istence o" sortages or de"icienciesin an e=amination cond$cted "or tat p$rpose, provided tat s$c a report is accompanied by its own working papers

and oter s$pporting doc$ments#

8n civil cases s$c as tis, a C'A report wo$ld not ave te same independent probative val$e since it is not areview o" te acco$ntability o" p$blic o""icers "or p$blic property in teir c$stody as acco$ntable o""icers# 8t as been te stated view o" tis Co$rt tat a C'A report, to be o" signi"icant evidence, may itsel" stand only on te basis

o" te s$pporting doc$ments tat $pon wic it is based and $pon an analysis made by tose wo are competent todo so# Te Co$rt, tere"ore, so$gt a more speci"ic statement "rom plainti"" as to wat tese doc$ments were andwic o" tem wo$ld prove a partic$lar act or omission or a series o" acts or omissions p$rportedly committed byany, by several or by all o" te de"endants in any partic$lar stage o" te cain o" alleged wrongdoing in tis case#

Te plainti"" was not in a position to do so#

Te Co$rt as remonstrated wit te plainti"", inso"ar as its inade$acy is concerned, primarily beca$se tis case

was set "or pretrial as "ar back as %ecember and as been reset "rom its original setting, wit te $ndertaking by te plainti"" to prepare itsel" "or tese proceedings# 8t appears to tis Co$rt at tis time tat te "ail$re o" te plainti"" toave available responses and speci"ic data and doc$ments at tis stage is not beca$se te matter as been te prod$cto" oversigt or notes and papers le"t elsewere5 rater, te agitation o" tis Co$rt arises "rom te "act tat at tis very

stage, te plainti"" tro$g its co$nsel does not know wat tese doc$ments are, were tese doc$ments will be andis still anticipating a s$bmission or a delivery tereo" by C'A at an $ndetermined time# Te 4$sti"ication made byco$nsel "or tis stance is tat tis is only pretrial and tis in"ormation and te doc$ments are not needed yet#



Te Co$rt is not prepared to postpone te pretrial anew primarily beca$se te Co$rt is given a very clear impressiontat te plainti"" does not know wat doc$ments will be or weter tey are even available to prove te ca$ses o"action in te complaint# Te Co$rt as p$rs$ed and as e=erted every "orm o" in$iry to see i" tere is a way bywic te plainti"" co$ld e=plain in any signi"icant partic$larity te acts and te evidence wic will s$pport its

claim o" wrongdoing by te de"endants# Te plainti"" as "ailed to do so#

%e"endants Co4$angco ave come back and reiterated teir previo$s in$iry as to te statement o" te ca$se o"action and te description tereo"#Dile te Co$rt acknowledges tat logically, tat statement along tat line wo$ld be primary, te Co$rt also recogni!es tat sometimes te prasing o" te iss$e may be determined or may arise a"tera statement o" te evidence is determined by tis Co$rt beca$se te Co$rt can p$t itsel" in a position o" more clearly

and peraps more acc$rately stating wat te iss$es are# Te +reTrial 'rder, a"ter all, is not so m$c a re"lection o"merely separate s$bmissions by all o" te parties involved, witnesses by te Co$rt, as to wat te s$b4ect matter o"litigation will be, incl$ding te determination o" wat matters o" "act remain $nresolved# At tis time, te plainti""

as not taken te position on any "act$al statement or any piece o" evidence wic can be s$b4ect o" admission ordenial, nor any speci"ics o" any act wic co$ld be disp$ted by te de"endants5 wat plainti"" tro$g co$nsel asstated are general concl$sions, general statements o" ab$se and mis$se and opport$nism#

A"ter an e=tended break re$ested by some o" te parties, te sessions were res$med and noting anew arose "romte plainti""# Te plainti"" so$gt "i"teen 16/ days to "ile a reply to te comments and observations made by

de"endant Co4$angco to te pretrial brie" o" te plainti""# Tis Co$rt denied tis 2e$est since te s$bmissions in preparation "or pretrial are not litigio$s or contentio$s matters# Tey are mere assertions or positions wic may ormay not be meritorio$s depending $pon te view o" te Co$rt o" te entire case and i" $se"$l at te pretrial# At tisstage, te plainti"" ten reiterated its earlier re$est to consider te pretrial terminated# Te Co$rt so$gt te

positions o" te oter parties, weter or not tey too were prepared to s$bmit teir respective positions on te basiso" wat was be"ore te Co$rt at pretrial# All o" te parties, in te end, ave come to an agreement tat tey weres$bmitting teir own respective positions "or p$rpose o" pretrial on te basis o" te s$bmissions made o" record#

Dit all o" te above, te pretrial is now deemed terminated#

Tis 'rder as been overly e=tended simply beca$se tere as been a need to p$t on record all o" te events tatave taken place leading to te concl$sions wic were drawn erein#

Te parties ave indicated a desire to make teir s$bmissions o$tside o" trial as a conse$ence o" tis terminated

pretrial, wit te plea tat te transcript o" te proceedings tis morning be made available to tem, so tat teymay ave te basis "or watever assertions tey will ave to make eiter be"ore tis Co$rt or elsewere# Te Co$rtdeems te same reasonable and te Co$rt now gives te parties "i"teen 16/ days a"ter notice to tem tat tetranscript o" stenograpic notes o" te proceedings erein are complete and ready "or tem to be retrieved# Settings

"or trial or "or any oter proceeding erea"ter will be "i=ed by tis Co$rt eiter $pon re$est o" te parties or wente Co$rt itsel" sall ave determined tat noting else as to be done#



Te Co$rt as so$gt con"irmation "rom te parties present as to te acc$racy o" te recapit$lation erein o" te proceedings tis morning and te Co$rt as gotten assent "rom all o" te parties#

===

S' '2%(2(%#-6B

8n te meanwile, te Sandiganbayan, in order to con"orm wit te r$ling in +residential Commission on <ood<overnment v# Co4$angco, et al#,-?B resolved C'C'F(%s 'mnib$s &otion wit prayer "or preliminaryin4$nction/ relative to wo so$ld vote te C+0 sares $nder se$estration, olding as "ollows: -7B

8n te ligt o" all o" te above, te Co$rt s$bmits itsel" to 4$rispr$dence and wit te statements o" te S$premeCo$rt in <#2# ;o# 116>6- entitled(nri$e Co4$angco, 3r#, et al# vs# 3aime Calpo, et al# dated 3an$ary -7, 1997, as

well as te resol$tion o" te S$preme Co$rt prom$lgated on 3an$ary -7, 1999 in te case o" +C<< vs# (d$ardoCo4$angco, 3r#, et al#, <#2# ;o# 1>>19 wic incl$ded te Sandiganbayan as one o" te respondents# 8n tese twocases, te S$preme Co$rt r$led tat te voting o" se$estered sares o" stock is governed by two considerations,

namely:

1# weter tere is prima "acie evidence sowing tat te said sares are illgotten and t$s belong to te State5 and

-# weter tere is an imminent danger o" dissipation t$s necessitating teir contin$ed se$estration and voting by

te +C<< wile te main iss$e pends wit te Sandiganbayan#

=== === ===#

8n view ereo", te movants C'C'F(%, et al and 0allares, et al# as well as (d$ardo Co4$angco, et al# wo wereacknowledged to be registered stockolders o" te C+0 are a$tori!ed, as are all oter registered stockolders o"te nited Cocon$t +lanters 0ank, $ntil "$rter orders "rom tis Co$rt, to e=ercise teir rigts to vote teir sares o"stock and temselves to be voted $pon in te nited Cocon$t +lanters 0ank C+0/ at te sced$led Stockolders

&eeting on &arc ?, -..1 or on any s$bse$ent contin$ation or resetting tereo", and to per"orm s$c acts as willnormally "ollow in te e=ercise o" tese rigts as registered stockolders#

=== === ===#

Conse$ently, on &arc 1, -..1, te Sandiganbayan iss$ed a writ o" preliminary in4$nction to en4oin te +C<<"rom voting te se$estered sares o" stock o" te C+0#



'n 3$ly -6, -..-, be"ore Civil Case ;o# ..>>F co$ld be set "or trial, te 2ep$blic "iled a &otion "or 3$dgment onte +leadings andPor "or +artial S$mmary 3$dgment 2e: %e"endants C88F Companies, 1G *olding Companies andC'C'F(%, et al#/#-@B

Co4$angco, (nrile, and C'C'F(% separately opposed te motion# rs$a adopted C'C'F(%s opposition#

Terea"ter, te 2ep$blic likewise "iled a &otion "or +artial S$mmary 3$dgment 2e: Sares in San &ig$elCorporation 2egistered in te 2espective ;ames o" %e"endant (d$ardo &# Co4$angco, 3r# and te %e"endant

Co4$angco CompaniesB#-9B

Co4$angco, et al# opposed te motion,>.B a"ter wic te 2ep$blic s$bmitted its reply#>1B

'n Febr$ary ->, -..G, te Sandiganbayan iss$ed an order,>-B in wic it en$merated te admitted "acts or "acts

tat appeared to be wito$t s$bstantial controversy in relation to te 2ep$blics &otion "or 3$dgment on te+leadings andPor "or +artial S$mmary 3$dgment 2e: %e"endants C88F Companies, 1G *olding Companies andC'C'F(%, et al#B#

Commenting on te order o" Febr$ary ->, -..G, Co4$angco, et al# speci"ied te items tey considered as inacc$rate, b$t partic$larly interposed no ob4ection to item no# 17 to te e=tent tat item no# 17 stated tat Co4$angco ad

disclaimed any interest in te C88F block S&C sares o" stock registered in te names o" te 1G corporations listedin item no# 1 o" te order/#>>B

Te 2ep$blic also "iled its Comment,>GB b$t C'C'F(% denied te admitted "acts s$mmari!ed in te order o"Febr$ary ->, -..G#>6B

(arlier, on 'ctober @, -..>,>?B te Sandiganbayan resolved te vario$s pending motions and pleadings relative tote writs o" se$estration iss$ed against te de"endants, disposing:

8; V8(D 'F T*( F'2(<'8;<, te Drits o" Se$estration ;os# a/ @?..G- iss$ed on April @, 19@?, b/ @?..?-

iss$ed on April -1, 19@?, c/ @?..?9 iss$ed on April --, 19@?, d/ @?..@6 iss$ed on &ay 9, 19@?, e/ @?..96

iss$ed on &ay 1?, 19@?, "/ @?..9? dated &ay 1?, 19@?, g/ @?..97 iss$ed on &ay 1?, 19@?, / @?..9@ iss$edon &ay 1?, 19@? and i/ @7.-1@ iss$ed on &ay -7, 19@7 are ereby declared a$tomatically li"ted "or being n$ll andvoid#

%espite te li"ting o" te writs o" se$estration, since te 2ep$blic contin$es to old a claim on te sares wic is

yet to be resolved, it is ereby ordered tat te "ollowing sall be annotated in te relevant corporate books o" San&ig$el Corporation:



1/ any sale, pledge, mortgage or oter disposition o" any o" te sares o" te %e"endants (d$ardo Co4$angco, et al#sall be s$b4ect to te o$tcome o" tis case5

-/ te 2ep$blic tro$g te +C<< sall be given twenty -./ days written notice by %e"endants (d$ardoCo4$angco, et al# prior to any sale, pledge, mortgage or oter disposition o" te sares5

>/ in te event o" sale, mortgage or oter disposition o" te sares, by te %e"endants Co4$angco, et al#, teconsideration tere"ore, weter in cas or in kind, sall be placed in escrow wit and 0ank o" te +ilippines,

s$b4ect to disposition only $pon "$rter orders o" tis Co$rt5 and

G/ any cas dividends tat are declared on te sares sall be placed in escrow wit te and 0ank o" te

+ilippines, s$b4ect to disposition only $pon "$rter orders o" tis Co$rt# 8" in case stock dividends are declared, teconditions on te sale, pledge, mortgage and oter disposition o" any o" te sares as abovementioned in conditions1, - and >, sall likewise apply#

8n so "ar as te matters raised by %e"endants (d$ardo Co4$angco, et al# in teir 'mnib$s &otion dated September->, 199? and 2eply to +C<<s CommentP'pposition wit &otion to 'rder +C<< to Complete 8nventory, to ;$lli"y

Drits o" Se$estration and to (n4oin +C<< "rom Voting Se$estered Sares o" Stock dated 3an$ary >, 1997,considering te above concl$sion, tis Co$rt r$les tat it is no longer necessary to delve into te matters raised in tesaid &otions#

S' '2%(2(%#>7B

Co4$angco, et al# moved "or te modi"ication o" te resol$tion,>@B praying "or te deletion o" te conditions "orallegedly restricting teir rigts# Te 2ep$blic also so$gt reconsideration o" te resol$tion#>9B

(vent$ally, on 3$ne -G, -..6, te Sandiganbayan denied bot motions, b$t red$ced te restrictions t$swise:

D*(2(F'2(, te &otion "or 2econsideration 2e: 2esol$tion dated September 17, -..> +rom$lgated on 'ctober

@, -..>/ dated 'ctober -G, -..> o" +lainti"" 2ep$blic is ereby %(;8(% "or lack o" merit# As to te &otion "or&odi"ication 2e: 2esol$tion +rom$lgated on 'ctober @, -..>/ dated 'ctober --, -..>, te same is ereby%(;8(% "or lack o" merit# *owever, te restrictions imposed by tis Co$rt in its 2esol$tion datedSeptember 17,-..> and prom$lgated on 'ctober @, -..> sall now read as "ollows:



%espite te li"ting o" te writs o" se$estration, since te 2ep$blic contin$es to old a claim on te sares wic isyet to be resolved, it is ereby ordered tat te "ollowing sall be annotated in te relevant corporate books o" San&ig$el Corporation:

a/ any sale, pledge, mortgage or oter disposition o" any o" te sares o" te %e"endants (d$ardo Co4$angco, et al#sall be s$b4ect to te o$tcome o" tis case#

b/ te 2ep$blic tro$g te +C<< sall be given twenty -./ days written notice by %e"endants (d$ardo

Co4$angco, et al# prior to any sale, pledge, mortgage or oter disposition o" te sares#

S' '2%(2(%#G.B

+ending resol$tion o" te motions relative to te li"ting o" te writs o" se$estration, S&C "iled a &otion "or

8ntervention wit attaced Complaintin8ntervention,G1B alleging, among oter tings, tat it ad an interest in tematter in disp$te between te 2ep$blic and de"endants C88F Companies "or being te owner by p$rcase o" a portion i#e#, -6,G6.,... S&C sares covered by Stock Certi"icate ;os# A...G1-9 and 0..1666? o" te socalledC88F block o" S&C sares o" stock so$gt to be recovered as alleged illgotten wealt/#

Alto$g Co4$angco, et al# interposed no ob4ection to S&Cs intervention, te 2ep$blic opposed,G-B averring tat

te intervention wo$ld be improper and was a mere attempt to litigate anew iss$es already raised and passed $pon by te S$preme Co$rt# C'C'F(% similarly opposed S&Cs intervention,G>B and rs$a adopted its opposition#

'n &ay ?, -..G, te Sandiganbayan denied S&Cs motion to intervene#GGB S&C so$gt reconsideration,G6B andits motion to tat e""ect was opposed by C'C'F(% and te 2ep$blic#

'n &ay 7, -..G, te Sandiganbyan granted te 2ep$blics &otion "or 3$dgment on te +leadings andPor +artialS$mmary 3$dgment 2e: %e"endants C88F Companies, 1G *olding Companies and C'C'F(%, et al#/ and rendered

a +artial S$mmary 3$dgment,G?B te dispositive portion o" wic reads as "ollows:

D*(2(F'2(, in view o" te "oregoing, we old tat:

Te &otion "or +artial S$mmary 3$dgment 2e: %e"endants C88F Companies, 1G *olding Companies and Coco"ed,et al#/ "iled by +lainti"" is ereby <2A;T(%# ACC'2%8;<E, T*( C88F C'&+A;8(S, ;A&(E:



1# So$tern $!on Cocon$t 'il &ills S'C'&/5

-# Cagayan de 'ro 'il Co#, 8nc# CA<'8/5

># 8ligan Cocon$t 8nd$stries, 8nc# 88C'C'/5G# San +ablo &an$"act$ring Corp# S+&C/5

6# <rane=port &an$"act$ring Corp# <2A;(Q/5 and

?# egaspi 'il Co#, 8nc# (<'8/,

AS D( AS T*( 1G *'%8;< C'&+A;8(S, ;A&(E:

1# Soriano Sares, 8nc#5

-# ACS 8nvestors, 8nc#5

># 2o=as Sares, 8nc#5

G# Arc 8nvestors, 8nc#5

6# Toda *oldings, 8nc#5

?# A+# *oldings, 8nc#5

7# Fernande! *oldings, 8nc#5

@# S&C '""icers Corps# 8nc#5

9# Te %e$m 2eso$rces, 8nc#5

1.# Anglo Vent$res, 8nc#5

11# 2andy Allied Vent$res, 8nc#5

1-# 2ock Steel 2eso$rces, 8nc#5

1># Valalla +roperties td#, 8nc#5 and

1G# First &eridian %evelopment, 8nc#

A;% T*( C88F 0'C 'F SA; &8<( C'2+'2AT8'; S&C/ S*A2(S 'F ST'C T'TA8;<>>,1>>,-?? S*A2(S AS 'F 19@> T'<(T*(2 D8T* A %8V8%(;%S %(CA2(%, +A8% A;% 8SS(%T*(2('; AS D( AS A;E 8;C2(&(;TS T*(2(T' A28S8;< F2'&, 0T ;'T 8&8T(% T',

(Q(2C8S( 'F +2((&+T8V( 28<*TS A2( %(CA2(% 'D;(% 0E T*( <'V(2;&(;T 8;T2ST F'2 A T*( C'C';T FA2&(2S A;% '2%(2(% 2(C';V(E(% T' T*( <'V(2;&(;T#



et te trial o" tis Civil Case proceed wit respect to te iss$es wic ave not been disposed o" in tis partialS$mmary 3$dgment, incl$ding te determination o" weter te C88F 0lock o" S&C Sares ad4$dged to be owned by te <overnment represents -7M o" te iss$ed and o$tstanding capital stock o" S&C according to plainti"" or>1#>M o" said capital stock according to C'C'F(%, et al# and 0allares, et al#

S' '2%(2(%#G7B

8n te same resol$tion o" &ay 7, -..G, te Sandiganbayan considered te &otions to %ismiss "iled by Co4$angco, etal# on A$g$st -, -... and by (nrile on September G, -... as overtaken by te 2ep$blics &otion "or 3$dgment on

te +leadings andPor +artial S$mmary 3$dgment#G@B

'n &ay -6, -..G, Co4$angco, et al# "iled teir &otion "or 2econsideration#G9B

C'C'F(% "iled its socalled Class Action 'mnib$s &otion: a/ &otion to %ismiss "or ack o" S$b4ect &atter3$risdiction and Alternatively, b/ &otion "or 2econsideration dated &ay -?, -..G#6.B

Te 2ep$blic s$bmitted its Consolidated Comment#61B

2elative to te resol$tion o" &ay 7, -..G, te Sandiganbayan iss$ed its resol$tion o" %ecember 1., -..G,6-Bdenying te 2ep$blics &otion "or +artial S$mmary 3$dgment 2e: Sares in San &ig$el Corporation 2egistered inte 2espective ;ames o" %e"endants (d$ardo &# Co4$angco, 3r# and te de"endant Co4$angco Companies/ $pon te

"ollowing reasons:

8n te instant case, a circ$mspect review o" te records sow tat wile tere are "acts wic appear to be$ndisp$ted, tere are also gen$ine "act$al iss$es raised by te de"endants wic need to be tresed o$t in a "$ll blown trial# Foremost among tese iss$es are te "ollowing:

1/ Dat are te vario$s so$rces o" "$nds, wic te de"endant Co4$angco and is companies claim tey $tili!edto ac$ire te disp$ted S&C saresI

-/ Deter or not s$c "$nds ac$ired "rom alleged vario$s so$rces can be considered cocon$t levy "$nds5



>/ Deter or not de"endant Co4$angco ad indeed served in te governing bodies o" +C, C+0 andPor C88F 'il&ills at te time te "$nds $sed to p$rcase te S&C sares were obtained s$c tat e owed a "id$ciary d$ty torender an acco$nt to tese entities as well as to te cocon$t "armers5

G/ Deter or not de"endant Co4$angco took advantage o" is position andPor close ties wit ten +resident&arcos to obtain "avorable concessions or e=emptions "rom te $s$al "inancial re$irements "rom te lending banks

andPor cocolevy "$nded companies, in order to raise te "$nds to ac$ire te disp$ted S&C sares5 and i" so, watare tese "avorable concessions or e=emptionsI

Answers to tese iss$es are not evident "rom te s$bmissions o" te plainti"" and m$st tere"ore be proven tro$gte presentation o" relevant and competent evidence d$ring trial# A per$sal o" te s$b4ect &otion sows tat te plainti"" astily derived concl$sions "rom te de"endants statements in teir previo$s pleadings alto$g s$c

concl$sions were not s$pported by categorical "acts b$t only mere in"erences# 8n te 2eply dated 'ctober -, -..>,te plainti"" constr$ed te s$pposed meaning o" te prase vario$s so$rces re"erring to te so$rce o" de"endant

Co4$angcos "$nds wic were $sed to ac$ire te s$b4ect S&C sares/, wic plainti"" said was $ite obvio$s "romte de"endants admission in is +reTrial 0rie", wic we $ote:

According to Co4$angcos own +reTrial 0rie", tese socalled vario$s so$rces, i#e#, te so$rces "rom wic e

obtained te "$nds e claimed to ave $sed in b$ying te -.M S&C sares are not in "act vario$s as e claims temto be# *e says e obtained loans "rom C+0 and advances "rom te C88F 'il &ills# *e even goes as "ar as to admittat is only evidence in tis case wo$ld ave been records o" C+0 and a representative o" te C88F 'il &ills

obvio$sly te records o" C+0 relate to te loans tat Co4$angco claims to ave obtained "rom C+0 o" wic ewas +resident and C(' wile te representative o" te C88F 'il &ills will obvio$sly testi"y on te advancesCo4$angco obtained "rom C88F 'il &ills o" wic e was also te +resident and C('#

From te "oregoing premises, plainti"" went on to concl$de tat:

Tese admissions o" de"endant Co4$angco are o$trigt admissions tat e 1/ took money "rom te bank entr$sted by law wit te administration o" cocon$t levy "$nds and -/ took more money "rom te very corporationsPoil millsin wic part o" tose cocon$t levy "$nds te C88F/ was placed treating te "$nds o" C+0 and te C88F as is own

personal capital to b$y is S&C sares#

De cannot agree wit te plainti""s contention tat te de"endants statements in is +reTrial 0rie" regarding te presentation o" a possible C88F witness as well as C+0 records, can already be considered as admissions o" tede"endants e=cl$sive $se and mis$se o" cocon$t levy "$nds to ac$ire te s$b4ect S&C sares and de"endant

Co4$angcos alleged taking advantage o" is positions to ac$ire te s$b4ect S&C sares# &oreover, in r$ling on amotion "or s$mmary 4$dgment, te co$rt so$ld take tat view o" te evidence most "avorable to te party againstwom it is directed, giving s$c party te bene"it o" all in"erences# 8nasm$c as tis iss$e cannot be resolved merely"rom an interpretation o" te de"endants statements in is brie", te C+0 records m$st be prod$ced and te C88F

witness m$st be eard to ens$re tat te concl$sions tat will be derived ave "act$al basis and are t$s, valid#



D*(2(F'2(, in view o" te "orgoing, te &otion "or +artial S$mmary 3$dgment dated 3$ly 11, -..> is ereby%(;8(% "or lack o" merit#

S' '2%(2(%#

Terea"ter, on %ecember -@, -..G, te Sandiganbayan resolved te oter pending motions,6>B vi!:

D*(2(F'2(, in view o" te "oregoing, te &otion "or 2econsideration dated &ay -6, -..G "iled by de"endant(d$ardo &# Co4$angco, 3r#, et al# and te Class Action 'mnib$s &otion: a/ &otion to %ismiss "or ack o" S$b4ect&atter 3$risdiction and Alternatively, b/ &otion "or 2econsideration dated &ay -?, -..G "iled by C'C'F(%, et al#and 0allares, et al# are ereby %(;8(% "or lack o" merit#

S' '2%(2(%#6GB

C'C'F(% moved to set te case "or trial,66B b$t te 2ep$blic opposed te motion#6?B 'n teir part, Co4$angco,

et al# also moved to set te trial,67B wit te 2ep$blic similarly opposing te motion#6@B

'n &arc ->, -..?, te Sandiganbayan granted te motions to set "or trial and set te trial on A$g$st @, 1., and 11,

-..?#69B

8n te meanwile, on A$g$st 9, -..6, te 2ep$blic "iled a &otion "or (=ec$tion o" +artial S$mmary 3$dgment re:C88F block o" S&C Sares o" Stock/,?.B contending tat an e=ec$tion pending appeal was 4$sti"ied beca$se anyappeal by te de"endants o" te +artial S$mmary 3$dgment wo$ld be merely dilatory#

Co4$angco, et al# opposed te motion#?1B

Te Sandiganbayan denied te 2ep$blics &otion "or (=ec$tion o" +artial S$mmary 3$dgment re: C88F block o"S&C Sares o" Stock/,?-B to wit:

D*(2(F'2(, te &'T8'; F'2 (Q(CT8'; 'F +A2T8A S&&A2E 3%<&(;T 2(: C88F 0'C 'F

S&C S*A2(S 'F ST'C/ dated A$g$st @, -..6 o" te plainti"" is ereby denied "or lack o" merit# *owever, tisCo$rt orders te severance o" tis partic$lar claim o" +lainti""# Te +artial S$mmary 3$dgment dated &ay 7, -..G is



now considered a separate "inal and appealable 4$dgment wit respect to te said C88F 0lock o" S&C sares o"stock#

Te +artial S$mmary 3$dgment rendered on &ay 7, -..G is modi"ied by deleting te last paragrap o" te

dispositive portion wic will now read, as "ollows:

D*(2(F'2(, in view o" te "oregoing, we old tat:

Te &otion "or +artial S$mmary 3$dgment 2e: %e"endants C88F Companies, 1G *olding Companies and Coco"ed,et al#/ "iled by +lainti"" is ereby <2A;T(%# ACC'2%8;<E, T*( C88F C'&+A;8(S, ;A&(E:

1# So$tern Cocon$t 'il &ills S'C'&/5

-# Cagayan de 'ro 'il Co#, 8nc# CA<'8/5

># 8ligan Cocon$t 8nd$stries, 8nc# 88C'C'/5

G# San +ablo &an$"act$ring Corp# S+&C/5

6# <rane=port &an$"act$ring Corp#

<2A;(Q/5 and

?# egaspi 'il Co#, 8nc# (<'8/,

AS D( AS T*( 1G *'%8;< C'&+A;8(S, ;A&(E:

1# Soriano Sares, 8nc#5

-# ACS 8nvestors, 8nc#5

># 2o=as Sares, 8nc#5

G# Arc 8nvestors, 8nc#5

6# Toda *oldings, 8nc#5

?# A+ *oldings, 8nc#5

7# Fernande! *oldings, 8nc#5

@# S&C '""icers Corps, 8nc#5



9# Te %e$m 2eso$rces, 8nc#5

1.# Anglo Vent$res, 8nc#5

11# 2andy Allied Vent$res, 8nc#5

1-# 2ock Steel 2eso$rces, 8nc#51># Valalla +roperties td#, 8nc#5 and

1G# First &eridian %evelopment, 8nc#

A;% T*( C88F 0'C 'F SA; &8<( C'2+'2AT8'; S&C/ S*A2(S 'F ST'C T'TA8;<

>>,1>>,-?? S*A2(S AS 'F 19@> T'<(T*(2 D8T* A %8V8%(;%S %(CA2(%, +A8% A;% 8SS(%T*(2('; AS D( AS A;E 8;C2(&(;TS T*(2(T' A28S8;< F2'&, 0T ;'T 8&8T(% T',(Q(2C8S( 'F +2((&+T8V( 28<*TS A2( %(CA2(% 'D;(% 0E T*( <'V(2;&(;T 8; T2ST F'2A T*( C'C';T FA2&(2S A;% '2%(2(% 2(C';V(E(% T' T*( <'V(2;&(;T#

Te a"orementioned +artial S$mmary 3$dgment is now deemed a separate appealable 4$dgment wic "inally

disposes o" te ownersip o" te C88F 0lock o" S&C Sares, wito$t pre4$dice to te contin$ation o" proceedingswit respect to te remaining claims partic$larly tose pertaining to te Co4$angco, et al# block o" S&C sares#

S' '2%(2(%#?>B

%$ring te pendency o" te 2ep$blics motion "or e=ec$tion, Co4$angco, et al# "iled a &otion "or A$tority to SellSan &ig$el Corporation S&C/ sares, praying "or leave to allow te sale o" S&C sares to proceed, e=empted"rom te conditions set "ort in te resol$tions prom$lgated on 'ctober >, -..> and 3$ne -G, -..6#?GB Te

2ep$blic opposed, contending tat te re$ested leave to sell wo$ld be tantamo$nt to removing 4$risdiction over teres or te s$b4ect o" litigation#?6B

*owever, te Sandiganbayan event$ally granted te &otion "or A$tority to Sell San &ig$el Corporation S&C/sares#??B

Terea"ter, Co4$angco, et al# mani"ested to te Sandiganbayan tat te sares wo$ld be sold to te San &ig$elCorporation 2etirement +lan#?7B 2$ling on te mani"estations o" Co4$angco, et al#, te Sandiganbayan iss$ed its

resol$tion o" 3$ly >., -..7allowing te sale o" te sares, to wit:

Tis notwitstanding owever, wile te Co$rt e=empts te sale "rom te e=press condition tat it sall be s$b4ect tote o$tcome o" te case, de"endants Co4$angco, et al# may well be reminded tat despite te deletion o" te saidcondition, tey cannot trans"er to any b$yer any interest iger tan wat tey ave# ;o one can trans"er a rigt toanoter greater tan wat e imsel" as# *ence, in te event tat te 2ep$blic prevails in te instant case,



de"endants Co4$angco, et al# old temselves liable to teir trans"ereesb$yers, especially i" tey are b$yers in good"ait and "or val$e# 8n s$c event$ality, de"endants Co4$angco, et al# cannot be sielded by te cloak o" principle o"caveat emptor beca$se case law as it tat tis r$le only re$ires te p$rcaser to e=ercise s$c care and attention asis $s$ally e=ercised by ordinarily pr$dent men in like b$siness a""airs, and only applies to de"ects wic are open

and patent to te service o" one e=ercising s$c care#

&oreover, said de"endants (d$ardo &# Co4$angco, et al# are ereby ordered to render teir report on te sale witinten 1./ days "rom completion o" te payment by te San &ig$el Corporation 2etirement +lan#

S' '2%(2(%#?@B

Co4$angco, et al# later rendered a complete acco$nting o" te proceeds "rom te sale o" te Co4$angco block o"sares o" S&C stock, in"orming tat a total amo$nt o" + G,7@?,1.7,G-@#>G ad been paid to te C+0 as loan

repayment#?9B

8t appears tat te trial concerning te disp$ted block o" sares was not sced$led beca$se te consideration and

resol$tion o" te a"orecited motions "or s$mmary 4$dgment occ$pied m$c o" te ens$ing proceedings#

At te earing o" A$g$st @, -..?, te 2ep$blic mani"ested7.B tat it did not intend to present any testimonial

evidence and asked "or te marking o" certain e=ibits tat it wo$ld ave te Sandiganbayan take 4$dicial notice o"#Te 2ep$blic was ten allowed to mark certain doc$ments as its (=ibits A to 8, incl$sive, "ollowing wic it so$gt

and was granted time witin wic to "ormally o""er te e=ibits#

'n A$g$st >1, -..?, te 2ep$blic "iled its &ani"estation o" +$rposes 2e: &atters 2e$ested or 3$dicial ;otice onte -.M Sares in San &ig$el Corporation 2egistered in te 2espective ;ames o" de"endant (d$ardo &#

Co4$angco, 3r# and te de"endant Co4$angco Companies/#71B

'n September 1@, -..?, te Sandiganbayan iss$ed te "ollowing resol$tion,7-B to wit:

Acting on te &ani"estation o" +$rposes 2e: &atters 2e$ested or 3$dicial ;otice on te -.M Sares in San&ig$el Corporation 2egistered in te 2espective names o" %e"endant (d$ardo &# Co4$angco, 3r# and te %e"endantCo4$angco Companies/ dated -@ A$g$st -..? "iled by te plainti"", wic as been considered its "ormal o""er o"evidence, and te Comment o" %e"endants (d$ardo &# Co4$angco, 3r#, et al# on +lainti""s &ani"estation o" +$rposes

%ated A$g$st >., -..? dated September 16, -..?, te co$rt resolves to A%&8T all te e=ibits o""ered, i#e#:

(=ibit A te Answer o" de"endant (d$ardo &# Co4$angco, 3r# to te Tird Amended Complaint S$bdivided/ dated3$ne ->, 1999, as well as te s$bmarkings (=ibit A1 to AG5



(=ibit 0 te +reTrial 0rie" dated 3an$ary 11, -... o" de"endant C88F 'il &ills and "o$rteen 1G/ C88F *oldingCompanies, as well as te s$bmarkings (=ibits 01 and 0-

(=ibit C te +reTrial 0rie" dated 3an$ary 11, -... o" de"endant (d$ardo &# Co4$angco, 3r# as well as te s$bmarkings (=ibits C1, C1a and C1b5

(=ibit % te +lainti""s &otion "or S$mmary 3$dgment 2e: Sares in San &ig$el Corporation 2egistered in te2espective ;ames o" %e"endant (d$ardo &# Co4$angco, 3r# and te %e"endant Co4$angco CompaniesB dated 3$ly

11, -..>, as well as te s$bmarkings (=ibits %1 to %G

te said e=ibits being part o" te record o" te case, as well as

(=ibit ( +residential %ecree ;o# 9?1 dated 3$ly 11, 197?5

(=ibit F +residential %ecree ;o# 766 dated 3$ly -9, 19765

(=ibit < +residential %ecree ;o# 1G?@ dated 3$ne 11, 197@5

(=ibit * %ecision o" te S$preme Co$rt in 2ep$blic vs# C'C'F(%, et al#, <#2# ;os# 1G7.?-?G, %ecember 1G,

-..1, >7- SC2A G?-

te a"orementioned e=ibits being matters o" p$blic record#

Te admission o" tese e=ibits is being made over te ob4ection o" te de"endants Co4$angco, et al# as to terelevance tereo" and as to te p$rposes "or wic tey were o""ered in evidence, wic matters sall be taken intoconsideration by te Co$rt in deciding te case on te merits#

Te trial ereon sall proceed on ;ovember -1, -..?, at @:>. in te morning as previo$sly sced$led#7>B

%$ring te earing on ;ovember -G, -..?, Co4$angco, et al# "iled teir S$bmission and '""er o" (vidence o"%e"endants,7GB"ormally o""ering in evidence certain doc$ments to s$bstantiate teir co$nterclaims, and in"orming

tat tey "o$nd no need to present co$ntervailing evidence beca$se te 2ep$blics evidence did not prove teallegations o" te Complaint# 'n %ecember 6, -..?, a"ter te 2ep$blic s$bmitted its Comment,76B teSandiganbayan admitted te e=ibits o""ered by Co4$angco, et al#, and granted te parties a none=tendible period

witin wic to "ile teir respective memoranda and replymemoranda#

Terea"ter, on Febr$ary ->, -..7, te Sandiganbayan considered te case s$bmitted "or decision#7?B

8SS(S



Te vario$s iss$es s$bmitted "or consideration by te Co$rt are s$mmari!ed ere$nder#

<#2# ;o# 1??@69

Te 2ep$blic came to te Co$rt via petition "or certiorari77B to assail te denial o" its &otion "or +artial S$mmary

3$dgmenttro$g te resol$tion prom$lgated on %ecember 1., -..G, insisting tat te Sandiganbayan terebycommitted grave ab$se o" discretion: a/ in olding tat te vario$s so$rces o" "$nds $sed in ac$iring te S&Csares o" stock remained disp$ted5 b/ in olding tat it was disp$ted weter or not Co4$angco ad served in te

governing bodies o" +CA, C+0, andPor te C88F 'il &ills5 and c/ in not "inding tat Co4$angco ad takenadvantage o" is position and ad violated is "id$ciary obligations in ac$iring te S&C sares o" stock in iss$e#

Te Co$rt will consider and resolve te iss$es tereby raised alongside te iss$es presented in <#2# ;o# [email protected]#

<#2# ;o# 1?9-.>

8n te resol$tion prom$lgated on 'ctober @, -..>, te Sandiganbayan declared as a$tomatically li"ted "or being n$lland void nine writs o" se$estration D'S/ iss$ed against properties o" Co4$angco and Co4$angco companies,considering tat: a/ eigt o" tem i#e#, D'S ;o# @?..?- dated April -1, 19@?5 D'S ;o# @?..?9 dated April --,19@?5 D'S ;o# @?..@6 dated &ay 9, 19@?5 D'S ;o# @?..96 dated &ay 1?, 19@?5 D'S ;o# @?..9? dated &ay

1?, 19@?5 D'S ;o# @?..97 dated &ay 1?, 19@?5 D'S ;o# @?..9@ dated &ay 1?, 19@?5 and D'S ;o# @7.-1@dated &ay -7, 19@7/ ad been iss$ed by only one +C<< Commissioner, contrary to te re$irement o" Section > o"te 2$les o" te +C<< "or at least two Commissioners to iss$e te D'S5 and b/ te nint i#e#, D'S ;o# @?..G-

dated April @, 19@?/, alto$g iss$ed prior to te prom$lgation o" te 2$les o" te +C<< re$iring at least twoCommissioners to iss$e te D'S, was void "or being iss$ed wito$t prior determination by te +C<< o" a prima"aciebasis "or se$estration#

;oneteless, despite its li"ting o" te nine D'S, te Sandiganbayan prescribed "o$r conditions to be still annotatedin te relevant corporate books o" San &ig$el Corporation considering tat te 2ep$blic contin$es to old a claim

on te sares wic is yet to be resolved#7@B

8n its resol$tion prom$lgated on 3$ne -G, -..6, te Sandiganbayan denied te 2ep$blics &otion "or 2econsideration

"iled visavis te resol$tion prom$lgated on 'ctober @, -..>, b$t red$ced te conditions earlier imposed to onlytwo#79B



'n September 1, -..6, te 2ep$blic "iled a petition "or [email protected] to ann$l te resol$tions prom$lgated on'ctober @, -..> and on 3$ne -G, -..6 on te gro$nd tat te Sandiganbayan ad tereby committed grave ab$se o"discretion:

8#

QQQ 8; 8FT8;< D28T 'F S(K(ST2AT8'; ;'S# @?..G- A;% @7.-1@ %(S+8T( (Q8ST(;C( 'F T*(0AS8C 2(K8S8T(S F'2 T*( VA8%8TE 'F S(K(ST2AT8';#

88#

QQQ D*(; 8T %(;8(% +(T8T8';(2S AT(2;AT8V( +2AE(2 8; 8TS &'T8'; F'22(C';S8%(2AT8'; F'2 T*( 8SSA;C( 'F A; '2%(2 'F S(K(ST2AT8'; A<A8;ST A T*(

S03(CT S*A2(S 'F ST'C 8; ACC'2%;C( D8T* T*( 28;< 8; 2(+08C VS#SA;%8<A;0AEA;, -6@ SC2A ?@6 199?/#

888#

QQQ 8; S0S(K(;TE %((T8;< T*( AST TD' -/ C';%8T8';S D*8C* 8T (A28(2 8&+'S(%'; T*( S03(CT S*A2(S 'F ST'C#@1B

<#2# ;o# [email protected]

'n ;ovember -@, -..7, te Sandiganbayan prom$lgated its decision,@-B decreeing as "ollows:

D*(2(F'2(, in view o" all te "oregoing, te Co$rt is constrained to %8S&8SS, as it ereby %8S&8SS(S, teTird Amended Complaint in s$bdivided Civil Case ;o# ..>>F "or "ail$re o" plainti"" to prove by preponderance o"

evidence its ca$ses o" action against de"endants wit respect to te twenty percent -.M/ o$tstanding sares o" stock o" San &ig$el Corporation registered in de"endants names, denominated erein as te Co4$angco, et al# block o"S&C sares# For lack o" satis"actory warrant, te co$nterclaims in de"endants Answers are likewise ordereddismissed#

S' '2%(2(%#

*ence, te 2ep$blic appeals, positing:



8#

C'C';T (VE F;%S A2( +08C F;%S# T*( S&C S*A2(S, D*8C* D(2( ACK82(% 0E2(S+';%(;TS C'3A;<C', 32# A;% T*( C'3A;<C' C'&+A;8(S D8T* T*( S( 'F C'C';T

(VE F;%S 8; V8'AT8'; 'F 2(S+';%(;T C'3A;<C', 32#S F8%C8A2E '08<AT8'; A2(, ;(C(SSA28E, +08C 8; C*A2ACT(2 A;% S*'% 0( 2(C';V(E(% T' T*( <'V(2;&(;T#

88#

+(T8T8';(2 *AS C(A2E %(&';ST2AT(% 8TS (;T8T(&(;T, AS A &ATT(2 'F AD, T' T*(

2(8(FS +2AE(% F'2#@>B

and $rging te "ollowing iss$es to be resolved, to wit:

8#

D*(T*(2 T*( *';'2A0( SA;%8<A;0AEA; C'&&8TT(% A 2(V(2S80( (22'2 D*(; 8T

%8S&8SS(% C8V8 CAS( ;'# ..>>F5 A;%

88#

D*(T*(2 '2 ;'T T*( S03(CT S*A2(S 8; S&C, D*8C* D(2( ACK82(% 0E, A;% A2( 8; T*(2(S+(CT8V( ;A&(S 'F 2(S+';%(;TS C'3A;<C', 32# A;% T*( C'3A;<C' C'&+A;8(S,S*'% 0( 2(C';V(E(% T' T*( 2(+08C 'F T*( +*88++8;(S F'2 *AV8;< 0((; ACK82(%S8;< C'C';T (VE F;%S#@GB

'n teir part, te petitionersinintervention@6B s$bmit te "ollowing iss$es, to wit:

8

D*(T*(2 '2 ;'T T*( C'2T A K' <2AV(E (22(% A;% %(C8%(% T*( CAS( A K' 8;V8'AT8'; 'F AD A;% A++8CA0( 28;<S 'F T*( *';'2A0( C'2T 8; 28;< T*AT,

D*8( A%&8TT(%E T*( S03(CT S&C S*A2(S D(2( +2C*AS(% F2'& 'A; +2'C((%S F2'&C+0 A;% A%VA;C(S F2'& T*( C88F '8 &8S, SA8% S03(CT S&C S*A2(S A2( ;'T +08C+2'+(2TE



88

D*(T*(2 '2 ;'T T*( C'2T A K' <2AV(E (22(% A;% %(C8%(% T*( CAS( A K' 8;V8'AT8'; 'F AD A;% A++8CA0( 28;<S 'F T*( *';'2A0( C'2T 8; FA88;< T' 2(

T*AT, (V(; ASS&8;< F'2 T*( SA( 'F A2<&(;T T*AT 'A; +2'C((%S F2'& C+0 A2( ;'T +08C F8;%S, ST8, S8;C( 2(S+';%(;T C'3A;<C', 8; T*( +2C*AS( 'F T*( S03(CT

S&C S*A2(S F2'& SC* 'A; +2'C((%S, V8'AT(% *8S F8%C8A2E %T8(S A;% T'' AC'&&(2C8A '++'2T;8TE T*AT 28<*TFE 0(';<(% T' C+0 A +08C C'2+'2AT8';/,T*( S03(CT S&C S*A2(S S*'% 2(V(2T 0AC T' T*( <'V(2;&(;T#

28;<

De deny all te petitions o" te 2ep$blic#

8

i"ting o" nine D'S "or violation o" +C<< 2$les

did not constit$te grave ab$se o" discretion

Tro$g its resol$tion prom$lgated on 3$ne -G, -..6, assailed on certiorari in <#2# ;o# 1?9-.>, te Sandiganbayanli"ted te nine D'S "or te "ollowing reasons, to wit:

*aving st$died te antecedent "acts, tis Co$rt sall now resolve te pending incidents especially de"endants &otionto A""irm tat te Drits or 'rders o" Se$estration 8ss$ed on %e"endants +roperties Dere na$tori!ed, 8nvalid and

;ever 0ecame (""ective dated &arc 6, 1999#

Section > o" te +C<< 2$les and 2eg$lations prom$lgated on April 11, 19@?, provides:

Sec# ># Do may iss$e# A writ o" se$estration or a "ree!e or old order may be iss$ed by te Commission $pon te

a$tority o" at least two Commissioners, based on te a""irmation or complaint o" an interested party or mot$ propiosic/ te iss$ance tereo" is warranted#



8n tis present case, o" all te $estioned writs o" se$estration iss$ed a"ter te e""ectivity o" te +C<< 2$les and2eg$lations or a"ter April 11, 19@?, only writ no# @7.-1@ iss$ed on &ay -7, 19@7 complied wit te re$irementtat it be iss$ed by at least two Commissioners, te same aving been iss$ed by Commissioners 2amon (# 2odrigoand K$intin S# %oromal# *owever, even i" Drit o" Se$estration ;o# @7.-1@ complied wit te re$irement tat

te same be iss$ed by at least two Commissioners, te records "ail to sow tat it was iss$ed wit "act$al basis orwit "act$al "o$ndation as can be seen "rom te Certi"ication o" te Commission Secretary o" te +C<< o" te

e=cerpt o" te min$tes o" te meeting o" te +C<< eld on &ay -?, 19@7, stating terein tat:

Te Commission approved te recommendation o" %ir# Cr$! to se$ester all te sares o" stock, assets, records, anddoc$ments o" 0alete 2anc, 8nc# and te appointment o" te Fiscal Committee wit (C8 Callenge, 8nc#P+epsiCola

"or 0alete 2anc, 8nc# and te A$acor &arketing Corp# vice Atty# S# 'ccena# Te ob4ective is to consolidate teFiscal Committee activities covering tree associated entities o" &r# (d$ardo Co4$angco#pon recommendation o"Comm# 2odrigo, te reconstit$tion o" te 0oard o" %irectors o" te tree companies was de"erred "or "$rter st$dy#

;oting in te above$oted certi"icate sows tat tere was a prior determination o" a "act$al basis or "act$al"o$ndation# 8t is te absence o" aprima "acie basis "or te iss$ance o" a writ o" se$estration and not te lack o"

a$tority o" two -/ Commissioners wic renders te said writ voidab initio# T$s, being te case, Drit o"Se$estration ;o# @7.-1@ m$st be a$tomatically li"ted#

As declared by te *onorable S$preme Co$rt in two cases it as decided,

Te absence o" a prior determination by te +C<< o" a prima "acie basis "or te se$estration order is, $navoidably,a "atal de"ect wic rendered te se$estration o" respondent corporation and its properties void ab initio# And

Te corporation or entity against wic s$c writ is directed will not be able to vis$ally determine its validity, $nlesste re$ired signat$res o" at least two commissioners a$tori!ing its iss$ance appear on te very doc$ment itsel"#

Te iss$ance o" se$estration orders re$ires te e=istence o" a prima "acie case# Te two commissioner r$le isobvio$sly intended to ass$re a collegial determination o" s$c "act# 8n tis ligt, a writ bearing only one signat$re isan obvio$s transgression o" te +C<< 2$les#

Conse$ently, te writs o" se$estration nos# @?..?-, @?..?9, @?..@6, @?..96, @?..9?, @?..97 and @?..9@

m$st be li"ted "or not aving complied wit te pertinent provisions o" te +C<< 2$les and 2eg$lations, all o"wic were iss$ed by only one Commissioner and a"ter April 11, 19@? wen te +C<< 2$les and 2eg$lations tooke""ect, an $tter disregard o" te +C<<s 2$les and 2eg$lations# Te *onorable S$preme Co$rt as stated tat:

'bvio$sly, Section > o" te +C<< 2$les was intended to protect te p$blic "rom improvident, reckless and needlessse$estrations o" private property# And since tese 2$les were iss$ed by 2espondent Commission, it so$ld be te"irst entity to observe tem#



Anent te writ o" se$estration no# @?..G- wic was iss$ed on April @, 19@? or prior to te prom$lgation o" te+C<< 2$les and 2eg$lations on April 11, 19@?, te same cannot be declared void on te gro$nd tat it was signed by only one Commissioner beca$se at te time it was iss$ed, te 2$les and 2eg$lations o" te +C<< were not yet ine""ect# *owever, it again appears tat tere was no prior determination o" te e=istence o" a prima "acie basis or

"act$al "o$ndation "or te iss$ance o" te said writ# Te +C<<, despite s$""icient time a""orded by tis Co$rt tosow tat a prima "acie basis e=isted prior to te iss$ance o" Drit ;o# @?..G-, "ailed to do so# ;oting in terecords s$bmitted by te +C<< in compliance o" te 2esol$tions and 'rder o" tis Co$rt wo$ld reveal tat ameeting was eld by te Commission "or te p$rpose o" determining te e=istence o" a prima "acie evidence prior to

its iss$ance# 8n a case decided by te *onorable S$preme Co$rt, werein it involved a writ o" se$estration iss$ed by te +C<< on &arc 19, 19@? against all assets, movable and immovable, o" +rovident 8nternational 2eso$rcesCorporation and +ilippine Casino 'perators Corporation, te *onorable S$preme Co$rt en$nciated:

Te $estioned se$estration order was, owever iss$ed on &arc 19, 19@?, prior to te prom$lgation o" te +C<<

2$les and 2eg$lations# As a conse$ence, we cannot reasonably e=pect te commission to abide by said r$les,

wic were none=istent at te time te s$b4ect writ was iss$ed by ten Commissioner &ary Concepcion 0a$tista#0asic is te r$le tat no stat$te, decree, ordinance, r$le or reg$lation and even policies/ sall be given retrospectivee""ect $nless e=plicitly stated so# De "ind no provision in said 2$les wic e=pressly gives tem retroactive e""ect,

or implies te abrogation o" previo$s writs iss$ed not in accordance wit te same 2$les# 2ater, wat said 2$les provide is tat tey sall be e""ective immediately, wic in legal parlance, is $nderstood as $pon prom$lgation#'nly penal laws are given retroactive e""ect inso"ar as tey "avor te acc$sed#

De disting$is tis case "rom 2ep$blic vs# Sandiganbayan, 2om$alde! and %io 8sland 2esort, <#2# ;o# @@1-?, 3$ly1-, 199? were te se$estration order against %io 8sland 2esort, dated April 1G, 19@?, was prepared, iss$ed and

signed not by two commissioners o" te +C<<, b$t by te ead o" its task "orce in 2egion V888# 8n olding tat said

order was not valid since it was not iss$ed in accordance wit +C<< 2$les and 2eg$lations, we e=plained:

Sec# > o" te +C<< 2$les and 2eg$lations/, co$ced in clear and simple lang$age, leaves no room "orinterpretation# 'n te basis tereo", it is ind$bitable tat $nder no circ$mstances can a se$estration or "ree!e order be validly iss$ed by one not a commissioner o" te +C<<#

= = = = = = = = =

(ven ass$ming arg$endo tat Atty# 2amire! ad been given prior a$tority by te +C<< to place %io 8sland 2esort

$nder se$estration, neverteless, te se$estration order e iss$ed is still void since +C<< may not delegate itsa$tority to se$ester to its representatives and s$bordinates, and any s$c delegation is valid and ine""ective#

De "$rter said:



8n te instant case, tere was clearly no prior determination made by te +C<< o" a prima "acie basis "or tese$estration o" %io 8sland 2esort, 8nc# = = =

= = = = = = = = =

Te absence o" a prior determination by te +C<< o" a prima "acie basis "or te se$estration order is, $navoidably,a "atal de"ect wic rendered te se$estration o" respondent corporation and its properties void ab initio# 0eingvoid ab initio, it is deemed none=istent, as to$g it ad never been iss$ed, and tere"ore is not s$b4ect to rati"ication

by te +C<<#

Dat were obvio$sly lacking in te above case were te basic re$isites "or te validity o" a se$estration order

wic we laid down in0AS(C' vs# +C<<, 16. SC2A 1@1, -1?, &ay -7, 19@7, t$s:

Section >/ o" te Commissions 2$les and reg$lations provides tat se$estration or "ree!e and takeover/ ordersiss$e $pon te a$tority o" at least two commissioners, based on te a""irmation or complaint o" an interested party,or mot$ propio sic/ wen te Commission as reasonable gro$nds to believe tat te iss$ance tereo" is warranted#

8n te case at bar, tere is no $estion as to te presence o" prima "acie evidence 4$sti"ying te iss$ance o" tese$estration order against respondent corporations# 0$t te said order cannot be n$lli"ied "or lack o" te oter

re$isite a$tority o" at least two commissioners/ since, as e=plained earlier, s$c re$isite was none=istent at tetime te order was iss$ed#

As to te arg$ment o" te +lainti"" 2ep$blic tat %e"endants Co4$angco, et al# ave not sown any contrary prima"acie proo" tat te properties s$b4ect matter o" te writs o" se$estration were legitimate ac$isitions, te same ismisplaced# 8t is a basic legal doctrine, as well as many times en$nciated by te *onorable S$preme Co$rt tat wen

a prima "acie proo" is re$ired in te iss$ance o" a writ, te party seeking s$c e=traordinary writ m$st establis tatit is entitled to it by complying strictly wit te re$irements "or its iss$ance and not te party against wom te writis being so$gt "or to establis tat te writ so$ld not be iss$ed against it#

According to te 2ep$blic, te Sandiganbayan tereby gravely ab$sed its discretion in: a/ in li"ting D'S ;o# @?..G- and ;o# @7.-1@ despite te basic re$isites "or te validity o" se$estration being e=istent5 b/ in denying te

2ep$blics alternative prayer "or te iss$ance o" an order o" se$estration against all te s$b4ect sares o" stock inaccordance wit te r$ling in 2ep$blic v# Sandiganbayan, -6@ SC2A ?@6, as stated in its &otion For2econsideration5 and c/ in deleting te last two conditions te Sandiganbayan ad earlier imposed on te s$b4ect

sares o" stock#



De s$stain te li"ting o" te nine D'S "or te reasons made e=tant in te assailed resol$tion o" 'ctober @, -..>,s$pra#

Section > o" te 2$les o" te +C<<, prom$lgated on April 11, 19@?, provides:

Section ># Do may iss$e# A writ o" se$estration or a "ree!e or old order may be iss$ed by te Commission $ponte a$tority o" at least two Commissioners, based on te a""irmation or complaint o" an interested party or mot$ proprio wen te Commission as reasonable gro$nds to believe tat te iss$ance tereo" is warranted#

Con"ormably wit Section >, s$pra, D'S ;o# @?..?- dated April -1, 19@?5 D'S ;o# @?..?9 dated April --,19@?5 D'S ;o# @?..@6 dated &ay 9, 19@?5 D'S ;o# @?..96 dated &ay 1?, 19@?5 D'S ;o# @?..9? dated &ay

1?, 19@?5 D'S ;o# @?..97 dated &ay 1?, 19@?5 and D'S ;o# @?..9@ dated &ay 1?, 19@? were law"$lly andcorrectly n$lli"ied considering tat only one +C<< Commissioner ad iss$ed tem#

Similarly, D'S ;o# @?..G- dated April @, 19@? and D'S ;o# @7.-1@ dated &ay -7, 19@7 were law"$lly andcorrectly n$lli"ied notwitstanding tat D'S ;o# @?..G-, albeit signed by only one Commissioner i#e#,

Commissioner &ary Concepcion 0a$tista/, was not at te time o" its iss$ance s$b4ect to te twoCommissioners

r$le, and D'S ;o# @7.-1@, albeit already iss$ed $nder te signat$res o" two Commissioners considering tat bot

ad been iss$ed wito$t a prior determination by te +C<< o" aprima "acie basis "or te se$estration#

+lainly eno$g, te irreg$larities in"irming te iss$ance o" te several D'S co$ld not be ignored in "avor o" te2ep$blic and resolved against te persons wose properties were s$b4ect o" te D'S# Dere te 2$les o" te +C<<instit$ted sa"eg$ards $nder Section >, s$pra, by re$iring te conc$rrent signat$res o" two Commissioners to every

D'S iss$ed and te e=istence o" a prima "acie case o" ill gotten wealt to s$pport te iss$ance, te noncompliancewit eiter o" te sa"eg$ards n$lli"ied te D'S t$s iss$ed# 8t is already settled tat se$estration, d$e to itstendency to impede or limit te e=ercise o" proprietary rigts by private citi!ens, is constr$ed strictly against te

State, con"ormably wit te legal ma=im tat stat$tes in derogation o" common rigts are generally strictlyconstr$ed and rigidly con"ined to te cases clearly witin teir scope and p$rpose#@?B

Conse$ently, te n$lli"ication o" te nine D'S, being in implementation o" te sa"eg$ards te +C<< itsel" adinstit$ted, did not constit$te any ab$se o" its discretion, least o" all grave, on te part o" te Sandiganbayan#

;or did te Sandiganbayan gravely ab$se its discretion in red$cing "rom "o$r to only two te conditions imposed "or te li"ting o" te D'S# Te Sandiganbayan tereby acted wit te best o" intentions, being all too aware tat te

claim o" te 2ep$blic to te se$estered assets and properties migt be pre4$diced or armed pendente lite $nless te



protective conditions were annotated in te corporate books o" S&C# &oreover, te iss$e became academic"ollowing te Sandiganbayans prom$lgation o" its decision dismissing te 2ep$blics Amended Complaint, wictereby removed te stated reason te 2ep$blic contin$es to old a claim on te sares wic is yet to be resolved$nderlying te need "or te annotation o" te conditions weter "o$r or two/#

88

Te Concept and <enesis o"

8ll<otten Dealt in te +ilippine Setting

A brie" review o" te +ilippine law and 4$rispr$dence pertinent to illgotten wealt so$ld "$rnis an ill$minating backdrop "or "$rter disc$ssion#

8n te immediate a"termat o" te peace"$l 19@? (%SA 2evol$tion, te administration o" +resident Cora!on C#

A$ino saw to it, among oters, tat r$les de"ining te a$tority o" te government and its instr$mentalities were promptly p$t in place# 8t is signi"icant to point o$t, owever, tat te administration likewise de"ined te limitationso" te a$tority#

Te "irst o""icial iss$ance o" +resident A$ino, wic was made on Febr$ary -@, 19@?, or 4$st two days a"ter te(%SA 2evol$tion, was (=ec$tive 'rder (#'#/ ;o# 1, wic created te +residential Commission on <ood

<overnment +C<</# 'stensibly, (#'# ;o# 1 was te "irst iss$ance in ligt o" te (%SA 2evol$tion aving comeabo$t mainly to address te pillage o" te nations wealt by +resident &arcos, is "amily, and cronies#

(#'# ;o# 1 contained only two D*(2(AS Cla$ses, to wit:

D*(2(AS, vast reso$rces o" te government ave been amassed by "ormer +resident Ferdinand (# &arcos, isimmediate "amily, relatives, and close associates bot ere and abroad5

D*(2(AS, tere is an $rgent need to recover all illgotten wealt5@7B

+aragrap G/ o" (#'# ;o# -@@B "$rter re$ired tat te wealt, to be illgotten, m$st be ac$ired by tem tro$gor as a res$lt o" improper or illegal $se o" or te conversion o" "$nds belonging to te <overnment o" te +ilippines

or any o" its brances, instr$mentalities, enterprises, banks or "inancial instit$tions, or by taking $nd$e advantage o"



teir o""icial position, a$tority, relationsip, connection or in"l$ence to $n4$stly enric temselves at te e=penseand to te grave damage and pre4$dice o" te Filipino people and te 2ep$blic o" te +ilippines#

Alto$g (#'# ;o# 1 and te oter iss$ances dealing wit illgotten wealt i#e#, (#'# ;o# -, (#'# ;o# 1G, and (#'#

;o# 1GA/ only identi"ied te s$b4ect matter o" illgotten wealt and te persons wo co$ld amass illgotten wealtand did not incl$de an e=plicit de"inition o" illgotten wealt, we can still discern te meaning and concept o" ill

gotten wealt "rom te D*(2(AS Cla$ses temselves o" (#'# ;o# 1, in tat illgotten wealt consisted o" te vastreso$rces o" te government amassed by "ormer +resident Ferdinand (# &arcos, is immediate "amily, relatives andclose associates bot ere and abroad# 8t is clear, tere"ore, tat illgotten wealt wo$ld not incl$de all te propertieso" +resident &arcos, is immediate "amily, relatives, and close associates b$t only te part tat originated "rom te

vast reso$rces o" te government#

8n time and $navoidably, te S$preme Co$rt elaborated on te meaning and concept o" illgotten wealt# 8n 0ataanSipyard O (ngineering Co#, 8nc# v# +residential Commission on <ood <overnment,@9B or 0AS(C', "or te sake

o" brevity, te Co$rt eld tat:

=== $ntil it can be determined, tro$g appropriate 4$dicial proceedings, weter te property was in tr$t illgotten,i#e#, ac$ired tro$g or as a res$lt o" improper or illegal $se o" or te conversion o" "$nds belonging to te

<overnment or any o" its brances, instr$mentalities, enterprises, banks or "inancial instit$tions, or by taking $nd$eadvantage o" o""icial position, a$tority, relationsip, connection or in"l$ence, res$lting in $n4$st enricment o" teostensible owner and grave damage and pre4$dice to te State# And tis, too, is te sense in wic te term is

commonly $nderstood in oter 4$risdictions#9.B

Te 0AS(C' de"inition o" illgotten wealt was reiterated in +residential Commission on <ood <overnment v#

$cio C# Tan,91B were te Co$rt said:

'n tis point, we "ind it relevant to de"ine illgotten wealt# 8n 0ataan Sipyard and (ngineering Co#, 8nc#, tisCo$rt described illgotten wealt as "ollows:

8llgotten wealt is tat ac$ired tro$g or as a res$lt o" improper or illegal $se o" or te conversion o" "$nds belonging to te <overnment or any o" its brances, instr$mentalities, enterprises, banks or "inancial instit$tions, or by taking $nd$e advantage o" o""icial position, a$tority, relationsip, connection or in"l$ence, res$lting in $n4$st

enricment o" te ostensible owner and grave damage and pre4$dice to te State# And tis, too, is te sense in wicte term is commonly $nderstood in oter 4$risdiction#



Concerning respondents sares o" stock ere, tere is no evidence presented by petitioner tat tey belong to te<overnment o" te+ilippines or any o" its brances, instr$mentalities, enterprises, banks or "inancial instit$tions# ;or is tere evidence tat respondents, taking $nd$e advantage o" teir connections or relationsip wit "ormer+resident &arcos or is "amily, relatives and close associates, were able to ac$ire tose sares o" stock#

8ncidentally, in its 199@ r$ling in Cave! v# +residential Commission on <ood <overnment,9-B te Co$rt rendered

an identical de"inition o" illgotten wealt, vi!:

===# De may also add tat illgotten wealt, by its very nat$re, ass$mes a p$blic caracter# 0ased on tea"orementioned (=ec$tive 'rders, illgotten wealt re"ers to assets and properties p$rportedly ac$ired, directly orindirectly, by "ormer +resident &arcos, is immediate "amily, relatives and close associates tro$g or as a res$lt o"teir improper or illegal $se o" government "$nds or properties5 or teir aving taken $nd$e advantage o" teir

p$blic o""ice5 or teir $se o" powers, in"l$ence or relationsips, res$lting in teir $n4$st enricment and ca$singgrave damage and pre4$dice to te Filipino people and te 2ep$blic o" te +ilippines# Clearly, te assets and properties re"erred to s$pposedly originated "rom te government itsel"# To all intents and p$rposes, tere"ore, tey belong to te people# As s$c, $pon reconveyance tey will be ret$rned to te p$blic treas$ry, s$b4ect only to te

satis"action o" positive claims o" certain persons as may be ad4$dged by competent co$rts# Anoter declaredoverriding consideration "or te e=peditio$s recovery o" illgotten wealt is tat it may be $sed "or nationaleconomic recovery#

All tese 4$dicial prono$ncements demand two conc$rring elements to be present be"ore assets or properties wereconsidered as illgotten wealt, namely: a/ tey m$st ave originated "rom te government itsel", and b/ tey m$st

ave been taken by "ormer +resident &arcos, is immediate "amily, relatives, and close associates by illegal means#

0$t settling te so$rces and te kinds o" assets and property covered by (#'# ;o# 1 and related iss$ances did notcomplete te de"inition o" illgotten wealt# Te "$rter re$irement was tat te assets and property so$ld ave been amassed by "ormer +resident &arcos, is immediate "amily, relatives, and close associates bot ere and

abroad# 8n tis regard, identi"ying "ormer +resident &arcos, is immediate "amily, and relatives was not di""ic$lt, b$tidenti"ying oter persons wo migt be te close associates o" "ormer +resident &arcos presented an inerentdi""ic$lty, beca$se it was not "air and 4$st to incl$de witin te termclose associates everyone wo ad ad anyassociation wit +resident &arcos, is immediate "amily, and relatives#

Again, tro$g several r$lings, te Co$rt became te arbiter to determine wo were te close associates witin te

coverage o" (#'# ;o# 1#

8n 2ep$blic v# &igrio,9>B te Co$rt eld tat respondents &igrio, et al# were not necessarily among te personscovered by te term close s$bordinate or close associate o" "ormer +resident &arcos by reason alone o" teir avingserved as government o""icials or employees d$ring te &arcos administration, vi!:



8t does not s$""ice, as in tis case, tat te respondent is or was a government o""icial or employee d$ring teadministration o" "ormer +res# &arcos# Tere m$st be a prima "acie sowing tat te respondent $nlaw"$llyacc$m$lated wealt by virt$e o" is close association or relation wit "ormer +res# &arcos andPor is wi"e# Tis is so beca$se oterwise te respondents case will "all $nder e=isting general laws and proced$res on te matter# ===

8n Cr$!, 3r# v# Sandiganbayan,9GB te Co$rt declared tat te petitioner was not a close associate as te term was

$sed in (#'# ;o# 1 4$st beca$se e ad served as te +resident and <eneral &anager o" te <S8S d$ring te &arcosadministration#

8n 2ep$blic v# Sandiganbayan,96B te Co$rt stated tat respondent &a4# <en# 3osep$s K# 2amas aving been aCommanding <eneral o" te +ilippine Army d$ring te &arcos administration didB not a$tomatically make im as$bordinate o" "ormer +resident Ferdinand &arcos as tis term is $sed in (=ec$tive 'rder ;os# 1, -, 1G and 1GA

absent a sowing tat e en4oyed close association wit "ormer +resident &arcos#

8t is well to point o$t, conse$ently, tat te distinction laid down by (#'# ;o# 1 and its related iss$ances, ande=po$nded by relevant 4$dicial prono$ncements $navoidably re$ired competent evidentiary s$bstantiation made inappropriate 4$dicial proceedings to determine: a/ weter te assets or properties involved ad come "rom te vastreso$rces o" government, and b/ weter te individ$als owning or olding s$c assets or properties were close

associates o" +resident &arcos# Te re$irement o"competent evidentiary s$bstantiation made in appropriate 4$dicial proceedings was imposed beca$se te "act$al premises "or te reconveyance o" te assets or properties in "avor o"te government d$e to teir being illgotten wealt co$ld not be simply ass$med# 8ndeed, in 0AS(C',9?B te

Co$rt made tis clear eno$g by empatically observing:

?# <overnments 2igt and %$ty to 2ecover All 8llgotten Dealt

Tere can be no debate abo$t te validity and eminent propriety o" te <overnments plan to recover all illgotten

wealt#

;eiter can tere be any debate abo$t te proposition tat ass$ming te above described "act$al premises o" te(=ec$tive 'rders and +roclamation ;o# > to be tr$e, to be demonstrable by competent evidence, te recovery "rom&arcos, is "amily and is minions o" te assets and properties involved, is not only a rigt b$t a d$ty on te part o"

<overnment#

0$t owever plain and valid tat rigt and d$ty may be, still a balance m$st be so$gt wit te e$ally compelling

necessity tat a proper respect be accorded and ade$ate protection ass$red, te "$ndamental rigts o" private property and "ree enterprise wic are deemed pillars o" a "ree society s$c as o$rs, and to wic all members o"tat society may wito$t e=ception lay claim#



=== %emocracy, as a way o" li"e ensrined in te Constit$tion, embraces as its necessary components "reedom o"conscience, "reedom o" e=pression, and "reedom in te p$rs$it o" appiness# Along wit tese "reedoms are incl$dedeconomic "reedom and "reedom o" enterprise witin reasonable bo$nds and $nder proper control# === (vincingm$c concern "or te protection o" property, te Constit$tion distinctly recogni!es te pre"erred position wic real

estate as occ$pied in law "or ages# +roperty is bo$nd $p wit every aspect o" social li"e in a democracy asdemocracy is conceived in te Constit$tion# Te Constit$tion reali!es te indispensable role wic property, ownedin reasonable $antities and $sed legitimately, plays in te stim$lation to economic e""ort and te "ormation andgrowt o" a solid social middle class tat is said to be te b$lwark o" democracy and te backbone o" every

progressive and appy co$ntry#

a# ;eed o" (videntiary S$bstantiation in +roper S$it

Conse$ently, te "act$al premises o" te (=ec$tive 'rders cannot simply be ass$med# Tey will ave to be d$lyestablised by ade$ate proo" in eac case, in a proper 4$dicial proceeding, so tat te recovery o" te illgottenwealt may be validly and properly ad4$dged and cons$mmated5 alto$g tere are some wo maintain tat te "acttat an immense "ort$ne, and vast reso$rces o" te government ave been amassed by "ormer +resident Ferdinand (#

&arcos, is immediate "amily, relatives, and close associates bot ere and abroad, and tey ave resorted to allsorts o" clever scemes and manip$lations to disg$ise and ide teir illicit ac$isitions is witin te realm o" 4$dicialnotice, being o" so e=tensive notoriety as to dispense wit proo" tereo"# 0e tis as it may, te re$irement o"

evidentiary s$bstantiation as been e=pressly acknowledged, and te proced$re to be "ollowed e=plicitly laid down,in (=ec$tive 'rder ;o# 1G# 97B

Accordingly, te 2ep$blic so$ld "$rnis to te Sandiganbayan in proper 4$dicial proceedings te competentevidence proving wo were te close associates o" +resident &arcos wo ad amassed assets and properties tatwo$ld be rigtly considered as illgotten wealt#

888#

S$mmary 3$dgment was not warranted5

Te 2ep$blic so$ld ave add$ced evidence

to s$bstantiate its allegations against te 2espondents

De a""irm te decision o" ;ovember -@, -..7, beca$se te 2ep$blic did not discarge its b$rden as te plainti"" toestablis by preponderance o" evidence tat te respondents S&C sares were illegally ac$ired wit cocon$tlevy

"$nds#



Te decision o" ;ovember -@, -..7 "$lly e=plained wy te Sandiganbayan dismissed te 2ep$blics case againstCo4$angco, et al#,vi!:

<oing over te evidence, especially te laws, i#e#, +#%# ;o# 9?1, +#%# ;o# 766, and +#%# ;o# 1G?@, over wic

plainti"" prayed tat Co$rt to take 4$dicial notice o", it is wort noting tat tese same laws were cited by plainti""wen it "iled its motion "or 4$dgment on te pleadings andPor s$mmary 4$dgment regarding te C88F block o" S&C

sares o" stock# T$s, te Co$rt as already passed $pon te same laws wen it arrived at 4$dgment determiningownersip o" te C88F block o" S&C sares o" stock# +ertinently, in te +artial S$mmary 3$dgment prom$lgated on&ay 7, -..G, te Co$rt gave te "ollowing r$lings "inding certain provisions o" te abovecited laws to beconstit$tionally in"irmed, t$s:

8n tis case, Section -d/ and Section 9 and 1., Article 888, o" +#%# ;os# 9?1 and 1G?@ mandated te C+0 to $tili!e

te C88F, an acc$m$lation o" a portion o" te CCSF and te C8%F, "or investment in te "orm o" sares o" stock incorporations organi!ed "or te p$rpose o" engaging in te establisment and te operation o" ind$stries and

commercial activities and oter allied b$siness $ndertakings relating to cocon$t and oter palm oils ind$stry in allaspects# Te investments made by C+0 in C88F companies are re$ired by te said %ecrees to be e$itably

distrib$ted "or "ree by te said bank to te cocon$t "armers Sec# 1., +#%# ;o# 9?1 and Sec# 1., +#%# ;o# 1G?@/# Te p$blic p$rpose so$gt to be served by te "ree distrib$tion o" te sares o" stock ac$ired wit te $se o" p$blic"$nds is not evident in te laws mentioned# &ore speci"ically, it is not clear ow private ownersip o" te sares o"

stock ac$ired wit p$blic "$nds can serve a p$blic p$rpose# Te mode o" distrib$tion o" te sares o" stock also le"tm$c room "or te diversion o" assets ac$ired tro$g p$blic "$nds into private $ses or to serve directly privateinterests, contrary to te Constit$tion# 8n te said distrib$tion, de"endants C'C'F(%, et al# and 0allares, et al#admitted tat C+0 "ollowed te administrative iss$ances o" +CA wic we "o$nd to be constit$tionally

ob4ectionable in o$r +artial S$mmary 3$dgment in Civil Case ;o# ..>>A, te pertinent portions o" wic are$oted ere$nder:

=== == ===#

Te distrib$tion "or "ree o" te sares o" stock o" te C88F Companies is tainted wit te abovementionedconstit$tional in"irmities o" te +CA administrative iss$ances# 8n view o" te "oregoing, we cannot consider te provision o" +#%# ;o# 9?1 and +#%# ;o# 1G?@ and te implementing reg$lations iss$ed by te +CA as valid legal

basis to old tat assets ac$ired wit p$blic "$nds ave legitimately become private properties#

Te C88F Companies aving been ac$ired wit p$blic "$nds, te 1G C88Fowned *olding Companies and all teirassets, incl$ding te C88F 0lock o" S&C Sares, being p$blic in caracter, belong to te government# (ven grantingtat te 1G *olding Companies ac$ired te S&C Sares tro$g C88F advances and C+0 loans, said advancesand loans are still te obligations o" te said companies# Te incorporating e$ity or capital o" te 1G *olding

Companies, wic were allegedly $sed also "or te ac$isition o" te s$b4ect S&C sares, being wolly owned byte C88F Companies, likewise "orm part o" te cocon$t levy "$nds, and t$s belong to te government in tr$st "or te$ltimate bene"iciaries tereo", wic are all te cocon$t "armers#



=== === ===#

And, wit te above"indings o" te Co$rt, te C88F block o" S&C sares were s$bse$ently declared to be o" p$bliccaracter and so$ld be reconveyed to te government in tr$st "or cocon$t "armers# Te "oregoing "indingsnotwitstanding, a $estion now arises on weter te same laws can likewise serve as $ltimate basis "or a "indingtat te Co4$angco, et al# block o" S&C sares are also imb$ed wit p$blic caracter and so$ld rigt"$lly be

reconveyed to te government#

'n tis point, te Co$rt disagrees wit plainti"" tat reliance on said laws wo$ld s$""ice to prove tat de"endantsCo4$angco, et al#s ac$isition o" S&C sares o" stock was illegal as p$blic "$nds were $sed# For one, plainti""sreliance tereon as always ad re"erence only to te C88F block o" sares, and te Co$rt as already settled tesame by going over te laws and $oting related "indings in te +artial S$mmary 4$dgment rendered in Civil Case

;o# ..>>A# For anoter, te allegations o" plainti"" pertaining to te Co4$angco block representing twenty percent-.M/ o" te o$tstanding capital stock o" S&C stress de"endant Co4$angcos ac$isition by virt$e o" is positions asCie" (=ec$tive '""icer o" C+0, a memberdirector o" te +ilippine Cocon$t A$tority +CA/ <overning 0oard,and a director o" te C88F 'il &ills# T$s, re"erence to te said laws wo$ld not settle weter tere was ab$se on te

part o" de"endants Co4$angco, et al# o" teir positions to ac$ire te S&C sares# 9@B

0esides, in te 2esol$tion o" te Co$rt on plainti""s &otion "or +arial S$mmary 3$dgment 2e: Sares in San&ig$el Corporation 2egistered in te 2espective ;ames o" %e"endants (d$ardo &# Co4$angco, 3r# and tede"endant Co4$angco Companies/, te Co$rt already re4ected plainti""s re"erence to said laws# 8n "act, te Co$rtdeclined to grant plainti""s motion "or partial s$mmary 4$dgment beca$se it simply contended tat de"endant

Co4$angcos statements in is pleadings, wic plainti"" again o""ered in evidence erein, regarding te presentationo" a possible C88F witness as well as C+0 records can already be considered admissions o" de"endants e=cl$sive$se and mis$se o" cocon$t levy "$nds# 8n te said resol$tion, te Co$rt already reminded plainti"" tat te iss$es

cannot be resolved by plainti""s interpretation o" de"endant Co4$angcos statements in is brie"# T$s, te s$bstantial portion o" te 2esol$tion o" te Co$rt denying plainti""s motion "or partial s$mmary 4$dgment is again $oted "orempasis: 99B

De cannot agree wit te plainti""s contention tat te de"endants statements in is +reTrial 0rie" regarding te presentation o" a possible C88F witness as well as C+0 records, can already be considered as admissions o" te

de"endants e=cl$sive $se and mis$se o" cocon$t levy "$nds to ac$ire te s$b4ect S&C sares and de"endantCo4$angcos alleged taking advantage o" is positions to ac$ire te s$b4ect S&C sares# &oreover, in r$ling on amotion "or s$mmary 4$dgment, te co$rt so$ld take tat view o" te evidence most "avorable to te party againstwom it is directed, giving s$c party te bene"it o" all "avorable in"erences# 8nasm$c as tis iss$e cannot be

resolved merely "rom an interpretation o" te de"endants statements in is brie", te C+0 records m$st be prod$cedand te C88F witness m$st be eard to ens$re tat te concl$sions tat will be derived ave "act$al basis and aret$s, valid# 1..B



D*(2(F'2(, in view o" te "oregoing, te &otion "or +artial S$mmary 3$dgment dated 3$ly 11, -..> is ereby%(;8(% "or lack o" merit#

S' '2%(2(%#

(mpasis s$pplied/

(ven ass$ming tat, as plainti"" prayed "or, te Co$rt takes 4$dicial notice o" te evidence it o""ered wit respect tote Co4$angco block o" S&C sares o" stock, as contained in plainti""s mani"estation o" p$rposes, still its evidencedo not s$""ice to prove te material allegations in te complaint tat Co4$angco took advantage o" is positions inC+0 and +CA in order to ac$ire te said sares# As above$oted, te Co$rt, itsel", as already r$led, and ereby

stress tat C+0 records m$st be prod$ced and te C88F witness m$st be eard to ens$re tat te concl$sions tatwill be derived ave "act$al basis and are t$s, valid# 0esides, te Co$rt "o$nd tat tere are gen$ine "act$al iss$es

raised by de"endants tat need to be tresed o$t in a "$llblown trial, and wic plainti"" ad te b$rden tos$bstantially prove# T$s, te Co$rt o$tlined tese gen$ine "act$al iss$es as "ollows:

1/ Dat are te vario$s so$rces o" "$nds, wic de"endant Co4$angco and is companies claim tey $tili!ed toac$ire te disp$ted S&C saresI

-/ Deter or not s$c "$nds ac$ired "rom alleged vario$s so$rces can be considered cocon$t levy "$nds5

>/ Deter or not de"endant Co4$angco ad indeed served in te governing bodies o" +CA, C+0 andPor C88F 'il&ills at te time te "$nds $sed to p$rcase te S&C sares were obtained s$c tat e owed a "id$ciary d$ty torender an acco$nt to tese entities as well as to te cocon$t "armers5

G/ Deter or not de"endant Co4$angco took advantage o" is position andPor close ties wit ten +resident &arcosto obtain "avorable concessions or e=emptions "rom te $s$al "inancial re$irements "rom te lending banks andPor

cocolevy "$nded companies, in order to raise te "$nds to ac$ire te disp$ted S&C sares5 and i" so, wat aretese "avorable concessions or e=emptionsI1.1B

Answers to tese iss$es are not evident "rom te s$bmissions o" plainti"" and m$st tere"ore be proven tro$g te presentation o" relevant and competent evidence d$ring trial# A per$sal o" te s$b4ect &otion sows tat te plainti"" astily derived concl$sions "rom te de"endants statements in teir previo$s pleadings alto$g s$c concl$sions

were not s$pported by categorical "acts b$t only mere in"erences# === === ===# (mpasis s$pplied/ 1.-B



%espite te "oregoing prono$ncement o" te Co$rt, plainti"" did not present any oter evidence d$ring te trial o"tis case b$t instead made its mani"estation o" p$rposes, tat later served as its o""er o" evidence in te instant case,tat merely $sed te same evidence it ad already relied $pon wen it moved "or partial s$mmary 4$dgment over teCo4$angco block o" S&C sares# Altogeter, te Co$rt "inds te same ins$""icient to prove plainti""s allegations in

te complaint beca$se more tan 4$dicial notices, te "act$al iss$es re$ire te presentation o" admissible, competentand relevant evidence in accordance wit Sections > and G, 2$le 1-@ o" te 2$les on (vidence#

&oreover, te propriety o" taking 4$dicial notice o" plainti""s e=ibits is aptly $estioned by de"endants Co4$angco,et al# Certainly, te Co$rt can take 4$dicial notice o" laws pertaining to te cocon$t levy "$nds as well as decisions o" te S$preme Co$rt relative tereto, b$t taking 4$dicial notice does not mean tat te Co$rt wo$ld accord "$ll

probative val$e to tese e=ibits# 3$dicial notice is based $pon convenience and e=pediency "or it wo$ld certainly bes$per"l$o$s, inconvenient, and e=pensive bot to parties and te co$rt to re$ire proo", in te ordinary way, o" "actswic are already known to co$rts# *owever, a co$rt cannot take 4$dicial notice o" a "act$al matter in controversy#

Certainly, tere are gen$ine "act$al matters in te instant case, as abovecited, wic plainti"" o$gt to ave provenwit relevant and competent evidence oter tan te e=ibits it o""ered#

2e"erring to plainti""s ca$ses o" action against de"endants Co4$angco, et al#, te Co$rt "inds its evidence ins$""icientto prove tat te so$rce o" "$nds $sed to p$rcase S&C sares indeed came "rom cocon$t levy "$nds# 8n "act, tere isno direct link tat te loans obtained by de"endant Co4$angco, 3r# were te same money $sed to pay "or te S&C

sares# Te sceme alleged to ave been taken by de"endant Co4$angco, 3r# was not even establised by any papertrail or testimonial evidence tat wo$ld ave identi"ied te same# 'n acco$nt o" is positions in te C+0, +CA andte C88F 'il &ills, te Co$rt cannot concl$de tat e violated te "id$ciary obligations o" te positions e eld in teabsence o" proo" tat e was so act$ated and tat e ab$sed is positions#1.>B

8t was plain, indeed, tat Co4$angco, et al# ad tendered gen$ine iss$es tro$g teir responsive pleadings and did

not admit tat te ac$isition o" te Co4$angco block o" S&C sares ad been illegal, or ad been made wit p$blic"$nds# As a res$lt, te 2ep$blic needed to establis its allegations wit preponderant competent evidence, beca$se,as earlier stated, te "act tat property was ill gotten co$ld not be pres$med b$t m$st be s$bstantiated witcompetent proo" add$ced in proper 4$dicial proceedings# Tat te 2ep$blic opted not to add$ce competent evidence

tereon despite stern reminders and warnings "rom te Sandiganbayan to do so revealed tat te 2ep$blic did notave te competent evidence to prove its allegations against Co4$angco, et al#

Still, te 2ep$blic, relying on te -..1 olding in 2ep$blic v# C'C'F(%,1.GB pleads in its petition "or review<#2# ;o# [email protected]/ tat:

Dit all d$e respect, te *onorable Sandiganbayan "ailed to consider legal precepts and proced$ral principles

visvis te records o" te case sowing tat te "$nds or vario$s loans or advances $sed in te ac$isition o" tedisp$ted S&C Sares $ltimately came "rom te cocon$t levy "$nds#



As disc$ssed ere$nder, respondents own admissions in teir Answers and +reTrial 0rie"s con"irm tat te vario$sso$rces o" "$nds $tili!ed in te ac$isition o" te disp$ted S&C sares came "rom borrowings and advances "romte C+0 and te C88F 'il &ills#1.6B

Tereby, te 2ep$blic wo$ld ave te Sandiganbayan prono$nce te block o" S&C sares o" stock ac$ired byCo4$angco, et al#as illgotten wealt even wito$t te 2ep$blic "irst presenting preponderant evidence establising

tat s$c block ad been ac$ired illegally and wit te $se o" cocon$t levy "$nds#

Te Co$rt cannot eed te 2ep$blics pleas "or te "ollowing reasons:

To begin wit, it is notable tat te decision o" ;ovember -@, -..7 did not r$le on weter cocon$t levy "$nds were

p$blic "$nds or not# Te silence o" te Sandiganbayan on te matter was probably d$e to its not seeing te need "ors$c r$ling "ollowing its concl$sion tat te 2ep$blic ad not preponderantly establised te so$rce o" te "$nds$sed to pay te p$rcase price o" te concerned S&C sares, and weter te sares ad been ac$ired wit te $se

o" cocon$t levy "$nds#

Secondly, te r$ling in 2ep$blic v# C'C'F(%1.?B determined only weter certain stockolders o" te C+0

co$ld vote in te stockolders meeting tat ad been called# Te iss$e now be"ore te Co$rt co$ld not be controlled by te r$ling in 2ep$blic v# C'C'F(%, owever, "or even as tat r$ling determined te iss$e o" voting, te Co$rtwas "ortrigt eno$g abo$t not tereby preempting te Sandiganbayans decisions on te merits on illgotten wealt

in te several cases ten pending, incl$ding tis one, vi!:

8n making tis r$ling, we are in no way preempting te proceedings te Sandiganbayan may cond$ct or te "inal

4$dgment it may prom$lgate in Civil Case ;o# ..>>A, ..>>0 and ..>>F# '$r determination ere is merely prima"acie, and so$ld not bar te antigra"t co$rt "rom making a "inal r$ling, a"ter proper trial and earing, on te iss$esand prayers in te said civil cases, partic$larly in re"erence to te ownersip o" te s$b4ect sares#

De also lay down te caveat tat, in declaring te coco levy "$nds to be prima "acie p$blic in caracter, we are not

r$ling in any "inal manner on teir classi"ication weter tey are general or tr$st or special "$nds since s$cclassi"ication is not at iss$e ere# S$""ice it to say tat te p$blic nat$re o" te coco levy "$nds is decreed by teCo$rt only "or te p$rpose o" determining te rigt to vote te sares, pending te "inal o$tcome o" te said civilcases#

;eiter are we resolving in te present case te $estion o" weter te sares eld by 2espondent Co4$angco are,

as e claims, te res$lt o" private enterprise# Tis "act$al matter so$ld also be taken $p in te "inal decision in te



cited cases tat are pending in te co$rt a $o# Again, s$""ice it to say tat te only iss$e settled ere is te rigt o"+C<< to vote te se$estered sares, pending te "inal o$tcome o" said cases#

Tirdly, te 2ep$blics assertion tat cocon$t levy "$nds ad been $sed to so$rce te payment "or te Co4$angco block o" S&C sares was premised on its allegation tat te C+0 and te C88F 'il &ills were p$blic corporations#0$t te premise was grossly erroneo$s and overly pres$mpt$o$s, beca$se:

a/ Te "act o" te C+0 and te C88F 'il &ills being p$blic corporations or governmentowned or government

controlled corporations precisely remained controverted by Co4$angco, et al# in ligt o" te lack o" any competent totat e""ect being in te records5

b/ Co4$angco e=plicitly averred in paragrap -#.1#b/ o" is Answer tat te C+0 was a private corporation5 and

c/ Te 2ep$blic did not competently identi"y or establis wic ones o" te Co4$angco corporations ads$pposedly received advances "rom te C88F 'il &ills#

Fo$rtly, te 2ep$blic asserts tat te contested block o" sares ad been paid "or wit borrowings "rom te C+0and advances "rom te C88F 'il &ills, and tat s$c borrowings and advances ad been illegal beca$se te saresad not been p$rcased "or te bene"it o" te Cocon$t Farmers# To b$ttress its assertion, te 2ep$blic relied on te

admissions s$pposedly made in paragrap -#.1 o" Co4$angcos Answer in relation to paragrap G o" te 2ep$blicsAmended Complaint#

Te best way to know wat paragrap -#.1 o" Co4$angcos Answer admitted is to re"er to bot paragrap G o" teAmendedComplaint and paragrap -#.1 o" is Answer, wic are ere$nder $oted:

+aragrap G o" te Amended Complaint

G# %e"endant (%A2%' &# C'3A;<C', 32#, was <overnor o" Tarlac, Congressman o" ten First %istrict o"Tarlac and Ambassadoratarge in te &arcos Administration# *e was commissioned ie$tenant Colonel in te

+ilippine Air Force, 2eserve# %e"endant (d$ardo &# Co4$angco, 3r#, oterwise known as te Cocon$t ing wasead o" te cocon$t monopoly wic was instit$ted by %e"endant Ferdinand (# &arcos, by virt$e o" te +residential%ecrees# %e"endant (d$ardo (# Co4$angco, 3r#, wo was also one o" te closest associates o" te %e"endantFerdinand (# &arcos, eld te positions o" %irector o" te +ilippine Cocon$t A$tority, te nited Cocon$t &ills,



8nc#, +resident and 0oard %irector o" te nited Cocon$t +lanters 0ank, nited Cocon$t +lanters i"e Ass$ranceCorporation, and nited Cocon$t Cemicals, 8nc# *e was also te Cairman o" te 0oard and Cie" (=ec$tive'""icer and te controlling stockolder o" te San &ig$el Corporation# *e may be served s$mmons atG6 0alete%rive, K$e!on City or at 1>? (ast 9t Street, K$e!on City#

+aragrap -#.1 o" 2espondent Co4$angcos Answer

-#.1# *erein de"endant admits paragrap G only inso"ar as it alleges te "ollowing:

a/ Tat erein de"endant as eld te "ollowing positions in government: <overnor o" Tarlac, Congressman o" teten First %istrict o" Tarlac, Ambassadoratarge, ie$tenant Colonel in te +ilippine Air Force and %irector o"

te +ilippines Cocon$t A$tority5

b/ Tat e eld te "ollowing positions in private corporations: &ember o" te 0oard o" %irectors o" te nitedCocon$t 'il &ills, 8nc#5 +resident and member o" te 0oard o" %irectors o" te nited Cocon$t +lanters 0ank,nited Cocon$t +lanters i"e Ass$rance Corporation, and nited Cocon$t Cemicals, 8nc#5 Cairman o" te 0oard

and Cie" (=ec$tive o" San &ig$el Corporation5 and

c/ Tat e may be served wit s$mmons at 1>? (ast 9t Street, K$e!on City#

*erein de"endant speci"ically denies te rest o" te allegations o" paragrap G, incl$ding any insin$ation tatwatever association e may ave ad wit te late Ferdinand &arcos or 8melda &arcos as been in connectionwit any o" te acts or transactions alleged in te complaint or "or any $nlaw"$l p$rpose#

8t is basic in remedial law tat a de"endant in a civil case m$st apprise te trial co$rt and te adverse party o" te"acts alleged by te complaint tat e admits and o" te "acts alleged by te complaint tat e wises to place intocontention# Te de"endant does te "ormer eiter by stating in is answer tat tey are tr$e or by "ailing to properly

deny tem# Tere are two ways o" denying alleged "acts: one is by general denial, and te oter, by speci"ic denial#

1.7B

8n tis 4$risdiction, only a speci"ic denial sall be s$""icient to place into contention an alleged "act#1.@B nderSection 1.,1.9B2$le @ o" te 2$les o" Co$rt, a speci"ic denial o" an allegation o" te complaint may be made in anyo" tree ways, namely: a/ a de"endant speci"ies eac material allegation o" "act te tr$t o" wic e does not admit

and, wenever practicable, sets "ort te s$bstance o" te matters $pon wic e relies to s$pport is denial5 b/ ade"endant wo desires to deny only a part o" an averment speci"ies so m$c o" it as is tr$e and material and denies



only te remainder5 and c/ a de"endant wo is wito$t knowledge or in"ormation s$""icient to "orm a belie" as to tetr$t o" a material averment made in te complaint states so, wic as te e""ect o" a denial#

Te e=press $ali"ications contained in paragrap -#.1 o" Co4$angcos Answer constit$ted e""icient speci"ic denials

o" te averments o" paragrap - o" te 2ep$blics Amended Complaint $nder te "irst metod mentioned in Section1. o" 2$le @, s$pra# 8ndeed, te a"ore$oted paragraps o" te Amended Complaint and o" Co4$angcos Answer

indicate tat Co4$angco terebye=pressly $ali"ied is admission o" aving been te +resident and a %irector o" teC+0 wit te averment tat te C+0 was a private corporation5 tat is Answers allegation o" is being amember o" te 0oard o" %irectors o" te nited Cocon$t 'il &ills, 8nc# did not admit tat e was a member o" te0oard o" %irectors o" te C88F 'il &ills, beca$se te nited Cocon$t 'il &ills, 8nc# was not one o" te C88F 'il

&ills5 and tat is Answer nowere contained any admission or statement tat e ad eld te vario$s positions inte government or in te private corporations at te same time and in 19@>, te time wen te contested ac$isitiono" te S&C sares o" stock took place#

Dat te Co$rt stated in 0itong v# Co$rt o" Appeals Fi"t %ivision/11.B as to admissions is ill$minating:

Den taken in its totality, te Amended Answer to te Amended +etition, or even te Answer to te Amended+etition alone, clearly raises an iss$e as to te legal personality o" petitioner to "ile te complaint# (very alleged

admission is taken as an entirety o" te "act wic makes "or te one side wit te $ali"ications wic limit, modi"yor destroy its e""ect on te oter side# Te reason "or tis is, were part o" a statement o" a party is $sed against imas an admission, te co$rt so$ld weig any oter portion connected wit te statement, wic tends to ne$trali!e or

e=plain te portion wic is against interest#

8n oter words, wile te admission is admissible in evidence, its probative val$e is to be determined "rom te wolestatement and oters intimately related or connected terewit as an integrated $nit# Alto$g acts or "acts admitteddo not re$ire proo" and cannot be contradicted, owever, evidence ali$nde can be presented to sow tat teadmission was made tro$g palpable mistake# Te r$le is always in "avor o" liberality in constr$ction o" pleadings

so tat te real matter in disp$te may be s$bmitted to te 4$dgment o" te co$rt#

And, lastly, te 2ep$blic cites te "ollowing portions o" te 4oint +reTrial 0rie" o" Co4$angco, et al#,111B to wit:

8V#

+2'+'S(% (V8%(;C(

===

G#.1# === Ass$ming, owever, tat plainti"" presents evidence to s$pport its principal contentions, de"endants

evidence in reb$ttal wo$ld incl$de testimonial and doc$mentary evidence sowing: a/ te ownersip o" te sares o"



stock prior to teir ac$isition by respondents listed in Anne=es A and 0/5 b/ te consideration "or te ac$isition o" te sares o" stock by te persons or companies in wose names te sares o" stock are now registered5 and c/ teso$rce o" te "$nds $sed to pay te p$rcase price#

G#.-# *erein respondents intend to present te "ollowing evidence:

===

b# +roposed (=ibits , ,

2ecords o" te nited Cocon$t +lanters 0ank wic wo$ld sow borrowings o" te companies listed in Anne=es Aand 0, or companies a""iliated or associated wit tem, wic were $sed to so$rce payment o" te sares o" stock o"te San &ig$el Corporation s$b4ect o" tis case#

G#.># Ditnesses#

===

b/ A representative o" te nited Cocon$t +lanters 0ank wo will testi"y in regard te loans wic were $sed to

so$rce te payment o" te price o" S&C sares o" stock#

c/ A representative "rom te C88F 'il &ills wo will testi"y in regard te loans or credit advances wic were $sedto so$rce te payment o" te p$rcase price o" te S&C sares o" stock#

Te 2ep$blic insists tat te a"ore$oted portions o" te 4oint +reTrial 0rie" were Co4$angco, et al#s admission tat:

a/ Co4$angco ad received money "rom te C+0, a bank entr$sted by law wit te administration o" te cocon$tlevy "$nds5 and

b/ Co4$angco ad received more money "rom te C88F 'il &ills in wic part o" te C88F "$nds ad been placed,and tereby $sed te "$nds o" te C+0 and te C88F as capital to b$y is S&C sares#11-B

De disagree wit te 2ep$blics post$re#



Te statements "o$nd in te 4oint +reTrial 0rie" o" Co4$angco, et al# were noticeably written beneat te eading o"+roposed (vidence# S$c location indicated tat te statements were only being proposed, tat is, tey were not yetintended or o""ered as admission o" any "act stated terein# 8n oter words, te matters stated or set "ort tereinmigt or migt not be presented at all# Also, te te=t and tenor o" te statements e=pressly conditioned te proposal

on te 2ep$blic $ltimately presenting its evidence in te action# A"ter te 2ep$blic opted not to present its evidence,te condition did not transpire5 ence, te proposed admissions, ass$ming tat tey were tat, did not materiali!e#

'bvio$sly, too, te statements "o$nd $nder te eading o" +roposed (vidence in te 4oint +reTrial 0rie" wereincomplete and inade$ate on te important details o" te s$pposed transactions i#e#, alleged borrowings andadvances/# As s$c, tey co$ld not constit$te admissions tat te "$nds ad come "rom borrowings by Co4$angco, et

al# "rom te C+0 or ad been credit advances "rom te C88F 'il Companies# &oreover, te p$rpose "or presentingte records o" te C+0 and te representatives o" te C+0 and o" te still $nidenti"ied or $nnamed C88F 'il &illsas declared in te 4oint +reTrial 0rie" did not at all sow weter te C+0 andPor te $nidenti"ied or $nnamed

C88F 'il &ills were te only so$rces o" "$nding, or tat s$c instit$tions, ass$ming tem to be te so$rces o" te"$nding, ad been te only so$rces o" "$nding# S$c ambig$o$sness dis$ali"ied te statements "rom being relied$pon as admissions# 8t is "$ndamental tat any statement, to be considered as an admission "or p$rposes o" 4$dicial

proceedings, so$ld be de"inite, certain and $ne$ivocal511>B oterwise, te disp$ted "act will not get settled#

Anoter reason "or re4ecting te 2ep$blics post$re is tat te Sandiganbayan, as te trial co$rt, was in no position to

secondg$ess wat te nonpresented records o" te C+0 wo$ld sow as te borrowings made by te corporationslisted in Anne=es A and 0, or by te companies a""iliated or associated wit tem, tat were $sed to so$rce paymento" te sares o" stock o" te San &ig$el Corporation s$b4ect o" tis case, or wat te representative o" te C+0 orte representative o" te C88F 'il &ills wo$ld testi"y abo$t loans or credit advances $sed to so$rce te payment o"

te price o" S&C sares o" stock#

astly, te 2$les o" Co$rt as no r$le tat treats te statements "o$nd $nder te eading +roposed (vidence asadmissions binding Co4$angco, et al# 'n te contrary, te 2$les o" Co$rt as even disting$ised between admitted"acts and "acts proposed to be admitted d$ring te stage o" pretrial# Section ? b/,11GB 2$le 1@ o" te 2$les o"Co$rt, re$ires a +reTrial 0rie" to incl$de as$mmary o" admitted "acts and a proposed stip$lation o" "acts#

Complying wit te re$irement, te 4oint +reTrial 0rie" o" Co4$angco, et al# incl$ded te s$mmary o" admitted"acts in its paragrap >#.. o" its 8tem 888, separately and distinctly "rom te+roposed (vidence, to wit:

888#

S&&A2E 'F ;%8S+T(% FACTS

>#..# 0ased on te complaint and te answer, te ac$isition o" te San &ig$el sares by, and teir registration inte names o", te companies listed in Anne=es A and 0 may be deemed $ndisp$ted#

>#.1# All oter allegations in te complaint are disp$ted#116B



Te b$rden o" proo", according to Section 1, 2$le 1>1 o" te 2$les o" Co$rt, is te d$ty o" a party to presentevidence on te "acts in iss$e necessary to establis is claim or de"ense by te amo$nt o" evidence re$ired by law#*ere, te 2ep$blic, being te plainti"", was te party tat carried te b$rden o" proo"# Tat b$rden re$ired it todemonstrate tro$g competent evidence tat te respondents, as de"endants, ad p$rcased te S&C sares o"

stock wit te $se o" p$blic "$nds5 and tat te a""ected sares o" stock constit$ted illgotten wealt# Te 2ep$blicwas well apprised o" its b$rden o" proo", "irst tro$g te 4oinder o" iss$es made by te responsive pleadings o" tede"endants, incl$ding Co4$angco, et al# Te 2ep$blic was "$rter reminded tro$g te pretrial order and te2esol$tion denying its &otion "or S$mmary 3$dgment, s$pra, o" te d$ty to prove te "act$al allegations on ill

gotten wealt against Co4$angco, et al#, speci"ically te "ollowing disp$ted matters:

a/ Den te loans or advances were inc$rred5

b/ Te amo$nt o" te loans "rom te C+0 and o" te credit advances "rom te C88F 'il &ills, incl$ding tespeci"ic C88F 'il &ills involved5

c/ Te identities o" te borrowers, tat is, all o" te respondent corporations togeter, or separately5 and te amo$ntso" te borrowings5

d/ Te conditions attendant to te loans or advances, i" any5

e/ Te manner, "orm, and time o" te payments made to obel or to te Ayala <ro$p, weter by ceck, letter o"credit, or some oter "orm5 and

"/ Deter te loans were paid, and weter te advances were li$idated#

Dit te 2ep$blic noneteless coosing not to add$ce evidence proving te "act$al allegations, partic$larly tea"orementioned matters, and instead opting to p$rs$e its claims by &otion "or S$mmary 3$dgment, te

Sandiganbayan became completely deprived o" te means to know te necessary b$t cr$cial details o" te

transactions on te ac$isition o" te contested block o" sares# Te 2ep$blics "ail$re to add$ce evidence si"ted no b$rden to te respondents to establis anyting, "or it was basic tat te party wo asserts, not te party wo denies,m$st prove#11?B 8ndeed, in a civil action, te plainti"" as te b$rden o" pleading every essential "act and element o"

te ca$se o" action and proving tem by preponderance o" evidence# Tis means tat i" te de"endant merely denieseac o" te plainti""s allegations and neiter side prod$ces evidence on any s$c element, te plainti"" m$stnecessarily "ail in te action#117B T$s, te Sandiganbayan correctly dismissed Civil Case ;o# ..>>F "or "ail$re o"

te 2ep$blic to prove its case by preponderant evidence#



A s$mmary 4$dgment $nder 2$le >6 o" te 2$les o" Co$rt is a proced$ral tecni$e tat is proper only wen tere isno gen$ine iss$e as to te e=istence o" a material "act and te moving party is entitled to a 4$dgment as a matter o"law#11@B 8t is a metod intended to e=pedite or promptly dispose o" cases were te "acts appear $ndisp$ted andcertain "rom te pleadings, depositions, admissions, and a""idavits on record#119B pon a motion "or s$mmary

4$dgment te co$rts sole "$nction is to determine weter tere is an iss$e o" "act to be tried, and all do$bts as to tee=istence o" an iss$e o" "act m$st be resolved against te moving party# 8n oter words, a party wo moves "or

s$mmary 4$dgment as te b$rden o" demonstrating clearly te absence o" any gen$ine iss$e o" "act, and any do$btas to te e=istence o" s$c an iss$e is resolved against te movant# T$s, in r$ling on a motion "or s$mmary 4$dgment, te co$rt so$ld take tat view o" te evidence most "avorable to te party against wom it is directed,giving tat party te bene"it o" all "avorable in"erences#1-.B

Te term gen$ine iss$e as been de"ined as an iss$e o" "act tat calls "or te presentation o" evidence asdisting$ised "rom an iss$e tat is sam, "ictitio$s, contrived, set $p in bad "ait, and patently $ns$bstantial so as not

to constit$te a gen$ine iss$e "or trial# Te co$rt can determine tis on te basis o" te pleadings, admissions,doc$ments, a""idavits, and co$ntera""idavits s$bmitted by te parties to te co$rt# Dere te "acts pleaded by te parties are disp$ted or contested, proceedings "or a s$mmary 4$dgment cannot take te place o" a trial#1-1B Dell

settled is te r$le tat a party wo moves "or s$mmary 4$dgment as te b$rden o" demonstrating clearly teabsence o" any gen$ine iss$e o" "act#1--B pon tat partys so$lders rests te b$rden to prove te ca$se o" action,and to sow tat te de"ense is interposed solely "or te p$rpose o" delay# A"ter te b$rden as been discarged, tede"endant as te b$rden to sow "acts s$""icient to entitle im to de"end#1->B Any do$bt as to te propriety o" as$mmary 4$dgment sall be resolved against te moving party#

De need not stress tat te trial co$rts ave limited a$tority to render s$mmary 4$dgments and may do so only in

cases were no gen$ine iss$e as to any material "act clearly e=ists between te parties# Te r$le on s$mmary 4$dgment does not invest te trial co$rts wit 4$risdiction to try s$mmarily te "act$al iss$es $pon a""idavits, b$ta$tori!es s$mmary 4$dgment only wen it appears clear tat tere is no gen$ine iss$e as to any material "act#1-GB

8V#

2ep$blics b$rden to establis by preponderance o" evidence tat respondents S&C sares ad been illegallyac$ired wit cocon$tlevy "$nds was not discarged

&adame 3$stice Carpio &orales arg$es in er dissent tat alto$g te contested S&C sares co$ld be inescapably

treated as "r$its o" "$nds tat are prima "acie p$blic in caracter, Co4$angco, et al# abstained "rom presentingco$ntervailing evidence5 and tat wit te 2ep$blic aving sown tat te S&C sares came into "r$ition "rom cocolevy "$nds tat are prima "acie p$blic "$nds, Co4$angco, et al# ad to go "orward wit contradicting evidence, b$t didnot#

Te Co$rt disagrees# De cannot reverse te decision o" ;ovember -@, -..7 on te basis alone o" 4$dicial

prono$ncements to te e""ect tat te cocon$t levy "$nds were prima "acie p$blic "$nds,1-6B b$t wito$t any



competent evidence linking te ac$isition o" te block o" S&C sares by Co4$angco, et al# to te cocon$t levy"$nds#

V#

;o violation o" te %'S28 and

Single 0orrowers imit restrictions

Te 2ep$blics lack o" proo" on te so$rce o" te "$nds by wic Co4$angco, et al# ad ac$ired teir block o" S&Csares as made it si"t its position, tat it now s$ggests tat Co4$angco ad been enabled to obtain te loans by teiss$ance o" '8 9-? e=empting te C+0 "rom te %'S28 and te Single 0orrowers imit restrictions#

De re4ect te 2ep$blics s$ggestion#

Firstly, as earlier pointed o$t, te 2ep$blic add$ced no evidence on te signi"icant partic$lars o" te s$pposed loan,like te amo$nt, te act$al borrower, te approving o""icial, etc# 8t did not also establis weter or not te loans

were %'S281-?B or iss$ed in violation o" te Single 0orrowers imit# Secondly, te 2ep$blic co$ld not o$trigtlyass$me tat +resident &arcos ad iss$ed '8 9-? "or te p$rpose o" allowing te loans by te C+0 in "avor o"Co4$angco# Tere m$st be competent evidence to tat e""ect# And, "inally, te loans, ass$ming tat tey were o" a%'S28 nat$re or wito$t te bene"it o" te re$ired approvals or in e=cess o" te Single 0orrowers imit, wo$ld not

be void "or tat reason# 8nstead, te bank or te o""icers responsible "or te approval and grant o" te %'S28 loanwo$ld be s$b4ect only to sanctions $nder te law#1-7B

V8#

Co4$angco violated no "id$ciary d$ties

Te 2ep$blic invokes te "ollowing pertinent stat$tory provisions o" te Civil Code, to wit:

Article 1G66# Den any tr$stee, g$ardian or oter person olding a "id$ciary relationsip $ses tr$st "$nds "or te p$rcase o" property and ca$ses te conveyance to be made to im or to a tird person, a tr$st is establised byoperation o" law in "avor o" te person to wom te "$nds belong#

Article 1G6?# 8" property is ac$ired tro$g mistake or "ra$d, te person obtaining it s by "orce o" law, considered a

tr$stee o" an implied tr$st "or te bene"it o" te person "rom wom te property comes#



and te Corporation Code, as "ollows:

Section >1# iability o" directors, tr$stees or o""icers#%irectors or tr$stees wo will"$lly and knowingly vote "or orassent to patently $nlaw"$l acts o" te corporation or wo are g$ilty o" gross negligence or bad "ait in directing te

a""airs o" te corporation or ac$ire any personal or pec$niary interest in con"lict wit teir d$ty as s$c directors, or tr$stees sall be liable 4ointly and severally "or all damages res$lting tere"rom s$""ered by te corporation, its

stockolders or members and oter persons#

Den a director, tr$stee or o""icer attempts to ac$ire or ac$ires, in violation o" is d$ty, any interest adverse to tecorporation in respect o" any matter wic as been reposed in im in con"idence, as to wic e$ity imposes adisability $pon im to deal in is own beal", e sall be liable as a tr$stee "or te corporation and m$st acco$nt "orte pro"its wic oterwise wo$ld ave accr$ed to te corporation#

%id Co4$angco breac is "id$ciary d$ties as an o""icer and member o" te 0oard o" %irectors o" te C+0I %id isac$isition and olding o" te contested S&C sares come $nder a constr$ctive tr$st in "avor o" te 2ep$blicI

Te answers to tese $eries are in te negative#

Te conditions "or te application o" Articles 1G66 and 1G6? o" te Civil Code like te tr$stee $sing tr$st "$nds to

p$rcase, or a person ac$iring property tro$g mistake or "ra$d/, and Section >1 o" te Corporation Code like adirector or tr$stee will"$lly and knowingly voting "or or assenting to patently $nlaw"$l acts o" te corporation,

among oters/ re$ire "act$al "o$ndations to be "irst laid o$t in appropriate 4$dicial proceedings# *ence, concl$dingtat Co4$angco breaced "id$ciary d$ties as an o""icer and member o" te 0oard o" %irectors o" te C+0 wito$tcompetent evidence tereon wo$ld be $nwarranted and $nreasonable#

T$s, te Sandiganbayan co$ld not "airly "ind tat Co4$angco ad committed breac o" any "id$ciary d$ties as ano""icer and member o" te 0oard o" %irectors o" te C+0# For one, te Amended Complaint contained no clear"act$al allegation on wic to predicate te application o" Articles 1G66 and 1G6? o" te Civil Code, and Section >1

o" te Corporation Code# Alto$g te tr$st relationsip s$pposedly arose "rom Co4$angcos being an o""icer andmember o" te 0oard o" %irectors o" te C+0, te linkbetween tis alleged "act and te borrowings or advanceswas not establised# ;or was tere evidence on te loans or borrowings, teir amo$nts, te approving a$tority, etc#

As trial co$rt, te Sandiganbayan co$ld not pres$me is breac o" "id$ciary d$ties wito$t evidence sowing so, "or"ra$d or breac o" tr$st is never pres$med, b$t m$st be alleged and proved#1-@B

Te tr$st o" te 2ep$blic tat te "$nds were borrowed or lent migt even precl$de any conse$ent tr$stimplication# 8n a contract o" loan, one o" te parties creditor/ delivers money or oter cons$mable ting to anoterdebtor/ on te condition tat te same amo$nt o" te same kind and $ality sall be paid#1-9B 'wing to tecons$mable nat$re o" te ting loaned, te res$lting d$ty o" te borrower in a contract o" loan is to pay, not to ret$rn,



to te creditor or lender te very ting loaned# Tis e=plains wy te ownersip o" te ting loaned is trans"erred tote debtor $pon per"ection o" te contract#1>.B 'wnersip o" te ting loaned aving trans"erred, te debtor en4oysall te rigts con"erred to an owner o" property, incl$ding te rigt to $se and en4oy 4$s $tendi/, to cons$me teting by its $se 4$s ab$tendi/, and to dispose 4$s disponendi/, s$b4ect to s$c limitations as may be provided by

law#1>1B (vidently, te res$lting relationsip between a creditor and debtor in a contract o" loan cannot becaracteri!ed as "id$ciary#1>-B

To say tat a relationsip is "id$ciary wen e=isting laws do not provide "or s$c re$ires evidence tat con"idenceis reposed by one party in anoter wo e=ercises dominion and in"l$ence# Absent any special "acts andcirc$mstances proving a iger degree o" responsibility, any dealings between a lender and borrower are not

"id$ciary in nat$re#1>>B Tis e=plains wy, "or e=ample, a tr$st receipt transaction is not classi"ied as a simple loanand is caracteri!ed as "id$ciary, beca$se te Tr$st 2eceipts aw +#%# ;o# 116/ p$nises te disonesty and ab$seo" con"idence in te andling o" money or goods to te pre4$dice o" anoter regardless o" weter te latter is te

owner#1>GB

0ased on te "oregoing, a debtor can appropriate te ting loaned wito$t any responsibility or d$ty to is creditor

to ret$rn te very ting tat was loaned or to report ow te proceeds were $sed# ;or can e be compelled to ret$rnte proceeds and "r$its o" te loan, "or tere is noting $nder o$r laws tat compel a debtor in a contract o" loan todo so# As owner, te debtor can dispose o" te ting borrowed and is act will not be considered misappropriation o"

te ting#1>6B Te only liability on is part is to pay te loan togeter wit te interest tat is eiter stip$lated or provided $nder e=isting laws#

D*(2(F'2(, te Co$rt dismisses te petitions "or certiorari in <#2# ;os# 1??@69 and 1?9.->5 denies te petition"or review on certiorari in <#2# ;o# [email protected] and, accordingly, a""irms te decision prom$lgated by te

Sandiganbayan on ;ovember -@, -..7 in Civil Case ;o# ..>>F#

Te Co$rt declares tat te block o" sares in San &ig$el Corporation in te names o" respondents Co4$angco, et al#

s$b4ect o" Civil Case ;o# ..>>F is te e=cl$sive property o" Co4$angco, et al# as registered owners#

Accordingly, te li"ting and setting aside o" te Drits o" Se$estration a""ecting said block o" sares namely: Drit

o" Se$estration ;o# @?..?- dated April -1, 19@?5 Drit o" Se$estration ;o# @?..?9 dated April --, 19@?5 Drit o"Se$estration ;o# @?..@6 dated &ay 9, 19@?5 Drit o" Se$estration ;o# @?..96 dated &ay 1?, 19@?5 Drit o"Se$estration ;o# @?..9? dated &ay 1?, 19@?5 Drit o" Se$estration ;o# @?..97 dated &ay 1?, 19@?5 Drit o"

Se$estration ;o# @?..9@ dated &ay 1?, 19@?5 Drit o" Se$estration ;o# @?..G- dated April @, 19@?5 and Drit o"Se$estration ;o# @7.-1@ dated &ay -7, 19@7/ are a""irmed5 and te annotation o" te conditions prescribed in te2esol$tions prom$lgated on 'ctober @, -..> and 3$ne -G, -..6 is cancelled#

S' '2%(2(%#



A8(% 0A;8;< <#2# ;o# 1>>179

C'2+'2AT8';,

+etitioner, +resent:K8S&08;<, 3#, Cairperson,

vers$s CA2+8' &'2A(S,

T8;<A,

V(ASC', 32#, and

C*8C';AA28',R 33#

8& S8' DA;, &(T2'+'8TA;

0A; A;% T2ST C'#, and +rom$lgated:

+2'%C(2S 0A;,

2espondents# &arc -7, -..@

==

% ( C 8 S 8 ' ;

V(ASC', 32#, 3#:

To ingratiate temselves to teir val$ed depositors, some banks at times bend over backwards tat tey $nwittinglye=pose temselves to great risks#

Te Case

Tis +etition "or 2eview on Certiorari $nder 2$le G6 seeks to reverse te Co$rt o" Appeals CAs/ %ecision

prom$lgated on&arc 1@, 199@1B in CA<#2# CV ;o# G?-9. entitled im Sio Dan v# Allied 0anking Corporation,et al# Te CA %ecision modi"ied te %ecision dated ;ovember 16, 199>-B o" te 2egional Trial Co$rt 2TC/,0ranc ?> in &akati City rendered in Civil Case ;o# ?767#

Te Facts

Te "acts as "o$nd by te 2TC and a""irmed by te CA are as "ollows:



'n ;ovember 1G, 19@>, respondent im Sio Dan deposited wit petitioner Allied 0anking Corporation Allied/ atits K$intin +aredes 0ranc in &anila a money market placement o" ++ 1,16-,697#>6 "or a term o" >1 days tomat$re on %ecember 16, 19@>,>Bas evidenced by +rovisional 2eceipt ;o# 1>6? dated ;ovember 1G, 19@>#GB

'n %ecember 6, 19@>, a person claiming to be im Sio Dan called $p Cristina So, an o""icer o" Allied, andinstr$cted te latter to preterminate im Sio Dans money market placement, to iss$e a managers ceck representing

te proceeds o" te placement, and to give te ceck to one %ebora %ee Santos wo wo$ld pick $p te ceck#6Bim Sio Dan described te appearance o" Santos so tat So co$ld easily identi"y er#?B

ater, Santos arrived at te bank and signed te application "orm "or a managers ceck to be iss$ed#7B Te bankiss$ed &anagers Ceck ;o# .>6??9 "or ++ 1,16@,?G@#G9, representing te proceeds o" im Sio Dans moneymarket placement in te name o" im Sio Dan, as payee#@B Te ceck was crosscecked For +ayees Acco$nt 'nly

and given to Santos#9B

Terea"ter, te managers ceck was deposited in te acco$nt o" Filipinas Cement Corporation FCC/ at respondent&etropolitan 0ank and Tr$st Co# &etrobank/,1.B wit te "orged signat$re o" im Sio Dan as indorser#11B

(arlier, on September -1, 19@>, FCC ad deposited a money market placement "or ++ - million wit respondent+rod$cers 0ank#Santos was te money market trader assigned to andle FCCs acco$nt#1-B S$c deposit isevidenced by '""icial 2eceipt ;o# >176?@1>B and a etter dated September -1, 19@> o" Santos addressed to Angie

a!o o" FCC, acknowledging receipt o" te placement#1GB Te placement mat$red on 'ctober -6, 19@> and was

rolledover $ntil %ecember 6, 19@> as evidenced by a etter dated 'ctober -6, 19@>#16B Den te placementmat$red, FCC demanded te payment o" te proceeds o" te placement#1?B 'n%ecember 6, 19@>, te same datetat So received te pone call instr$cting er to preterminate im Sio Dans placement, te managers ceck in te

name o" im Sio Dan was deposited in te acco$nt o" FCC, p$rportedly representing te proceeds o" FCCs moneymarket placement wit +rod$cers 0ank#17B 8n oter words, te Allied ceck was deposited wit &etrobank in teacco$nt o" FCC as +rod$cers 0anks payment o" its obligation to FCC#

To clear te ceck and in compliance wit te re$irements o" te +ilippine Clearing *o$se Corporation +C*C/2$les and 2eg$lations, &etrobank stamped a g$aranty on te ceck, wic reads: All prior endorsements andPor

lack o" endorsement g$aranteed#1@B

Te ceck was sent to Allied tro$g te +C*C# pon te presentment o" te ceck, Allied "$nded te ceck evenwito$t cecking te a$tenticity o" im Sio Dans p$rported indorsement# T$s, te amo$nt on te "ace o" tececk was credited to te acco$nt o" FCC#19B



'n %ecember 9, 19@>, im Sio Dan deposited wit Allied a second money market placement to mat$re on 3an$ary9, 19@G#-.B

'n %ecember 1G, 19@>, $pon te mat$rity date o" te "irst money market placement, im Sio Dan went to Allied towitdraw it#-1BSe was ten in"ormed tat te placement ad been preterminated $pon er instr$ctions# Sedenied giving any instr$ctions and receiving te proceeds tereo"# Se desisted "rom "$rter complaints wen se

was ass$red by te banks manager tat er money wo$ld be recovered#--B

Den im Sio Dans second placement mat$red on 3an$ary 9, 19@G, So called im Sio Dan to ask "or te lattersinstr$ctions on te second placement# im Sio Dan instr$cted So to rollover te placement "or anoter >. days#->B'n 3an$ary -G, 19@G, im Sio Dan, reali!ing tat te promise tat er money wo$ld be recovered wo$ld notmateriali!e, sent a demand letter to Allied asking "or te payment o" te "irst placement#-GB Allied re"$sed to pay

im Sio Dan, claiming tat te latter ad a$tori!ed te pretermination o" te placement and its s$bse$ent releaseto Santos#-6B

Conse$ently, im Sio Dan "iled wit te 2TC a Complaint dated Febr$ary 1>, 19@G-?B docketed as Civil Case ;o# ?767 against Allied to recover te proceeds o" er "irst money market placement# Sometime in Febr$ary 19@G,se witdrew er second placement "rom Allied#

Allied "iled a tird party complaint-7B against &etrobank and Santos# 8n t$rn, &etrobank "iled a "o$rt party

complaint-@B against FCC# FCC "or its part "iled a "i"t party complaint-9B against +rod$cers 0ank# S$mmonses

were d$ly served $pon all te parties e=cept "or Santos, wo was no longer connected wit +rod$cers 0ank#>.B

'n &ay 16, 19@G, or more tan si= ?/ monts a"ter "$nding te ceck, Allied in"ormed &etrobank tat tesignat$re on te ceck was "orged#>1B T$s, &etrobank witeld te amo$nt represented by te ceck "rom FCC#ater on, &etrobank agreed to release te amo$nt to FCC a"ter te latter e=ec$ted an ndertaking, promising to

indemni"y &etrobank in case it was made to reimb$rse te amo$nt#>-B

im Sio Dan terea"ter "iled an amended complaint to incl$de &etrobank as a partyde"endant, along wit Allied#>>B Te 2TC admitted te amended complaint despite te opposition o" &etrobank#>GB Conse$ently, Allieds tird party complaint against &etrobank was converted into a crossclaim and te latters "o$rt party complaint againstFCC was converted into a tird party complaint#>6B

A"ter trial, te 2TC iss$ed its %ecision, olding as "ollows:



D*(2(F'2(, 4$dgment is ereby rendered as "ollows:

1# 'rdering de"endant Allied 0anking Corporation to pay plainti"" te amo$nt o" +1,16@,?G@#G9 pl$s 1-M interest per ann$m "rom &arc 1?, 19@G$ntil "$lly paid5

-# 'rdering de"endant Allied 0ank to pay plainti"" te amo$nt o" +1..,...#.. by way o" moral damages5

># 'rdering de"endant Allied 0ank to pay plainti"" te amo$nt o" +17>,79-#-. by way o" attorneys "ees5 and,

G# 'rdering de"endant Allied 0ank to pay te costs o" s$it#

%e"endant Allied 0anks crossclaim against de"endant &etrobank is %8S&8SS(%#

ikewise de"endant &etrobanks tirdparty complaint as against Filipinas Cement Corporation is %8S&8SS(%#

Filipinas Cement Corporations "o$rtparty complaint against +rod$cers 0ank is also %8S&8SS(%#

S' '2%(2(%#>?B

Te %ecision o" te Co$rt o" Appeals

Allied appealed to te CA, wic in t$rn iss$ed te assailed %ecision on &arc 1@, 199@, modi"ying te 2TC

%ecision, as "ollows:

D*(2(F'2(, premises considered, te decision appealed "rom is &'%8F8(%# 3$dgment is rendered ordering and

sentencing de"endantappellant Allied 0anking Corporation to pay si=ty ?.M/ percent and de"endantappellee&etropolitan 0ank and Tr$st Company "orty G.M/ o" te amo$nt o" +1,16@,?G@#G9 pl$s 1-M interest per ann$m"rom &arc 1?, 19@G $ntil "$lly paid# Te moral damages, attorneys "ees and costs o" s$it ad4$dged sall likewise be

paid by de"endantappellant Allied 0anking Corporation and de"endantappellee &etropolitan 0ank and Tr$stCompany in te same proportion o" ?.G.# (=cept as t$s modi"ied, te decision appealed "rom is AFF82&(%#

S' '2%(2(%#>7B



*ence, Allied "iled te instant petition#

Te 8ss$es

Allied raises te "ollowing iss$es "or o$r consideration:

Te *onorable Co$rt o" Appeals erred in olding tat im Sio Dan did not a$tori!e AlliedB to preterminate te

initial placement and to deliver te ceck to %ebora Santos#

Te *onorable Co$rt o" Appeals erred in absolving +rod$cers 0ank o" any liability "or te reimb$rsement o"amo$nt ad4$dged demandable#

Te *onorable Co$rt o" Appeals erred in olding AlliedB liable to te e=tent o" ?.M o" amo$nt ad4$dgeddemandable in clear disregard to te $ltimate liability o" &etrobank as g$arantor o" all endorsement on te ceck, it being te collecting bank#>@B

Te petition is partly meritorio$s#

A K$estion o" Fact

Allied $estions te "inding o" bot te trial and appellate co$rts tat Allied was not a$tori!ed to release te

proceeds o" im Sio Dans money market placement to Santos# Allied clearly raises a $estion o" "act# Den te CAa""irms te "indings o" "act o" te 2TC, te "act$al "indings o" bot co$rts are binding on tis Co$rt#>9B

De also agree wit te CA wen it said tat it co$ld not dist$rb te trial co$rts "indings on te credibility o" witnessSo inasm$c as it was te trial co$rt tat eard te witness and ad te opport$nity to observe closely erdeportment and manner o" testi"ying#nless te trial co$rt ad plainly overlooked "acts o" s$bstance or val$e, wic,



i" considered, migt a""ect te res$lt o" te case,G.Bwe "ind it best to de"er to te trial co$rt on matters pertaining tocredibility o" witnesses#

Additionally, tis Co$rt as eld tat te matter o" negligence is also a "act$al $estion#G1B T$s, te "inding o" te2TC, a""irmed by te CA, tat te respective parties were negligent in te e=ercise o" teir obligations is alsoconcl$sive $pon tis Co$rt#

Te iability o" te +arties

As to te liability o" te parties, we "ind tat Allied is liable to im Sio Dan# F$ndamental and "amiliar is te

doctrine tat te relationsip between a bank and a client is one o" debtorcreditor#

Articles 196> and 19@. o" te Civil Code provide:

Art# 196># A person wo receives a loan o" money or any oter "$ngible ting ac$ires te ownersip tereo", and is

bo$nd to pay to te creditor an e$al amo$nt o" te same kind and $ality#

Art# 19@.# Fi=ed, savings, and c$rrent deposits o" money in banks and similar instit$tions sall be governed by te provisions concerning simple loan#

T$s, we ave r$led in a line o" cases tat a bank deposit is in te nat$re o" a simple loan or m$t$$m#G-B &ores$ccinctly, inCitibank, ;#A# Formerly First ;ational City 0ank/ v# Sabeniano, tis Co$rt r$led tat a money market placement is a simple loan or m$t$$m#G>B F$rter, we de"ined a money market in Ceb$ 8nternational Finance

Corporation v# Co$rt o" Appeals, as "ollows:

AB money market is a market dealing in standardi!ed sortterm credit instr$ments involving large amo$nts/ werelenders and borrowers do not deal directly wit eac oter b$t tro$g a middle man or dealer in open market# 8n amoney market transaction, te investor is a lender wo loans is money to a borrower tro$g a middleman or

dealer#

8n te case at bar, te money market transaction between te petitioner and te private respondent is in te nat$re o"

a loan#GGB



im Sio Dan, as creditor o" te bank "or er money market placement, is entitled to payment $pon er re$est, or$pon mat$rity o" te placement, or $ntil te bank is released "rom its obligation as debtor# ntil any s$c event, teobligation o" Allied to im Sio Dan remains $ne=ting$ised#

Art# 1->1 o" te Civil Code en$merates te instances wen obligations are considered e=ting$ised, t$s:

Art# 1->1# 'bligations are e=ting$ised:

1/ 0y payment or per"ormance5

-/ 0y te loss o" te ting d$e5

>/ 0y te condonation or remission o" te debt5

G/ 0y te con"$sion or merger o" te rigts o" creditor and debtor5

6/ 0y compensation5

?/ 0y novation#

'ter ca$ses o" e=ting$isment o" obligations, s$c as ann$lment, rescission, "$l"illment o" a resol$tory condition,and prescription, are governed elsewere in tis Code# (mpasis s$pplied#/

From te "act$al "indings o" te trial and appellate co$rts tat im Sio Dan did not a$tori!e te release o" ermoney market placement to Santos and te bank ad been negligent in so doing, tere is no $estion tat teobligation o" Allied to pay im Sio Dan ad not been e=ting$ised# Art# 1-G. o" te Code states tat payment sall

be made to te person in wose "avor te obligation as been constit$ted, or is s$ccessor in interest, or any persona$tori!ed to receive it# As commented by Art$ro Tolentino:

+ayment made by te debtor to a wrong party does not e=ting$is te obligation as to te creditor, i" tere is no "a$ltor negligence wic can be imp$ted to te latter# (ven wen te debtor acted in $tmost good "ait and by mistake asto te person o" is creditor, or tro$g error ind$ced by te "ra$d o" a tird person, te payment to one wo is not in

"act is creditor, or a$tori!ed to receive s$c payment, is void, e=cept as provided in Article 1-G1# S$c paymentdoes not pre4$dice te creditor, and accr$al o" interest is not s$spended by it#G6B (mpasis s$pplied#/



Since tere was no e""ective payment o" im Sio Dans money market placement, te bank still as an obligation to pay er at si= percent ?M/ interest "rom &arc 1?, 19@G $ntil te payment tereo"#

De cannot, owever, say o$trigt tat Allied is solely liable to im Sio Dan#

Allied claims tat &etrobank is te pro=imate ca$se o" te loss o" im Sio Dans money# 8t points o$t tat&etrobank g$aranteed all prior indorsements inscribed on te managers ceck, and wito$t &etrobanks g$arantee,te present controversy wo$ld never ave occ$rred# According to Allied:

Fail$re on te part o" te collecting bank to ens$re tat te proceeds o" te ceck is paid to te proper party is, aside"rom being an e""icient intervening ca$se, also te last negligent act, = = = contrib$tory to te in4$ry ca$sed in te

present case, wic tereby leads to te concl$sion tat it is te collecting bank, &etrobank tat is te pro=imateca$se o" te alleged loss o" te plainti"" in te instant case#G?B

De are not pers$aded#

+ro=imate ca$se is tat ca$se, wic, in nat$ral and contin$o$s se$ence, $nbroken by any e""icient interveningca$se, prod$ces te in4$ry and wito$t wic te res$lt wo$ld not ave occ$rred#G7B T$s, tere is an e""icients$pervening event i" te event breaks te se$ence leading "rom te ca$se to te $ltimate res$lt# To determine te

pro=imate ca$se o" a controversy, te $estion tat needs to be asked is: 8" te event did not appen, wo$ld tein4$ry ave res$ltedI 8" te answer is ;', ten te event is te pro=imate ca$se#

8n te instant case, Allied avers tat even i" it ad not iss$ed te ceck payment, te money represented by te ceck wo$ld still be lost beca$se o" &etrobanks negligence in indorsing te ceck wito$t veri"ying te gen$ineness o" teindorsement tereon#

Section ?? in relation to Sec# ?6 o" te ;egotiable 8nstr$ments aw provides:

Section ??# iability o" general indorser#(very indorser wo indorses wito$t $ali"ication, warrants to all

s$bse$ent olders in d$e co$rse5

a/ Te matters and tings mentioned in s$bdivisions a/, b/ and c/ o" te ne=t preceding section5 and



b/ Tat te instr$ment is at te time o" is indorsement valid and s$bsisting5

And in addition, e engages tat on d$e presentment, it sall be accepted or paid, or bot, as te case may beaccording to its tenor, and tat i" it be disonored, and te necessary proceedings on disonor be d$ly taken, e will pay te amo$nt tereo" to te older, or to any s$bse$ent indorser wo may be compelled to pay it#

Section ?6# Darranty were negotiation by delivery, so "ort#(very person negotiating an instr$ment by delivery or by a $ali"ied indorsement, warrants:

a/ Tat te instr$ment is gen$ine and in all respects wat it p$rports to be5

b/ Tat e as a good title o" it5

c/ Tat all prior parties ad capacity to contract5

d/ Tat e as no knowledge o" any "act wic wo$ld impair te validity o" te instr$ment or render it val$eless#

0$t wen te negotiation is by delivery only, te warranty e=tends in "avor o" no older oter tan te immediatetrans"eree#

Te provisions o" s$bdivision c/ o" tis section do not apply to persons negotiating p$blic or corporation sec$rities,oter tan bills and notes#(mpasis s$pplied#/

Te warranty tat te instr$ment is gen$ine and in all respects wat it p$rports to be covers all te de"ects in te

instr$ment a""ecting te validity tereo", incl$ding a "orged indorsement# T$s, te last indorser will be liable "or teamo$nt indicated in te negotiable instr$ment even i" a previo$s indorsement was "orged# De eld in a line o" casestat a collecting bank wic indorses a ceck bearing a "orged indorsement and presents it to te drawee bank

g$arantees all prior indorsements, incl$ding te "orged indorsement itsel", and $ltimately so$ld be eld liabletere"or#G@B

*owever, tis general r$le is s$b4ect to e=ceptions# 'ne s$c e=ception is wen te iss$ance o" te ceck itsel" wasattended wit negligence# T$s, in te cases cited above were te collecting bank is generally eld liable, in two o"te cases were te cecks were negligently iss$ed, tis Co$rt eld te instit$tion iss$ing te ceck 4$st as liable as

or more liable tan te collecting bank#



8n isolated cases were te cecks were deposited in an acco$nt oter tan tat o" te payees on te strengt o""orged indorsements, we eld te collecting bank solely liable "or te wole amo$nt o" te cecks involved "oraving indorsed te same# 8n2ep$blic 0ank v# (brada,G9B te ceck was properly iss$ed by te 0$rea$ o" Treas$ry#Dile in 0anco de 'ro Savings and &ortgage 0ank 0anco de 'ro/ v# ($itable 0anking Corporation,6.B 0anco

de 'ro admittedly iss$ed te cecks in te name o" te correct payees# And in Traders 2oyal 0ank v# 2adio+ilippines ;etwork, 8nc#,61B te cecks were iss$ed at te re$est o" 2adio +ilippines ;etwork, 8nc# "rom

Traders 2oyal 0ank#

*owever, in 0ank o" te +ilippine 8slands v# Co$rt o" Appeals, we said tat te drawee bank is liable "or ?.M o"te amo$nt on te "ace o" te negotiable instr$ment and te collecting bank is liable "or G.M# De also noted te

relative negligence e=ibited by two banks, to wit:

0ot banks were negligent in te selection and s$pervision o" teir employees res$lting in te encasment o" te"orged cecks by an impostor# 0ot banks were not able to overcome te pres$mption o" negligence in te selectionand s$pervision o" teir employees# 8t was te gross negligence o" te employees o" bot banks wic res$lted in te

"ra$d and te s$bse$ent loss# Dile it is tr$e tat petitioner 0+8s negligence may ave been te pro=imate ca$se o"

te loss, respondent C0Cs negligence contrib$ted e$ally to te s$ccess o" te impostor in encasing te proceedso" te "orged cecks# nder tese circ$mstances, we apply Article -179 o" te Civil Code to te e""ect tat wilerespondent C0C may recover its losses, s$c losses are s$b4ect to mitigation by te co$rts# See +oeni=

Constr$ction 8nc# v# 8ntermediate Appellate Co$rts, 1G@ SC2A >6> 19@7B/#

Considering te comparative negligence o" te two -/ banks, we r$le tat te demands o" s$bstantial 4$stice aresatis"ied by allocating te loss o" +-,G1>,-16#1? and te costs o" te arbitration proceeding in te amo$nt o"+7,-6.#.. and te cost o" litigation on a ?.G. ratio#6-B

Similarly, we r$led in Associated 0ank v# Co$rt o" Appeals tat te iss$ing instit$tion and te collecting bank so$lde$ally sare te liability "or te loss o" amo$nt represented by te cecks concerned d$e to te negligence o" bot

parties:

Te Co$rt "inds as reasonable, te proportionate saring o" "i"ty percent"i"ty percent 6.M6.M/# %$e to te

negligence o" te +rovince o" Tarlac in releasing te cecks to an $na$tori!ed person Fa$sto +angilinan/, in

allowing te retired ospital casier to receive te cecks "or te payee ospital "or a period close to tree years andin not properly ascertaining wy te retired ospital casier was collecting cecks "or te payee ospital in addition

to te ospitals real casier, respondent +rovince contrib$ted to te loss amo$nting to +-.>,>..#.. and sall beliable to te +;0 "or "i"ty 6.M/ percent tereo"# 8n e""ect, te +rovince o" Tarlac can only recover "i"ty percent6.M/ o" +-.>,>..#.. "rom +;0#



Te collecting bank, Associated 0ank, sall be liable to +;0 "or "i"ty 6.M/ percent o" +-.>,>..#..# 8t is liable onits warranties as indorser o" te cecks wic were deposited by Fa$sto +angilinan, aving g$aranteed tegen$ineness o" all prior indorsements, incl$ding tat o" te cie" o" te payee ospital, %r# Adena Canlas# Associated0ank was also remiss in its d$ty to ascertain te gen$ineness o" te payees indorsement#6>B

A reading o" te "acts o" te two immediately preceding cases wo$ld reveal tat te reason wy te bank or

instit$tion wic iss$ed te ceck was eld partially liable "or te amo$nt o" te ceck was beca$se o" tenegligence o" tese parties wic res$lted in te iss$ance o" te cecks#

8n te instant case, te trial co$rt correctly "o$nd Allied negligent in iss$ing te managers ceck and in transmittingit to Santoswito$t even a written a$tori!ation#6GB 8n "act, Allied did not even ask "or te certi"icate evidencing temoney market placement or call $p im Sio Dan at er residence or o""ice to con"irm er instr$ctions# 0ot actions

co$ld ave prevented te wole "ra$d$lent transaction "rom $n"olding# Allieds negligence m$st be considered as te pro=imate ca$se o" te res$lting loss#

To reiterate, ad Allied e=ercised te diligence d$e "rom a "inancial instit$tion, te ceck wo$ld not ave beeniss$ed and no loss o" "$nds wo$ld ave res$lted# 8n "act, tere wo$ld ave been no iss$ance o" indorsement adtere been no ceck in te "irst place#

Te liability o" Allied, owever, is conc$rrent wit tat o" &etrobank as te last indorser o" te ceck# Den

&etrobank indorsed te ceck in compliance wit te +C*C 2$les and 2eg$lations66B wito$t veri"ying tea$tenticity o" im Sio Dans indorsement and wen it accepted te ceck despite te "act tat it was crosscecked payable to payees acco$nt only,6?B its negligent and cavalier indorsement contrib$ted to te easier release o" imSio Dans money and perpet$ation o" te "ra$d# <iven te relative participation o" Allied and &etrobank to te

instant case, bot banks cannot be ad4$dged as e$ally liable# *ence, te ?.:G. ratio o" te liabilities o" Allied and&etrobank, as r$led by te CA, m$st be $peld#

FCC, aving no participation in te negotiation o" te ceck and in te "orgery o" im Sio Dans indorsement, canraise te real de"ense o" "orgery as against bot banks#67B

As to +rod$cers 0ank, Allied 0anks arg$ment tat +rod$cers 0ank m$st be eld liable as employer o" Santos $nderArt# -1@. o" te Civil Code is erroneo$s# Art# -1@. pertains to te vicario$s liability o" an employer "or $asidelicts

tat an employee as committed# S$c provision o" law does not apply to civil liability arising "rom delict#

'ne also cannot apply te principle o" s$bsidiary liability in Art# 1.> o" te 2evised +enal Code in te instant case#S$c liability on te part o" te employer "or te civil aspect o" te criminal act o" te employee is based on teconviction o" te employee "or a crime# *ere, tere as been no conviction "or any crime#



As to te claim tat tere was $n4$st enricment on te part o" +rod$cers 0ank, te same is correct# Allied correctlyclaims in its petition tat +rod$cers 0ank so$ld reimb$rse Allied "or watever 4$dgment tat may be renderedagainst it p$rs$ant to Art# -- o" te Civil Code, wic provides: (very person wo tro$g an act o" per"ormance byanoter, or any oter means, ac$ires or comes into possession o" someting at te e=pense o" te latter wito$t 4$st

ca$se or legal gro$nd, sall ret$rn te same to im#

Te above provision o" law was clari"ied in 2eyes v# im, were we r$led tat tBere is $n4$st enricment wen a person $n4$stly retains a bene"it to te loss o" anoter, or wen a person retains money or property o" anoter againstte "$ndamental principles o" 4$stice, e$ity and good conscience#6@B

8n Tamio v# Ticson, we "$rter clari"ied te principle o" $n4$st enricment, t$s: nder Article -- o" te Civil Code,tere is $n4$st enricment wen 1/ a person is $n4$stly bene"ited, and -/ s$c bene"it is derived at te e=pense o"

or wit damages to anoter#69B

8n te instant case, im Sio Dans money market placement in Allied 0ank was preterminated and witdrawnwito$t er consent# &oreover, te proceeds o" te placement were deposited in +rod$cers 0anks acco$nt in&etrobank wito$t any 4$sti"ication# 8n oter words, tere is no reason tat te proceeds o" im Sio Dans placementso$ld be deposited in FCCs acco$nt p$rportedly as payment "or FCCs money market placement and interest in

+rod$cers 0ank# Dit s$c payment, +rod$cers 0anks indebtedness to FCC was e=ting$ised, tereby bene"ittingte "ormer# Clearly, +rod$cers 0ank was $n4$stly enriced at te e=pense o" im Sio Dan# 0ased on te "acts andcirc$mstances o" te case, +rod$cers 0ank so$ld reimb$rse Allied and &etrobank "or te amo$nts te two latter banks are ordered to pay im Sio Dan#

8t cannot be validly claimed tat FCC, and not +rod$cers 0ank, so$ld be considered as aving been $n4$stly

enriced# 8t m$st be remembered tat FCCs money market placement wit +rod$cers 0ank was already d$e anddemandable5 t$s, +rod$cers 0anks payment tereo" was 4$sti"ied# FCC was entitled to s$c payment# As earlierstated, te "act tat te indorsement on te ceck was "orged cannot be raised against FCC wic was not a part in

any stage o" te negotiation o" te ceck# FCC was not $n4$stly enriced#

From te "acts o" te instant case, we see tat Santos co$ld be te arcitect o" te entire controversy# n"ort$nately,since s$mmons ad not been served on Santos, te co$rts ave not ac$ired 4$risdiction over er#?.B De, tere"ore,cannot ascribe to er liability in te instant case#

Clearly, +rod$cers 0ank m$st be eld liable to Allied and &etrobank "or te amo$nt o" te ceck pl$s 1-M interest per ann$m, moral damages, attorneys "ees, and costs o" s$it wic Allied and &etrobank are ad4$dged to pay imSio Dan based on a proportion o" ?.:G.#



D*(2(F'2(, te petition is +A2TE <2A;T(%# Te &arc 1@, 199@ CA %ecision in CA<#2# CV ;o# G?-9.and te ;ovember 16, 199> 2TC %ecision in Civil Case ;o# ?767 are AFF82&(% wit &'%8F8CAT8';#

T$s, te CA %ecision is AFF82&(%, te "allo o" wic is reprod$ced, as "ollows:

D*(2(F'2(, premises considered, te decision appealed "rom is &'%8F8(%# 3$dgment is rendered ordering andsentencing de"endantappellant Allied 0anking Corporation to pay si=ty ?.M/ percent and de"endantappellee&etropolitan 0ank and Tr$st Company "orty G.M/ o" te amo$nt o" +1,16@,?G@#G9 pl$s 1-M interest per ann$m"rom &arc 1?, 19@G $ntil "$lly paid# Te moral damages, attorneys "ees and costs o" s$it ad4$dged sall likewise be

paid by de"endantappellant Allied 0anking Corporation and de"endantappellee &etropolitan 0ank and Tr$stCompany in te same proportion o" ?.G.# (=cept as t$s modi"ied, te decision appealed "rom is AFF82&(%#

S' '2%(2(%#

Additionally and by way o" &'%8F8CAT8';, +rod$cers 0ank is ereby ordered to pay Allied and &etrobank tea"orementioned amo$nts# Te liabilities o" te parties are conc$rrent and independent o" eac oter#

S' '2%(2(%#

%'28( A0(SA ;8C'AS, <#2# ;o# [email protected]?

+etitioner,

+resent:

+;', C#3#, Cairperson,

CA2+8',

vers$s RC'2';A,

AC;A, and

(';A2%'%( CAST2', 33#



%(;AC8A C'2+'2AT8';, +rom$lgated:

2espondent# April ->, -..@

= =

% ( C 8 S 8 ' ;

+;', C#3#:

Tis case arose "rom a complaint "or $n"air b$siness practice1B "iled by petitioner %orie Abesa ;icolas &rs#

;icolas/ against respondent %el;acia Corporation %el;acia/ be"ore te *o$sing and and se 2eg$latory 0oard*20/#

'n Febr$ary -., 19@@, te spo$ses Armando ;icolas and %orie Abesa ;icolas Spo$ses ;icolas/ and %el;aciaentered into a and +$rcase Agreement-B Agreement/ "or te sale by te latter to te "ormer o" a parcel o" land,covered by Trans"er Certi"icate o" Title ;o# ->>7.-, consisting o" 1.,... s$are meters, sit$ated at ot ;o# >0G,

%el ;acia Ville ;o# 6, San 3ose del &onte, 0$lacan#

Te relevant parts o" te Agreement are:

1/ Te +2C*AS(2 agrees to pay to te 'D;(2 $pon e=ec$tion o" tis Contract te s$m o" F'2TET*'SA;% +(S'S +G.,.../ as "irst payment on acco$nt o" te p$rcase price and agrees to pay te balance o"F8V( *;%2(% T(; T*'SA;% +(S'S +61.,.../ at te o""ice o" te 'D;(2 in te City o" K$e!on,+ilippines, or s$c oter o""ice as te 'D;(2 may designate in 1-. e$al montly installment o" ;8;(

T*'SA;% ';( *;%2(% (8<*TE ;8;( A;% G6P1.. +(S'S +9,1@9#G6/ interest being incl$ded ons$ccessive montly balance at 1@M per ann$m, and payments to be made on te day o" eac mont terea"ter beginning April -., 19@@#

= = = =

6/ 8n te event tat any o" te payments as stip$lated be not paid wen, were, and as te same become d$e5 it isagreed tat s$ms in arrears sall bear interest at te rate o" (8<*T((; 1@M/ per cent$m per ann$m payable

montly "rom te date on wic said s$ms is d$e and payable#



?/ 8" any s$c payment or payments sall contin$e in arrears "or more tan si=tydays, or i" te +2C*AS(2 sallviolate any o" te conditions erein set "ort ten te entire $npaid balance d$e $nder tis contract, wit any interestwic may ave attaced sall at once become d$e and payable and sall bear interest at te rate o" TD(V( 1-M/ per cent$m per ann$m $ntil paid, and in s$c case, te +2C*AS(2 "$rter agrees to pay to te 'D;(2 a s$m

e$al to ten 1.M/ per cent$m o" te amo$nt d$e as attorneys "ees#>B

nder te Agreement, te ownersip o" te land remains wit %el;acia $ntil "$ll payment o" te stip$lated p$rcase price $nder te "ollowing terms and conditions:

>/ Title to said parcel o" land sall remain in te name o" te 'D;(2 $ntil complete payment by te+2C*AS(2 o" all obligations erein stip$lated, at wic time te 'D;(2 agree to e=ec$te a "inal deed o" sale in"avor o" te +2C*AS(2 and ca$se te iss$ance o" a certi"icate o" title in te name o" te latter, "ree "rom liens

and enc$mbrances e=cept tose provided in te and 2egistration Act, tose imposed by te a$torities, and tosecontained in Cla$ses 1./ and 1?/ o" tis agreement# 2egistration "ees and doc$mentary stamps o" te deed o" salesall be paid by te +2C*AS(2#

G/ 'nly te +2C*AS(2 sall be deemed "or all legal p$rposes to take possession o" te parcel o" land $pon payment o" te down payment provided, owever, tat isPer possession $nder tis section sall be only tat o" a

tenant or lessee, and s$b4ect to e4ectment proceedings d$ring all te period o" tis agreement#

= = = =

7/ 8n case te +2C*AS(2 "ails to comply wit any conditions o" tis contract andPor to pay any payments ereinagreed $pon, te +2C*AS(2 sall be granted a period or periods o" grace wic in no case sall e=ceed ?./ daysto be co$nted "rom te condition breaced o$gt to be complied wit or te said payments o$gt ave been made,d$ring wic period o" grace te +2C*AS(2 m$st comply wit te said condition or satis"y all d$e monetary

obligations incl$ding tose wic correspond to te period o" grace# 'T*(2D8S(, te Contract sall bea$tomatically cancelled and rescinded and o" no "orce and e""ect, and as a conse$ence tere"ore, te 'D;(2 maydispose o" te parcels o" land covered by tis Contract in "avor o" oter persons, as i" tis Contract ad never been

entered into# 8n case o" s$c cancellation o" tis Contract all amo$nts paid in accordance wit tis agreement,togeter wit all te improvements introd$ced in te premises, sall be considered as rents "or te $se andocc$pation o" te abovementioned premises and as payments "or te damages s$""ered on te 'D;(2 on acco$nto" te "ail$re o" te +2C*AS(2 to "$l"ill is part o" tis Contract and te +2C*AS(2 ereby reno$nces all is

rigts to demand or reclaim te ret$rn o" te same and "$rter obligates imsel" to peace"$lly vacate te premisesand deliver te same to te 'D;(25 +2'V8%(%, *'D(V(2, tat any consideration, concession, tolerance orrela=ation o" provisions sall not be interpreted as a ren$nciation on te part o" 'D;(2 o" any rigts granted in tisContract#GB

pon signing o" te Agreement, te Spo$ses ;icolas paid te down payment o" +G.,...# Tere$pon, te Spo$ses

;icolas took possession o" te land, and "or several monts terea"ter, paid on or be"ore te -.t o" eac mont, temontly amorti!ations#6B

n"ort$nately, owever, Armando ;icolas died sortly a"ter te signing o" te Agreement and &rs# ;icolas began to"alter in er payments# As "o$nd by Arbiter 3ose A# Atencio, 3r# *20 Arbiter/ o" te '""ice o" Appeals,Ad4$dication and egal A""airs 'AA/, *20 2egion 888, te records o" %el;acia indicate tat &rs# ;icolas is



delin$ent in er montly amorti!ation "or te "ollowing monts: ;ovember 19@@5 &arc 19@95 &ay 19@95 3$ne19@93$ly 19@95 September 19@95 'ctober 19@95 ;ovember 19@9%ecember 19@95 Febr$ary 199.September 199.5'ctober 199.;ovember 199.5 %ecember 199.April 1991# Te last payment o" &rs# ;icolas was made on 3$ly 19,1991#?B

%el;acia sent &rs# ;icolas notice to pay er arrearages wit a grace period o" si=ty ?./ days witin wic to

make payment b$t to no avail# %el;acia ten ca$sed te notarial cancellation o" te Agreement on %ecember >,1991#7B

S$bse$ently, %el;acia verbally in"ormed &rs# ;icolas to get te cas s$rrender val$e o" er payment at its o""ice#*owever, &rs# ;icolas did not claim te same# %el;acia prepared a ceck in te amo$nt o" +-7.,?61#@@representing te cas s$rrender val$e o" &rs# ;icolass payment and sent it to er by registered mail# Te ceck was

received by &rs# ;icolas and $ntil now it remains in er possession#@B

'n Febr$ary ->, 199>, &rs# ;icolas "iled a Complaint9B against %el;acia be"ore te *20# 'n %ecember 16,199G, te *20 Arbiter rendered a %ecision1.B Arbiter %ecision/ wit te "ollowing disposition:

+2(&8S(S considered, 4$dgment is ereby rendered as "ollows:

a# %eclaring te notarial cancellation o" te contract on %ecember >, 1991 as n$ll and void#

b# 'rdering respondent to "ortwit "$rnis complainant acco$nting o" te paid and $npaid amorti!ations incl$dinginterests and penalty interests and oter stip$lated "ees or carges covering te period or delin$ent payments, as aconse$ence o" te latters de"a$lt stating clearly and speci"ically te bases as stated in te contract and "or te

complainant to pay er $npaid obligations witin "orty "ive G6/ days "rom receipt o" te saidcomp$tationPacco$nting#

c# 'rdering te same respondent to e=ec$te te pertinent deed in "avor o" te complainant witin "i"teen 16/ days"rom receipt o" complainants "$ll payment $nder paragrap b a"orementioned and terea"ter to deliver to te latterte Trans"er Certi"icate o" Title o" te lot in $estion#

d# 2emedies provided $nder 2#A# ?66- and oter legal remedies may be resorted to, at te option o" te respondent,i" complainant "ails or re"$ses to pay witin te period provided $nder paragrap b#

So 'rdered#11B

&rs# ;icolas so$gt review o" te Arbiter %ecision by te *20 0oard o" Commissions *20 0oard/ on te"ollowing assignment o" errors:

F82ST ASS8<;&(;T 'F (22'2

T*( *';# A208T(2 (22(% 8; '2%(28;< T*( 8;CS8'; 'F 8;T(2(STS, +(;ATE 8;T(2(STSA;% 'T*(2 ST8+AT(% F((S '2 C*A2<(S 8; T*( ;8AT(2A C'&+TAT8'; T' 0( &A%( 0ET*( 2(S+';%(;TA++((( AS T*( ;+A8% '08<AT8'; 'F C'&+A8;A;TA++(A;T#

S(C';% ASS8<;&(;T 'F (22'2



T*( *';# A208T(2 (22(% 8; '2%(28;< T*( C'&+A8;A;TA++(A;T T' +AE *(2 S++'S(%;+A8% '08<AT8'; 0AS(% +'; T*( ;8AT(2A C'&+TAT8'; 'F 2(S+';%(;TA++(((D8T*8; F'2TE F8V( G6/ %AES F2'& 2(C(8+T 'F SA8% C'&+TAT8';PACC';T8;<#

T*82% ASS8<;&(;T 'F (22'2

T*( *';# A208T(2 (22(% 8; <8V8;< 2(S+';%(;TA++((( T*( 28<*T T' 2(S'2T T'2(&(%8(S +2'V8%(% ;%(2 2#A# ?66- A;% 'T*(2 (<A 2(&(%8(S#

F'2T* ASS8<;&(;T 'F (22'2

T*( *';# A208T(2 (22(% 8; ;'T ADA2%8;< ATT'2;(ES F((S 8; T*( S& 'F +6.,...#.. T'C'&+A8;A;TA++(A;T#

F8FT* ASS8<;&(;T 'F (22'2

T*( *';# A208T(2 (22(% 8; ;'T <2A;T8;< T*( +2AE(2 'F C'&+A8;A;TA++(A;T 8; *(2

C'&+A8;T#1-B

Te *20 0oard was partly receptive o" te appeal and, on %ecember 1, 1996, it anded down a %ecision1>B*20 0oard %ecision/ ad4$dging tat:

D*(2(F'2(, in ligt o" te "oregoing premises, we ereby &'%8FE te %ecision dated 16 %ecember 199G o"te '""ice a K$o, inso"ar as paragrap b/ o" te dispositive portion is concerned and an additional paragrap e, towit:

b/ 'rdering complainant to pay respondent witin si=ty ?./ days "rom receipt ereo" te amo$nt o" one

$ndred seventy tree to$sand nine $ndred "i"ty seven pesos and -9P1... +17>,967#-9/ representing teremaining balance o" te installment p$rcase price o" te land incl$sive o" legal interests at te rate o" twelve percent 1-M/ per ann$m#

e/ 'rdering respondent to pay tis 0oard te amo$nt o" ten to$sand +1.,.../ as an administrative "ine"or violation o" Section 6 o" +#%# 967 witin tirty >./ days "rom "inality ereo"#

S' '2%(2(%# K$e!on City#1GB



%el;acia "iled a &otion "or 2econsideration16B and a S$pplement to &otion "or 2econsideration#1?B &eanwile,&rs# ;icolas "iled a motion "or te consignment o" +17>,967#-9, representing te balance o" te p$rcase price o"te land as "o$nd by te *20 0oard#

'n 3$ne -1, 199?, te *20 0oard resolved to deny %el;acias motion "or reconsideration and ordered &rs# ;icolas to deposit wit it "or sa"ekeeping te amo$nt indicated in its %ecision $ntil %el;acia is willing to accept

te same#17B

Conse$ently, %el;acia appealed to te '""ice o" te +resident wic, owever, was dismissed by its %ecisiondated &arc G, 199@ '#+# 'riginal %ecision/#1@B pon motion "or reconsideration, owever, te '""ice o" te+resident, in a 2esol$tion dated3an$ary 6, -..119B '#+# 2esol$tion/, set aside te '#+# 'riginal %ecision anda""irmed te Arbiter %ecision in toto#

ns$ccess"$l in er bid at overt$rning te '#+# 2esol$tion, &rs# ;icolas "iled a +etition "or 2eview-.B wit te

Co$rt o" Appeals CA/ docketed as CA<#2# S+ ;o# [email protected]# Te CA initially dismissed er petition "or "ailing tocomply wit te proced$ral re$irements o" Section ?c/ o" 2$le G> o" te 2evised 2$les o" Co$rt#-1B &rs# ;icolas"iled an omnib$s motion praying tat te CA reconsider and set aside te dismissal o" er petition and to admit er

amended petition#--B Te CA ten re$ired %el;acia to s$bmit its comment to te petition#->B

'n 3an$ary ->, -..>, te CA rendered its %ecision,-GB a""irming te '#+# 2esol$tion, to wit:

D*(2(F'2(, "inding no "law in te appealed '#+# 2esol$tion, te same is ereby AFF82&(% in toto, wit costs

against &rs# ;icolas#

S' '2%(2(%#

Te &otion "or 2econsideration-6B "iled by &rs# ;icolas was denied by te CA in its 2esol$tion dated April -9,

-..>#-?B

*ence, tis +etition "or 2eview on Certiorari-7B, raising te lone iss$e o":

D*(T*(2 '2 ;'T complainant now petitioner/ is bo$nd to pay te interests, penalty interests and oterstip$lated carges based on te $nilateral acco$nting or comp$tation made by respondent#-@B

Te instant petition prays tat te '#+# 'riginal %ecision, wic a""irmed te *20 0oard %ecision, be reinstated by tis Co$rt#

8n its Comment, %el;acia arg$es tat te instant petition be denied "or te "ollowing reasons: 1/ "ail$re to comply

wit section G, 2$le G6, and -/ "ail$re to advance any special reason tat wo$ld warrant te e=ercise by tis Co$rto" its discretionary power o" review#

0e"ore disc$ssing te merits o" te case, we sall "irst disc$ss its proced$ral aspect#

%el;acia $rges tis Co$rt to dismiss te instant petition "or "ailing to attac material portions o" te records o" tecase tat will s$pport te same as re$ired $nder Section ? o" 2$le G? o" te 2evised 2$les o" Co$rt, s$c as, "orinstance, copies o" er own pleadings "iled be"ore te proceedings below#-9B 8t appears tat te Agreement o" te

parties, s$b4ect o" te disp$te, was not attaced to te petition# ;everteless, since te Agreement and te oter



doc$ments tat were not attaced to te petition are already part o" te records o" tis case, and co$ld easily bere"erred to by tis Co$rt i" necessary, a dismissal o" te instant petition p$rely on tecnical gro$nds is not warranted#8ndeed, te Co$rt as, in past cases, granted relie" in "avor o" te petitioner despite tis proced$ral in"irmity#>.BT$s, we e=plained te rationale beind te Co$rts liberal stance as "ollows:

De m$st stress tat cases so$ld be determined on te merits, a"ter all parties ave been given "$ll opport$nity to

ventilate teir ca$ses and de"enses, rater tan on tecnicalities or proced$ral imper"ections# 8n tat way, te ends o" 4$stice wo$ld be served better# 2$les o" proced$re are mere tools designed to e=pedite te decision or resol$tion o"cases and oter matters pending in co$rt# A strict and rigid application o" r$les, res$lting in tecnicalities tat tend to"r$strate rater tan promote s$bstantial 4$stice, m$st be avoided# 8n "act, Section ? o" 2$le 1 states tat te 2$les

sall be liberally constr$ed in order to promote teir ob4ective o" ens$ring te 4$st, speedy and ine=pensivedisposition o" every action and proceeding#>1B

;ow on te merits o" te case# Te iss$e is weter &rs# ;icolas is liable to pay interests, penalty interests and oter stip$lated carges to %el;acia#

De r$le in te a""irmative#

&rs# ;icolas contends tat based on te payments se already made, se as overpaid te p$rcase price d$e $nderte Agreement#>-B Se assails te application o" er payments made by %el;acia since te latter applied te b$lk

o" er payments to interest rater tan te principal#>>B According to er, tere"ore, te penalties, interests ands$rcarges being collected by %el;acia ave no basis in "act or in law#>GB 8n tis regard, se $rges tis Co$rt toa""irm te *20 0oard %ecision>6B wic reads:

C$rsory reading o" te abovementioned doc$ment reveal tat tere is indeed no speci"ic date indicated, as to wen

complainant so$ld pay er montly installments# 8t is clear tat tat te space provided "or in +aragrap 1 o" saiddoc$ment "or te date or day o" te mont on wic payment is to be made as been le"t blank#

Considering tat te and +$rcase Agreement is a pro"orma doc$ment prepared by respondent, any ambig$ityterein so$ld be interpreted in "avor o" te complainant#

'n te basis o" te "oregoing, we "ind tat complainant did not inc$r any delay, ence, te imposition o" s$rcargesand penalty interests are $n4$sti"ied#>?B

According to %el;acia, owever, &rs# ;icolas disregarded paying te reg$lar rate o" interest, overd$e interest and penalty interest wic were vol$ntarily agreed $pon $nder paragraps 1/, 6/ and ?/, respectively, o" teir

Agreement#>7B %el;acia contends tat te records clearly establis tat &rs# ;icolas was in delay in er payments

o" te montly amorti!ations and se as not disp$ted te same#>@B

As "o$nd by te *20 Arbiter, te records o" %el;acia sows tat &rs# ;icolas inc$rred delay in te payment o" er montly amorti!ations#>9B 8t is a wellsettled r$le tat "act$al "indings o" administrative agencies are concl$sive

and binding on te Co$rt wen s$pported by s$bstantial evidence# De agree wit te '#+# 2esol$tion,G.B wicwas adopted and a""irmed by te CA,to wit:

Appellants %el;aciaB s$bmission, owever, tat appellee &rs# ;icolasB inc$rred delay in te manner o" paymento" er montly installment obligations is impressed wit merit# Te *o$sing Arbiter, in is eval$ation as trier o"



"acts o" appellees records o" payment, was o" te same view#nder W1 o" te basic p$rcase agreement, s$pra,appellee $ndertook to pay 1-. e$al montly installments o" +9,1@9#G6, payments to be made on te day o" eacmont terea"ter beginning April -., 19@@# A "air $nderstanding o" tis provision wo$ld simply mean tat paymentso$ld be made e""ected every -.t day o" eac mont "ollowing April -., 19@@# 0ased on te records, one can

sa"ely pres$me tat te same was "$lly $nderstood by appellee, as se ad repeatedly paid er montly amorti!ationon te -.t day o" eac, or a "ew days terea"ter# ;eiter did se $estion te interest imposed by appellant "or er

payments made a"ter te -.t# 0e tat as it may, tis '""ice is at a loss to $nderstand te *20s concl$sion abo$tappellee not aving de"a$lted in er installment payments# Te e=planation given by te *20 +roper wy itconsidered appellee not to ave been in delay, i# e#, beca$se no speci"ic date isB indicated in te p$rcaseagreementB as to wen complainant so$ld pay er montly installments adding tat te space provided "or # # # tedate or day o" te mont wic payment is to be made as been le"t blank,strikes tis '""ice as too simplistic to be

accorded cogency# Te adverted "act o" a space in blank is o" no moment "or, to reiterate, te agreement was "orappellee to teB pay te balance +61.,...#../ o" te p$rcase price in 1-. e$al montly installments, teinstallment period to start "romApril -., 19@@# Te $se o" te prase 1-. e$al montly installments and terea"ter beginning April -., 19@@ can mean only one ting tat a"ter April -., 19@@, te montly installment is to "all d$e

and be payable on te -.t day o" te s$cceeding monts# Te e=planation adverted to above o" te *20, i" p$rs$ed to its logical concl$sion, wo$ld virt$ally allow appellee to perpet$ally witold installment payment

wito$t risk o" being considered in de"a$lt# Te abs$rdity o" tis e=planation needs no belaboring#G1B

Clearly, $nder paragraps 1/, 6/ and ?/ o" te Agreement, s$pra, &rs# ;icolas was bo$nd to pay reg$lar interest,and in case o" delay, overd$e interest and penalty# 8t cannot be overempasi!ed tat a contract is te law between te

parties,G-B and co$rts ave no coice b$t to en"orce s$c contract so long as tey are not contrary to law, morals,good c$stoms or p$blic policy#G>B

8n tis connection, a stip$lation "or te payment o" interest and penalty apart "rom interest in case o" delay is notcontrary to law, moral, good c$stoms or p$blic policy# To be s$re, te same is sanctioned by te "ollowing provisions

o" te Civil Code:

Article 196?# ;o interest sall be d$e $nless it as been e=pressly stip$lated in writing#

Article 1--?# 8n obligations wit a penal cla$se, te penalty sall s$bstit$te te indemnity "or damages and te

payment o" interests in case o" noncompliance, i" tere is no stip$lation to te contrary#

Article --.9# 8" te obligation consists in te payment o" a s$m o" money, and te debtor inc$rs in delay, teindemnity "or damages, tere being no stip$lation to te contrary, sall be te payment o" te interest agreed $pon == =#

8n 0acrac &otor Company v# (spirit$,GGB te Co$rt r$led tat te Civil Code permits te agreement $pon a penalty apart "rom te interest# So$ld tere be s$c an agreement, te penalty does not incl$de te interest, and as

s$c te two are di""erent and distinct tings wic may be demanded separately# Te same principle was reiteratedin ($itable 0anking Corp# v# iwanag et al#,G6B were tis Co$rt eld tat te stip$lation abo$t payment o" s$cadditional rate partakes o" te nat$re o" a penalty cla$se, wic is sanctioned by law#



'n &rs# ;icolas contention tat se so$ld not pay interest and te oter carges based on te $nilateral acco$ntingor comp$tation made by %el;acia, a per$sal o" te "orm$laG?B "or te comp$tation o" reg$lar interest, overd$einterest and penalty interest $sed by %el;acia reveal tat te same is in accord wit te provisions o" teAgreement and cannot be said to ave been $nilaterally imposed by %el;acia#

&oreover, te case o" 2el$cio v# 0rillante<ar"in 2el$cio/,G7B involves similar "acts to te case at bar were we

r$led as "ollows:

(=amination o" te record sows tat te $estioned Contract to 0$y and Sell te s$bdivision lots provided "or payment by private respondent o" te s$m o" +-..#.. as downpayment, and tat te balance o" +1.,?..#..B sall be paid in 1@. montly installments at +@9#G6 per mont, incl$ding interest rate at si= percent ?M/ per ann$m, $ntilte p$rcase price is "$lly paid# Tis stip$lation clearly speci"ied tat an interest carge o" si= percent ?M/ per

ann$m was incl$ded in te montly installment price: private respondent co$ld not ave elped noticing tat +@9#G6m$ltiplied by 1@. montly installments e$als +1?,1.1#.., and not +1.,?..#..# Te contract price o" +1.,@..#..may t$s be seen to be te cas price o" te s$bdivision lots, tat is, te amo$nt payable i" te price o" te lots were

to be paid in cas and in "$ll at te e=ec$tion o" te contract5 it is not te amo$nt tat te vendor will ave received

in te aggregate a"ter "i"teen 16/ years i" te vendee sall ave religio$sly paid te montly installments# Teinstallment price, $pon te oter and, o" te s$bdivision lots te s$m total o" te montly installments i#e#,+1?,1.1#../ typically, as in te instant case, as an interest component wic compensates te vendor "or waiting

"i"teen 16/ years be"ore receiving te total principal amo$nt o" +1.,?..#..# (conomically or "inancially, +1.,?..#..delivered in "$ll today is simply wort m$c more tan a long series o" small payments totalling, a"ter "i"teen 16/years, +1.,?..#..# For te vendor, $pon receiving te "$ll cas price, co$ld ave deposited tat amo$nt in a bank,"or instance, and earned interest income wic at si= percent ?M/ per year and "or "i"teen 16/ years, wo$ld

precisely total +6,6.1#.. te di""erence between te installment price o" +1?,1.1#.. and te cas price o"+1.,?..#.. / To s$ppose, as private respondent arg$es, tat mere prompt payment o" te montly installments astey "ell d$e wo$ld obviate application o" te interest carge o" si= percent ?M/ per ann$m, is to ignore tat simple

economic "act# Tat economic "act is, o" co$rse, recogni!ed by law, wic a$tori!es te payment o" interest wencontract$ally stip$lated "or by te parties or wen implied in recogni!ed commercial c$stom or $sage#

Vendor and vendee are legally "ree to stip$late "or te payment o" eiter te cas price o" a s$bdivision lot or itsinstallment price# So$ld te vendee opt to p$rcase a s$bdivision lot via te installment payment system, e is ine""ect paying interest on te cas price, weter te "act and rate o" s$c interest payment is disclosed in te contract

or not# Te contract "or te p$rcase and sale o" a piece o" land on te installment payment system in te case at baris not only $ite law"$l5 it also re"lects a very wide spread $sage or c$stom in o$r present day commercial li"e#G@B

8n 2el$cio, te Co$rt also s$stained te sellers teory o" declining balance wereby te seller credited a bigger s$mo" te montly amorti!ation to interest rater tan te principal, s$c tat in %$ringB te s$cceeding montly payments, owever, as te o$tstanding balance on te principal grad$ally declined, te interest component in

absol$te terms/ correspondingly "ell wile te component credited to te principal increased proportionately, t$samorti!ing te balance o" te principal p$rcase price as tat balance grad$ally declined#G9B

8n te same vein, an e=amination o" te application o" &rs# ;icolas payments by %el;acia in te table6.B te latter prepared as re"lected in te records o" te case, sows tat te same is in accord wit te teory o" declining balancewic was a""irmed by tis Co$rt in 2el$cio#

<iven te "oregoing, it appears tat te only dilemma wic &rs# ;icolas c$rrently "inds ersel" in is tat te

obligations wic se vol$ntary $ndertook $nder te Agreement t$rned o$t to be more onero$s tan wat se



e=pected# %octrinal is te r$le tat co$rts may not e=tricate parties "rom te necessary conse$ences o" teir acts#61B Tat te terms o" a contract t$rn o$t to be "inancially disadvantageo$s to tem will not relieve tem o" teirobligations terein#6-B

8; V8(D D*(2('F, te petition is %8S&8SS(%# Te decision o" te Co$rt o" Appeals is a""irmed# Costs againstte petitioner#

S' '2%(2(%#

<#2# ;o# 1>.99G# September 1@, -..-B

S+'S(S F(8&'; and &A28A 0A22(2A, petitioners, vs# S+'S(S (&88A;' and &A28A

C';C(+C8'; '2(;', respondents#

% ( C 8 S 8 ' ;

SA;%'VA<T8(22(, 3#:

'n %ecember G, 199., spo$ses Felimon and &aria 0arrera, petitioners, borrowed +->.,...#.. "rom spo$ses &ig$el

and &ary a!aro#Te loan was sec$red by a real estate mortgage1B over petitioners residential lot consisting o" G>-s$are meters located at 0$nlo, 0oca$e, 0$lacan and registered in teir names $nder Trans"er Certi"icate o" TitleTCT/ TG-#>7> &/-B o" te 2egistry o" %eeds o" 0$lacan#

A mont and a al" later, te a!aro spo$ses needed money and in"ormed petitioners tat tey wo$ld trans"er teloan to spo$ses (miliano and &aria Concepcion oren!o, respondents# Conse$ently, on &ay 1G, 1991, petitioners

e=ec$ted anoter real estate mortgage>B over teir lot, tis time in "avor o" te respondents to sec$re te loan o"+>-6,...#.., wic te latter claimed as te amo$nt tey paid spo$ses a!aro#Te mortgage contract provides,among oters, tat te new loan sall be payable witin tree >/ monts, or $ntil A$g$st 1G, 19915 tat it sall earn

interest at 6M per mont5 and tat so$ld petitioners "ail to pay teir loan witin te said period, te mortgage sall

be "oreclosed#

Den petitioners "ailed to pay teir loan in "$ll on A$g$st 1G, 1991, respondents allowed tem to complete teir payment $ntil %ecember ->, 199># 'n tis date, tey made a total payment o" +?@7,...#..#

'n 3an$ary 17, 199G, respondents wrote petitioners demanding payment o" +>-6,...#.., pl$s interest, oterwisetey wo$ld "oreclose te mortgage#GB 8n t$rn, petitioners responded, claiming tat tey ave overpaid teir

obligation and demanding te ret$rn o" teir land title and re"$nd o" teir e=cess payment#6B Tis promptedrespondents to "ile a petition?B "or e=tra4$dicial "oreclos$re o" mortgage wit te '""ice o" te (='""icio Seri"",&alolos, 0$lacan, docketed terein as (3F 199G#

For teir part, petitioners "iled wit te 2egional Trial Co$rt 2TC/, 0ranc 17, &alolos, 0$lacan, a complaint "or

te ret$rn o" teir TCT ;o# TG-#>7> &/, s$m o" money and damages, wit application "or a temporary restrainingorder and preliminary in4$nction, docketed as Civil Case ;o# 16?&9G#7B

8n teir opposition@B to te application "or a preliminary in4$nction, respondents alleged tat petitioners loan as been restr$ct$red tree times and tat teir $npaid balance as o" &arc 1G, 199G was +6G>,?--#..#

A"ter earing petitioners application "or a preliminary in4$nction, te 2TC iss$ed an order,9B en4oining te seri"""rom proceeding wit te "oreclos$re o" mortgage, $pon teir posting o" a bond in te amo$nt o" +6G>,?--#..#



Terea"ter, trial on te merits ens$ed#

'n 3$ly >1, 1996, te 2TC rendered 4$dgment,1.B te dispositive portion o" wic reads:

D*(2(F'2(, premises considered, 4$dgment is ereby rendered in "avor o" te plainti""s now petitioners/ andagainst te de"endants now respondents/, ordering te latter:

1# to ret$rn to te plainti""s te amo$nt o" +-16,76.#.. representing te overpaid amo$nt5

-# to ret$rn to te plainti""s te owners copy o" TCT ;o# TG-#>7> &/ o""ered as sec$rity5

># to pay +-.,...#... as attorneys "ees5

G# to pay te costs o" te s$it#

Te writ o" preliminary in4$nction iss$ed on &arc -1, 199G is ereby made permanent#

S' '2%(2(%#11B

Te trial co$rt eld tat te stip$lated 6M montly interest to be paid by petitioners corresponds only to te period"rom &ay 1G, 1991 $p to A$g$st 1G, 1991, te term o" te loan# Terea"ter, te montly interest so$ld be 1-M perann$m# Te trial co$rt concl$ded tat petitioners made an overpayment o" +-1G,76.#..#

pon appeal, docketed as CA <2CV ;o# 61.96, te Co$rt o" Appeals, in a %ecision1-B dated 3$ne 1@, 1997, eld:

De reverse#

Te law and 4$rispr$dence clearly provide tat i" te debt prod$ces interest, payment o" te principal sall not bedeemed to ave been made $ntil te interests ave been covered# Article 1-6>, ;ew Civil Code5 <obonseng, 3r# vs#

Co$rt o" Appeals, -G? SC2A G7-/# 'nce it is admitted tat an obligation bears interest, partial payments are to beapplied "irst on acco$nt o" te interest and ten to red$ce te principal# San 3ose vs# 'rtega, 11 +il# GG-5 S$nico vs#2amire!, 1G +il# 6../#De t$s "ind no s$pport, weter in law or in 4$rispr$dence, "or te %ecision o" te co$rt a

$o to apply te bigger amo$nts o" +G.,...#.., +>7,...#.., +6.,...#.. among oters, given several times by te0arrera spo$ses = = = "or te payment o" te principal loan wen te interests d$e on te loan tat ave acc$m$latedtro$g te years ave not been "$lly satis"ied#

De also do not agree tat te stip$lated montly interest o" 6M was to apply only to te >mont e""ectivity periodo" te loan# Tis is a "lawed and a grossly $n"air interpretation o" te terms and conditions o" te agreement o" te parties# To r$le in tis wise is to sanction te irreg$lar per"ormance o" ones obligation# Te 0arrera spo$ses will be

emboldened not to pay teir loan witin te agreed period o" >monts since on te "o$rt mont and terea"ter, teydo not ave to pay anymore te 6M montly interest, b$t only te 1-M legal interest per ann$m, or a measly 1Minterest per mont# S$c an interpretation is totally $n"air and $n4$st to te creditors wo co$ld ave $sed teir

money in some oter ways# ntil s$c time tat te 0arreras ave "$lly paid teir total indebtedness, te 6Mmontly interest s$bsists, tere being no stip$lation to te contrary#

Dile we commiserate wit te pligt o" te 0arrera spo$ses, we cannot cange te terms o" te loan agreement between tem and te oren!os as te co$rts ave no rigt to make contracts "or te/ parties# Tolentino and &aniovs# <on!ales Sy Cian, 6 +il# 677/# A contract is te law between te parties wic not even tis Co$rt can inter"ere

wit# Te only re$irement is tat te same be not contrary to law, morals and good c$stoms = = = Article 1>.?, ;ew Civil Code/# De "ind te agreement to pay a 6M montly interest $ntil te loan is "$lly paid to be reasonableand sanctioned by reg$lar $sage and practice#



Te 0arreras so$ld, tere"ore, be re$ired to pay te balance o" teir indebtedness, incl$ding te interests tereo"#Fail$re to pay te same so$ld warrant te "oreclos$re o" teir mortgaged property to satis"y teir obligation to teoren!o spo$ses#1>B

+etitioners "iled a motion "or reconsideration b$t was denied#1GB

*ence tis petition#

Te sole iss$e "or o$r resol$tion is weter te 6M montly interest on te loan was only "or tree >/ monts, or"rom &ay 1G, 1991 $p to A$g$st 1G, 1991, as maintained by petitioners, or $ntil te loan was "$lly paid, as claimed

by respondents#

Den te terms o" a contract are clear and leave no do$bt as to te intention o" te contracting parties, te literalmeaning o" its stip$lations governs#16B 8n s$c cases, co$rts ave no a$tority to alter a contract by constr$ction orto make a new contract "or te parties5 its d$ty is con"ined to te interpretation o" te one wic tey ave made "ortemselves wito$t regard to its wisdom or "olly as te co$rt cannot s$pply material stip$lations or read into te

contract words wic it does not contain#1?B 8t is only wen te contract is vag$e and ambig$o$s tat co$rts are permitted to resort to constr$ction o" its terms and determine te intention o" te parties terein#

Te salient provisions o" te mortgage contract read:

a/ Ang sanglaang ito ay sa loob lamang ng tatlong >/ b$wan, o anggang sa Agosto 1G, 1991#

b/ Ang t$bo na aming napagkas$nd$an ay 6M, o cinco por ciento isang b$wan#

c/ ;a sakaling mabayaran ko ang aming pagkaka$tang sa magasawa na +>-6,...#.. ang kas$latang ito ay wala nglakas at kab$l$an, s$balit k$ng indi ko mabayaran ang aming pinagkaka$tangan sa takdang panaong > b$wansila ay binibigyan ko nang laya at kapangyarian na mas$basta nila ang l$pang aming ipinanagot sa labas ng

$k$man sa bisa ng 0atas 0lg# >1>6 at s$sog nito at akong may $tang ang siyang sagot sa laat ng gastos at pati bayad sa abogado sa nasabing s$basta sa labas ng $k$man#17B empasis s$pplied/

8t is clear "rom te above stip$lations tat te loan sall be payable witin tree >/ monts, or "rom &ay 1G, 1991$p to A$g$st 1G, 1991#%$ring s$c period, te loan sall earn an interest o" 6M per mont# F$rtermore, te contractsall ave no "orce and e""ect once te loan sall ave been "$lly paid witin te treemont period, oterwise, te

mortgage sall be "oreclosed e=tra4$dicially $nder Act ;o# >1>6#

2ecords sow tat $pon mat$rity o" te loan on A$g$st 1G, 1991, petitioners "ailed to pay teir entire obligation#8nstead o" e=ercising teir rigt to ave te mortgage "oreclosed, respondents allowed petitioners to pay te loan ona montly installment basis $ntil %ecember, 199># 8t bears empasis tat tere is no written agreement between te parties tat te loan will contin$e to bear 6M montly interest beyond te agreed treemont period# 2espondent

&a# Concepcion oren!o testi"ied as "ollows:

Atty# &arcos:

K ;ow, based on tis doc$ment wic was marked as (=# 1, tere is no disp$te tat te montly interest "or tetree mont period tat is "rom &ay 1G, 1991 to A$g$st 1G, 1991 is 6M montly interest, tere is no disp$te abo$ttat# ;ow, &iss Ditness, my $estion is, co$ld yo$ go over te entire doc$ment tat (=# 1 and please tell tis *on#

Co$rt weter tere is a provision in clear and $ne$ivocal terms providing "or tat montly interest a"ter A$g$st1G, 1991I

A ;o, sir, tere is none#



K Are yo$ s$re o" tatI

A Ees, sir#

K Eo$ mean to say tere is no stip$lation in tat doc$ment providing "or te 6M montly interest to te loan a"terA$g$st 1G, 1991I

A Ees, sir, tey are s$pposed to ret$rn my money#

Co$rt:

K A"ter tey "ailed to comply wit tat provision, was tere any s$bse$ent agreement between yo$ and te plainti""sI

= = =

K Das tere an agreementI

A Tere was, yo$r *onor#

K Dat was tat agreement abo$tI

A Verbal agreement, yo$r *onorI

K Dy was tat agreement not red$ced into writingI

A 8t was not red$ced into writing, yo$r *onor#

K DyI

A 8 am in good "ait, yo$r *onor#1@B

Article 196? o" te Civil Code mandates tat n/o interest sall be d$e $nless it as been e=pressly stip$lated inwriting# Applying tis provision, te trial co$rt correctly eld tat te montly interest o" 6M corresponds only to tetreemont period o" te loan, or "rom &ay 1G, 1991 to A$g$st 1G, 1991, as agreed $pon by te parties in writing#Terea"ter, te interest rate "or te loan is 1-M per ann$m# 8n (astern Sipping ines, 8nc# vs# Co$rt o" Appeals,19B

tis Co$rt laid down te "ollowing doctrine:

Den te obligation is breaced, and it consists in te payment o" a s$m o" money, i#e#, a loan or "orbearance o"money, te interest d$e so$ld be tat wic may ave been stip$lated in writing# F$rtermore, te interest d$e sallitsel" earn legal interest "rom te time it is 4$dicially demanded# 8n te absence o" stip$lation, te rate o" interest

sall be 1-M per ann$m to be comp$ted "rom de"a$lt, i#e#, "rom 4$dicial or e=tra4$dicial demand $nder and s$b4ect tote provisions o" Article 11?9 o" te Civil Code# empasis s$pplied/

Te above r$ling was reiterated in S$lit vs# Co$rt o" Appeals,-.B Crismina <arments vs# Co$rt o" Appeals,-1B(astern Ass$rance and S$rety Corporation vs# Co$rt o" Appeals,--B Cat$ngal vs# *ao,->B and Eong et al# vs# Ti$ etal##-GB T$s, te Co$rt o" Appeals erred in reversing te 2TC %ecision and olding tat te 6M montly interest

so$ld be paid by petitioners even beyond A$g$st 1G, 1991#

D*(2(F'2(, te assailed %ecision o" te Co$rt o" Appeals dated 3$ne 1@, 1997 and its 2esol$tion dated 'ctober17, 1997 are 2(V(2S(% and S(T AS8%(# Te %ecision o" te 2egional Trial Co$rt, 0ranc 17, &alolos, 0$lacandated 3$ly >1, 1996 is 2(8;STAT(%#



S' '2%(2(%#

<#2# ;o# 11>G1- April 17, 199?

Spo$ses +';C8A;' A&(%A and (F(&8A +# A&(%A, petitioner,vs#

T*( C'2T 'F A++(AS and +*88++8;( ;AT8';A 0A;, respondents#

A+;A;, 3#:p

'n vario$s dates in 19@1, te +ilippine ;ational 0ank granted to erein petitioners, te spo$ses +onciano #

Almeda and ($"emia +# Almeda several loanPcredit accommodations totaling +1@#. &illion pesos payable in a period o" si= years at an interest rate o" -1M per ann$m# To sec$re te loan, te spo$ses Almeda e=ec$ted a 2eal

(state &ortgage Contract covering a >,6.. s$are meter parcel o" land, togeter wit te b$ilding erected tereonte &arvin +la!a/ located at +asong Tamo, &akati, &etro &anila# A credit agreement embodying te terms and

conditions o" te loan was e=ec$ted between te parties# +ertinent portions o" te said agreement are $oted below:

S+(C8A C';%8T8';S

=== === ===

Te loan sall be s$b4ect to interest at te rate o" twenty one per cent -1M/ per ann$m, payable semiann$ally inarrears, te "irst interest payment to become d$e and payable si= ?/ monts "rom date o" initial release o" te loan#Te loan sall likewise be s$b4ect to te appropriate service carge and a penalty carge o" tree per cent >.M/ perann$m to be imposed on any amo$nt remaining $npaid or not rendered wen d$e#

=== === ===

888# 'T*(2 C';%8T8';S

c/ 8nterest and Carges

1/ Te 0ank reserves te rigt to increase te interest rate witin te limits allowed by law at any time depending

on watever policy it may adopt in te "$t$re5 provided, tat te interest rate on tisPtese accommodations sall becorrespondingly decreased in te event tat te applicable ma=im$m interest rate is red$ced by law or by te&onetary 0oard# 8n eiter case, te ad4$stment in te interest rate agreed $pon sall take e""ect on te e""ectivitydate o" te increase or decrease o" te ma=im$m interest rate# 1

0etween 19@1 and 19@G, petitioners made several partial payments on te loan totaling# +7,7>6,..G#??, - as$bstantial portion o" wic was applied to accr$ed interest# > 'n &arc >1, 19@G, respondent bank, over petitionersH protestations, raised te interest rate to -@M, allegedly p$rs$ant to Section 888c 1/ o" its creditagreement# Said interest rate tere$pon increased "rom an initial -1M to a ig o" ?@M between &arc o" 19@G toSeptember, 19@?# G

+etitioner protested te increase in interest rates, to no avail# 0e"ore te loan was to mat$re in &arc, 19@@, te

spo$ses "iled on Febr$ary ?, 19@@ a petition "or declaratory relie" wit prayer "or a writ o" preliminary in4$nctionand temporary restraining order wit te 2egional Trial Co$rt o" &akati, docketed as Civil Case ;o# 1@@7-# 8n said



petition, wic was ra""led to 0ranc 1>G presided by 3$dge 8gnacio Cap$long, te spo$ses so$gt clari"ication as toweter or not te +;0 co$ld $nilaterally raise interest rates on te loan, p$rs$ant to te credit agreementHsescalation cla$se, and in relation to Central 0ank Circ$lar ;o# 9.6# As a preliminary meas$re, te lower co$rt, on&arc >, 19@@, iss$ed a writ o" preliminary in4$nction en4oining te +ilippine ;ational 0ank "rom en"orcing an

interest rate above te -1M stip$lated in te credit agreement# 0y tis time te spo$ses were already in de"a$lt o"teir loan obligations#

8nvoking te aw on &andatory Foreclos$re Act >1>6, as amended and +#%# >@6/, te +;0 co$ntered by orderingte e=tra4$dicial "oreclos$re o" petitionerHs mortgaged properties and sced$led an a$ction sale "or &arc 1G, 19@9#pon motion by petitioners, owever, te lower co$rt, on April 6, 19@9, granted a s$pplemental writ o" preliminary

in4$nction, staying te p$blic a$ction o" te mortgaged property#

'n 3an$ary 16, 199., $pon te posting o" a co$nterbond by te +;0, te trial co$rt dissolved te s$pplemental writo" preliminary in4$nction# +etitioners "iled a motion "or reconsideration# 8n te interim, respondent bank once moreset a new date "or te "oreclos$re sale o" &arvin +la!a wic was &arc 1-, 199.# +rior to te sced$led date,

owever, petitioners tendered to respondent bank te amo$nt o" +G.,1G-,61@#.., consisting o" te principal+1@,...,...#../ and accr$ed interest calc$lated at te originally stip$lated rate o" -1M# Te +;0 re"$sed to acceptte payment# 6

As a res$lt o" +;0Hs re"$sal o" te tender o" payment, petitioners, on &arc @, 199., "ormally consigned te amo$nto" +G.,1G-,61@#.. wit te 2egional Trial Co$rt in Civil Case ;o# 9.??># Tey prayed terein "or a writ o"

preliminary in4$nction wit a temporary restraining order# Te case was ra""led to 0ranc 1G7, presided by 3$dgeTeo"ilo <$adi!# 'n &arc 16, 199., respondent bank so$gt te dismissal o" te case#

'n &arc >., 199. 3$dge <$adi! in Civil Case ;o# 9.??> iss$ed an order granting te writ o" preliminaryin4$nction en4oining te "oreclos$re sale o" &arvin +la!a sced$led on &arc 1-, 199.# 'n April 17, 199.respondent bank "iled a motion "or reconsideration o" te said order#

'n A$g$st 1?, 1991, Civil Case ;o# 9.??> we trans"erred to 0ranc ?? presided by 3$dge (riberto 2osario wo

iss$ed an order consolidating said case wit Civil Case 1@@71 presided by 3$dge 8gnacio Cap$long#

For 3$dge 8gnacioHs re"$sal to li"t te writ o" preliminary in4$nction iss$ed &arc >., 199., respondent bank "iled a petition "or Certiorari, +roibition and &andam$s wit respondent Co$rt o" Appeals, assailing te "ollowing orderso" te 2egional Trial Co$rt:

1# 'rder dated &arc >., 199. o" 3$dge <$adi! granting te writ o" preliminary in4$nction restraining te"oreclos$re sale o" &avin +la!a set on &arc 1-, 199.5

-# 'rder o" 3$dge 8gnacio Cap$long dated 3an$ary 1., 199- denying respondent bankHs motion to li"t te writ o"

in4$nction iss$ed by 3$dge <$adi! as well as its motion to dismiss Civil Case ;o# 9.??>5

># 'rder o" 3$dge Cap$long dated 3$ly >, 199- denying respondent bankHs s$bse$ent motion to li"t te writ o" preliminary in4$nction5 and

G# 'rder o" 3$dge Cap$long dated 'ctober -., 199- denying respondent bankHs motion "or reconsideration#

'n A$g$st -7, 199>, respondent co$rt rendered its decision setting aside te assailed orders and $poldingrespondent bankHs rigt to "oreclose te mortgaged property p$rs$ant to Act >1>6, as amended and +#%# >@6#+etitionersH &otion "or 2econsideration and S$pplemental &otion "or 2econsideration, dated September 16, 199>

and 'ctober -@, 199>, respectively, were denied by respondent co$rt in its resol$tion dated 3an$ary 1., 199G#

*ence te instant petition#



Tis appeal by certiorari "rom te respondent co$rtHs decision dated A$g$st -7, 199> raises two principal iss$esnamely: 1/ Deter or not respondent bank was a$tori!ed to raise its interest rates "rom -1M to as ig as ?@M$nder te credit agreement5 and -/ Deter or not respondent bank is granted te a$tority to "oreclose te &arvin+la!a $nder te mandatory "oreclos$re provisions o" +#%# >@6#

8n its comment dated April 19, 199G, respondent bank vigoro$sly denied tat te increases in te interest rates were

illegal, $nilateral, e=cessive and arbitrary, it arg$es tat te escalated rates o" interest it imposed was based on teagreement o" te parties# 2espondent bank "$rter contends tat it ad a rigt to "oreclose te mortgaged property p$rs$ant to +#%# >@6, a"ter petitioners were $nable to pay teir loan obligations to te bank based on te increasedrates $pon mat$rity in 19@G#

Te instant petition is impressed wit merit#

Te binding e""ect o" any agreement between parties to a contract is premised on two settled principles: 1/ tat any

obligation arising "rom contract as te "orce o" law between te parties5 and -/ tat tere m$st be m$t$ality between te parties based on teir essential e$ality# ? Any contract wic appears to be eavily weiged in "avor o" one o" te parties so as to lead to an $nconscionable res$lt is void# Any stip$lation regarding te validity or

compliance o" te contract wic is le"t solely to te will o" one o" te parties, is likewise, invalid#

8t is plainly obvio$s, tere"ore, "rom te $ndisp$ted "acts o" te case tat respondent bank $nilaterally altered te

terms o" its contract wit petitioners by increasing te interest rates on te loan wito$t te prior assent o" te latter#8n "act, te manner o" agreement is itsel" e=plicitly stip$lated by te Civil Code wen it provides, in Article 196?tat ;o interest sall be d$e $nless it as been e=pressly stip$lated in writing# Dat as been stip$lated in

writing "rom a per$sal o" interest rate provision o" te credit agreement signed between te parties is tat petitioners were bo$nd merely to pay -1M interest, s$b4ect to a possible escalation or deescalation, wen 1/ tecirc$mstances warrant s$c escalation or deescalation5 -/ witin te limits allowed by law5 and >/ $pon agreement#

8ndeed, te interest rate wic appears to ave been agreed $pon by te parties to te contract in tis case was te-1M rate stip$lated in te interest provision# Any do$bt abo$t tis is in "act readily resolved by a care"$l reading o"

te credit agreement beca$se te same plainly $ses te prase interest rate agreed $pon, in re"erence to te original

-1M interest rate# Te interest provision states:

c/ interest and Carges

1/ Te 0ank reserves te rigt to increase te interest rate witin te limits allowed by law at any time dependingon watever policy it may adopt in te "$t$re5 provided, tat te interest rate on tisPtese accommodations sall becorrespondingly decreased in te event tat te applicable ma=im$m interest rate is red$ced by law or by te

&onetary 0oard# 8n eiter case, te ad4$stment in te interest rate agreed $pon sall take e""ect on te e""ectivitydate o" te increase or decrease o" te ma=im$m interest rate#

8n +ilippine ;ational 0ank v# Co$rt o" Appeals, 7 tis Co$rt disa$tori!ed respondent bank "rom $nilaterallyraising te interest rate in te borrowerHs loan "rom 1@M to >-M, G1M and G@M partly beca$se te a"orestated

increases violated te principle o" m$t$ality o" contracts e=pressed in Article 1>.@ o" te Civil Code# Te Co$rteld:

C0 Circ$lar ;o# 9.6, Series o" 19@- (=# 11/ removed te s$ry aw ceiling on interest rates J

# # # increases in interest rates are not s$b4ect to any ceiling prescribed by te s$ry aw#



b$t it did not a$tori!e te +;0, or any bank "or tat matter, to $nilaterally and s$ccessively increase te agreedinterest rates "rom 1@M to G@M witin a span o" "o$r G/ monts, in violation o" +#%# 11? wic limits s$c cangesto once every twelve monts#

0esides violating +#%# 11?, te $nilateral action o" te +;0 in increasing te interest rate on te private respondentHsloan, violated te m$t$ality o" contracts ordained in Article 1>.@ o" te Civil Code:

Art# >.@# Te contract m$st bind bot contracting parties5 its validity or compliance cannot be le"t to te will o" one

o" tem#

8n order tat obligations arising "rom contracts may ave te "orce o" law between te parties, tere m$st bem$t$ality between te parties based on teir essential e$ality# A contract containing a condition wic makes its"$l"illment dependent e=cl$sively $pon te $ncontrolled will o" one o" te contracting parties, is void <arcia vs#2ita egarda, 8nc#, -1 SC2A 666/# *ence, even ass$ming tat te +1#@ million loan agreement between te +;0

and te private respondent gave te +;0 a license alto$g in "act tere was none/ to increase te interest rate atwill d$ring te term o" te loan, tat license wo$ld ave been n$ll and void "or being violative o" te principle o"m$t$ality essential in contracts# 8t wo$ld ave invested te loan agreement wit te caracter o" a contract o"

adesion, were te parties do not bargain on e$al "ooting, te weaker partyHs te debtor/ participation being

red$ced to te alternative to take it or lease it K$a vs# aw nion O 2ock 8ns$rance Co#, 96 +il# @6/# S$c acontract is a veritable trap "or te weaker party wom te co$rts o" 4$stice m$st protect against ab$se andimposition#

+;0Hs s$ccessive increases o" te interest rate on te private respondentHs loan, over te latterHs protest, were

arbitrary as tey violated an e=press provision o" te Credit Agreement (=# 1/ Section 9#.1 tat its terms may beamended only by an instr$ment in writing signed by te party to be bo$nd as b$rdened by s$c amendment# Teincreases imposed by +;0 also contravene Art# 196? o" te Civil Code wic provides tat no interest sall be d$e$nless it as been e=pressly stip$lated in writing#

Te debtor erein never agreed in writing to pay te interest increases "i=ed by te +;0 beyond -GMper ann$m,

ence, e is not bo$nd to pay a iger rate tan tat#

Tat an increase in te interest rate "rom 1@M to G@M witin a period o" "o$r G/ monts is e=cessive, as "o$nd byte Co$rt o" Appeals, is indisp$table#

Clearly, te galloping increases in interest rate imposed by respondent bank on petitionersH loan, over te latterHsveement protests, were arbitrary#

&oreover, respondent bankHs reliance on C#0# Circ$lar ;o# 9.6, Series o" 19@- did not a$tori!e te bank, or anylending instit$tion "or tat matter, to progressively increase interest rates on borrowings to an e=tent wic wo$ld

ave made it virt$ally impossible "or debtors to comply wit teir own obligations# Tr$e, escalation cla$ses in creditagreements are per"ectly valid and do not contravene p$blic policy# S$c cla$ses, owever, as are stip$lations inoter contracts/ are noneteless still s$b4ect to laws and provisions governing agreements between parties, wic

agreements J wile tey may be te law between te contracting parties J implicitly incorporate provisions o"e=isting law# Conse$ently, wile te s$ry aw ceiling on interest rates was li"ted by C#0# Circ$lar 9.6, noting inte said circ$lar co$ld possibly be read as granting respondent bank carte blance a$tority to raise interest rates tolevels wic wo$ld eiter enslave its borrowers or lead to a emorraging o" teir assets# 0orrowing represents a

trans"$sion o" capital "rom lending instit$tions to ind$stries and b$sinesses in order to stim$late growt# Tis wo$ldnot, obvio$sly, be te e""ect o" +;0Hs $nilateral and lopsided policy regarding te interest rates o" petitionersH borrowings in te instant case#



Apart "rom violating te principle o" m$t$ality o" contracts, tere is a$tority "or disallowing te interest ratesimposed by respondent bank, "or te credit agreement speci"ically re$ires tat te increase be witin te limitsallowed by law# 8n te case o" +;0 v# Co$rt o" Appeals, cited above, tis Co$rt clearly empasi!ed tat C#0#Circ$lar ;o# 9.6 co$ld not be properly invoked to 4$sti"y te escalation cla$ses o" s$c contracts, not being a grant

o" speci"ic a$tority#

F$rtermore, te escalation cla$se o" te credit agreement re$ires tat te same be made witin te limits allowed by law, obvio$sly re"erring speci"ically to legislative enactments not administrative circ$lars# ;ote tat te praselimits imposed by law, re"ers only to te escalation cla$se# *owever, te same agreement allows red$ction on te basis o" law or te &onetary 0oard# *ad te parties intended te word law to re"er to bot legislative enactments

and administrative circ$lars and iss$ances, te agreement wo$ld not ave gone as "ar as making a distinction between law or te &onetary 0oard Circ$lars in re"erring to m$t$ally agreed $pon red$ctions in interest rates#Tis distinction was te s$b4ect o" te Co$rtHs dis$isition in te case o" 0anco Filipino Savings and &ortgage 0ank

v# ;avarro @ were te Co$rt eld tat:

Dat so$ld be resolved is weter 0A;C' F88+8;' can increase te interest rate on te 'A; "rom 1-M to17M per ann$m $nder te (scalation Cla$se# 8t is o$r considered opinion tat it may not#

Te (scalation Cla$se reads as "ollows:

8PDe ereby a$tori!e 0anco Filipino to correspondingly increase#

te interest rate stip$lated in tis contract wito$t advance notice to meP$s in te event#

a law

increasing

te law"$l rates o" interest tat may be carged

on tis partic$lar

kind o" loan# +aragraping and empasis s$pplied/

8t is clear "rom te stip$lation between te parties tat te interest rate may be increased in te event a law so$ld be enacted increasing te law"$l rate o" interest tat may be carged on tis partic$lar kind o" loan# Te (scalationCla$se was dependent on an increase o" rate made by law alone#

C82CA2 ;o# G9G, alto$g it as te e""ect o" law, is not a law# Alto$g a circ$lar d$ly iss$ed is not strictly astat$te or a law, it as, owever, te "orce and e""ect o" law# (mpasis s$pplied/# An administrative reg$lation

adopted p$rs$ant to law as te "orce and e""ect o" law# Tat administrative r$les and reg$lations ave te "orce o" law can no longer be $estioned#

Te distinction between a law and an administrative reg$lation is recogni!ed in te &onetary 0oard g$idelines$oted in te latter to te 0'22'D(2 o" &s# +aderes o" September -G, 197? s$pra/# According to te g$idelines,"or a loanHs interest to be s$b4ect to te increases provided in C82CA2 ;o# G9G, tere m$st be an (scalation

Cla$se allowing te increase in te event tat any law or Central 0ank reg$lation is prom$lgated increasing tema=im$m rate "or loans# Te g$idelines t$s pres$ppose tat a Central 0ank reg$lation is not witin te term anylaw#

Te distinction is again recogni!ed by +#%# ;o# 1?@G, prom$lgated on &arc 17, 19@., adding section 7a to tes$ry aw, providing tat parties to an agreement pertaining to a loan co$ld stip$late tat te rate o" interest agreed



$pon may be increased in te event tat te applicable ma=im$m rate o" interest is increased by law or by te&onetary 0oard# To $ote:

Sec# 7a# +arties to an agreement pertaining to a loan or "orbearance o" money, goods or credits may stip$late tatte rate o" interest agreed $pon may be increased in te event tat te applicable ma=im$m rate o" interest

is increased by law or by te &onetary 0oard:

+rovided, Tat s$c stip$lation sall be valid only i" tere is also a stip$lation in te agreement tat te rate o"interest agreed $pon sall be red$ced in te event tat te applicable ma=im$m rate o" interest is red$ced by law or

by te &onetary 0oard5

+rovided, "$rter, Tat te ad4$stment in te rate o" interest agreed $pon sall take e""ect on or a"ter te e""ectivity o" te increase or decrease in te ma=im$m rate o" interest#H +aragraping and empasis s$pplied/#

8t is now clear tat "rom &arc 17, 19@., escalation cla$ses to be valid so$ld speci"ically provide: 1/ tat tere can be an increase in interest i" increased by law or by te &onetary 0oard5 and -/ in order "or s$c stip$lation to bevalid, it m$st incl$de a provision "or red$ction o" te stip$lated interest in te event tat te applicable ma=im$m

rate o" interest is red$ced by law or by te &onetary 0oard#

+etitioners never agreed in writing to pay te increased interest rates demanded by respondent bank in contraventionto te tenor o" teir credit agreement# Tat an increase in interest rates "rom 1@M to as m$c as ?@M is e=cessive and$nconscionable is indisp$table# 0etween 19@1 and 19@G, petitioners ad paid an amo$nt e$ivalent to virt$ally al"o" te entire principal +7,7>6,..G#??/ wic was applied to interest alone# 0y te time te spo$ses tendered te

amo$nt o" +G.,1G-,61@#.. in settlement o" teir obligations5 respondent bank was demanding +6@,>77,G@7#.. overand above tose amo$nts already previo$sly paid by te spo$ses#

(scalation cla$ses are not basically wrong or legally ob4ectionable so long as tey are not solely potestative b$t based on reasonable and valid gro$nds# 9 *ere, as clearly demonstrated above, not only te increases o" te interestrates on te basis o" te escalation cla$se patently $nreasonable and $nconscionable, b$t also tere are no valid and

reasonable standards $pon wic te increases are ancored#

De go now to respondent bankHs claim tat te principal iss$e in te case at benc involves its rigt to "oreclose petitionersH properties $nder +#%# >@6# De "ind respondentHs pretense $ntenable#

+residential %ecree ;o# >@6 was iss$ed principally to g$arantee tat government "inancial instit$tions wo$ld not bedenied s$bstantial cas in"lows necessary to "inance te governmentHs development pro4ects all over te co$ntry by

large borrowers wo resort to litigation to prevent or delay te governmentHs collection o" teir debts or loans#1. 8n"acilitating collection o" debts tro$g its a$tomatic "oreclos$re provisions, te government is owever, note=empted "rom observing basic principles o" law, and ordinary "airness and decency $nder te d$e process cla$se o"te Constit$tion#11

8n te "irst place, beca$se o" te disp$te regarding te interest rate increases, an iss$e wic was never settled on

merit in te co$rts below, te e=act amo$nt o" petitionerHs obligations co$ld not be determined# T$s, te "oreclos$re provisions o" +#%# >@6 co$ld be validly invoked by respondent only a"ter settlement o" te $estion involving teinterest rate on te loan, and only a"ter te spo$ses re"$sed to meet teir obligations "ollowing s$c determination#8n Filipinas &arble Corporation v# 8ntermediate Appellate Co$rt, 1- involving +#%# >@6Hs provisions on mandatory

"oreclos$re, we eld tat:

De cannot, at tis point, concl$de tat respondent %0+ togeter wit te 0ancom people act$ally misappropriatedand misspent te U6 million loan in wole or in part alto$g te trial co$rt "o$nd tat tere is pers$asive evidence



tat s$c acts were committed by te respondent# Tis matter so$ld rigt"$lly be litigated below in te main action#+ending te o$tcome o" s$c litigation, +#%# >@6 cannot a$tomatically be applied "or i" it is really proven tatrespondent %0+ is responsible "or te misappropriation o" te loan, even i" only in part, ten te "oreclos$re o" te petitionerHs properties $nder te provisions o" +#%# >@6 to satis"y te wole amo$nt o" te loan wo$ld be a gross

mistake# 8t wo$ld $nd$ly pre4$dice te petitioner, its employees and teir "amilies#

'nly a"ter trial on te merits o" te main case can te tr$e amo$nt o" te loan wic was applied wisely or not, "orte bene"it o" te petitioner be determined# Conse$ently, te e=tent o" te loan were tere was no "ail$re o"consideration and wic may be properly satis"ied by "oreclos$re proceedings $nder +#%# >@6 will ave to await te presentation o" evidence in a trial on te merits#

8n 2ep$blic +lanters 0ank v# Co$rt o" Appeals 1> te Co$rt reiterating te dict$m in Filipinas &arble Corporation,

eld:

Te en"orcement o" +#%# >@6 will sweep $nder te r$gH tis iceberg o" a scandal in te s$gar ind$stry d$ring te&arcos &artial aw years# Tis we can not allow to appen# For te bene"it o" "$t$re generations, all te dirty linenin te +*8SCC'&P;AST2AP2+0 closets ave to be e=posed in p$blic so tat te same may ;(V(2 be

repeated#

8t is o" paramo$nt national interest, tat we allow te trial co$rt to proceed wit dispatc to allow te parties below

to present teir evidence#

F$rtermore, petitioners made a valid consignation o" wat tey, in good "ait and in compliance wit te letter o"te Credit Agreement, onestly believed to be te real amo$nt o" teir remaining obligations wit te respondent bank# Te latter co$ld not tere"ore claim tat tere was no onesttogoodness attempt on te part o" te spo$se to

settle teir obligations# 2espondentHs r$s to ine$itably invoke te "oreclos$re provisions o" +#%# >@6 tro$g itslegal macinations in te co$rts below, in spite o" te $nsettled di""erences in interpretation o" te credit agreementwas obvio$sly made in bad "ait, to gain te $pper and over petitioners#

8n te "ace o" te $ne$ivocal interest rate provisions in te credit agreement and in te law re$iring te parties to

agree to canges in te interest rate in writing, we old tat te $nilateral and progressive increases imposed byrespondent +;0 were n$ll and void# Teir e""ect was to increase te total obligation on an eigteen million pesoloan to an amo$nt way over tree times tat wic was originally granted to te borrowers# Tat tese increases,occasioned by cra"ty manip$lations in te interest rates is $nconscionable and ne$trali!es te sal$tary policies o"e=tending loans to sp$r b$siness cannot be disp$ted#

D*(2(F'2(, +2(&8S(S C';S8%(2(%, te decision o" te Co$rt o" Appeals dated A$g$st -7, 199>, as well as

te resol$tion dated Febr$ary 1., 199G is ereby 2(V(2S(% A;% S(T AS8%(# Te case is remanded to te2egional Trial Co$rt o" &akati "or "$rter proceedings#

S' '2%(2(%#

F82ST %8V8S8';

<#2# ;o# @@@@.# April >., 1991#B



+*88++8;( ;AT8';A 0A;, +etitioner, v# T*( *';# C'2T 'F A++(AS and A&02'S8' +A%8A,2espondents#

Te Cie" egal Co$nsel "or +etitioner#

Ambrosio +adilla, &empin O 2eyes aw '""ices "or +rivate 2espondent#

SEA0S

1# C'&&(2C8A AD5 0A;8;< ADS5 2AT( 'F 8;T(2(ST5 8;C2(AS( 'F 8;T(2(ST 2AT(5 ;'T T'0( &A%( 'FT(;(2 T*A; ';C( A E(A2# J +;0, over te ob4ection o" te private respondent, and wito$t

a$tority "rom te &onetary 0oard, witin a period o" only "o$r G/ monts, increased te 1@M interest rate on te private respondent)s loan obligation tree >/ times: a/ to >-M in 3$ly 19@G5 b/ to G1M in 'ctober 19@G5 and c/ to

G@M in ;ovember 19@G# Tose increases were n$ll and void# Alto$g Section -, +#%# ;o# 11? o" 3an$ary -9, 197>,a$tori!es te &onetary 0oard to prescribe te ma=im$m rate or rates o" interest "or loans or renewal tereo" and tocange s$c rate or rates wenever warranted by prevailing economic and social conditions, it e=pressly provides

tat s$c canges sall not be made o"tener tan once every twelve monts# 8" te &onetary 0oard itsel" was nota$tori!ed to make s$c canges o"tener tan once a year, even less so may a bank wic is s$bordinate to te0oard#

-# 8%#5 8%#5 8%#5 8%#5 &AE 0( 8;C2(AS(% D8T*8; 8&8TS 'F AD5 +;0 C82CA2S A;% 2(S'T8';

A2( ;(8T*(2 ADS ;'2 2(S'T8';S 'F &';(TA2E 0'A2%# J Dile te private respondentdebtordid agree in te %eed o" 2eal (state &ortgage (=# 6/ tat te interest rate may be increased d$ring te li"e o" tecontract to s$c increase witin te rate allowed by law, as te 0oard o" %irectors o" te &'2T<A<(( may prescribe (=# 6e1/ or witin te limits allowed by law +romissory ;otes, (=s# -, >, and G/, no laws wasever passed in 3$ly to ;ovember 19@G increasing te interest rates on loans or renewals tereo" to >-M, G1M and

G@M per ann$m/, and no doc$ments were e=ec$ted and delivered by te debtor to e""ect$ate te increases# Te +;0relied on its own 0oard 2esol$tion ;o# ?@1 (=# 1./, +;0 Circ$lar ;o# G.79@G (=# 1>/, and +;0 Circ$lar ;o#G.1-9@G (=# 16/, b$t tose resol$tion and circ$lars are neiter laws nor resol$tions o" te &onetary 0oard#

># 8%#5 8%#5 8%#5 2(&'VA 'F S2E AD C(88;< '; 8;T(2(ST 2AT(S %'(S ;'T AT*'28(

0A;S T' ;8AT(2AE A;% SCC(SS8V(E 8;C2(AS( 8;T(2(ST 2AT(S# J C0 Circ$lar ;o# 9.6,Series o" 19@- (=# 11/ removed te s$ry law ceiling on interest rates J b$t it did not a$tori!e te +;0, or any bank "or tat matter, to $nilaterally and s$ccessively increase te agreed interest rates "rom 1@M to G@M witin aspan o" "o$r G/ monts, in violation o" +#%# 11? wic limits s$c canges to once every twelve monts#cralaw

virt$a1aw library



G# 8%#5 8%#5 8%#5 ;8AT(2A ACT8'; T' 8;C2(AS( 8;T(2(ST 2AT(S, A V8'AT8'; 'F A2T8C( 1>.@'F C8V8 C'%(# J 0esides violating +#%# 11?, te $nilateral action o" te +;0 in increasing te interest rate onte private respondent)s loan, violated te m$t$ality o" contracts ordained in Article 1>.@ o" te civil Code: A2T#1>.@# Te contract m$st bind bot contracting parties5 its validity or compliance cannot be le"t to te will o" one o"

tem#cralaw virt$a1aw library

6# 8%#5 8%#5 8%#5 SCC(SS8V( 8;C2(AS( 'F 8;T(2(ST 2AT(S, A V8'AT8'; 'F A2T8C( 196? 'F C8V8C'%(# J +;0)s s$ccessive increases o" te interest rate on te private respondent)s loan, over te latter)s protest,were arbitrary as tey violated an e=press provision o" te Credit Agreement (=# 1/ Section 9#.1 tat its termsmay be amended only by an instr$ment in writing signed by te party to be bo$nd as b$rdened by s$c

amendment# Te increases imposed by +;0 also contravene Art# 196? o" te Civil Code wic provides tat nointerest sall be d$e $nless it as been e=pressly stip$lated in writing#

% ( C 8 S 8 ' ;

<28X'AK8;', 3#:

Te +ilippine ;ational 0ank +;0/ as appealed by certiorari "rom te decision prom$lgated on 3$ne -7, 19@9 byte Co$rt o" Appeals in CA<#2# CV ;o# .9791 entitled, A&02'S8' +A%8A, plainti""appellant vers$s+*88++8;( ;AT8';A 0A;, de"endantappellee, reversing te decision o" te trial co$rt wic ad dismissed

te private respondent)s complaint to ann$l interest increases# p# >-, 2ollo#/ Te Co$rt o" Appeals rendered 4$dgment:4gc:canrobles#com#p

# # # declaring te $estioned increases o" interest as $nreasonable, e=cessive and arbitrary and ordering tede"endantappellee +;0B to re"$nd to te plainti""appellant te amo$nt o" interest collected "rom 3$ly, 19@G ine=cess o" twenty"o$r percent -GM/ per ann$m# Costs against te de"endantappellee# pp 1G16, 2ollo#/

8n 3$ly 19@-, te private respondent applied "or, and was granted by petitioner +;0, a credit line o" >-1#@ million,

sec$red by a real estate mortgage, "or a term o" two -/ years, wit 1@M interest per ann$m# +rivate respondente=ec$ted in "avor o" te +;0 a Credit Agreement, two -/ promissory notes in te amo$nt o" +9..,...#.. eac, anda 2eal (state &ortgage Contract#

Te Credit Agreement provided tat

9#.? 'ter Conditions# Te 0orrowers ereby agree to be bo$nd by te r$les and reg$lations o" te Central 0ankand te c$rrent and general policies o" te 0ank and tose wic te 0ank may adopt in te "$t$re, wic may ave

relation to or in any way a""ect te ine, wic r$les, reg$lations and policies are incorporated erein by re"erence



as i" set "ort erein in "$ll# +romptly $pon receipt o" a written re$est "rom te 0ank, te 0orrowers sall e=ec$teand deliver s$c doc$ments and instr$ments, in "orm and s$bstance satis"actory to te 0ank, in order to e""ect$ate or oterwise comply wit s$c r$les, reg$lations and policies# p# @6, 2ollo#/

Te +romissory ;otes, in t$rn, $ni"ormly a$tori!ed te +;0 to increase te stip$lated 1@M interest per ann$mwitin te limits allowed by law at any time depending on watever policy it +;0B may adopt in te "$t$re5

+rovided, tat, te interest rate on tis note sall be correspondingly decreased in te event tat te applicablema=im$m interest rate is red$ced by law or by te &onetary 0oard# pp# @6@?, 2ollo5 (mpasis o$rs#/

Te 2eal (state &ortgage Contract likewise provided tat:4gc:canrobles#com#p

k/ 8;C2(AS( 'F 8;T(2(ST 2AT(

Te rate o" interest carged on te obligation sec$red by tis mortgage as well as te interest on te amo$nt wicmay ave been advanced by te &'2T<A<((, in accordance wit te provisions ereo", sall be s$b4ect d$ringte li"e o" tis contract to s$c an increase witin te rate allowed by law, as te 0oard o" %irectors o" te

&'2T<A<(( may prescribe "or its debtors# p# @?, 2ollo5(mpasis s$pplied#/

Fo$r G/ monts advance interest and incidental e=pensesPcarges were ded$cted "rom te loan, te net proceeds o"

wic were released to te private respondent by crediting or trans"erring te amo$nt to is c$rrent acco$nt wit te bank#canrobles#com : virt$al law library

'n 3$ne -., 19@G, +;0 in"ormed te private respondent tat 1/ is credit line o" +1#@ million will e=pire on 3$lyG, 19@G, -/ iB" renewal o" te line "or anoter year is intended, please s$bmit soonest possible yo$r re$est, and>/ te present policy o" te 0ank re$ires at least >.M red$ction o" principal be"ore yo$r line can be renewed#

pp# @?@7, 2ollo#/ Complying, private respondent on 3$ne -6, 19@G, paid +;0 +6G.,... .. >.M o" +1#@ million/and re$ested tat te balance o" +1,-?.,...#.. be renewed "or anoter period o" two -/ years $nder te samearrangement and tat te increase o" te interest rate o" my mortgage loan be "rom 1@M to -1M p# @7, 2ollo#/#

'n 3$ly G, 19@G, private respondent paid +;0 +>?.,...#..#

'n 3$ly 1@, 19@G, private respondent reiterated in writing is re$est tat te increase in te rate o" interest "rom1@M be "i=ed at -1M o" -GM# p# @7, 2ollo#/

'n 3$ly -?, 19@G, private respondent made an additional payment o" +1..,...#



'n A$g$st 1., 19@G, +;0 in"ormed private respondent tat we can not give d$e co$rse to yo$r re$est "or pre"erential interest rate in view o" te "ollowing reasons: (=isting oan +olicies o" te bank re$ires >-M "or loano" more tan one year5 o$r present cost o" "$nds as s$bstantially increased# pp# @7@@, 2ollo#/

'n A$g$st 17, 19@G, private respondent "$rter paid +;0 +16.,...#..#

8n a letter dated A$g$st -G, 19@G to +;0, private respondent anno$nced tat e wo$ld contin$e making "$rter payments, and instead o" a Yloan o" more tan one year,) 8 sall pay te said loan be"ore te lapse o" one year or

be"ore 3$ly G, 19@6# # # # 8 reiterate my re$est tat te increase o" my rate o" interest "rom 1@M Ybe "i=ed at -1M or-GM#) p# @@, 2ollo#/

'n September 1-, 19@G, private respondent paid +;0 +1?.,...#..#

8n letters dated September 1-, 19@G and September 1>, 19@G, +;0 in"ormed private respondent tat te interest rateon yo$r o$tstanding linePloan is ereby ad4$sted "rom >-M p#a# to G1M p#a# >6M prime rate Z ?M/ e""ectiveSeptember ?, 19@G5 and "$rter e=plained wy we can not grant yo$r re$est "or a lower rate o" -1M or -GM# pp#@@@9, 2ollo#/

8n a letter dated September -G, 19@G to +;0, private respondent registered is protest against te increase o" interest

rate "rom 1@M to >-M on 3$ly G, 19@G and "rom >-M to G1M on September ?, 19@G#

'n 'ctober 16, 19@G, private respondent reiterated is re$est tat te interest rate so$ld not be increased "rom1@M to >-M and "rom >-M to G1M# *e also attaced as payment/ a ceck "or +1G.,...#..#canrobles#com#p :virt$al law library

ike r$bbing salt on te private respondent)s wo$nd, te petitioner in"ormed private respondent on 'ctober -9,19@G, tat te interest rate on yo$r o$tstanding linePloan is ereby ad4$sted "rom G1M p#a# to G@M p#a# G-M prime

rate pl$s ?M spread/ e""ective -6 'ctober 19@G# p# @9, 2ollo#/

8n ;ovember 19@G, private respondent paid +;0 +6.,...#.. t$s red$cing is principal loan obligation to+>..,...#..#



'n %ecember 1@, 19@G, private respondent "iled in te 2egional Trial Co$rt o" &anila a complaint against +;0entitled, A&02'S8' +A%8A v# +*88++8;( ;AT8';A 0A; Civil Case ;o# @G-@>91/, praying tat 4$dgment be rendered:4gc:canrobles#com#p

a# %eclaring tat te $nilateral increase o" interest rates "rom 1@M to >-M, ten to G1M and again to G@M areillegal, not valid nor binding on plainti"", and tat an ad4$stment o" is interest rate "rom 1@M to -GM is reasonable,

"air and 4$st5

b# Te interest rate on te +9..,...#.. released on September -7, 19@- be co$nted "rom said date and not "rom3$ly G, 19@G5

c# Te e=cess o" interest payment collected by de"endant bank by debiting plainti""s c$rrent acco$nt be re"$nded to plainti"" or credited to is c$rrent acco$nt5

d# +ending te determination o" te merits o" tis case, a restraining order and or a writ o" preliminary in4$nction beiss$ed 1/ to restrain and or en4oin de"endant bank "or sicB collecting "rom plainti"" andPor debiting is c$rrent

acco$nt wit illegal and e=cessive increases o" interest rates5 and -/ to prevent de"endant bank "rom declaring plainti"" in de"a$lt "or nonpayment and "rom instit$ting any "oreclos$re proceeding, e=tra4$dicial or 4$dicial, o" teval$able commercial property o" plainti""# pp# @99., 2ollo#/

8n its answer to te complaint, +;0 denied tat te increases in interest rates were illegal, $nilateral e=cessive and

arbitrary and recited te reasons 4$sti"ying said increases#

'n &arc >1, 19@6, te private respondent paid te +>..,... balance o" is obligation to +;0; (=# 6/#

Te trial co$rt rendered 4$dgment on April 1G, 19@?, dismissing te complaint beca$se te increases o" interest were properly made#

Te private respondent appealed to te Co$rt o" Appeals# 'n 3$ne -7, 19@9, te Co$rt o" Appeals reversed te trialco$rt, ence, ;0)s reco$rse to tis Co$rt by a petition "or review $nder 2$le G6 o" te 2$les o" Co$rt#

Te assignments o" error raised in +;0)s petition "or review can be resolved into a single legal iss$e o" weter te bank, witin te term o" te loan wic it granted to te private respondent, may $nilaterally cange or increase teinterest rate stip$lated terein at will and as o"ten as it pleased#



Te answer to tat $estion is no#

8n te "irst place, alto$g Section -, +%# ;o# 11? o" 3an$ary -9, 197>, a$tori!es te &onetary 0oard to prescribete ma=im$m rate or rates o" interest "or loans or renewal tereo" and to cange s$c rate or rates weneverwarranted by prevailing economic and social conditions, it e=pressly provides tat s$c canges sall not be madeo"tener tan once every twelve monts#cralaw virt$a1aw library

8n tis case, +;0, over te ob4ection o" te private respondent, and wito$t a$tority "rom te &onetary 0oard,

witin a period o" only "o$r G/ monts, increased te 1@M interest rate on te private respondent)s loan obligationtree >/ times: a/ to >-M in 3$ly 19@G5 b/ to G1M in 'ctober 19@G5 and c/ to G@M in ;ovember 19@G# Toseincreases were n$ll and void, "or i" te &onetary 0oard itsel" was not a$tori!ed to make s$c canges o"tener tanonce a year, even less so may a bank wic is s$bordinate to te 0oard#canrobles law library : red

Secondly, as pointed o$t by te Co$rt o" Appeals, wile te private respondentdebtor did agree in te %eed o" 2eal

(state &ortgage (=# 6/ tat te interest rate may be increased d$ring te li"e o" te contract to s$c increasewitin te rate allowed by law, as te 0oard o" %irectors o" te &'2T<A<(( may prescribe (=# 6e1/ orwitin te limits allowed by law +romissory ;otes, (=)s# -, >, and G/, no law was ever passed in 3$ly to ;ovember 19@G increasing te interest rates on loans or renewals tereo" to >-M, G1M and G@M per ann$m/, and no

doc$ments were e=ec$ted and delivered by te debtor to e""ect$ate te increases# Te Co$rt o" Appeals observed#

# # # De "oc$s '$r attention "irst o" all on te agreement between te parties as embodied in te "ollowing

instr$ments, to wit: 1/ (=ibit Y1) J Credit Agreement dated 3$ly 1, 19@-5 -/ (=ibit Y-) J +romissory ;otedated 3$ly 6, 19@-5 >/ (=ibit Y>/) J +romissory ;ote dated 3an$ary >, 19@>5 G/ (=ibit YG) J +romissory ;ote,dated %ecember 1>, 19@>5 and 6/ (=ibit Y6) J 2eal (state &ortgage contract dated 3$ly 1, 19@-#

(=ibit Y1) states in its portion marked (=ibit Y1g1):canrob1es virt$al 1aw library

Y9 #.? 'ter Conditions# Te 0orrowers ereby agree to be bo$nd by te r$les and reg$lations o" te Central 0ank

and te c$rrent and general policies o" te 0ank and tose wic te 0ank may adopt in te "$t$re, wic may averelation to or in any way a""ect te ine, wic r$les, reg$lations and policies are incorporated erein by re"erenceas i" set "ort erein in "$ll# +romptly $pon receipt o" a written re$est "rom te 0ank, te 0orrowers sall e=ec$teand deliver s$c doc$ments and instr$ments, in "orm and s$bstance satis"actory to te 0ank, in order to e""ect$ate or

oterwise comply wit s$c r$les, reg$lations and policies#)

(=ibits Y-,) Y>,) and YG) in teir portions respectively marked (=ibits Y-0,) Y>0,) and YG0) $ni"ormly a$tori!ete de"endant bank to increase te stip$lated interest rate o" 1@M per ann$m Ywitin te limits allowed by law at any



time depending on watever policy it may adopt in te "$t$re: +rovided, tat, te interest rate on tis note sall becorrespondingly decreased in te event tat te applicable ma=im$m interest rate is red$ced by law or by te&onetary 0oard#)

(=ibit Y6) in its portion marked (=ibit Y6e1) stip$lates:canrob1es virt$al 1aw library

Yk/ 8;C2(AS( 'F 8;T(2(ST 2AT(

YTe rate o" interest carged on te obligation sec$red by tis mortgage as well as te interest on te amo$nt wicmay ave been advanced by te &'2T<A<((, in accordance wit te provisions ereo", sall be s$b4ect d$ringte li"e o" tis contract to s$c an increase witin te rate allowed by law, as te 0oard o" %irectors o" te

&'2T<A<(( may prescribe "or its debtors#)

Clearly, ten, te agreement between te parties a$tori!ed te de"endant bank to increase te interest rate beyondte original rate o" 1@M per ann$m b$t Ywitin te limits allowed by law) or Ywitin te rate allowed by law,) it being declared te obligation o" te plainti"" as borrower to e=ec$te and deliver te corresponding doc$ments and

instr$ments to e""ect$ate te increase# pp# 111-, 2ollo#/

8n 0anco Filipino Savings and &ortgage 0ank v# ;avarro, 16 SC2A >G? 19@7/, tis Co$rt disa$tori!ed te bank

"rom raising te interest rate on te borrowers) loan "rom 1-M to 17M despite an escalation cla$se in te loanagreement signed by te debtors a$tori!ing 0anco Filipino to correspondingly increase te interest rate stip$lated

in tis contract wito$t advance notice to meP$s in te event a law so$ld be enacted increasing te law"$l rates o"interest tat may be carged on tis partic$lar kind o" loan# (mpasis s$pplied#/canrobles virt$al lawlibrary

8n te 0anco Filipino case, te bank relied on Section > o" C0 Circ$lar ;o# G9G dated 3$ly 1, 197? 7- '#<# ;o# >,

p# ?7?3/ wic provided tat te ma=im$m rate o" interest, incl$ding commissions premi$ms, "ees and otercarges on loans wit a mat$rity o" more tan 7>. days by banking instit$tion # # # sall be 19M#cralaw virt$a1awlibrary

Tis Co$rt disallowed te increase "or te simple reason tat said Circ$lar ;o# G9G, alto$g it as te e""ect o" law

is not a law# Speaking tro$g &me# 3$stice Ame$r"ina &# *errera, tis Co$rt eld:4gc:canrobles#com#p

8t is now clear tat "rom &arc 17, 19@., escalation cla$ses to be valid so$ld speci"ically provide: 1/ tat tere

can be an increase in interest i" increased by law or by te &onetary 0oard5 and -/ in order "or s$c stip$lation to be valid, it m$st incl$de a provision "or red$ction o" te stip$lated interest Yin te event tat te applicablema=im$m rate o" interest is red$ced by law or by te &onetary 0oard#) p# 111, 2ollo#/#



8n te present case, te +;0 relied on its own 0oard 2esol$tion ;o# ?@1 (=# 1./, +;0 Circ$lar ;o# G.79@G(=# 1>/, and +;0 Circ$lar ;o# G.1-9@G (=# 16/, b$t tose resol$tion and circ$lars are neiter laws norresol$tions o" te &onetary 0oard#

C0 Circ$lar ;o# 9.6, Series o" 19@- (=# 11/ removed te s$ry aw ceiling on interest rates J

# # # increases in interest rates are not s$b4ect to any ceiling prescribed by te s$ry aw#cralaw virt$a1aw library

b$t it did not a$tori!e te +;0, or any bank "or tat matter, to $nilaterally and s$ccessively increase te agreedinterest rates "rom 1@M to G@M witin a span o" "o$r G/ monts, in violation o" +%# 11? wic limits s$c cangesto once every twelve monts#cralaw virt$a1aw library

0esides violating +%# 11?, te $nilateral action o" te +;0 in increasing te interest rate on te private respondent)s

loan, violated te m$t$ality o" contracts ordained in Article 1>.@ o" te Civil Code:4gc:canrobles#com#p

A2T# 1>.@# Te contract m$st bind bot contracting parties5 its validity or compliance cannot be le"t to te will o"one o" tem#cralaw virt$a1aw library

8n order tat obligations arising "rom contracts may ave te "orce o" law between te parties, tere m$st bem$t$ality between te parties based on teir essential e$ality# A contract containing a condition wic makes its"$l"illment dependent e=cl$sively $pon te $ncontrolled will o" one o" te contracting parties, is void <arcia v# 2ita

egarda, 8nc#, -1 SC2A 666/# *ence, even ass$ming tat te +1#@ million loan agreement between te +;0 and te private respondent gave te +;0 a license alto$g in "act tere was none/ to increase te interest rate at willd$ring te term o" te loan, tat license wo$ld ave been n$ll and void "or being violative o" te principle o"m$t$ality essential in contracts# 8t wo$ld ave invested te loan agreement wit te caracter o" a contract o"

adesion, were te parties do not bargain on e$al "ooting, te weaker party)s te debtor/ participation beingred$ced to te alternative to take it or leave it K$a v# aw nion O 2ock 8ns$rance Co#, 96 +il# @6/# S$c acontract is a veritable trap "or te weaker party wom te co$rts o" 4$stice m$st protect against ab$se and

imposition#

+;0)S s$ccessive increases o" te interest rate on te private respondent)s loan, over te latter)s protest, were

arbitrary as tey violated an e=press provision o" te Credit Agreement (=# 1/ Section 9#.1 tat its terms may beamended only by an instr$ment in writing signed by te party to be bo$nd as b$rdened by s$c amendment# Teincreases imposed by +;0 also contravene Art# 196? o" te Civil Code wic provides tat no interest sall be d$e

$nless it as been e=pressly stip$lated in writing#cralaw virt$a1aw library



Te debtor erein never agreed in writing to pay te interest increases "i=ed by te +;0 beyond -GM per ann$m,ence, e is not bo$nd to pay a iger rate tan tat#

Tat an increase in te interest rate "rom 1@M to G@M witin a period o" "o$r G/ monts is e=cessive, as "o$nd by

te Co$rt o" Appeals, is indisp$table#

D*(2(F'2(, "inding no reversible error in te decision o" te Co$rt o" Appeals in CA<#2# CV ;o# .9791, teCo$rt resolved to deny te petition "or review "or lack o" merit, wit costs against te petitioner#

S' '2%(2(%#

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